File picture: James White

CAPE TOWN – Property markets in the European cities targeted by Schroder European Real Estate Investment Trust performed well in the year to September 30, in spite of weakness in the retail shopping centre sector.

Dividends of 7.4 euro cents (R1.20) were declared, the same as last year, and in line with a 5.5 percent target of annualised yield. The share price on the JSE, where the UK-based company has a secondary listing, fell 4.4 percent to R21.51 by mid-afternoon yesterday.

Schroder fund manager Jeff O’Dwyer, referring to some weaker performing retail assets, said “our limited exposure to under-performing parts of the market and balanced portfolio helps mitigate us against these.”

Alongside the Paris redevelopment and other initiatives to improve income, the ambition for 2020 was to grow via acquisitions in the targeted cities, benefiting from macro trends supporting real estate returns and the company’s local market expertise. Net asset value in the past year was static at €182.1 million or 136.2c per share.

Operational highlights included agreement on a new long-term lease and capex programme at the biggest asset, Boulogne-Biliancourt office in Paris, providing future potential capital value and income upside.

The portfolio allocation to the higher growth logistics sector increased to 20 percent during the year from 13 percent at September 2018, with the acquisition of a French logistics asset for €18.2m.

All of the portfolio’s 13 institutional grade properties located in cities and regions of continental Europe were in the top two quartiles of forecast economic growth. The conclusion of 18 new leases with annual rental income of €1.6m, would generate a 2 percent increase in annualised income on a like-for-like basis.

The current portfolio value of €242.7m reflected a 9 percent increase compared with the combined purchase price.

Over the 12 months, the portfolio generated a return of 7.7 percent, or 7.3 percent when including the impact of transaction costs from the newly-acquired property in Rennes.

The largest contributors to the portfolio performance in the last 12 months were the Paris Saint-Cloud, Stuttgart, Apeldoorn, Hamburg, Venray and Houten Properties, all delivering more than 10 percent total property returns, the directors said.

The Seville property was the main detractor from performance, with a negative 7.8 percent return over the past 12 months.

Additional loans completed post year end would take loan-to-value to 31 percent from 29 percent at year end, and from 26 percent as at September 30.

Chairperson Sir Julian Berney said: “Our increasingly diversified portfolio by sector, geography and tenant has underpinned a period of stable financial and operational performance. The company’s defensive characteristics had improved, while initiatives such as the Paris Boulogne-Billancourt refurbishment and lease re-gear demonstrated the potential to generate strong shareholder returns from the strategy of focusing on 'winning' European cities."

BUSINESS REPORT