Schroder European Real Estate | Winterflood Research

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Profitable forward sale drives NAV growth

On 9 December Schroder European Real Estate Investment Trust published its annual results for the year to 30 September 2020, which was accompanied by a presentation by its managers, Jeff O’Dwyer, Andrew MacDonald and Rick Murphy. The fund’s investment objective is to provide shareholders with a regular and attractive level of income together with the potential for long-term income and capital growth through investing in commercial real estate in Continental Europe.

In the year to 30 September 2020, the fund’s NAV per share increased by 10.8% from 136.2 Euro cents to 150.9 Euro cents, while the NAV total return was +16.2%. The Sterling NAV per share increased by 13.2% from 121p to 137p. The primary driver of the growth in NAV over the year was the unrealised gain in the valuation of the real estate portfolio, the vast majority of which related to the office asset in Boulogne-Billancourt, Paris. The fund has exchanged contracts for this asset’s forward sale, which is expected to deliver a 35% profit on cost following its refurbishment. The property portfolio valuation saw a valuation uplift of 10.7% over the period and delivered a total return of +15.7%.

EPRA earnings per share for the year were 6.4 Euro cents compared with 7.9 Euro cents in FY2019. Total dividends of 5.74 Euro cent per share have been declared in respect of the year, down 22% from 7.40 Euro cents in respect of the year to 30 September 2019, resulting in dividend cover of 112% on a declared basis. The fund targets an annualised Euro dividend yield of 5.5% based on the Euro equivalent of the share price at admission. After an initial ramp-up period, this was achieved in the year to 30 September 2018 and was maintained for the following financial year. However, in light of Covid-19 related uncertainty, the dividend was cut by 50% in respect of the quarter to 31 March 2020, before being increased to 75% of the target level the following quarter and increased again to 85% of the pre-pandemic level in respect of the final quarter of the financial year.

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