Good morning, ladies and gentlemen, and welcome to the Schroder European REIT Annual Results up until the end of 30th of September this year. My name is James Lowe. I look after sales for the Schroder Investment Trust business. I'm very pleased to be joined here in our London studio this morning by Fund Manager Jeff O'Dwyer and Finance Manager Rick Murphy. Just before we get into the presentation, a couple of things you can do on your screen. You now should be able to download a copy of the annual results. You can also download a copy of the presentation we're about to talk to, so you can follow through with a bit more detail. Also, please do ask us questions in the Q&A tab, and I will ask the guys at the end of the presentation.
That's all for me for now, and I'll hand you over to Jeff to start the presentation.
Great. Thanks, James. So basically, I'll run through a bit of a business update, where we are in terms of markets, what we're doing to try and ensure not only the growth in asset values, but the growth in earnings, and obviously putting the company in the strongest position possible to enhance shareholder returns. I'll then hand over to Rick, who will run through the financials. Obviously, it's pleasing to sit today. We're operating in a slightly better backdrop to that we started the year with. The portfolio has shown really strong resilience in what has been a fluctuating economic environment. Obviously, investment volumes have dropped off and are close to record lows. I'll cover that a bit more detail in a minute.
But on the back of recent interest rate movements from the ECB, we still believe that there's going to be a stronger focus on real estate, not only through the end of this year, but obviously early part of next year. So the medium-term outlook for real estate is looking strong. Obviously, we've seen the share price still trading at a bit of a discount. We think that's fundamentally good value, particularly given the cities that we have exposure to. Obviously, the underlying teams that manage this portfolio and the growth that we expect, not only in terms of potential value, but earnings growth going forward. What I wanted to do now was just remind investors as to what the European REIT offers. And it is the only UK-listed vehicle that gives investors access to a diversified portfolio of commercial real estate in continental Europe.
As I touched on before, I think we've reached a bit of a floor in terms of where values are. So it's a really appealing opportunity now to get set and come in, given that valuation backdrop. A real difference that this investing in Europe has relative to the U.K. is obviously the underlying inflation hedge, with pretty well all the leases subject to indexation. I'll come on to that point a bit more later, but that's a real positive nuance relative to the U.K. We made a decision a little time ago to go very conservative with the balance sheet. So really positive to be sitting here running a vehicle at such low and modest gearing. It gives us a lot of flexibility going forward. So at the moment, our LTV is about 25%.
We've got quite a bit of cash that gives us options to either look at investing in the portfolio to improve quality, looking at potentially new acquisitions, possible share buyback, depending on where that discount is, that are really strong position to go forward, and obviously, for a new investor coming in today, this appealing financial proposition where you're getting a fully covered dividend yield, which off today's share price is just over 7%, and that 30% discount that I touched on. I think it's a really appealing entry point for investors, and obviously, with Schroders having the teams on the ground, you've got investment, total investment in terms of numbers of over 200 investment professionals. We're in the cities that we have exposure to, and we can leverage off what we call multi-sector specialism. We have teams that focus on office, retail, industrial, healthcare, and residential as well.
That operational mindset that we have is becoming increasingly more important in terms of how we're dealing with occupiers going forward. You may notice that within this presentation, we've damped down the sustainability side, and that's because of regulation changes. I can't really say too much and present too much around ESG because of the anti-greenwashing. What I can say is that we still are continuing with sustainability being the heart of our asset management and how we're looking at real estate. We're still continuing to look at making the pivot. Obviously, we need to go through internal and external approvals before we do that. That's typically to mirror what the UK vehicle has done, which is moving towards an SFDR label. I'll hand over to Rick to run through some of the financials.
Thanks, Jeff. And good morning, everybody. So turning to the financial highlights for 2024, and just beginning first of all with the income side of things. So we can see here, I'm pleased to be able to say, a dividend cover of 103% for the financial year, together with a 3% increase in EPRA earnings. And that's been driven predominantly by inflation-linked income, together with strong portfolio occupancy in the 12 months. And that's offset higher interest costs in the period. Just with regard to rent collection, again, as in previous presentations, very positive to be able to say that all rents have been received on the direct portfolio, just demonstrating the company's strong and robust tenant base. With regard to the balance sheet, as Jeff mentioned, we've got around EUR25 million on our balance sheet.
As we move towards 2025, we feel that gives the company real significance, opportunity, and flexibility moving into the new year. Just on the debt side, two refinancings were completed in the financial year. One was the office assets in Saint-Cloud, Paris, the other an industrial asset in Rennes in France. And that's meant that now there are no near-term refinancings until summer 2026. And then just moving to the LTV side of things. So we've got a modest LTV net of cash of 25%, 33% gross of cash. And with the anticipated near-term disposal of the shopping center in Seville, that would fall by a further 3%. Performance-wise, a net return of 0.4% for the financial year against a minus 5% for the prior financial year. And just a bullet point here, it's been in prior RNSs and reports.
Just a note that there is a contingent tax liability in the fund at the moment, with a range of values set out on the screen. Currently, with advice received, no provision has been made for that at the current time, as we don't believe an ultimate cash flow will be probable. Moving next to the balance sheet slide, this just sets out a high-level NAV bridge of where we've moved to over the 12 months. An opening NAV of EUR 171.4 million, or euro cents per share terms, EUR 1.282. We can see an unrealized valuation fall of EUR 6.1 million in the year. We've got each asset breakdown on the right-hand side. That was driven by re-rating of market yields in the periods, predominantly in the first half of the financial year.
We can then see that there were no purchases or sales in the 12 months. Some CapEx invested around EUR 1.5 million in the year, largely at two assets in France, Rumilly and Saint-Cloud. With regard to Paris Boulogne-Billancourt, EUR 0.6 million development profit has come through into our NAV in this financial period. And we can see here just in the text that all being well, there's a maximum of EUR 0.8 million of pre-tax NAV uplift to potentially come through in 2025. With regard to Seville, again, just a reminder, the group fully wrote down its investments in that asset back in spring 2021, and there's no reversal of that impairment in our year-end numbers. EPRA earnings of EUR 8.2 million, non-cash capital items of EUR 0.6 million. That's largely a fall in the fair value of interest rate derivatives as ECB rate cuts have come through.
And then dividends paid to investors of EUR 7.9 million, all in all giving us a closing NAV of EUR 164.1 or EUR 122.7 per share. Just on the next slide here, we can see a bit more of a breakdown of earnings. So we can see EPRA earnings of EUR 8.2 million this financial year, EUR 8 million the prior financial year. And we can see that's been largely driven by an improvement in net rental and related income of around 5%. Fund costs have been broadly flat. And we can see here the higher net finance costs have run through, but they've been partly offset as well by interest received in the period. So all in all, dividend cover of 103% for this financial year against 89% for the prior financial year. And just on this slide, just a bit of a reminder of the
dividend trajectory over the last few financial years. So we can see here for the financial year 2022, dividend cover was 61%. That was borne by the sale of Paris BB and the loss and replacement of that income. And then 2023, dividend cover of 89%. And we can see there as well the rebasing of the dividend post the 2023 interims. And then moving into 2024, again, that 103% dividend cover, which we feel provides protection and headroom at the moment, and hence why we're pleased to announce this morning a EUR 148 per share to be paid out next month in January. And just finally, my slide here, we've just got a bar chart of SE REIT, the second block on the left, and how this stacks up against certain diversified peers.
We can see here, with regard to the fund's modest LTV of 25%, fully covered dividends, and a dividend yield of over 7% leads to what we think is a good attractive proposition compared to certain diversified peers in the group. With that, I'll pass back to Jeff to go through the portfolio.
Thanks, Rick. I talked about the resilience of the portfolio over the year, and I think that's a testament to where we have exposure, and you can see here, this is the 15 assets that we have, as well diversified. We're in cities such as Berlin, Hamburg, Stuttgart, Frankfurt, and Paris. Obviously, we've got a third in offices, a third in industrial, which is definitely a growth sector, and we're seeing good rental growth coming through, in particular to that sector, and we've got about 20% exposure to retail, and we've got some alternative exposure being the mixed-use data center and the car showroom, and the rest, we have in cash that I touched on before. I'm not going to go through every asset, but just to highlight maybe some of the areas in terms of how we've invested.
I think we've done this well in terms of picking sub-markets within growth cities and sub-markets that would outperform in terms of not only transport connectivity, where there's supply constraints, where there's competing demands for users, or fundamentally buying buildings at least off affordable and sustainable rents. Those attributes are putting us into a strong position now, particularly as we're starting to go through a bit of re-gearing. There's a couple of bigger tenants that I'll talk about in a minute where we need to re-gear those leases. We'll see some growth going forward on the back of that, and also shoring up the earnings and the unexpired lease term through that. I think I'm really comfortable in terms of the positions that we have in terms of the cities and the type of real estate that we have.
Just talking about investment volumes, and you can see this bar chart on the left and the line highlighting that things have really fallen off a cliff. I think we have found a bit of a floor now. It's not as bad as the GFC.
We've just seen, I think, for Q3 investment volume starting to tick up, and I think for Q4, particularly on the back of the rate movements that the ECB have come out with over the last few months, I think that's still to come through to investor demand, so I think for the latter half of this year, we will see that line start to tick up. One of the real positive things here is that really the volumes have been centered on the smaller lot sizes, which is where our strategy has been. So that's sub 30 million.
It's the bigger institutional lot sizes of EUR 1,500 million plus, particularly around offices where there's just no demand at the moment. So for us, in terms of liquidity and our ability to sell assets if we had to, I'd feel very comfortable, particularly given the cities that we have exposure to, and just on that point, we are testing the market in relation to one of the assets, and I hope to have some positive news in January. We're in exclusivity at the moment, and this is in relation to the Frankfurt retail asset that we have there, and a disposal of that will prove value in terms of how we're holding that asset value in the book. So some positive news to come out with there.
Right-hand side is, again, just highlighting that we're not the buyer of the prime real estate. You can see here that we've invested across the different sectors. For instance, industrial, our current valuation represents around a 6.6% net initial yield. If you think about where debt and the cost of debt is at the moment, where five-year swap rate has now fallen to just sub 2%, if you add in a margin into that, you can get an all-in financing cost of mid-threes. Against a net initial yield for industrial of 6.6, you can see why debt is accretive and why I feel comfortable that if we were to offer those assets to the market, that value would be proved. That's delivering a fairly strong premium to where the risk-free rate is.
Here, we've used a blended risk-free rate across the three jurisdictions that we've invested in, which is Germany, France, and the Netherlands. You're getting around a 4.5% premium. Historically, prime real estate has traded at somewhere around a 200 basis point premium to the risk-free rate. Again, having regard with the fact we're not an investor in prime real estate, but I think that 450 basis points definitely prices in the risk that we have. Just on offices, I think I know I touched on that we found a floor for most sectors. I think there are certain offices and certain, particularly for regional offices, where I still think there's a question mark and probably some more values to fall. I'm going to talk a bit more on offices in a bit more detail in a minute. Again, our exposure is in Hamburg, Stuttgart, and Paris.
And in particular, for the German exposure, I feel really comfortable given the lot sizes that we have at around EUR 20 million and the fact that they're both fully tenanted and one in particular being fully leased to the government. Retail I touched on, we're looking at selling the Frankfurt, so it'll prove value there. And then we're left with the DIY asset in Hornbach in Berlin, which is sitting on four hectares of land. And the play for that is longer term to try and look at alternate use. The data center is the KPN single tenanted. We're trying to work with KPN about trying to de-risk that at the moment. Their lease expires in 2026.
The way the valuers are looking at this, and that's why the yield on this is so high, is that they're saying, "Well, look, we're only going to price the remaining income, which is effectively two years, and the residual land value." This particular asset will continue to fall in value until we've re-geared that particular lease. We've got the car showroom in Cannes, which is a bit of an alternative for us. Just touching on what we've done and obviously re-gearing a number of the leases over the years, about 16 leases, total rental income of about EUR 1.4 million. We've extended the unexpired lease term on that to about eight years, just conscious of the things that we can now improve or work on. Obviously, Saint-Cloud is our biggest vacancy.
The overall portfolio vacancy is relatively modest at 4%, but the bulk of that is really Saint-Cloud, which has about 15% vacancy. It sits in a sub-market that has been challenged in terms of occupation. Notwithstanding that, we're actively managing this, and we are in the process of trying to do another floor from a leasing point of view. There's potentially about EUR 570,000 of ERV that we can add here if we get that to a fully leased basis. Frankfurt, I've touched on. We re-geared all the leases in there, particularly the Lidl supermarket on a new 15-year lease. And we've done this really to prepare this for sale. And we've had some good feedback from the market. And that's something, as I touched on, will come out likely in January with some positive news around that. On Metromar, Rick touched on this.
It is an asset that we don't talk too much about. We have written down the equity on this to zero some years ago. It's post-pandemic. It didn't really survive. We are in the process. We're in exclusivity with a group at the moment. The positive here is that if we get this off the balance sheet, because we've kept the liability in, even though we don't have recourse to any of the income, that actually removing this would reduce our gearing by about 3%. So a really positive reduction even further and strengthening the balance sheet. So looking forward, obviously sustainability, and I'm officially not allowed to really talk about that word from an anti-greenwashing point of view, because we are an Article 6 vehicle. Our aspirations are to obviously move this to being more of an Article 8 and also to get an SDR label.
And that's very similar to what the UK vehicle has done. Notwithstanding that, we are continuing to manage the assets with sustainability at the heart of our mindset. So whenever we're looking to do a lease re-gear, we're making those investments or encouraging tenants to make those investments as well. Again, providing a solution to the tenants that improves the quality of the assets. And that's one way that we believe that we can grow earnings going forward and also secure existing tenants and try and strengthen the unexpired lease term and income quality. So our immediate focus is really around those four assets there on the right-hand side being Berlin. So we're in discussions at the moment with Hornbach about re-gearing that lease. Rumilly, which is leased to Nestlé. It's the industrial asset that we have in France.
We've got a couple of proposals out with them about re-gearing that on a longer-term basis. Really positively in Stuttgart, we've got the government in there, so the state of Baden-Württemberg. We're in discussions with them about extending that lease, so we would make some investment from a sustainability point of view, and on the back of that, we'd have them sign a new 10-year lease. Then in Apeldoorn, which is really one of the key income generators, it represents about 18% of our income. We're conscious there about working with KPN. We're trying to get them to make a bigger commitment and turn this into a hub location for them. They're still assessing their potential for this location. Their lease doesn't expire to 2026, but there's a number of angles there that we're working on in terms of trying to enhance the options.
And then longer term, I talked before about how do we invest in real estate and obviously transport infrastructure. And the changes that go with that is quite key. And again, with Saint-Cloud, there's going to be a train station come outside the building for 2030. Similarly, in Stuttgart, we've got the Stuttgart 21, which is the repositioning of the main train station to cater for faster access to the airport and throughout Germany and Europe as well. So we think offices around that location will benefit. Just on the offices, and I get this question a bit in terms of how European offices are performing, and these are the sub-markets that we have exposure to. On the right-hand side is our two German assets. So in Hamburg, we're in the City-Süd sub-markets, one stop from the city center.
We're offering rents here of about EUR 14 per sq m per month. To put that into perspective, prime rents in Hamburg, one stop away, in the city center of Hamburg, one stop away, we're now at EUR 35. To build a new office building, you've really got to be hitting rents even north of that to justify construction as to where construction costs have got to. So as a back-office location, this is stacking up really well. Vacancy has held up exceptionally well at sub 5%. We're fully leased for this particular asset that we've got, and I feel really comfortable about holding an investment like this, particularly in an area where you are accessible and you're affordable. There's a number of tenants out there that want to tick those two boxes.
Even though it's not a Grade A prime asset, it's a Grade B building, it's still holding up very well. In Stuttgart, very similarly, we're in the city center of Stuttgart. We're offering rents of around EUR 14-EUR 15 per square meter per month. And again, relative to prime rents, it's a huge discount. Obviously, having the government in here, they are not typically a user of prime offices. They have VAT restrictions where they can't claim back for newer buildings. So therefore, they're forced into taking buildings like ours. And there's just no availability, as you can see here. Vacancy in Stuttgart is around 1.5%, so there's just no choice for occupiers. So I'm really positive that we can re-gear that lease with the government and grow rents on the back of that. The slight, I guess, problem child in the portfolio is the Saint-Cloud office building.
It sits in a sub-market where vacancy is increasing. And I touched on before, we've got 15% vacancy there. Our teams are working really hard from an asset management point of view to de-risk that. The value of this asset and the liquidity of this asset will be really down to how we manage and try and reduce that vacancy. One of the positives is that we are off relatively cheap rents. So our rents in here are around EUR 200 a meter. So that's a huge discount to where prime rents are in the southern bend, which are now EUR 540 a meter. And we're seeing even stronger prime rental growth in the center part of Paris, which is now nudging north of EUR 1,000 a meter. So therefore, back-office locations like Saint-Cloud will improve.
I touched on before that with the transport infrastructure from 2030, we think these locations will benefit from that. That's obviously still some time away, but that's certainly one of the key opportunities going forward. Obviously, inflation talked about before. All the leases are pretty well subject to indexation. Typically, it's annual index, other than in Germany, where you have to wait for the compounding to reach a hurdle before you get that index. Obviously, across the continent, different countries are expected to benefit from different inflation rates. We've seen in the Netherlands some pretty heavy inflation over the last couple of years. That's now tapered back to mid-2%. Similarly, with Germany, there's a bit more inflation pressure there. Obviously, France, probably a bit more modest at around 1.4%. That's for 2025.
So on a positive note, inflation's come back, but it's still reasonable levels that we can implement, just given the nature of the leases and the annual indexation that we can achieve.
Just on the debt, I obviously focus on why we've gone conservative, and it's really pleasing to manage a vehicle and gives us a lot more flexibility going forward. Obviously, net of cash, we're at about 25%. If we remove Seville, that will fall to about 22%. So a really strong position going forward. I talked about the potential sale in Frankfurt. That particular asset is linked to Berlin, so we'd have to repay that debt. So that would actually reduce the gearing even further and presenting us in a stronger position to go forward.
I think one of the other real items to highlight here is really the five-year swap rate as to where we sit today in Europe. That's now nudged below 2%. And if you think about when we actually entered into the five-year swap for the Dutch loan, which was September last year, the five-year swap was 3.3%. So we really have, and rates have really come off quite significantly around that. And I think the availability of debt, particularly for a manager like ours, is still there, particularly those banks want to work with those managers that can de-risk not only the solution side with tenants, but also the sustainability side. And I think that's what we do well. And that's why we don't have a concern about refinancing risk. There's probably a bit more refinancing risk around offices going forward, particularly secondary decentralized offices.
And I think that's probably an area of distress that we still think is still to come out in the market. And that was one of the reasons why we elected to refinance the Saint-Cloud loan a bit earlier. We did that earlier this year. And we've taken a cap in relation to that as well. So I think from a balance sheet point of view, we're in a really strong position. And the next refinancing opportunity is not until June 2026. So really comfortable as to where we sit with that. Obviously priorities, conscious about the income exposure that we have. And you think about whether it be Hornbach, Nestlé, and KPN, that represents about 26% of our income. So it is a large number. We're working hard to de-risk that.
And I think until we've de-risked that, I can understand why the share price is reflecting that sort of risk. But I do feel comfortable that we can re-gear those leases, particularly with Hornbach and Nestlé. KPN, I think they will stay for the data center, as to what they want to do with the rest of the building is the question. Obviously, we pride ourselves on our relationships with tenants and our ability to retain tenants and provide a solution to them. And I think that's one of the things in terms of having specialists on the ground and the relationship management that we have is putting us in strong stead to re-gear those leases. Frankfurt, I talked about. I think there's a real opportunity here to recycle some capital. We've done all the asset management that we could do there in terms of re-gearing those leases.
I think for us, the returns for investing that capital elsewhere. I think we can drive returns in a better way than holding that particular asset. Notwithstanding, we do like the sector being in terms of grocery retail in a strong city.
Obviously, energy and carbon continue to manage the assets with this at the heart of our management.
We haven't been able to come out with a formal pivot just yet. We've got to go through various internal approvals and then apply to the FCA. It continues to be our intention to pivot this. The rationale for that is really it allows us to broaden to a stronger set of investors, particularly those investors that are more thematic driven. Also having a label in sort of alliance with some of the benefits that the UK trust has done as well. It's how we're managing real estate anyway. And that's our intention. And that will probably be really well for 2025 that we'll formally come out with that pivot.
So just in summary, I mean, it's a really strong entry point today at an hour and a half on the discount. But really, for an investor to come in today, I do believe it's a compelling proposition. You're coming in at a 30% discount. You're getting an attractive dividend yield. It's fully covered. We've got teams on the ground that are actively managing this. We can de-risk some of those expiries that I've touched on. We're well diversified. We're looking at selling down some of the retail exposure. With the strength of the balance sheet, we've got some opportunity to either invest in the portfolio, improve quality, or potentially look at a new acquisition.
But it's a really exciting time to get set into a unique proposition. It's the only listed vehicle here in the U.K. And it's a good diversifier for investors being able to get access to some really strong cities in continental Europe. So I'll stop there. Happy to answer some questions, James. I'm sure there are some questions there.
There are some questions, Jeff. And there are some questions. You just mentioned the discount. There are some questions on the discount. I'm going to come back to that. But we're going to start with a couple of the more investment-led questions. And thank you, everyone, for sending in your questions. Please do send in any other questions you have as we go through this Q&A session. Jeff, maybe starting coming to you, one of the questions that's come in has highlighted some of the major expiries you described in the presentation that you said you're looking to de-risk. You've given us some information on that. I guess the question here is, does that mean potential for news flow in the first half of next year? And the second part of that question is, is there scope outside of Apeldoorn to be pushing rents on next year?
Yeah. Look, I think there's a couple of the assets that are a little bit lumpy in terms of if you think about KPN, Hornbach, Nestlé. Sitting here today, I can't come out with any clear news. We are in discussion with those tenants in various different stages. Obviously, Hornbach is the market leading DIY operator. Interestingly, they've got two locations in the southwest of Berlin.
They dominate the market share there. I don't think they will leave this location. It is a bit over-rented. So that's an angle that we do have here in terms of trying to use that as a means to have them re-gear. What we're thinking is actually trying to have them re-gear on a longer-term lease. But also, we're conscious that we have opportunities here, having a four-hectare site, that if we can get planning, there's a way that we can maybe create some further value. So we don't want to lose sight of that either. Obviously, planning process in Germany takes a long time. So entering into, say, a 10-year lease wouldn't be the worst thing in terms of protecting our income. But it gives us the opportunity to go for that rezoning and planning as well.
So yes, I think to answer the question, we'll come out with some news on that probably in January. Similarly, with Nestlé, we're in discussion with them around re-gearing that lease. There's two options that we've given them at the moment to secure them. It's a strategic location for them. It's located a kilometer from their cereal manufacturing business. They've been in this asset for 20 years. They've made some investments themselves. We've also done some investment in terms of improving the fabric. So again, I don't think that they will leave here. There's just no option for them. KPN is slightly more difficult. I mean, what we do know is that they have some data in this building that is quite sensitive, particularly around defense and healthcare. So I don't think they can readily move that. And their lease expires in 2026.
But we've been actively working with them and trying to convince them, "Look, we'll turn this into a hub location." So not just a data center, but let's turn this into your call center, your offices, maybe work with you in terms of some of the AI improvements that they're working on as an occupier. So there's a number of different angles there. Equally, we're thinking about, "Okay, if they don't want to be there, is there another data center company that wants to be there?" Because we've got power to this building. That's becoming a real resource and a real value. And then outside of that, we're also mindful that there's medium-density residential surrounding us. There is existing zoning to build over 100,000 square meters of residential on this site. It's three and a half hectares. So there are angles there as well.
So, to answer the question, yes, we'll be coming out with some news around that through the course of the early part of next year.
Great. And you've mentioned a couple of potential opportunities there from the investment side, asset management angle. Another question that's come through here is just highlighting that clearly with the modest LTV that you have and the cash available and your comments around valuations stabilizing in the market, are you seeing other areas, attractive investment opportunities on the ground where you might look to deploy capital?
Yeah, we are. And I think one of the things that we would continue to do is really stay in France, Germany, and the Netherlands. I don't think we would be deviating just given we are a relatively small vehicle. Despite we see stronger growth in maybe some of the Nordic areas, I think we will continue to focus on these jurisdictions. I've said before that we would like to add to our industrial exposure. Currently, we've got about 30% exposure. It is the one sector that, from an ERV growth going forward, that's the strongest returns that we see. So that makes sense in terms of getting spent there. So, obviously conscious that trading at a 30% discount, trying to stack up a real estate investment relative to buying your own shares, it's going to have to be a really strong performer.
So we're juggling that, and I have that debate with the board regularly. But at the moment, we're thinking, "Well, actually, the capital that we have, are we better off investing in the portfolio, trying to grow earnings that way, improve the quality of the assets?" We know that better quality assets, not only seeing better tenant demand, better rental growth, but obviously better liquidity, not only to the investors, but also to lenders as well. So that's probably where we're thinking, and particularly around some of the audit feedback that we have on the sustainability and how we can position the assets. We think there's probably a better opportunity to invest in the portfolio rather at the moment, given the discount to just buy a new investment.
Yeah. So that was really useful, that answer, because you've now answered two of my next questions, which were actually about buybacks and whether we're looking at that. I mean, you've already expanded on it, so I'm not going to ask you a question unless you've got anything else to add, because we have a couple of questions here on just the, I guess, questioning the rationale between investment and share buybacks.
Yeah. Look, there's a number of vehicles that have been doing buyback, and you know this well, James, in terms of it doesn't always work in terms of closing the discount. Mathematically, it's hard not to dispute it's the best use of capital given a 30% discount. Where it gets slightly more tricky is if you're at sub 20%, you should be able to find a real estate investment that outperforms. We were thinking more seriously when we were at the 40% discount about doing a trade.
But I do think if we're certainly coming out with some of the news and de-risking some of that leasing that we've just talked about, I think that will be very helpful, more helpful in closing the discount than, say, doing a share buyback.
Yeah. Sure. Thanks, Jeff. Maybe just moving on slightly, there's a question here around the dividend. So I'm not sure how much you can say forward-looking, probably not a lot. But the question here, and I'll ask it to you anyway because one of our listeners is interested, is where would the dividend cover need to get to before you consider raising the dividend again? I know that's a simple question, but probably lots of complexity behind that conversation with the board. Any thoughts?
Yeah. Look, I can't give any direction. We don't really give any direction on dividend. I mean, we have been focused on dividend cover. I think that's a fair point. You can see on this slide how we've actually gone from being heavily uncovered, which was primarily due to the Paris repositioning that we did. We elected to go conservative, hence why we cut the dividend. That was more the reason for the divvy cover moving over 100%. I think if we can de-risk the leases that we've talked about, that's going to put us in a much stronger position to then answer that question. But yeah, I mean, we've got a number of, I guess, different levers to pull. We've got some of the growth to come through with it, the indexation, some of the ERV growth as well. De-risking Saint-Cloud from a vacancy that will all be helpful.
But yeah, if we get those right, I would like to think that the board would be supportive of relooking at where we are with the dividend.
Yeah. There's some really good questions coming through that are making my job very easy here because they're all flowing in the right direction. So just to add to the point we've just made there, one of the questions that has just come through is around how do you, I mean, actually, I'll ask you the whole question. Where do you see your asset base in five years' time? And then the question off the back of that is the European REIT. Do we see this in five years' time as a dividend-paying, progressive dividend-type proposition, or is it more going to focus towards growing the asset base? You obviously mentioned sustainability, transformation there. How do you see the European REIT evolving over time?
Yeah. Look, I think it's still an income. I mean, this particular trust is income-focused. Our investors really like the income. It's a really strong-going concern. Let's not move away from that. Yes, it is small, but we do have exposure to some fantastic cities and some good real estate, and obviously managed by excellent teams on the ground. The balance sheet position is brilliant. Now, the flexibility that we have with that, we can move forward. I think I would like to improve some of the exposure from an industrial point of view. I think that's an area where we're probably underweight at 30%. So if anything, try and grow that exposure. Obviously, the sale of the Frankfurt will be helpful. Moving Seville will be helpful. But as a going concern, really strong position.
I certainly have had some really positive feedback from most of the investor base in terms of that it's doing exactly what we said it would do. I mean, the only thing we haven't done is grow the vehicle, and that's been frustrating. Just the nature of a listed vehicle, you can only really grow when you're trading at NAV. We nearly got there pre-pandemic. But I do think with these levers that we still have, I think we can close this discount. And yeah, very hopeful that in five years' time, we will have a stronger, bigger vehicle that's more diversified.
Yeah. No. And as you say, Jeff, this is a trust that has previously traded at a premium rating, but maybe the discount at the moment is indicative of where the market is currently pricing REITs. I guess one question that's come through off the back of this, and I guess there isn't a really clear single answer to this, but the question is, obviously, 34% discount is a wide discount. That's wider than some of the peers. Do you have any insight as to why we're trading wider than the peers?
Well, I think the income, in terms of what we've talked about in terms of those three leases, I mean, that's—I should be conscious that that is a risk, and we think we can de-risk that. And I think as we do that, that's going to be a big plus in terms of closing that discount. Obviously, we're the only U.K.-listed vehicle that gives exposure to Europe, so we don't really necessarily have a peer group per se.
I mean, I think the discount is oversold, particularly given the strength of the balance sheet and the cities that we have exposure to and the quality of the real estate. So hopefully, on the back of this, we will see a bit more closing. Actually, I guess more recently, the trust has actually held up quite well because there has been a bit more of a sell-down in the U.K. here, in particular over the last three-to-four weeks, where a lot of those other listed vehicles have lost some momentum, and we've actually held up quite well. But look, I think as a going concern, ability to get exposure to these cities, the real estate, and a 7% fully covered dividend yield with extremely modest gearing, I mean, for me, it's a pretty compelling proposition.
Yeah. And often, actually, quite interestingly, before the pandemic, when we were trading a much narrower discount or even a premium, we were trading narrower than many of the diversified UK businesses, right?
Yeah. Yeah. I think that's fair.
Yeah. Right. So moving maybe into, there is a question specifically here about Saint-Cloud. Just wondering if you could just add a bit more around how the numbers are working around Saint-Cloud. There's a question here specifically about, is Saint-Cloud profitable? How do the earnings work? I don't know. Rick, is that one you want to take? Or Jeff, I mean, he's.
Yeah. I mean, it really is an asset-driven and actively managed asset. So it's probably more a question for me. I spend a lot of time with the teams. We've got a lot of our senior Paris team working on this. Interesting, I took the board over to the asset the other week. Look, I classified it as a problem child, but I think it's certainly one that is a high-income generator. So when we bought this, it was off a—I think it was close to a nine net initial yield. We've had some valuation growth, so that yield has sort of come down. We've obviously now got a bit more vacancy than when we bought it. It's an asset that I think will benefit from the transport infrastructure improvements. Disappointingly, that should have come in 2026. That's now been deferred to 2030.
One of the real positives is we're off very low rents. So I talked before here on this slide that we're leased off rents of EUR 200 a meter, which relative to where prime rents are, not only in Paris city center, but the Boulogne-Billancourt or Southern Bend area, where rents are now sort of EUR 540- EUR 550, there are certain tenants that just can't afford to pay that. So they are looking at this building. You get inside the building, and it actually offers fantastic views over the river towards Paris, towards La Défense. It's got fantastic car parking. And as a site, because let's also be clear, we own, it's part of a condominium, so it's a little bit complex in that regard. But as a site, it's incredible.
If someone could sort of amalgamate this and put this together, it probably could be one of Paris's best sites in terms of redevelopment angles and opportunities. We didn't buy it for that reason. We bought it for the income, and that's really, from our perspective, we're just actively managing this, trying to maintain as close to full occupancy as we can, but it's certainly, and I think there's a lot of office assets out there that are taking a lot of management time, but it still is an opportunity and plays a position in the portfolio, particularly from an income point of view, so yeah, it is the problem child in the asset that we are allocating the suitable attention to de-risk that. Sure. Thank you. That's really useful extra context. I'm getting lots of questions here about buybacks and discounts. We've obviously spoken about that question.
But actually, one thing I was going to ask is that at the end of this presentation, which we've probably got time for a couple more questions still, we will be showing you a feedback form. So if you are a shareholder and you'd like to provide us with your thoughts on that, we would very much appreciate to see that feedback. So please do stay on the line and answer that feedback form as we get there. So maybe a question here. There's probably time for two more questions, which I'll ask you, Jeff. There's just a question here about the shareholder base and the quality of that. Particularly, you talked about widening the shareholder base. Are retail investors buying this trust on platform? There's actually a question about whether there's activist investors on the shareholder base. There isn't. I can answer that one upfront.
Yeah. Happy to. I mean, we spend a lot of time together, James, and particularly with your team as well about trying to really grow the register. And I think we've done a good job. And those who have been investors in this vehicle will remember that actually, when we first launched this, we had 50% of the register out of South Africa. And then we had the situation where the South Africans, with the change in government with Ramaphosa, they felt that actually domestically they were going to do better, and they sold out. And that created this sort of huge overhang of stock and depressed the price. But we allowed us to actually diversify the register, and particularly with some of the [ars] that have now come in, and they've been really strong, supportive investors.
And we've grown that in Ireland, as you know. I think the retail side is a really interesting point. And I think that's the area we're spending more time trying to be much more active on the sort of the platform side of things and presenting. I know that I've been presenting more to the retail client base and spreading that. I think it's a good product for retail investors as well, given the dividend yield. So yes, I think the pivot that we've talked about, we've had some really strong success with the UK sister vehicle that Nick Montgomery runs. When they did that pivot, I think that opened up and broadened the investor base to those that are more thematic-led. We think we'll get, and that's one of the levers that we have here. And I think we'll get some positive uptick on that when we do do
that. And obviously, I'm just conscious we have to go through various approvals before we do that. But look, it is a very strong focus of ours, not only myself, but also with the teams, the distribution team that James works in. And we're using a number of different external parties as well to try and grow that register and diversify that. So yes, I think retail is becoming increasingly key, and trying to sort of broaden that register is a key priority.
Yeah. And if you look at the major direct-to-consumer platforms, they're one of the largest growth areas on the register. So clearly, some success from the presentations that you're providing, Jeff, so we'll continue with that going forward. So maybe just coming to - I appreciate we're coming up to 50 minutes. So maybe just coming to the final question.
This is a bit of a broader question, so hence why I've left it to the last question. Our listener here has asked, well, has basically pointed out that they get the uniqueness and attractiveness of the positioning towards growth cities in Europe. They completely understand that. But clearly, much of that hinges on European economic outlook and, I guess, the prospects for recovery in European commercial real estate. Our maybe just let's finish with what's your thoughts on a medium to long-term view here. It's a crystal ball question, but maybe one just to talk through.
Yeah. I mean, there's no doubt that some of the economic and political instability that Europe is facing is an impediment. We do, certainly from a political point of view, we look through that in terms of how we invest. Yeah.
I think we still see growth across the different economies. Yes, it's probably certainly been hit for the more shorter term, but longer term, we think there is some growth. And obviously, some of the cities that we've invested in, one of the key propositions was actually to invest in those cities that would grow faster than their domestic economy. So if you look at Paris, a good example, it's going to outperform. I think the recent sort of GDP growth forecast for France is 1.5%. Paris is, say, 100 basis points above that. So there's still sort of some positive growth of how we've invested that we should get a stronger position going forward. So yes, there's no hiding behind sort of where Europe is in terms of economic difficulties. But I think we have a robust portfolio. Some of the covenants that we have in here are exceptional.
We've got no concerns around stability of income and the underlying corporates and distress there. But it's one of those things we've just got to manage the portfolio through those difficult times. And I think we're well positioned to come out the other end. And yeah, that's just part of investing. Great. Well, thank you, Jeff, for that. Thank you, everyone, for sending in your questions and for engaging in this Q&A session. As I said, you're going to see a feedback form shortly, so please do put in your feedback there. And as I said, if you do have comments about the buyback, etc., discounts, please do put them in there, and we'll take a look. We really appreciate your feedback on that area. So that's all we have time for today. Thank you for joining us this morning. Thank you to Jeff.
Thank you to Rick for the presentation. Hopefully, speak to you all again very shortly. That's all from us. Goodbye.