5.5% prospective dividend yield, triple underpinned

The focused SERE commercial property portfolio is 80% located in the fastestgrowing western European cities (e.g. Berlin, Paris, Hamburg, Frankfurt). Assets generate robust yields. Further, they offer value-enhancement opportunities. Broader European market economic fundamentals remain positive, driving employment growth, investment, office take-up and reduced vacancy, against a modest supply pipeline. Market-wide, yields do, however, reflect both the strong market fundamentals and modest long-term debt yields. SERE has assembled good-quality, well-located and reversionary assets, acquired on 6.3% yield.

• Commercial asset strategy: Good-quality and well-located assets (in premiumgrowth cities) will generate sustainable income, with capital growth potential. Urbanisation and infrastructure improvement themes support this, particularly in mixed-use, supply-constrained locations with sustainable rental levels.
• Asset management: With voids low, this is about progressive enhancement of both rent and prospects. Each asset has a business plan. SERE is one of few UK-listed real estate companies offering sole access to a spread of western continental European regions, backing its long-term growth prospects.
• Capital deployment: Since the IPO (Dec-15), SERE has acquired investments of €212m, in nine assets (last year-end). As we go to press, a disposal in France has been announced, at a 10% premium to valuation, leaving SERE with equity and debt ‘capacity’ of a further €70m. It is in exclusive purchase talks on assets.
• Risks: Estimates assume progressive (strongly earnings-accretive) investment. SERE faces no currency risk (€ assets, debt) but has a sterling quote. Leases average 6.8 years to final expiry (4.4 to break), and the portfolio is virtually 100% occupied. Only from circa 2024 will certain finding material lines expire.
• Investment summary: SERE generates strong income and cash from a portfolio of assets located in European growth cities. Annual CPI rent rises and growth in market rents support most of the income. We model full deployment by end-calendar 2018. Given vendor-discussion progression, this is largely de-risked. Further equity might, judiciously, be raised to enlarge the portfolio and grow returns.