LONDON: The board of Schroder European Real Estate Investment Trust plc announced Monday it will seek shareholder approval for a managed wind-down of the company, citing persistent share-price discounts and a structural shift in institutional investor preferences toward larger real estate vehicles.
The decision follows an extensive review of strategic alternatives, including share buybacks and a pivot to thematic investing, which the board concluded would be insufficient to close the company’s trading discount to net asset value or support long-term growth.
“Since our inception in December 2015, we have successfully achieved our objectives of establishing a differentiated platform with a diversified income profile generated from high-performing assets in prominent growth centres across Continental Europe,” said Jeff O’Dwyer, fund manager for the investment manager, Schroders.
“However, the ongoing discount to NAV has hindered our ability to scale and achieve our growth potential, particularly against the deteriorating market backdrop.”
The company, which has a market capitalization below £100 million, owns 14 assets across France, Germany and the Netherlands. It has delivered more than £80 million in dividend payments since its initial public offering.
The board said equity markets continue to disadvantage smaller listed vehicles regardless of management quality or strategy execution, with growing evidence that institutional investors favor larger vehicles offering enhanced liquidity, diversification and cost efficiencies.
Phil Redding, chairman of the company, said the board has reviewed a full range of options to maximize shareholder value.
“The challenging market backdrop for smaller UK listed real estate companies, which has been widely reported and further exacerbated by more recent interest rate and inflationary concerns, has resulted in the company’s shares having traded at a persistent, and material discount to the company’s net asset value,” Redding said.
The board and Schroders believe the portfolio can be realized in the direct property market at a value exceeding what is currently implied by the prevailing share price.
The company plans to publish a circular convening a general meeting, where it will seek an ordinary resolution to modify its investment objective and policy to enable the wind-down. The board and Schroders have initiated discussions on revised investment management terms for the wind-down period, aimed at aligning the manager with the goal of maximizing shareholder returns in a timely fashion.
If shareholders approve the plan, the board will endeavor to realize all investments in a cost-effective manner, balancing value maximization with timely capital returns. Realizations may take the form of single-asset or multi-asset disposals, with proceeds used to repay borrowings and make capital distributions.
The process is expected to take approximately two to three years, factoring in current market conditions, heightened geopolitical risks, and targeted asset management initiatives to position properties for sale, including the management of French tax litigation, the company said.
The board intends to continue paying dividends during the wind-down to maintain the company’s investment trust status, though payments will decline as portfolio income reduces and capital is returned to shareholders.
“Despite strong property performance and effective corporate management, we have advised the board that a managed wind-down is the most effective strategy for maximising shareholder value,” O’Dwyer said.
Redding thanked Schroders for its management of the portfolio and said the board would continue to work closely with the firm to efficiently implement the wind-down process.
“The board of SEREIT and its investment manager, Schroders, have reviewed a full range of options to maximise shareholder value and have concluded that a managed wind-down strategy and return of capital is in the best interests of the company’s shareholders,” Redding said.
