Schroder European Real Estate (SERE ) chair Julian Berney does not believe the real estate investment trust (Reit) deserves its hefty 42% share price discount after the portfolio reported a small fourth quarter decline due to its high weighting to offices.

The closed-end fund, which has a market value of £84m against net assets of £146m, dipped 1.5% in the last three months of last year, a recent update showed, taking losses to 3.2% for 2023.

The portfolio was independently valued at €210.2m over the period, reflecting a like-for-like decrease of 1.8% over the quarter. The office sector, which has struggled since the Covid pandemic and an increase in working from home, was to blame for the majority of the fall given offices make up a third of the portfolio.

Office valuations declined by 2.5% in the quarter, or €2.1m, while industrials – which are 30% of assets – saw values drop €900,000 or 1.2% due to outward shifts in yields from the French logistics portfolio and some Dutch investments.

Since the financial year-end fund manager Jeff O’Dwyer has secured two new lettings, ‘enhancing income security and highlighting the demand for affordable and accessible offices’.

This included the St Cloud office in Paris, where the trust also negotiated an early refinancing of a loan linked, extending the term by three years.

O’Dwyer also confirmed a six-year lease renewal and floor expansion in a Hamburg office.

Earnings in the quarter matched those in the third quarter, coming in at €2.2m, allowing the fund to pay a dividend of 1.48 euro cents per share, fully covered at 110% EPRA earnings after a 20% cut in the payout last summer.

Berney noted the trust’s low loan-to-value of 24% and €27m in cash that he said gave it ‘one of the strongest balance sheets… and dividend covers among the UK-listed peer group’.

He added: ‘The current share price discount does not reflect the strength of the portfolio, growth city exposure, and local expertise of the investment management.’

A strategy of investing in ‘winning cities’ with above-average growth has biased the portfolio towards Germany(28%), France (49%) and the Netherlands (15%).

The shares have fallen 17.5% over the past year and yield 9%. The extent of the property downturn in response to higher interest rates and inflation is shown by the 8.7% total loss shareholders have seen, including dividends, over five years.

However, this compares to an underlying 18.6% return from the portfolio, according to Deutsche Numis data, that has beaten the 17.8% decline in the MSCI Europe Real Estate index.