Buildings are responsible for more than a quarter of all greenhouse gas emissions — central heating in winter, air conditioning in summer, lighting all year round and power used by appliances from computers and phones to fridges and dishwashers, according to the experts.
With politicians in Britain and worldwide promising to bring down emissions, pressure is growing on property groups to make estates greener. Schroder Real Estate Investment Trust (SREIT) has seized the bull by the horns and its shares, now 42p, should respond. With 39 sites and more than 320 tenants, Schroder REIT has a diverse portfolio of commercial buildings, from industrial estates to office blocks and retail parks.
Property firms have not had an easy time but managers Nick Montgomery and Bradley Biggins have outperformed peers and delivered steady dividend growth. Now they are pledging to turn their portfolio from ‘brown to green’, using renewable energy, special boilers and a score of other initiatives.
The strategy is rooted in sound business sense. New rules are due by 2030, obliging property owners to cut buildings’ carbon footprint. By moving early, Schroder can show it is in the vanguard, winning friends among ecologically-minded shareholders and others.
Better still, the group can charge tenants more, many of whom are under pressure from investors, customers and employees to become ‘green and clean’.
Eco-friendly: With politicians in Britain and worldwide promising to bring down emissions, pressure is growing on property groups to make estates greener
While this may sound counter-intuitive when economic conditions are tough and businesses are strapped for cash, energy-efficient buildings are frequently cheaper to run so, even if rents are higher, overall costs should be on a par or lower than elsewhere.
Montgomery and Biggins choose their sites carefully, too, looking for areas where good stock is in short supply and demand is robust.
The company bought a business park just outside Cheadle, Manchester, surrounded by a couple of acres of land. After getting planning permission, they turned the space into the UK’s first net zero warehouse development, 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 firms including German industrial giant Siemens happy to pay premium rates to secure space on this modern site.
Office blocks are turning greener under Schroder’s management too, such as The Tun in Edinburgh, where Montgomery and Biggins have introduced LED lighting, upgraded heating systems and signed premium rental agreements with blue-chip tenants.
Other properties include academic sites, such as the University of Law, Central London and well-located shopping sites, such as St John’s Retail Park, Bedford, where Lidl and B&M lure a steady stream of bargain hunters.
Industrial estates attract a range of tenants, too, from widget-makers to document storage firms, food delivery chains and even gyms.
Upgrades are a feature across the portfolio and Montgomery and Biggins make a point of engaging with tenants regularly. That facilitates rental growth and the duo anticipate growing income as economic conditions improve.
Schroder Reit is already in a robust financial position. The group’s year end runs to March 31 and a total dividend of 33.5p is expected, putting the stock on a yield of almost 8 per cent. Payouts should increase over time, especially as the firm took out long-term fixed-rate debt when interest rates were low.
Yet Schroder has been punished by the market, in line with other, less innovative property groups. Independent valuers suggest the company’s portfolio is worth £458 million. On the stock market, Schroder is valued at just £203 million, with shares more than 50 per cent below a 2018 peak.
Midas verdict: Schroder Reit has been hit hard by widespread antipathy towards the property sector but sentiment should change and Schroder shares should rally. At 42p, the stock is a buy, while generous dividends add to its appeal.
Traded on: Main market Ticker: SREI Contact: schroders.com or 020 7658 6000
