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Schroder European Reit halves dividend to save cash in crash

25 June 2020

The European real estate investment trust has cut its interim dividend by 50% to protect its cash pile as Covid-19 takes a toll on commercial tenants.

Schroder European Real Estate’s (SERE ) dividend has become the latest casualty of the Covid-19 crisis after being slashed by half as the trust aims to conserve cash. 

The £95m real estate investment trust (Reit), which is managed by Jeff O’Dwyer, has cut its second interim dividend by 50% meaning investors will now receive 0.925 euro cents in September. Future dividends are under review but with the shares having fallen nearly a third in the past six months, they still yield just over 5%, according to the trust’s broker Numis Securities.

In a statement to shareholders, the trust said it had taken into account its rent collection, which has been just over 80% of rent owed in April, May, and June, and the cash position ‘alongside market conditions’ to ensure the rental income from the portfolio is sustainable. 

Trust chairman Julian Berney said by reducing the dividend and retaining earnings ‘we have sought to strengthen the ability of the company to mitigate the impact of Covid-19 and improve our flexibility to be able to capitalise on asset management opportunities going forward’. 

In half-year results to the end of March the portfolio of 13 properties, which include offices, industrial, and data centres in areas such as Paris and Berlin, delivered a net asset value (NAV) total return of 2.7%, up from 1.7% the year before. 

Underlying earnings calculated according to the EPRA property industry standard fell to €4.3m from €5.4m in the same period the year before. 

The portfolio was valued at €247.3m, a 1.9% uplift over the six months and an increase of 11.1% on the purchase price. 

O’Dwyer believed the impact of Covid-19 had yet to fully play out and that it was impossible to predict precisely when the global economy would recover, but nevertheless he said the portfolio had ‘stood up well’

‘While early indicators are that the easing of the lockdown in our key markets is having a positive impact on our tenants’ operations, we remain alert to the near-term challenges facing all our stakeholders,’ he said. 

He added that the weighting towards ‘winning cities’ such as Paris, Berlin, Hamburg, and Frankfurt would ‘be beneficial to its future performance and liquidity’. 

The Reit was under pressure before the coronavirus outbreak, as it battled a slowdown in European retailing. The problems in the UK high street have been mirrored on the continent and at the end of last year, SERE was being held back by its stake in a shopping centre in Seville, Spain.

O’Dwyer (pictured) was unable to avoid the impact of weakening demand for retail on the portfolio despite repositioning the fund to include industrial and logistics assets, which moved from zero to 20% of the portfolio last year. The trust is currently allocated 46% offices, 20% industrials, 25% retail and 8% ‘mixed use’, which is a data centre in Amsterdam. 

Liberum analyst Conor Finn said: ‘The board had little choice on the dividend in our view. In addition to the reduced rent collection, income from the Seville property (11% of income) is currently cash-trapped and dividend cover is also expected to decline because of the refurbishment of the Paris office asset (14% of income).’

Priyesh Parmar of Numis said: ‘We believe the business is well positioned in respect of its balance sheet, with good headroom and a spread of lenders across the asset base, giving flexibility. Moreover, we believe the shares have been overly discounted compared with the wider UK listed European real estate offerings, which are trading on an average discount to NAV of 1.2% compared with a 37% discount for Schroder European. In our view this is too wide on both an absolute and relative basis.’

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