Join our community of smart investors

Schroder REIT's cautious stance

Schroder has the firepower to pick up distressed assets
November 13, 2018

Schroder REIT (SREI) remains under no illusion about the direction likely to be taken by rents on secondary retail assets over the next couple of years, although prime and convenience retail assets are expected to be more resilient.

IC TIP: Buy at 59.5p

Fortunately, its exposure to retail assets has fallen to 27 per cent of the portfolio by value, and is concentrated mainly on convenience shopping. The rest of the portfolio performed well in the six months to September 2018, and industrial and office assets are showing continued valuation uplifts.

Headline profits were down but that reflected a one-off £3.1m charge relating to refinancing its debt facilities. These were secured with longer maturity dates at an average rate of 4 per cent, down from 4.4 per cent, which will save around £435,000 a year. The two new loan facilities now total £160m with an average duration of 8.6 years and with a 29 per cent loan-to-value ratio comfortably within the company’s 25-35 per cent target range.

The strategy remains to refurbish units as leases expire to capture higher rents, with demand for office space and industrial assets still high. New initiatives included a 10-year lease without breaks with Bupa at a rent of £1.09m a year, representing a 14 per cent uplift over the previous rent. Letting activity helped to reduce the void rate from 7.2 per cent in March to 6 per cent.

SCHRODER REAL ESTATE INVESTMENT TRUST (SREI)
ORD PRICE:59.5pMARKET VALUE:£309m
TOUCH:59.5-59.8p12-MONTH HIGH:67pLOW: 58p
DIVIDEND YIELD:4.2%TRADING PROPERTIES:£2m
DISCOUNT TO NAV:14%NET DEBT:42% 
INVESTMENT PROPERTIES:£496m**  
Half-year to 30 SepNet asset value (p)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)*
201765.714.52.81.24
201869.010.62.01.2555
% change+5-27-29+1
Ex-div:22 Nov   
Payment:5 Dec   

Dividends paid quarterly. XD and Pay dates refer to second-quarter dividend of 0.6355p a share **Includes joint ventures