Schroder European Real Estate (SERE)

Schroder European Real Estate (SERE) is a diversified REIT focussing on European commercial property. The investment strategy centres around 'winning cities’ and regions in Europe, and the management team takes a great deal of care to understand factors specific to each local market, for example, local transport infrastructure, and an understanding of possible alternative uses as both a risk mitigator and a source of potentially higher returns. For example, the manager notes the possibility that SERE’s largest tenant, telecom company KPN, will give notice on its lease expiring at the end of 2026, giving the team the opportunity to look at a range of options, including a new tenant or seeking an alternative, higher-value use. In this scenario, SERE’s role would most likely be to secure the relevant permissions and sell the asset to a developer, releasing cash for recycling into assets with a longer-term income profile.

SERE currently yields 7.9%, with a c. 36% discount contributing to the higher yield. SERE's portfolio is 100% exposed to some form of local indexation (c. 80% annual), and over the last few years of higher inflation, these contracts have held true, contributing to SERE’s fully covered dividend.

SERE’s net gearing has reduced from 24% to 19% LTV following two disposals in the last year, and there is available cash of c. €25m. The next debt refinancing is due in June 2026, and manager Jeff O’Dwyer feels that, in general, banks remain constructive in lending against good quality assets and notes that the all-in cost of debt is currently just under 4%, compared to a portfolio yield of c. 6%, maintaining the all-important carry between interest cost and income.