MIDAS SHARE TIPS: Property trust Schroder European Real Estate will help your portfolio to build an income

By JOANNE HART, FINANCIAL MAIL ON SUNDAY

Updated: 10:52 EDT, 13 December 2021

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In 2015, Schroders, the fund management group, had an idea. Why not set up a property company that would invest in fast-growing European cities and sectors with long-term potential?

In December of that year, Schroder European Real Estate Investment Trust was born, floating on the stock market at £1 a share. The business was and is one of a kind, the only London-listed firm offering investors exposure to a wide range of commercial properties across Europe – and targeting annual dividend yields of 5.5 per cent along the way.

But time has not been kind to the group, known as Sere. Six months after floating, sentiment was undermined by the Brexit vote, overseas investor sales followed and, in 2020, the shares were brutally hit by the pandemic.

Write-off: One of the trust's 13 properties, the Metromar shopping centre in Seville, has reduced the portfolio's value

Today, Sere is trading at £1.04 and valued on the market at £138million, a 17.5 per cent discount to the current value of its assets.

The share price and discount are more reflective of recent issues than future growth, and the stock should rise as the group expands and develops.

There are 13 properties in the portfolio today, 12 of which are in France, Germany and the Netherlands. Most are doing well, such as a food court anchored by Lidl in Frankfurt, a distribution site for Nestlé in Rumilly, a French town near the Swiss border, and a data centre close to Amsterdam.

But there is one bad egg – a shopping mall in Seville, which was hammered by the pandemic and which has now been completely written off by Sere.

The Spanish failure is unfortunate but it has not stopped boss Jeff O'Dwyer from making progress elsewhere and from continuing to deliver income to shareholders.

A total dividend of 7.12 euro cents (6p) was declared last week for the year to September 2021, alongside a special dividend of 4.75 cents, with another special scheduled for next year.

The ordinary dividend is payable quarterly and shareholders on the register by December 24 will be eligible for the most recent payout of 1.85 cents, as well as the first special dividend.

O'Dwyer is not just keen to lure investors in with these early Christmas gifts – he has plenty of plans for future expansion too.

The group recently sold a property in Paris, which should net €28million of profit. O'Dwyer is keen to use at least some of this money to expand the Sere portfolio.

He is in exclusive discussions on one substantial new asset, several others are under consideration and the intention is to add four or five sites and create a portfolio of about 17 assets – in France, Germany and the Netherlands – with the Nordic countries in O'Dwyer's sights further down the line.

Existing properties have potential too. Some tenants are keen to expand, some sites have vacancies that should be filled within months, some properties are being refurbished and may well be revalued and sold.

Midas verdict: Schroder European Reit has faced some tough challenges over the past six years but it has still managed to deliver attractive dividends and the stock is now yielding almost 6 per cent, even without the special payment. Looking ahead, ordinary dividends should increase and so should the share price. A long-term buy for income investors.

Traded on: Main market Ticker: SERE Contact: schroders.com or 020 7658 6000