Cromwell European REIT Analysis @ 15 August 2020

Basic Profile & Key Statistics

Cromwell European REIT (CEREIT) is a diversified REIT that invests in mainly Office, Industrial & Logistics properties. Other properties consist of 3 government-let campuses, 1 retail asset, and 1 hotel. CEREIT is trading in EUR @ CNNU and SGD @ CSFU.

Lease Profile 

Occupancy is healthy at 94.7%. WALE is long at 5.1 years. From the latest presentation, 63.8% of the lease will be expiring in 2024 and beyond without breakdown, if we consider before 2024, then the highest lease expiry of 12.2% falls in the year 2021. Weighted average land lease expiry is long at 94.1 years as the majority of its properties are freehold. 

Debt Profile

Gearing is slightly high at 39%. Cost of debt is low at 1.5%. Fixed rate debt is high 91.5%. Unsecured debt is moderate at 74%. Interest cover ratio is high at 6.7 times. WADE is moderate at 2.8 years where highest debt maturity of 43.3% falls in the year 2022.

Diversification Profile

Cromwell is diversified in terms of geographical and properties. Its top geographical and top property contribute 9.1% and 8.4% respectively. Top tenant contribution is high at 13.4% while top 10 tenants contribution is slightly low at 33.9%. 

Key Financial Metrics

Property yield is slightly high at 5.8%. Management fee is very competitive in which unitholders receive € 13.70 for every € paid. Distribution on capital is high at 4.7%. Distribution margin is moderate at 51.3%. 2.9% of the past 4 quarters distribution is from asset disposal.

Related Parties Shareholding

As compared to SREITs median level, sponsor is holding higher stake while manager and directors of REIT manager are holding lower stake.

Trend

Note that the actual 1Q 2018 DPU is 1.45 for the period between 30 Nov 2017 to 31 Mar 2018, for a fair comparison, I have annualized it to 3 months period to around 1.088. If we look at period in between post rights issue for acquisition in December 2018 and pre-COVID, its DPU, NAV per unit, and distribution margin maintained more or less the same.

Relative Valuation

i) Average Dividend Yield  - Apply past 4 quarters DPU of 3.78 cents to average yield of 7.90% will get € 0.48.

ii) Average Price/NAV - Average value is at 0.95, apply the latest NAV of € 0.503 will get € 0.48.

Author's Opinion

Favorable	Less Favorable
Diversified Sector	Concentrated Debt Maturity
WALE	Top Tenant Contribution
Weighted Average Land Lease Expiry
Cost of Debt
Interest Cover Ratio
Top Geographical Contribution
Top Property Contribution
Management Fee
Distribution on Capital

From the above, its fundamental is quite good.. Recently, CEREIT has announced that it has entered into an agreement to co-invests in European data centres. However, so far no information is given on the details of the funding method and property data. With its gearing at 39%, equity fundraising or issuing of perpetual securities seems quite likely. Together with its result released, CEREIT also announced the completion of logistics property acquisition in Germany, however, the effect on DPU is likely to be very small.

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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee the accuracy, completeness, and reliability. It should not be taken as financial advice or statement of fact. I shall not be held liable for errors, omissions as well as loss or damage as a result of the use of the material in this blog. Under no circumstances does the information presented on this blog represent a buy, sell, or hold recommendation on any security, please always do your own due diligence before any decision is made.