Schroder Real Estate Investment Trust (SREIT) has announced that pre-tax profits more than doubled in the full year ending the 31 March 2015, coupled with an unaudited NAV of £306.5 million, or 59.1 pence per share, as at 30 June 2015 – a quarterly increase of 2.4 per cent.
During the 12 month period, the company saw pre-tax profits rise to £54.8 million, compared to the previous year’s £20.9 million, indicating that the acquisitions and asset management initiatives undertaken during the financial year are delivering rewards.
Among the operational highlights of the year was the conversion to REIT status, reducing the burden of taxation and boosting net income and profitability. The £67.2 million of new equity raised through the placing programme also contributed to the results, along with the investment of disposal proceeds into new acquisitions at an average yield of 6.1 per cent.
Another factor is the fall in the void rate in the portfolio, which fell from 11.7 per cent during the last financial year to 9.2 per cent on the 30 June this year, reflecting the high level of asset management activity undertaken by the Company.
Chairman of the Board, Lorraine Baldry, insists that the company will continue to monitor market conditions as a means of optimising returns for shareholders.
She says; ““Against the backdrop of a growing UK economy, continued strong demand for commercial property and an improving occupational market, the potential returns available from the UK commercial property market remain attractive.
“The potential for tightening monetary policy and rising yields means that rental growth will be an increasingly important driver of property returns, requiring a strong focus on good stock selection and proactive asset management.
“The Company is well positioned in this environment with recent acquisitions and initiatives within the portfolio providing significant opportunities to grow income and generate attractive total returns – whilst there may also be opportunities to further enhance returns from raising new equity, the Board will ensure a disciplined approach to any further investment and remains vigilant to changing market conditions.”
Global Head of Real Estate Duncan Owen said that the execution of the Company’s growth strategy has delivered benefits to shareholders and increased net income, and he stresses that the focus going forward will be to grow income further and pursue a progressive dividend policy.
“Executing the property level strategy combined with a continued recovery in the UK economy should support this objective. Further growth will also be considered as part of this strategy where equity can be efficiently invested at an accretive yield,” he said.
While Owen believes the Company is currently operating in an attractive economic environment, he cautions about the longer term impact of rising interest rates and volatility created by the upcoming EU referendum. He also stated that the Company will not pursue overpriced investments, describing the pricing of trophy assets as difficult to justify.
Instead the Company will continue to focus on property with strong fundamentals in robust local economies, along with improving the portfolio through transactions and asset management.
Today’s statement also reveals that SREIT has exchanged contracts for the acquisition of Millshaw Industrial Estate in Leeds, with the £22.7 million price tag reflecting a net initial yield of 7.25 per cent. The 463,400 sq ft industrial estate comprises 27 units ranging in size from 2,683 sq ft to 56,440 sq ft.
At present, 20 tenants are in situ on the site, producing a rental income of £1.73 million per annum, with only four units currently vacant. SREIT intends to utilise the strong demand for industrial property in Leeds as a means of elevating this income whilst reducing the void rate; a large part of this will involve refurbishing units as leases expire in order to increase the annual rental value to approximately £2.2 million.
The acquisition, which is expected to be completed by 22 July, has been funded using existing cash and a revolving credit facility (RCF) from Royal Bank of Scotland.
Duncan Owen, says; “This acquisition, together with the new RCF facility, supports our strategy to increase net operating income whilst also providing opportunities for active management to add value.”