Schroder European Real Estate Investment Trust is to seek shareholder approval for the managed wind-down of the company, it said on Wednesday.
This comes after the company assessed options to address the persistent discount the company’s shares trade at relative to its net asset value.
“The equity markets continue to disadvantage smaller, listed vehicles, especially [those with a] sub-£100m market cap, irrespective of management quality or the suitability and effective delivery of strategies, with growing evidence that institutional investors want exposure to larger vehicles that offer enhanced liquidity, diversification and cost efficiencies,“ it said in a statement.
Despite offering shareholders access to a diversified portfolio of Continental European commercial real estate, delivering strong underlying property performance, which has supported more than £80m of dividend payments since its IPO, and maintaining a robust balance sheet, the company’s size and low levels of liquidity have adversely affected the share price performance for a prolonged period of time, it said.
The board has explored options, including share buybacks and a transition towards thematic or sector-specific investments. However, primarily as a result of continued macro uncertainty and the structural shift in investor sentiment towards larger UK real estate equities, it does not expect the strategies to significantly close the discount or support substantial long-term growth.
After discussions with major shareholders, the board and the investment manager have concluded it is in the best interests of shareholders to present formal proposals for a managed wind-down of the company.
Should approval be granted, the board will try to realise all the company’s investments in a cost-effective manner
They believe the portfolio can be realised in the direct property market at a value in excess of what is currently implied by the prevailing share price.
Schroder will convene a general meeting where it will seek shareholder approval to modify the company’s investment objective and policy necessary for a managed wind-down.
Should approval be granted, the board will try to realise all the company’s investments in a cost-effective manner.
Realisations may take the form of single-asset or multi-asset disposals, with the proceeds used to repay borrowings and make timely returns of capital to shareholders, it said.
Schroder’s diversified portfolio totals 14 assets in high-growth locations across France, Germany and the Netherlands.
The process is expected to take two to three years to complete.
“Since our inception in December 2015, we have successfully achieved our objectives of establishing a differentiated platform with a diversified income profile generated from high-performing assets in prominent growth centres across Continental Europe,” said Jeff O’Dwyer, fund manager for the investment manager.
“However, the ongoing discount to NAV has hindered our ability to scale and achieve our growth potential, particularly against the deteriorating market backdrop.”
The group on Wednesday reported underlying European Public Real Estate Association (EPRA) earnings before exceptional items for the six months to end-March of €3.6m compared with €3.9m a year ago.
Total dividends declared for the six months totalled 2.96c per share. The group’s net asset value stood at €151.3m, or 115.1c per share.
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