Comprehensive Analysis of Cromwell European REIT and Comparable Companies
Comprehensive Analysis of Cromwell European REIT and Comparable Companies
Broker Name: OCBC Investment Research
Date of Report: 5 November 2024
Cromwell European REIT: A Strategic Pause and Optimistic Outlook
Cromwell European REIT (CEREIT) has been a notable player in the S-REIT market, focusing on commercial real estate assets across Europe. As of 30 June 2024, CEREIT’s portfolio comprises 107 properties, mainly freehold, situated in key gateway cities across countries like the Netherlands, France, Italy, Germany, Poland, Denmark, Czech Republic, Slovakia, Finland, and the United Kingdom. The portfolio is divided into 54% Logistics and Industrial (L&I) properties and 44% office spaces by assets under management (AUM).
CEREIT stands out by offering high-quality assets in prime locations and maintaining a diversified tenant mix. Despite facing declining distributions due to asset divestments and rising financing costs, CEREIT’s remaining portfolio of high-quality assets holds potential for long-term future growth and income resiliency in the near term. With a healthy gearing ratio below 40% and a significant discount to net asset value (NAV) due to challenging economic conditions in Europe, CEREIT presents an attractive opportunity for S-REIT investors seeking high-quality returns and exposure to the European market.
Investment Summary and Financial Performance
In 3Q24, CEREIT’s gross revenue and net property income (NPI) grew by 0.6% and 7% year-on-year (YoY) to EUR53.9m and EUR34.5m, respectively. Although distributable income for 3Q24 fell by 7.8% YoY to EUR20.8m, it increased by 4.1% on a quarter-on-quarter (QoQ) basis, attributed to the REIT pausing its divestment activities. Asset valuations stabilized, and peaking interest rates in the Eurozone allowed CEREIT to maintain net gearing levels between 35% and 40% without significant divestments.
Leasing and Debt Refinancing Preparation
CEREIT recorded a positive portfolio rental reversion of 2.3% in 3Q24, with total portfolio occupancy improving slightly to 93.9%. The L&I segment showed an impressive 8.8% rental reversion for the quarter. However, a single office lease, representing approximately 1.5% of the office portfolio, recorded a -4.3% rental reversion. Management clarified that this reversion is based on headline rents and does not account for previous lease incentives. Overall, the renewed lease represents a net gain for the REIT.
Looking ahead to November 2025, CEREIT has secured a new debt facility in preparation for refinancing its EUR450m bond. This facility provides liquidity for the refinancing, giving CEREIT some bargaining power when pricing a new bond. This strategy is crucial, given the existing bond’s low rate of 2.1%. The cost of refinancing will significantly impact distributions, serving as a “final reset” before stability in distribution growth is achieved.
ESG Initiatives and Corporate Governance
Approximately 45% of CEREIT’s revenue is derived from office properties, which are typically energy-intensive. CEREIT leads its peers in sustainable investment efforts, such as green leasing to encourage energy efficiency among tenants. Notably, 82% of its office assets are BREEAM or LEED certified.
CEREIT also excels in corporate governance practices. The board is majority independent of management and other interests, with fully independent nomination, audit, and pay committees, enhancing oversight of management.
Potential Catalysts and Investment Risks
Potential Catalysts
- Higher-than-expected rental reversions
- Less downtime from asset enhancement initiatives (AEI)
- DPU accretive acquisitions
Investment Risks
- Cost of refinancing loan due in November 2025
- Slower-than-expected growth in Europe
- Higher-than-projected redevelopment costs
Valuation Analysis and Comparable Companies
Here is a detailed comparison of Cromwell European REIT (CROM.SI) with other notable REITs in the market:
| Company |
FY24E P/E |
FY25E P/E |
FY24E P/B |
FY25E P/B |
FY24E EV/EBITDA |
FY25E EV/EBITDA |
FY24E Dividend Yield |
FY25E Dividend Yield |
FY24E ROE |
FY25E ROE |
| Cromwell European REIT (CROM.SI) |
12.3 |
11.8 |
0.8 |
0.8 |
15.0 |
14.7 |
8.5% |
8.4% |
6.4% |
6.4% |
| Frasers Logistics & Commercial Trust (FRAE.SI) |
17.5 |
17.6 |
0.9 |
0.9 |
21.8 |
20.4 |
6.5% |
6.5% |
4.7% |
5.1% |
| CapitaLand Ascendas REIT (CAPD.SI) |
19.1 |
17.8 |
1.2 |
0.6 |
19.6 |
19.2 |
5.6% |
5.7% |
6.3% |
6.5% |
| Mapletree Industrial Trust (MAPI.SI) |
18.0 |
17.9 |
0.5 |
0.6 |
20.7 |
19.8 |
5.5% |
5.6% |
7.3% |
7.5% |
| Mapletree Logistics Trust (MAPL.SI) |
21.9 |
20.2 |
1.0 |
1.0 |
21.7 |
21.0 |
6.0% |
6.1% |
4.9% |
5.1% |
Conclusion: Cromwell European REIT’s Strategic Moves and Market Position
Cromwell European REIT’s strategic pause on divestments, coupled with its preparation for debt refinancing, positions it well for future stability and growth. The REIT’s focus on high-quality assets in prime locations, along with its strong ESG initiatives and corporate governance practices, make it a compelling option for investors seeking exposure to the European market. While there are potential risks such as refinancing costs and economic growth rates, the potential catalysts and valuation metrics indicate a positive outlook for CEREIT.
