Schroder European Real Estate buys Seville shopping centre

Schroder European Real Estate, which sits in the AIC’s European property sector, announced its interim results this morning and, yesterday, it announced that it had bought a shopping centre.

Schroder European Real Estate buys Seville shopping centre

Schroder European Real Estate Investment Trust (SERE) has completed the purchase of the Metromar shopping centre in Seville, Southern Spain, from UBS Asset Management. The total purchase price is approximately EUR52.5 million, reflecting a net initial yield of 6.2%. SERE is acquiring a 50% stake in joint venture with the Schroder advised Immobilien Europa Direkt.

Seville is the capital of Andalucía and Spain’s fourth largest city and is an important tourist destination. The city is expected to outperform national averages in terms of both economic growth and consumer spending over the next five years.

The 23,500 sqm shopping centre is let to 50 tenants, with a significant convenience retail offering, anchored by a 2,300 sqm Mercadona grocery supermarket. The discretionary retail tenants include Zara, Mango, Sfera, H&M, Pull & Bear, Stradivarius, Bershka and Cortefiel. The centre has a significantly enhanced leisure offering compared with other similar centres in the region, anchored by a 12 screen cinema and a number of restaurants. This is reflected by the centre’s annual footfall of circa four million people, of which 50% are classified as ‘walk-in’.

Metromar’s sales growth over the past three years has been robust: 4% in 2014; 8% in 2015; and 4% in 2016. This reflects the quality of the tenant base and its dominant position within the growing residential suburb of Mairena del Aljarafe.

Located alongside the Ciudad Expo metro station, Metromar also benefits from good road access, with the A-8057 (33,000 cars a day) and SE-30 (Seville’s primary ring road) within close proximity. The centre is located in a densely populated area, with a catchment of 60,000 people in the immediate vicinity, and a further 250,000 within a 15 minute drive.

The asset is 90% let by area (98% by ERV) and generates an annual rent roll of EUR4 million. The current weighted average lease term is nine years (and three years to first lease break) and the leases are subject to annual rent indexation.

The business plan for Metromar is to maximise investment returns through a combination of maintaining the current, high occupancy level and undertaking a number of asset management initiatives to improve the vibrancy and consumer experience. Several opportunities have already been identified to increase income returns through improving both the attractiveness of the centre and its dominant position in south-west Seville.

This is SERE’s ninth acquisition. It has now invested EUR212 million at a blended net initial yield of approximately 6.2%, in established Western European growth cities.

The acquisition is being part funded with a new loan facility secured against the asset. The loan for the whole property is EUR23.4 million (SERE’s share EUR11.7 million), representing a loan to value of approximately 45%. The loan term is seven years and the interest rate is fixed at 1.76% p.a. SERE now has total third party loans of EUR60.4 million, representing an overall loan to value across the Company of 26% at an average weighted interest rate of 1.30%.

Tony Smedley, the fund manager, commented: “With retail expected to be a key beneficiary of Spain’s economic recovery, this acquisition is a welcome addition to the portfolio, offering significant diversification for our investors whilst growing our dividend yield. We have been tracking this opportunity for some time and are pleased to complete the purchase. The property has a strong occupational track record, is located in one of the region’s fastest growing conurbations and fits with the wider portfolio strategy to acquire accretive assets that offer an attractive income profile with additional asset management potential. We are excited to be delivering on our stated IPO strategy, building a considerable portfolio of diverse assets that are set to be beneficiaries of the improving economies and long term urbanisation theme being witnessed across the European cities in which the Company is invested.”

Half year results

For the six months ended 31 March 2017, the interim dividend is unchanged at 2.48p The NAV is up 3% to 64.1p. The total return for the period was 7.2%, reflecting an 8.5% return on the property portfolio.

SERE : Schroder European Real Estate buys Seville shopping centre

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