Schroder’s decision to retain capital pays off
Schroder European Real Estate Investment Trust, which invests in European growth cities and regions, says the decision to retain capital is paying off as the portfolio performed well for the 12 months to September 30.
Jeff O’Dwyer, Schroder fund manager, told Business Day that six months ago the company decided to retain capital to enable it to deal with headwinds, including refinancing expiring debt and looking at ways to reinvest in the portfolio.
During the reporting period, Schroder refinanced two debt facilities at competitive terms — improving the average debt maturity profile by about 20 months to an average 2.6 years. Interest cost continues to be low at 2.9%, with 100% either fixed or hedged.
It reported a strong balance sheet, with a loan-to-value of 24% net of cash and about €30m in cash, which provided investable capacity for a quarterly dividend, 106% covered by earnings from operational activities.
Schroder announced a dividend of €1.48 (R30.18).
“The decision to remain conservative, retaining cash and a strong balance sheet, with a move to a covered dividend approach, has placed the company in a strong position,” said O’Dwyer.
Schroder owns 15 industrial, office, grocery and DIY and alternative properties in Paris, Stuttgart, Hamburg, Frankfurt and Berlin valued at €243m. It also has a 50% stake in a joint venture in Seville, Spain.
The portfolio generated rental income of €16.81m annually, representing a net initial yield of 6.6%.
VIABLE OPPORTUNITIES
O’Dwyer said with sustainability becoming a key metric, Schroder has commissioned sustainability audits across most of its portfolio to identify ways for each investment to remain attractive to occupiers, investors and lenders. Schroder aims to improve asset green certification, rental growth potential and liquidity.
Results of the audits early in 2024 will dictate how much capital is required and which financially viable opportunities to invest in.
“Given our expertise, we believe through exploring sustainability initiatives we are able to offer solutions to our tenants
— retain tenants and income. We believe returns will come from active asset management.”
He said there is strong rental
THERE IS STRONG DEMAND FOR INDUSTRIAL ASSETS, DRIVEN BY GROWTH IN E-COMMERCE
growth in A-grade buildings — considered top-drawer and certified buildings, hence the need to invest in the existing portfolio.
“We continue to have conviction that investments with green certification will outperform and that poorer-quality assets will become increasingly obsolete and illiquid,” he said.
O’Dwyer is confident the available capital will be enough to invest in the portfolio with some left for small acquisitions during the second quarter of 2024.
Schroder will acquire industrial property as the sector continues to experience strong demand with rental growth, as well as micro-offices, grocery stores and DIY in good localities.
O’Dwyer said there is strong demand for logistics and industrial assets, driven by growth in e-commerce, and that goods are stored for longer locally, creating demand. Grocery-type outlets in high-growth cities make for a good investment, as do DIY stores, as more people invest in their homes.
In the office sector, big occupiers are taking longer than before to make decisions on their space requirements. They continue to reduce space but move to better quality and certified buildings with various amenities such as cafes, boardrooms and meeting rooms. These types of buildings are experiencing stronger rentals and demand from occupiers.