The secret is to be in the right cities and the right locations, according to Duncan Owen, global head of real estate at Schroder Real Estate Investment Trust (SREI). And given the upheavals and uncertainties over the past year, Schroders seems to have got it right.
While a lower valuation uplift dented headline numbers, net asset value (NAV) per share rose 3 per cent, and the total return from the underlying portfolio, at 8.5 per cent, easily outpaced the MSCI benchmark total return of 3.7 per cent. The retail sector was the weakest performer, and Schroder continued to dispose of weaker high-street assets to concentrate more on the convenience retail sector.
Crucially, Schroders has no exposure to the City of London, Canary Wharf or financial tenants, preferring to concentrate on regional cities where there is good demand for quality assets, which make up 93 per cent of the portfolio. A total of 63 lettings and lease renewals were secured, generating rental income of £3.2m, and reflecting an average uplift of 2.4 per cent above the valuation in March 2016.
Greater earnings visibility has been achieved by focusing on extending leases, but Schroder has also managed to maximise the return from its assets. Notably, an office in central Bristol, which at the start of the year was the largest void in the portfolio, was sold after refurbishment for £11.8m, generating a profit of £3.9m.
| SCHRODER REAL ESTATE INVESTMENT TRUST (SREI) | ||||
|---|---|---|---|---|
| ORD PRICE: | 64.5p | MARKET VALUE: | £334m | |
| TOUCH: | 64.5-65p | 12-MONTH HIGH: | 66p | LOW: 43p |
| DIVIDEND YIELD: | 3.8% | TRADING PROPERTIES: | nil | |
| PREMIUM TO NAV: | 1% | |||
| INVESTMENT PROP: | £443m** | NET DEBT: | 38% | |
| Year to 31 Mar | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2013 | 45.1 | -10.8 | -3.0 | 3.52 |
| 2014 | 48.6 | 20.9 | 5.7 | 2.74 |
| 2015 | 57.7 | 55.1 | 11.3 | 2.48 |
| 2016 | 62.2 | 36.3 | 7.0 | 2.48 |
| 2017 | 64.1 | 22.8 | 4.4 | 2.48* |
| % change | +3 | -37 | -37 | - |
Ex-div: 4 May Payment: 31 May *Dividends paid quarterly, XD and pay date refer to the fourth-quarter dividend of 0.62p a share **Includes joint ventures | ||||
