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Schroder Real Estate boosts income

The property investment vehicle is working to maximise rental income from its existing portfolio
November 16, 2015

Returns from UK commercial property are now more likely to be driven by income and rental growth than falling valuation yields, according to Duncan Owen, head of real estate at Schroder Real Estate Investment Trust (SREI). In other words, the easy money in the commercial property recovery has already been won.

IC TIP: Buy at 59.5p

This point is nicely illustrated by the investment vehicle's half-year results. Net rental income grew by 10 per cent to £12.4m. Headline profit was lower, but that's because there was no repeat of the £15.1m profit on asset disposals achieved in the previous first half. There was also a smaller net valuation gain on the property portfolio of £11.8m, down from £13.9m a year earlier.

The portfolio's potential lies partly in its voids. These fell from 9.2 per cent to 8.1 per cent of its total rental value, but should fall further. Mr Owen is also looking to increase the revenue stream by improving and refurbishing assets. These initiatives may require expenditure of up to £25m, which could be funded from disposals or new equity issuance.

Two acquisitions were made in the period for a total of £54.5m, funded by the proceeds of a previous equity placing and a £20.5m revolving credit facility. Total debt at the half-year mark amounted to £150m - giving a loan-to-value ratio of 30 per cent - with an average duration of 10.5 years and cost of 4.4 per cent.

SCHRODER REAL ESTATE INVESTMENT TRUST (SREI)
ORD PRICE:59.5pMARKET VALUE:£309m
TOUCH:59.5-60.25p12-MONTH HIGH:63pLOW: 57p
DIVIDEND YIELD:4.2%TRADING PROPERTIES:nil
DISCOUNT TO NAV:2%
INVESTMENT PROPERTIES:£441m*NET DEBT:43%

Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201455.136.07.71.24
201560.923.14.41.24**
% change+11-36-43-

Ex-div: 12 Nov**

Payment: 30 Nov**

*Includes joint ventures **Dividends paid quarterly XD and payment dates relate to second- quarter payment of 0.62p