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Schroders' O'Dwyer hunts for industrials for European Reit

Schroders' O'Dwyer hunts for industrials for European Reit

Schroder European Real Estate (SERE) is looking for industrial assets to redeploy the cash it made from the sale of two French supermarkets.

In half-year results to 31 March, the real estate investment trust (Reit)  generated a 6.1% total return on net assets up from 2.5% in the six-month period a year ago.

A €1.85 per share quarterly dividend was fully covered by earnings after the recent €20 million purchase of a data centre in the Netherlands yielding 10%, said manager Jeff O'Dwyer, who took over the €237 million at the start of the year after Tony Smedley resigned.

O'Dwyer said this meant the trust had hit its original dividend yield target of 5.5% for investors who bought the shares at 100p when they floated in December 2015. 

The purchase was made from the €30 million war chest the trust had at the end of the year, topped up by the sale of two Casino supermarkets in France, which were sold to their joint venture partner at a 10% premium over their December valuation.

O’Dwyer said he was looking for ‘industrial assets to redeploy the Casino money’, which had yielded 5%, and would not reinvest in supermarkets as he aimed for ‘higher yields and greater diversification’ within the portfolio. 

He said he was ‘in negotiations on a number of new opportunities in both new and existing sectors’.

‘Our aspirations are to grow the portfolio through a disciplined and consistent approach centred on enhancing income and shareholder returns,’ he added.

 

The trust holds 10 assets, four in Germany, four in France, one in Spain, and the newest investment in the Netherlands. The portfolio is split 46% in retail, 46% in offices, and 8% in mixed assets. O’Dwyer (pictured) picks investments in ‘winning’ cities that are experiencing fast growth rather than countries, including Berlin, Hamburg, Stuttgart, Frankfurt, and Paris.

While the eurozone may face a slowdown in growth and political uncertainty O’Dwyer said it had experienced its strongest period of growth during the last 10 years and forecast eurozone GDP will grow by 2-2.5% through 2018/19.

‘Investment is increasing, while unemployment continues to fall with consumer spending increase,’ he said.

‘The acceleration in world trade means that external demand in the form of export should continue to grow. While stronger growth will feed through to higher inflation, [we] expect it to remain at around 1.5% per annum over the next couple of years.’

Inflation at that level meant the European Central Bank would be ‘unlikely to raise interest rates before 2019’, he said.

O’Dwyer was unconcerned about the political turbulence facing Europe after the election of a eurosceptic, populist government in Italy.

‘Italy is a market that we can invest but it would have to be a very good investment to take on the risk – not just political risk, but transparency risk, litigation risk, and tax risk. We are not seeing – when compared to other areas on a risk-adjusted basis – the attraction,’ he said.

Overall he ‘looks through political risk’ when making investment decisions. ‘If we were worried about political risk each day we would never get anything done,’ said O’Dwyer. ‘We aim to grow irrespective of politics.’

O’Dwyer said he would look to raise more money from investors when the time was right, although with the shares trading 8% below net asset value (NAV), a share issue is not imminent.

‘The intention has been to double the size [of the trust] and take it to €500 million and all the investors would like to see that happen, but as for when – it will be at an appropriate time and we will do it when it will benefit existing shareholders,’ he said.

At yesterday's closing price of 114p, SERE yields 5.7%. 

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