Schroder European Real Estate Investment Trust has shown “significant resilience” in a fluctuating economic environment and it says 2025 should be a more supportive backdrop for reits.
The group, which invests in real estate in European growth cities, has reported a 3% increase in EPRA — or earnings from operational activities — to €8.2m for the year ended September, primarily due to rental growth offsetting the effects of higher interest costs.
Earnings were also driven by high occupancy, a diversified tenant base, “excellent” rent collection and the indexation features of its portfolio delivering income growth, it said.
Net asset value of €164.1m, or 122.7c per share was primarily driven by outward yield movement in the first half. IFRS profit of €0.6m contributed to a positive NAV total return of 0.4%, the group said on Friday.
Total dividends for the year totalled 5.92 euro cents per share, 103% covered by EPRA earnings.
During the year the group strengthened its balance sheet with the completion of all near-term refinancings on attractive terms, with no further debt expiries until June 2026.
Its loan to value is 25% net of cash and it has about €25m of available cash.
The group’s direct property portfolio independent valuation declined 3.6% to €208.1m, or €7.6m, weighted towards the first half of the year, due to outward yield movement as investor sentiment was negatively affected by higher interest rates.
It concluded 16 new leases and regears, totalling about 8,000m2, which generated €1.4m of contracted rent, at a weighted lease term of eight years.
Schroder’s portfolio benefits from high occupancy level of 96% with an average portfolio lease term of 4.7 years.
Chair Sir Julian Berney said the company is well positioned, with a differentiated and compelling investment thesis focused on assets with robust property fundamentals in higher growth European cities.
He said 2024 has been characterised by stabilising inflation and the easing of monetary policy by the European Central Bank and these developments will revitalise investor confidence and enhance market liquidity.
“We have a high conviction, shared by our shareholders and supported by the stabilisation in values that we have seen in more recent quarters, that the current strategy and pipeline of value-enhancing asset management initiatives will continue to drive earnings, support a covered and ultimately growing dividend, and deliver risk-adjusted returns for shareholders.”
“Encouragingly, we have seen a slowdown in the rate of capital value decline across the portfolio, with the anticipation that we will start to see yield compression in the coming quarters,” he added.
The fund manager for Schroder Real Estate Investment Management, Jeff O’Dwyer, said the portfolio has demonstrated notable resilience.
“Though further short-term macroeconomic volatility is expected, the medium-term outlook is supportive of real estate investment. Our focus moving forward is to maintain our balance sheet strength while capturing the portfolio reversion to boost earnings and asset liquidity, with the aim of reducing the current share price discount.”
The group said European occupational markets remain resilient, with most of Schroder’s sub-markets benefiting from supply constraints and modest vacancy levels.
Looking ahead, Schroder expects to continue reaping benefits from a high-quality portfolio with strong occupancy rates located in key European cities. “As inflation eases and interest rates fall, we expect sentiment to continue to improve and larger economies and cities are poised for enhanced growth,” it said.
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