Tide turns for property sector, but Schroder remains adrift in the current

The listed property sector may have staged a spectacular comeback since late 2023, but the rising tide didn’t lift all boats. Small cap Schroder European Reit, which owns a portfolio of office, industrial and retail buildings in France, Germany and the Netherlands, has had a disastrous two years.

In fact, Schroder ended both 2024 and 2025 as one of the worst performers among the JSE’s 40-odd property counters. Granted, several offshore property listings underperformed their South Africa Inc counterparts, but Schroder was the only real estate stock that posted a negative total return in 2025 at -3%. That’s in stark contrast to the 31% of the JSE all property index (Alpi).

In recent weeks, Schroder has been trading at record lows of under R14, about 50% below its 2022 peaks and roughly in line with when it made its debut simultaneously on the JSE and London Stock Exchange 10 years ago. At the time (December 2015), offshore listings were in vogue and Schroder was a welcome addition to the JSE’s growing range of rand hedge offerings, given its backing by London-listed parent Schroders plc — one of Europe’s largest asset managers, with a market cap of about R150bn.

Analysts ascribe the Continental Europe-focused real estate investment trust’s underwhelming share price performance to several factors. Its relatively small size, for one, is a hindrance. With a JSE market cap of R1.88bn and a portfolio of only 14 buildings worth €194m, the stock lacks the scale — and, more importantly, liquidity — necessary to lure interest from South African institutional fund managers.

Evan Robins, senior portfolio manager at Old Mutual Investment Group, says Schroder also doesn’t offer the market anything special in terms of sectoral or geographic focus to differentiate itself from other JSE-listed Reits. “That made it unappealing from inception,” he adds.

Independent property analyst Keillen Ndlovu has a similar view, saying that the portfolio is exposed to only three Western European countries, which are not regarded by most South African investors as “attractive, exciting or having higher growth potential compared with Central and Eastern Europe”.

In addition, Schroder is not yet a constituent of the Alpi, which is the main benchmark for specialist property fund managers and tracks the JSE’s 22 largest and most tradable shares. Ndlovu notes that the stronger rand vs the pound and euro, particularly in the second half of 2025, didn’t help the Reit’s JSE performance. A €14.2m tax dispute with the French authorities also continues to drag on.

The contrarian view is that Schroder’s underperformance has created a bargain opportunity with potential recovery upside

Meanwhile, Ndlovu notes that Schroder’s dividend cover has dropped to a relatively low 94%, implying that the company is paying out more in dividends than its earnings. That raises concern about the sustainability of future payouts to shareholders.

More importantly, one of its Dutch tenants, telecommunications giant Koninklijke KPN (KPN), gave formal notice in December to terminate its lease in Schroder’s flagship property, a mixed-use office and data centre in Apeldoorn. The company will vacate the premises at the end of 2026. KPN is Schroder’s largest tenant, representing a hefty 19% of the Reit’s total rental income. Ndlovu says the concentration risk will cause a sizeable dent in earnings if management can’t find a replacement tenant.

At the release of the company’s annual results in December, Schroder’s fund manager, Jeff O’Dwyer, said addressing the looming vacancy at the Apeldoorn building is an “immediate priority”. In a bid to limit the potential impact of KPN’s departure on future dividends, management is actively looking at reletting to a replacement tenant or possibly obtaining planning approval for alternative uses. But O’Dwyer cautioned that if Schroder is unable to fully offset the loss of income from the Apeldoorn property, the level of future dividends or earnings cover will likely be impacted.

But it’s not all bad news. Garreth Elston, MD of Golden Section Capital, says the remainder of the portfolio’s rental income is relatively resilient, propped up by a diversified tenant base and long leases. Management continues to extract value where it can, he says. Ten leases and regears were completed in the year to September, adding €2.1m of contracted rent on long 11-year terms.

Occupancy levels also increased, from 94% to 97%, after empty space in one of Schroder’s Paris office buildings was let. Elston notes: “The latest annual results reflect a steady, income-anchored vehicle dealing pragmatically with valuation pressure and an upcoming income cliff at Apeldoorn. The tax dispute and tenant exit in the Netherlands remain the two variables that will drive sentiment.”

Of course, the contrarian view is that Schroder’s underperformance has created a bargain opportunity with potential recovery upside — provided management finds a replacement tenant for the Apeldoorn building sooner rather than later.

Schroder, along with Dipula Properties, Spear Reit and Octodec Investments, is widely expected to be added to the Alpi as new constituents at end-March, which could support the share price as the stock could then be added to some fund managers’ buy mandates.

At this week’s share price of about R13.85, Schroder trades at a disproportionately large discount to NAV of 43% vs the Alpi’s average of 7%. That places it at a decent euro-based dividend yield of about 8.6%. The stock is one of only a handful offering quarterly income payouts, which income-dependent investors no doubt like.