LONDON (ShareCast) - (Sharecast News) - Schroder Real Estate Investment Trust reported a total of £95m of disposals since January 2019 in its full-year results on Tuesday, at an average net initial yield of 3.0%, as it postponed its dividend.
The London-listed company noted that it refinanced its £129.6m term loan with Canada Life in October, resulting in an annual interest saving of £2.5m, with the term extended to an average of 16.5 years.

It said it saw sustained real estate portfolio outperformance of 1.7% total return, compared to the MSCI/IPD benchmark index over the past 12 months, as well as 1.7% per annum over the last three years and 1% per annum since the initial public offering in July 2004.

Schroder said 82% of its portfolio was located in 'winning cities and regions' in the year ended 31 March, with 68% weighted to the office and industrial sectors, with a below-benchmark retail weighting and no shopping centres.

Its loan-to-value ratio, net of all cash, stood at 23.7%, with the board saying it had "significant" headroom-to-debt and interest cover ratio covenants, explaining it could withstand a further valuation fall of 51% and, based on the current tenancy position, a 66% decrease in net rental income.

Looking at the books, Schroder Real Estate reported a net asset value of £309.8m, or 59.7p per share at year-end, reflecting a decrease of 5.4% before one-off debt breakage and related costs linked to its refinancing, and a decrease of 13.1% as a result of the refinancing.

It said its net asset value total return for the year ended 31 March, adjusted for the refinancing costs, was a negative 1.5%, and negative 9.4% as a result of the refinancing.

Adjusted EPRA earnings totalled £12.7m, representing a decrease of 16%, which the board said was primarily driven by reduced income following asset disposals.

A total of £14.1m of dividends was paid during the period, comprising three interim dividends of £3.4m, or 0.65p per share, and a fourth, increased interim dividend of £4m, or 0.7715p per share.

The company recorded a loss of £32.5m for the year, widening from £15.9m year-on-year, which it said was primarily due to the one-off debt breakage and related costs of £27.4m.

The firm said it had a "clear strategy" for dealing with Covid-19 risks, with 74% of rent collected for the quarter beginning 1 April.

Its dividend due to be paid in June was being postponed due to pandemic-related uncertainty, with the intention to pay it in part or in whole at a later date, once there was greater economic clarity.

"Whilst the outlook for the UK real estate market in light of the Covid-19 pandemic is uncertain, the company has a strong balance sheet with a net loan-to-value of 23.7%," said chairman Lorraine Baldry.

"We expect capital values and rental income to fall in 2020.

"However, the quality of the portfolio, embedded asset management potential and above average income return will mitigate this risk."

Baldry said that importantly, the cash realised from disposals meant the firm had both a "significant" buffer to protect it in the event a portion of rental income was deferred for several months, as well as the capacity to reinvest in the existing portfolio to improve returns and actively seek to selectively capitalise on future attractive lower prices in real estate investments.

"The long-term strategic objectives therefore remain to maintain balance sheet discipline, sustainably grow net income and reinstate the dividend with a progressive policy.

"We are anticipating a challenging market environment during the current financial year due to the Covid-19 pandemic, but one that should also provide opportunities for well placed companies such as Schroder Real Estate Investment Trust."

At 1114 BST, shares in Schroder Real Estate Investment Trust were down 5.52% at 38.5p.

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