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SCHRODER EUROPEAN REAL ESTATE INVESTMENT TRUST PLC - Short Form Announcement: Half Year Results for the Six Months Ended 31 March 2020

Release Date: 24/06/2020 08:00
Code(s): SCD     PDF:  
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Short Form Announcement: Half Year Results for the Six Months Ended 31 March 2020

Schroder European Real Estate Investment Trust plc
(Incorporated in England and Wales)
Registration number: 09382477
JSE Share Code: SCD
LSE Ticker: SERE
ISIN number: GB00BY7R8K77
("SEREIT"/ the "Company" / "Group")


HALF YEAR RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2020


Schroder European Real Estate Investment Trust plc, the company investing in European growth cities and
regions, today announces its half year results for the six months ended 31 March 2020.

Well positioned with diversified portfolio and pipeline of value-enhancing asset management initiatives

    -   Actively managing the impact of Covid-19 on the portfolio, with rent collection in each of April, May
        and June above 80% of contracted rent
    -   Diversified portfolio of 13 investments with approximately 100 tenants
    -   75% of the portfolio invested in business space assets (office/industrial/mixed-use data centre) in cities
        including Paris, Berlin, Stuttgart and Hamburg
    -   Good progress with key asset management initiatives at Paris Boulogne-Billancourt and Hamburg office
        assets
    -   Loan to value (‘LTV’) of 30% / 27% net of cash (30 September 2019: 28% / 25% net of cash) at a weighted
        average total interest rate of 1.4%
    -   Each loan has separate LTV and income covenants, with a range of headroom against covenants:
             -     LTV default covenant average headroom approximately 27% across the portfolio. This ranges
                   between 17% (Seville) and 37% (Hamburg and Stuttgart)
             -     Income default covenant average headroom approximately 34% across the portfolio. This
                   ranges between 15% (Hamburg and Stuttgart) and 73% (Rennes). For the Company’s sole
                   shopping centre in Seville, there is no default income covenant for the loan, however there is
                   currently a cash trap of net income from the property due to reduced rental income
    -   Next quarterly dividend reduced to 0.925 euro cents per share, equating to 50% of the target dividend
        level, in light of market uncertainty

Key Financial highlights

    -   Portfolio valued at €247.3 million (Note 1), reflecting a 1.9% uplift during the period and an uplift of
        11.1% on purchase price
    -   Net Asset Value (‘NAV’) of €182.1 million or 136.2 cps, reflecting no change compared to 30 September
        2019
    -   NAV total return of 2.7% (31 March 2019: 1.7%)
    -   Profit for the six months of €4.9 million (31 March 2019: €3.2 million) driven primarily by the portfolio
        valuation uplift
    -   Underlying EPRA earnings of €4.3 million (31 March 2019: €5.4 million), with the 2019 earnings having
        included receipt of a one-off surrender premium of €1.5 million
    -   Total dividends declared relating to the six months of 2.775 cps (31 March 2019: 3.7 cps)
    -   Dividend cover for the six months of 116% (31 March 2019: 108%)

Operational highlights
     -     Maintained high portfolio occupancy of 95% (30 September 2019: 94%), with a 6.0 years average lease
           term to expiry (30 September 2019: 6.4 years)
     -     Successful execution of asset management initiatives across the portfolio:
               -    converted heads of terms to a signed conditional lease with Alten for a ten year commitment
                    at the Company’s largest asset at Boulogne-Billancourt, Paris
               -    advanced planning, detailed design, construction tender and financing of the Alten
                    refurbishment
               -    excluding Alten, concluded a further five new leases and re-gears, generating a 16% increase
                    in annualised income relative to previous rent of those leases, at a weighted lease term of 4.4
                    years
     -     Reflecting its increasing focus on ESG considerations, the Company secured its first GRESB Benchmark
           Green Star in recognition of the portfolio’s sustainability performance, whilst improving the
           sustainability rating at the Company’s Hamburg office asset with the certification of BREEAM in use
     -     Underlying property portfolio total return of 4.0% over the six-month period
     -     The Group continues to give support to its tenants, service providers and consumers in understanding
           the impact Covid-19 is having on their respective positions. It is expected that the Seville shopping
           centre will face the most challenges as a result of Covid-19

Note 1: Includes the Group’s share of the Seville property proportionally valued at €22.8 million.

Dividend update

In light of the ongoing market uncertainty, the Board has reduced the next quarterly dividend to 0.925 euro
cents per share, equating to 50% of the target dividend level.

In implementing the dividend strategy, the Board considered the rent collection and cash position of the
Company, alongside market conditions, current asset management activity and the longer term sustainable
rental income from the portfolio. By retaining additional cash at this time, the Company will be better positioned
to withstand the impact of Covid-19 on the portfolio. The dividend will be kept under close review as clarity
improves around the extent of the impacts of Covid-19, including on future rental receipts, property values and
asset management initiatives.

Sir Julian Berney, Chairman of the Board, commented:

“During the first half of the year the Company has made good progress with key asset management initiatives,
but we enter the second half of the year against an uncertain economic backdrop. We believe the diversification
of the portfolio across different countries, sectors and tenants positions it well to withstand a period of market
volatility. By reducing the dividend and retaining earnings, we have sought to strengthen the ability of the
Company to mitigate the impact of Covid-19 and improve our flexibility to be able to capitalise on asset
management opportunities going forward.”

Jeff O’Dwyer, Fund Manager for Schroder Real Estate Investment Management Limited, added:

“The impacts of Covid-19 have yet to fully play out and the depth and recovery of global GDP cannot be predicted
with any confidence. Over the period, the SEREIT portfolio has stood up well, underpinned by our tenant and
sector diversity that has led to favourable rent collection rates and valuation resilience. Whilst early indicators
are that the easing of the lockdown in our key markets is having a positive impact on our tenants’ operations,
we remain alert to the near-term challenges facing all our stakeholders. Longer term, we continue to believe
that the portfolio’s weighting towards Continental European ‘Winning Cities’ like Paris, Berlin, Frankfurt and
Hamburg will be beneficial to its future performance and liquidity.”

Salient features

    -     IFRS profit increased by 53% to €4.9million, from €3.2 million in the prior corresponding period.
    -     Earnings per share (“EPS”) increased by 54% to 3.7 euro cents per share, from 2.4 euro cents per share
          in the prior corresponding period.
    -     Headline earnings per share (“HEPS”) decreased by 20% to 3.2 euro cents per share, from 4.0 cents per
          share in the prior corresponding period.
    -     Dividends per share (“DPS”) decreased by 25% to 2.8 euro cents per share, from 3.7 euro cents per
          share in the prior corresponding period.
    -     Net asset value per share (“NAVPS”) remained the same at 136.2 euro cents per share compared to 30
          September 2019.

Dividend declaration

For dividend details, please see separate announcement released on 24 June 2020.

Short-form announcement

This short-form announcement is the responsibility of the directors of the Company. It contains only a summary
of the information in the contained in the Half Year Report and Condensed Consolidated Interim Financial
Statements for the six month period ended 31 March 2020 (“Half Year Report”) and does not contain full or
complete details. The Half Year Report can be found at:

https://senspdf.jse.co.za/documents/2020/JSE/ISSE/SCDE/SEREITHY20.pdf

Copies of the Half Year Report is also available for viewing on the Company’s website at
www.schroders.co.uk/sereit or may be requested in person, at the Company’s registered office or the office of
the sponsor, at no charge, during office hours.

Any investment decisions by investors and/or shareholders should be based on consideration of the Half Year
Report, as a whole.

These half year results have been reviewed by the Company’s auditors, PricewaterhouseCoopers LLP. The
independent review report is unmodified, however, it does contain an emphasis of matter arising from the
material uncertainty clause which has been applied to the Company’s property valuations, primarily as a result
of the effect of Covid-19 on property markets and consistent with valuation reports across the property industry.
The auditor’s report is included in the Half Year Report which can be found on the Company’s website at
www.schroders.co.uk/sereit



24 June 2020

Sponsor

PSG Capital

Date: 24-06-2020 08:00:00
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