Schroder Real Estate Investment Trust is proposing to issue up to 35,592,128 new ordinary shares in the capital of the company by way of a placing, representing 10 per cent of the company’s existing issued share capital.
The placing shares will be issued to new and existing shareholders at a premium to the most recent net asset value per share and will therefore be accretive to the prevailing NAV for existing shareholders.
As at 30 September 2013, including acquisitions since the period end, the company owns 52 direct properties valued at GBP270.62m, predominately within the three commercial property sectors of offices, industrial and retail. In pursuing its objective the company concentrates on assets with good fundamental characteristics, a diverse spread of occupational tenants and with opportunities to add value through active management. Following the acquisition of a retail property in Portsmouth since the period end, the company has a total cash position of approximately GBP16m.
In the recent interim report for the period ending 30 September 2013, the company highlighted the pronounced improvement in sentiment towards the UK commercial property market leading to increased capital flows into the sector. This positive shift has been partly reflected in the latest Investment Property Databank (IPD) Monthly Index that reported a 2.9 per cent increase in average capital values between April 2013 and November 2013. This increase followed 18 months of consecutive capital value declines, with average capital values still 35 per cent below the peak of June 2007.
The current stage of the recovery is notable for improving sentiment towards good quality secondary property outside of the core Central London markets. This is partly due to the yield premium available but also reflects an improving occupational market in some regions, as a result of economic growth and reducing levels of new supply.
These conditions are providing the company with increasing deal flow offering potential total returns consistent with the company’s investment objective, illustrated by the transactions outlined briefly below.
In April 2013, the company completed a successful long-term refinancing totalling GBP129.8m for a weighted duration of 14 years at a fixed rate of 4.77 per cent, providing significant scope for the Company to benefit from yield arbitrage on new acquisitions. The company has made further progress on accretive asset management and, following this activity, believes that there is potential to enhance future returns to shareholders through a gradual increase in the size of the company and deploying the proceeds of the placing into acquisitions satisfying the company’s investment criteria by offering good underlying fundamentals in terms of location and specification, affordable rents and sustainable tenant demand.
Following the recent acquisition in Portsmouth, it is intended that the proceeds of the placing will be used to fund the acquisition of a mixed retail, leisure and office property located in a densely populated area on the edge of a major regional city for approximately GBP16.5m, reflecting a net initial yield of approximately 8.5 per cent. Due diligence in connection with the acquisition is on-going and the company expects to be in a position to exchange and complete shortly after the placing although there can be no guarantee that this will be achieved.
In addition to the above transaction, the company has entered into a non-binding exclusivity agreement to acquire a mixed leisure and office property for approximately GBP8m, reflecting a net initial yield of approximately eight per cent. Due diligence is on-going and the company hopes to make a further announcement regarding this purchase in due course.
Following the placing, application will be made for the placing shares to be admitted to the premium listing segment of the Official List of the Financial Conduct Authority and to be admitted to trading on the main market for listed securities of the London Stock Exchange as well as to the Channel Islands Securities Exchange for admission of the placing shares to trading on that exchange.
Andrew Sykes, chairman of Schroder Real Estate Investment Trust, says: “The proceeds of the Placing will support the Company in its objective of delivering Shareholders with an attractive level of income together with the potential for income and capital growth from investing in UK commercial property. We have identified two investment opportunities which will be immediately accretive to shareholders’ returns whilst providing opportunities to deliver longer term growth through strategic asset management.”