Announcement of NAV and Dividend

3 March 2021

ANNOUNCEMENT OF NAV AND DIVIDEND 

Schroder European Real Estate Investment Trust plc ("SERE" or the "Company") provides a business update and announces its unaudited net asset value ("NAV") as at 31 December 2020, together with its first interim dividend for the year ending 30 September 2021:

-     Rent collection during the quarter and subsequent period remained stable at c. 89% of contracted rent (as at 1 March 2021)

-     Unaudited NAV as at 31 December 2020 of €201.6 million or 150.7 cents per share, a 0.1% reduction compared to 30 September 2020

-     NAV total return of 0.8% over the quarter and 14.3% for the twelve months to 31 December 2020

-     A first interim dividend of 1.57 euro cents per share will be paid for the year ending 30 September 2021

-     Portfolio valuation has increased to €276.1 million, reflecting an increase of 1%, net of capital expenditure, over the quarter

-    The 31 December 2020 NAV includes a further impairment to the Company's 50% interest in the Seville asset, which is the Company's only shopping centre. This impairment, which reflects increased uncertainty as a result of the recently announced vacancy, reduces the net asset value of the 50% interest from c. 3.6% to c. 2.9% of NAV

-     Key asset management activities during the period included:

-     Finalisation of the forward sale agreement of the Boulogne-Billancourt, Paris office and receipt of 50% of the sales price of the purchaser. Refurbishment has now commenced and is forecast to complete in Q2 2022

-     In Hamburg, the Company has secured two new tenants on five year lease terms at a 20% premium to target rent, for an additional 10% of the space, taking the building to 90% let.

Net Asset Value

The table below provides a breakdown of the movement in NAV during the reporting period:

(1)  Management reviews the performance of the Company principally on a proportionally consolidated basis. As a result, figures quoted in this table include the Company's share of joint ventures on a line-by-line basis and exclude non-controlling interests in the Company's subsidiaries.

(2)  Based on 133,734,686 shares

(3)  % change based on starting NAV 1 October 2020

Interim dividend

The first interim dividend of 1.57 euro cents per share for the year ending 30 September 2021 represents an annualised rate of 6.3% based on the current share price of 88 pence per share¹. As announced previously, whilst the refurbishment of Paris Boulogne-Billancourt is being undertaken, the cover from net income reduces to c. 70%. The Board has made the prudent decision to allocate some of the profits out of the net sale proceeds from the forward-funding disposal of the asset towards covering the shortfall in income whilst it is being refurbished and pending reinvestment of the remainder of sale proceeds. The Board's intention is to progressively increase the dividend back to 1.85 euro cents per quarter as the impact of Covid-19 on the Company's income abates and proceeds from Boulogne-Billancourt are re-deployed into earnings enhancing initiatives and investments.

The interim dividend payment will be made on Tuesday, 13 April 2021 to shareholders on the register on the record date of Friday, 26 March 2021. In South Africa, the last day to trade will be Tuesday, 23 March 2021 and the ex-dividend date will be Wednesday, 24 March 2021. In the UK, the last day to trade will be Wednesday, 24 March 2021 and the ex-dividend date will be Thursday, 25 March 2021.

The interim dividend will be paid in GBP to shareholders on the UK register and Rand to shareholders on the South African register. The exchange rate for determining the interim dividend paid in Rand will be confirmed by way of an announcement on Monday, 8 March 2021. UK shareholders are able to make an election to receive dividends in Euro rather than GBP should that be preferred. The form for applying for such election can be obtained from the Company's UK registrars (Equiniti Limited) and any such election must be received by the Company no later than Friday, 26 March 2021. The exchange rate for determining the interim dividend paid in GBP will be confirmed following the election cut off date by way of an announcement on Monday, 29 March 2021.

Shares cannot be moved between the South African register and the UK register between Monday, 8 March 2021 and Friday, 26 March 2021, both days inclusive. Shares may not be dematerialised or rematerialised in South Africa between Wednesday, 24 March 2021 and Friday, 26 March 2021, both days inclusive.

The Company has a total of 133,734,686 shares in issue on the date of this announcement. The dividend will be distributed by the Company (UK tax registration number 21696 04839) and is regarded as a foreign dividend for shareholders on the South African register. In respect of South African shareholders, dividend tax will be withheld from the amount of the dividend noted above at the rate of 20% unless the shareholder qualifies for the exemption. Further dividend tax information for South African shareholders will be included in the exchange rate announcement to be made on Monday, 8 March 2021.

Rent collection

Approximately 89% of the rent due for the quarter ending 31 December 2020 has been collected. This is ahead of the amount collected in the previous two quarters of 87%. Furthermore the rent collected for January and February 2021 is in line with Q4 2020.

Property portfolio

As at 31 December 2020, the property portfolio was independently valued at €276.1 million, an increase of 2.8%, or €7.5 million, on the 30 September 2020 valuation of €268.6 million.

Net of capital expenditure the valuation increase was approximately €2.6 million, reflecting a property capital return of 1.0%. The main drivers of this were:

-     The Hamburg office investment saw its value increase (+€1.0m or 6.6% net of cap ex and incentives) as a result of concluding two new leases

-     Yield compression and ERV growth across the industrial assets portfolio. This resulted in a net valuation increase of €1.4 million, or 3.0%

-     The value of the office refurbishment in Paris Boulogne-Billancourt increased by over €4 million driven by capital spending over the quarter. Net of capital spending, the return was €0.4 million, or 0.6%

-     The value of SERE's 50% interest in the Seville shopping centre declined by €50,000. This asset is the only asset in the portfolio where the valuers continue to adopt a material uncertainty clause. This asset value does not reflect the lease terminations announced in February 2021. These terminations are expected to have a negative impact on the value of the asset and the 31 December 2020 NAV has been further impaired to reflect increased risk for this investment and the expectation of further value decline.

The portfolio generated a net property rental income of €3.4 million, representing an ungeared quarterly property income return of 1.2% (equating to 4.9% on an annualised basis).

Asset Management update

Key asset management initiatives during the most recent quarter were as follows:

-     Signed and commenced the construction contract for the refurbishment of the Boulogne-Billancourt, Paris office. Remaining costs are forecast to be c. €24 million, with completion forecast for June 2022. Approximately 50% of the sale proceeds have already been received as part of the forward funding agreement with the purchaser. The remainder will be received as refurbishment milestones are met through to completion

-     At its Hamburg office investment, the Company has secured two new tenants for an additional 650 sqm of office space on the seventh floor and 60 sqm of retail space on the ground floor. The new leases have both been agreed on a five-year term and represent 10% of the Hamburg lettable area. The rents achieved are at a c. 20% premium to the business target. The building is now 90% let and discussions are ongoing with potential tenants for the remaining floor

-     The Company's retail exposure in Berlin (DIY) and Frankfurt (Grocery) represents 14% of the portfolio value and continues to perform strongly, achieving c. 100% rent collection in 2020 and valuation uplifts. SERE continues to work with retailers to optimise occupancy in the Seville shopping centre including reviewing alternate use options for vacant space.

Balance sheet and debt

As at 31 December 2020, the Company has investable cash of approximately €25 million and a net loan to value ratio of approximately 25%. This capital is available for new earnings enhancing initiatives including new investments.

The Company has seven loans secured by individual assets or groups of assets, with no cross-collateralisation between loans and recourse back to the Company. The average weighted total interest rate of the loans is 1.4% per annum and the earliest scheduled loan maturity is in 2023. All loans are currently in compliance with their default covenants, though there is a cash trap in operation for the Seville loan. 

Sustainability

The Company continues to look at ways to improve on its recently awarded three green star global sustainability benchmark 'GRESB'. These initiatives include BREEAM in use certification, utilisation of renewable energy, LED lighting and smart metering.

Participation in the GRESB survey is part of the Company's broader ESG and positive impact strategy which is integral in the investment process.

Further information can be found within the Company's Annual Report. https://www.schroders.com/en/sysglobalassets/investment-trusts/sereit/documents/annuals/schroders_sereit_ar20-2-3.pdf

Net Zero Carbon Pathway
The Company, together with Schroder Real Estate Investment Management Limited ("Schroder Real Estate") as Investment Manager, is focused on delivering continued improvements in the sustainability performance of the portfolio. In December 2020, Schroder Real Estate issued its Net Zero Carbon Pathway, a commitment made in September 2019 as part of the UK Better Buildings Partnership Climate Commitment. This outlines a trajectory for achieving net zero carbon by 2050 and addresses both operational carbon, covering whole building performance; and embodied carbon, covering development and refurbishment activities.

Further information can be found within the Schroder Real Estate Pathway to Net Carbon Zero document at https://www.schroders.com/en/sysglobalassets/investment-trusts/sreit/schroder-real-estate-net-zero-carbon-pathway-december-2020_1621372_v1.pdf

^1.       Share price as at 1 March 2021. Exchange rate £1:€1.14

Enquiries:

Jeff O'Dwyer

Schroder Real Estate Investment Management Limited                  Tel: 020 7658 6000

Ria Vavakis

Schroder Investment Management Limited                                   Tel: 020 7658 2371

Dido Laurimore/Richard Gotla/Methuselah Tanyanyiwa                 Tel: 020 3727 1000

FTI Consulting