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Schroder’s trust is a winning way to invest in European property
We believe Schroder European Real Estate Investment Trust (SERE) is an excellent means of getting property exposure in your portfolio which is partly diversified away from the risks facing UK assets.
Despite achieving the 5.5% yield promised at its December 2015 IPO (based on the issue price in euros) and having nearly fully deployed all of its capital, the investment trust is trading at an 8% discount to net asset value (NAV).
While this may reflect some negative sentiment towards Europe, it is markedly different from geographical peer Aberdeen Standard European Logistics (ASLI) which trades at a 5.3% premium to NAV.
Logistics is a popular area as investors look to take advantage of the structural shifts in the retail sector which have made warehousing facilities extremely important for companies.
Schroder’s acquisition of three warehouses in the Netherlands for €21.3m and a warehouse in France for €9.3m in the 12-month period to 30 September 2018 increased the portfolio’s industrial weighting
Fund manager Jeff O’Dwyer tells Shares this weighting could increase to 20% assuming a planned acquisition goes through as the company looks to spend the €15m left over from the sale of interests in two French Casino supermarkets for €44.8m in February.
According to O’Dwyer this would leave a balanced portfolio with a further 50% in offices as well 25% in retail. He says the fund has seen better value in smaller lot sizes noting ‘yields on the bigger logistics assets have been chased down to 4.5% and we feel a little nervous at that level’.
In the year to 30 September as a whole, the investment trust acquired €52m worth of assets at an average net income yield of around 8%. The year also saw the fund achieve a NAV total return of 7.5%.
It hopes to further boost returns by proactively managing its assets. For example, it is due to complete a refurbishment programme at its Metromar shopping centre in Seville in the first quarter of 2019.
The investment approach is built on Schroder’s ‘winning cities’ philosophy, with focus on major urban centres enjoying superior employment, economic and population growth. Examples include Berlin, Hamburg, Stuttgart, Frankfurt and Paris.
Stockbroker Numis neatly sums up the appeal of the fund: ‘It has a fully-invested, diversified portfolio which is delivering one of the highest fully covered yields (7.4c a year equating to 6.5% sterling yield at current exchange rates), from a conservatively geared balance sheet.’