Schroder European Real Estate Investment Trust has reported underlying total property returns of 2% at the halfway point of the financial year, driven by a strong income return of 3.3%, which offset a capital return of -1.4%.
Underlying EPRA earnings (earnings from operating activities) for the six months ended March declined to €3.9m before exceptional items compared with the previous period’s €4.3m, driven by high occupancy, a diversified tenant base and high rent collection. Collectively, these factors have helped mitigate the effect of rising interest costs.
However negative capital items — valuation and capital expenditure — resulted in a marginal IFRS (International Financial Reporting Standards) loss of €0.1m. the company, which invests in European growth cities, said on Thursday.
During the period, Schroder maintained a high occupancy level of 95%, with an average portfolio lease term to expiry of four years and continued 100% rent collection. The group concluded six new leases and regears generating €0.3m of annual contracted rent, at a weighted lease term of six years.
Its direct property portfolio, independent valuation declined 1.3% to €205.6m, with a 4% increase in industrial portfolio valuations continuing to offset declines in other sectors, primarily driven by shortening lease terms
Dividends declared for the six months totalled 2.96c per share, 100% covered by EPRA earnings.
Its net asset value decreased to €158.9m, or 120.1c per share, compared with €164.1m or 122.7c per share at end-September, reflecting a reduction in capital values particularly for its European offices.
The group said the early optimism underpinned by the outlook for lower interest rates and improved sentiment was short-lived, as the US trade stance impeded global growth and investment confidence. The environment is being further challenged by recent geopolitical tensions.
Chair Julian Berney said despite the company's fundamentals being solid, its shares are continuing to trade at a persistent discount to NAV, as equity markets continue to disadvantage smaller listed vehicles, regardless of management quality or the suitability of strategies.
“We continue to review all potential options to address the discount and maximise shareholder returns. While considering the right strategy to maximise value for shareholders, the investment manager will remain highly focused on delivering a pipeline of ongoing asset management initiatives to optimise occupancy, income, value and liquidity,” he said.
Schroder’s fund manager, Jeff O’Dwyer, said the focus over the past six months had been on implementing factors within the group’s control.
“This included asset management initiatives that significantly enhanced the portfolio’s income security, along with the completion of strategic disposals that allowed the company to further reduce gearing. In addition, the proceeds have allowed for the commencement of a value accretive share buyback programme.
“Our main priority remains progressing key tenant discussions and we expect to make formal announcements regarding further regearing initiatives in due course,” he said.
He added that the group expected positive developments for the European commercial real-estate sector as interest rates and inflation continue to decline.
“While improvements may be gradual for the rest of 2025, we anticipate that strengthening conditions will become more pronounced throughout 2026,” he said.
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