Schroder European real-estate investment trust, a company that invests in European growth cities and regions, says in a challenging global economy real estate returns will come from active asset management and innovative ways to drive earnings growth.
For the six-months to end-March the company said it made good progress in implementing its strategy to provide sustainable income and growth for shareholders.
“We are actively managing our investments through ensuring the assets remain more relevant in the changing environment — making them attractive for investors and tenants,” fund manager Jeff O’Dwyer said.
The strategy includes driving income and value growth through understanding tenants’ businesses and implementing various asset management initiatives to enhance the income profile, individual asset values and sustainability credentials, he said.
Schroder owns 15 properties in Paris, Stuttgart, Hamburg, Frankfurt and Berlin. It also has a 50% stake in a joint venture in Seville, Spain.
During the reporting period, the company increased its industrial property sector from 25% to 30% with the acquisition of an €11m premium freehold industrial property Alkmaar in the Netherlands with a net initial yield of 5.6%.
Green certifications
The single-tenanted property has a weighted unexpired 20-year lease term with a strong and visible income for Schroder.
O’Dwyer said to deliver enhanced long-term returns Schroder will embark on a sustainability programme to ensure its buildings have green certifications as the company’s research has revealed material rental and value premium for green buildings.
“The programme is aimed at optimising earnings growth and asset liquidity to drive longer-term returns and acquisitions will be put on hold until about the first quarter of 2024.”
He said the portfolio is experiencing strong demand, with many occupiers looking to lease better-quality buildings driven not only by legal obligations and tenants’ environmental aspirations but also to match corporate ethos and attract talent.
For the reporting period, he said the portfolio remained resilient in terms of total returns with attractive rental indexation. Strong occupier demand is driving earnings growth for its portfolio.
Annual inflation-indexed rent increases are more common in continental European lease contracts.
New leases
For the six-months to end-March, 100% of rent due was collected, with 100% of the portfolio leases indexed to inflation, including 80% annually.
Schroder signed eight new leases and regears totalling about 2,000m2, generating €400,000 worth of contracted rent, with a three-year weighted lease term.
O’Dwyer said the investment market is showing signs of stabilisation after a sharp fall in liquidity and prices in the second half of 2022.
Schroder has about €40m of investment capacity, including debt, to redeploy into new investments or value-enhancing initiatives. Maintaining a strong balance sheet, refinancing on the best available terms and enhancing the sustainability of income remains the top priority for the company.
The value of its direct portfolio, valued at €220.2m, fell 4.6%, or €9.7m, on a like-for-like basis.
O’Dwyer said the pricing of risk, value and liquidity is challenging, with all sectors experiencing repricing, mainly due to higher discount rates, primarily due to a change in the availability and cost of debt.
“Our immediate focus is on maintaining a strong and healthy balance sheet, derisking upcoming refinancings and continued active asset management,” he said.
Update: June 28 2022 This article has been updated with new information.
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