Mandate to run MEREIT trust fits Schroders’ Continental growth plans
Schroders has won two new property mandates, increasing its assets under management by £500m.
The fund manager will take over management of Matrix European Real Estate Investment Trust from Matrix Property Fund Management, while its multi-manager business has won a £135m mandate from Boots, previously advised by ING, now CBRE Investors.
Duncan Owen, Schroders’ head of property funds, who joined the group in January from Invista, said the Matrix trust, MEREIT, exactly fitted two areas of business Schroders wanted to expand in: managing listed investment trusts and continental European business.
MEREIT’s board appointed Schroders from a shortlist that included Rockspring PIM and Internos Real Investors, after inviting five parties to pitch, including LaSalle Investment Management and Matrix PFM.
MEREIT decided to sell its £367m portfolio a year ago and return surplus capital to shareholders. Matrix set up the trust in 2005, floating it in 2007, with debt from Bank of Scotland.
By 2009 it was highly geared with limited cash, at a time when property values were falling and it needed to sell assets to pay down debt. Matrix does not have non-UK offices to supervise intensively managing the properties.
Owen said Schroders’ priority will be to maximise returns to shareholders, whose shares are trading at “an unhealthy” 40% discount to net asset value. “There is too much debt [at £200m], but there are some good assets and no covenant problems,” according to Owen.
“The likely strategy is to sell assets and pay down debt, and as long as the share price remains at a discount, to repatriate capital to shareholders. “There could be a corporate solution and MEREIT is aware that we have found corporate solutions in the past,” he added.
Schroders will be paid a base management fee of €1.6m over the next two years and performance fees based on shareholder return achieved on disposals, with an incentive to sell the portfolio within two years.
Owen manages Schroders’ listed property trust, now called Schroder REIT, which he had managed at Invista REIM before Schroders won the mandate. Schroders’ multi-manager team, headed by Graeme Rutter, will manage the new fund-of-funds mandate.
Schroders’ head of property William Hill said: “We have taken on or won £1.5bn of business this year, in direct property, multi-manager and property securities.
“We are pleased to develop our investment trust business and to win multi-manager accounts like Boots and have extended our securities client base with £570m of new business.”