Schroder REIT Cautiously Optimistic

The company reported a £32.5m loss for the year to 31 March 2020, compared with a profit of £15.9m in 2019, as adjusted EPRA earnings fell 16%.

It attributed a 13.1% fall in net asset value (NAV) to one-off debt breakage and related costs linked to the refinancing of £27.4m. The June dividend has been postponed.

However, the REIT has completed £95m of disposals since January 2019, at an average net initial yield of 3%, leaving it with £85m in cash.

Speaking to Property Week about the full year results, Duncan Owen, global head of Schroder Real Estate, said although “the pandemic has changed many things, one of the things it has done is to really accelerate all the structural changes that were the heart of our strategy. The future isn’t rosy for anybody in this environment, but for us there are some reasons for optimism.”

Office and industrial assets now account for 68% of Schroder REIT’s portfolio and the company has a loan-to-value ratio of 23.7%.

The REIT could withstand a further valuation fall of 51% and a 66% fall in net rental income.

Schroder REIT refinanced a £129.6m loan with Canada Life in October 2019, resulting in an annual interest saving of £2.5m per year.

“The improved defensive qualities and increased cash reserves have resulted in the company being well placed given the current exceptional and uncertain economic situation,” said Owen.

The firm collected 74% of rent for the April quarter and of the remainder, Owen expected two thirds to be repaid through payment schedules.

Around 82% of its portfolio is located in its “Winning Cities and Regions” – places it is targeting due to above-average employment growth, GDP growth and good infrastructure.