Cromwell European REIT Upcoming Earnings Announcement

With Cromwell European REIT releasing its upcoming FY2020 results in the month of February, we will be reviewing the Group’s recent 3Q FY2020 business update highlights and some of their recent updates.

About Cromwell European REIT

Cromwell European REIT (“CEREIT”) has the principal investment strategy of investing, directly or indirectly, in a diversified portfolio of income-producing real estate assets in Europe that are used primarily for office, light industrial / logistics and retail purposes.

CERElT’s portfolio comprises 95 properties with an appraised value of approximately €2,082 million as at the date of this announcement in or close to major gateway cities in the Netherlands, Italy, France, Poland, Germany, Finland and Denmark, with a balanced focus on the office and light industrial / logistics sectors.

CEREIT is the first REIT with a diversified pan-European portfolio listed on the Singapore Exchange Limited. CEREIT is managed by Cromwell EREIT Management Pte. Ltd., a wholly owned subsidiary of CEREIT’s sponsor, Cromwell Property Group, a real estate investor and manager with operations in 14 countries, listed on the Australian Securities Exchange Ltd.

Recent 3Q FY2020 Business Update Highlight

For 3Q FY2020, CEREIT’s Gross Revenue and Net Property Income (“NPI”) rose 2.1% and 14.3% quarter-on-quarter to €46.1 million and €30.6 million, respectively. The increase in NPI is mainly attributed to the absence of doubtful debt provisions in 3Q FY2020 and the reversal of a €0.3 million provision for COVID-19-related doubtful debts.

CEREIT’s income available for distribution (“DI”) grew 5.8% quarter-on-quarter to €22.5 million in 3Q 2020. Its 3Q 2020 indicative distribution per unit (“DPU”) was 0.882 Euro cents, representing a 5.8% quarter-on-quarter increase. The indicative DPU is based on a 100% payout of DI and takes into account no capital distribution and base manager fees and property manager fees paid 100% in cash.

Capital Management

As at 30 Sep 2020, CEREIT’s total gross debt came in at €860.4 million, which is €29.6 million higher as of 31st December 2019. This resulted in a 2 percentage points increase of CEREIT’s Aggregate Leverage to 38.8%.

Despite the higher leverage ratio, CEREIT’s interest coverage ratio stands at a healthy 6.8 times. This can be attributed to the low cost of funding at only 1.5%. For reference, the funding costs is usually in the range of 3 to 5% for industrial REITs in Singapore.

Portfolio Occupancy and Leasing Activity

As of 3Q FY2020, CEREIT’s Overall Portfolio Occupancy rate stands at 94.3%, which is up from 93.2% when compared with FY2019’s figure.

A quick glance at the 2 different segments shows that CEREIT’s Office properties achieved a better occupancy rate of 94.9% as compared to the occupancy rate of 92.3% for its Light Industrial/Logistics properties.

In the 9 months of FY2020, CEREIT has secured 71 new leases and 55 renewals for its portfolio. Majority of these new leases and renewals are contribution from the Light Industrial/Logistics properties.

In addition, the Light Industrial/Logistics has achieved strong rental revision of 13.4% while the Office Properties lags behind with a low rental reversion of 0.6%. The overall rental reversion for CEREIT stands at 4.8%.

Latest Acquisition - 11 Light Industrial/Logistics Assets in Czech Republic and Slovakia

In the announcement dated 11th December 2020, CEREIT has entered into an agreement to indirectly acquire a portfolio comprising 11 logistics and light industrial properties in Czech Republic (six properties) and Slovakia (five properties).

This is done at an aggregate purchase price of €113.2 million, 2.1% below independent valuation of €115.6 million. This acquisition is expected to translate to a DPU accretion of 4.9%.

CEREIT highlighted this acquisition will allow the REIT to have higher exposure to logistics, light industrial and in-demand sectors that are enjoying macro tailwinds at attractive yields.

Moreover, the REIT can have access to two new Central Europe logistics markets, whilst maintaining its core focus on Western Europe.

Below is the change in Portfolio Composition Upon the Acquisition:

According to analyst consensus estimates, CEREIT has a consensus recommendation of “Buy” with a mean target price of €0.50. Based on CEREIT’s share price of €0.485, the potential upside amounts to 3.1%.

Over the past 6 months, CEREIT’s target price has risen by 36.5% as analysts are bullish on the REIT’s outlook given the recovery in Europe’s economic activities, which will have a positive impact on its DPU and tenant's retention.

Management Outlook

The Manager’s Chief Executive Officer, Mr. Simon Garing, commented,

“We are mindful that these are difficult times for everyone and that the impact of the pandemic will continue. However, our disciplined approach to acquiring secure cashflows and diversification has steered CEREIT well through 2020.

Our on-the-ground Cromwell teams are a major differentiating factor in these times, proactively engaging tenant-customers, executing leasing strategies, as well as asset enhancement initiatives and ESG initiatives, and exploring opportunities that emerge from market dislocations.

Lastly, CEREIT’s strong results since the beginning of 2020 and in particular during the third quarter give the management team the confidence to continue pursuing an active capital recycling and asset management strategy of growth through accretive acquisitions and targeted divestments. Our current focus remains on logistics assets in Germany and neighbouring countries. We remain confident in CEREIT’s future performance and long-term value proposition.”

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