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Buildings are responsible for more than a quarter of all greenhouse gas emissions: central heating in winter, air conditioning in summer, year-round lighting and the power consumption of appliances from computers and telephones to refrigerators and dishwashers, the experts said.
As politicians in Britain and globally pledge to cut emissions, pressure is growing on property groups to make estates greener. Schroder Real Estate Investment Trust (SREIT) has grabbed the bull by the horns and its shares, now 42p, should respond. With 39 locations and more than 320 tenants, Schroder REIT has a diverse portfolio of commercial buildings, from industrial estates to office buildings and retail parks.
Real estate companies haven’t had it easy, but managers Nick Montgomery and Bradley Biggins have outperformed their peers and delivered steady dividend growth. Now they promise to transform their portfolio from ‘brown to green’, using renewable energy, special boilers and a host of other initiatives.
The strategy is rooted in sound business acumen. New rules must be introduced by 2030, requiring property owners to reduce the carbon footprint of their buildings. By taking action early, Schroder can demonstrate that it is leading the way and make friends among environmentally-minded shareholders and others.
Better yet, the group can charge tenants more, many of whom are under pressure from investors, customers and employees to go “green and clean.”
Environmentally friendly: As politicians in Britain and globally pledge to cut emissions, pressure is growing on property groups to make estates greener
While this may sound counterintuitive when economic conditions are tough and companies are strapped for cash, energy-efficient buildings are often cheaper to operate. Even if rental prices are higher, total costs should be at the same level or even lower than elsewhere.
Montgomery and Biggins also choose their locations carefully, looking for areas where good supplies are scarce and demand is high.
The company purchased a business park just outside Cheadle, Manchester, surrounded by several hectares of land. After gaining planning permission, they turned the space into Britain’s first net-zero warehouse, with solar panels, heat pump boilers and even a wildflower meadow.
Schroder paid £17 million for the property, spent £10 million upgrading it and has just had it valued at £40 million, with companies including German industrial giant Siemens happy to pay higher rates to secure space on this modern site set.
Office buildings are also becoming greener under Schroder management, such as The Tun in Edinburgh, where Montgomery and Biggins have introduced LED lighting, upgraded heating systems and signed premium leases with leading tenants.
Other properties include academic locations such as the University of Law, Central London and well-located retail locations such as St John’s Retail Park, Bedford, where Lidl and B&M attract a steady stream of bargain hunters.
Industrial estates also attract a range of tenants, from widget makers to document storage companies, food delivery chains and even gyms.
Upgrades are a feature across the portfolio and Montgomery and Biggins make it a point to engage with tenants regularly. That facilitates rental growth and the duo anticipates growing income as economic conditions improve.
Schroder Reit is already in a robust financial position. The group’s year-end runs until March 31 and a total dividend of 33.5p is expected, giving the share a yield of almost 8 percent. Payouts should increase over time, especially since the company took out long-term, fixed-rate debt when interest rates were low.
Yet Schroder is being punished by the market, just like other less innovative real estate groups. Independent valuers suggest the company’s portfolio is worth £458m. On the stock market, Schroder is valued at just £203m, with shares more than 50 per cent below their 2018 peak.
Midas judgment: Schroder Reit has been hit hard by widespread antipathy towards the property sector, but sentiment should change and Schroder shares should rise. At 42 cents, the stock is a bargain, while generous dividends increase its appeal.
Traded on: Main market ticker: SREI Contact: schroders.com or 020 7658 6000