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Friday, September 03, 2021

Cromwell European REIT Review @ 3 September 2021

Basic Profile & Key Statistics

Cromwell European REIT (CEREIT) is a diversified REIT that invests mainly in office, industrial and logistics sectors. CEREIT owns 109 properties across 10 countries.


Performance Highlight

1H Gross revenue, NPI and income available for distribution increased YoY due to contribution from an acquisition completed in 1H 2021 and 2H 2020. However, DPU (after adjustment for 5:1 consolidation) decreased slightly due to an enlarged unitholder base.

1H 2021 rental reversion for the portfolio is at 5.9% whereas for office and industrial/logistics sectors are at 13.7% and 4% respectively.

In 1H 2021, CEREIT has completed the acquisition of 11 assets in the Czech Republic and Slovakia in March and a logistics asset in the Czech Republic in June. On 3 August, CEREIT has completed the acquisition of a logistics asset in the U.K. The divestment of Parc de Popey is expected to be completed by 3Q 2021 where the sales consideration is 53% above IPO purchase price.

AEI for Hochstraße 150-152 and Stamholmen 111 have been completed. Both properties' valuations have increased due to increased WALE and reduced vacancy.

There is a planned AEI for Via Nervesa 21 which is subjected to final approvals and pre-lease commitments.

Related Parties Shareholding

  • REIT sponsor's shareholding is moderate at 27.99%
  • REIT manager's shareholding is low at 0.41%
  • Directors of REIT manager's shareholding is low at 0.02%

Lease Profile

  • Occupancy is moderate at 94.9%
  • WALE is long at 4.7 years
  • Highest lease expiry within 5 years is high at 60.6% which falls in 2025 and beyond, without breakdown
  • Weighted average land lease expiry is long at 94.34 years

Debt Profile

  • Gearing ratio is moderate at 37.9%
  • Cost of debt is low at 1.72%
  • All debts are fixed-rate debts
  • Unsecured debt is high at 91.1%
  • WADM is high at 3.8 years
  • Highest debt maturity within 5 years is high at 53.9%, which falls in 2025
  • Interest coverage ratio is high at 6 times

Diversification Profile

  • Top geographical contribution is low at 8.4% 
  • Top property contribution is low at 7.8% 
  • Top 5 properties contribution is slightly low at 28.9% 
  • Top tenant contribution is slightly high at 12.5% 
  • Top 10 tenants contribution is low at 32.3%
  • Top 3 countries contribution is from Netherlands, Italy and France which contribute around 2/3 of GRI

Key Financial Metrics

  • Property yield is high at 5.6% 
  • Management fees over distribution is low at 5.9 % in which unitholders receive £ 16.95 for every dollar paid 
  • Distribution on capital is high at 4.1%
  • Distribution margin is slightly low at 47.2%

Trends

  • Slight Downtrend - Interest Coverage Ratio,
  • Downtrend - DPU, NAV per Unit, Property Yield, Distribution on Capital, Distribution Margin
*DPU and NAV per Unit are adjusted for the 5 to 1 consolidation.

Relative Valuation

  • P/NAV - Above +1SD for 1y; Above average for 3y and 5y
  • Dividend Yield - Below -1SD for 1y, 3y and 5y

Author's Opinion

 Favorable Less Favorable
Diversified SectorLow REIT Manager's Shareholding
Long WALELow Directors of REIT Manager's Shareholding
Long Weighted Average Land Lease ExpiryConcentrated Debt Maturity
Low Cost of DebtDPU Downtrend
100% Fixed Rate DebtNAV per Unit Downtrend
High Unsecured Debt %Property Yield Downtrend
Long WADMDistribution on Capital Downtrend
High Interest Coverage RatioDistribution Margin Downtrend
Low Top Geographical Contribution 
Low Top Property & Top 5 Properties Contributions 
Low Top 10 Tenants Contribution 
High Property Yield 
Competitive Management Fees 
High Distribution on Capital

CEREIT fundamental remains resilient at this moment. For 2H, the full half yearly contribution from Czech Republic and Slovakia, the contribution from the U.K property as well as positive rental reversion should improve CEREIT performance. Do note that the property management fee and manager's management fee continue being paid in cash since 2020, this is 1 of the main reason for the drop in DPU as compared to the period before 2020.


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*Disclaimer: Materials in this blog are based on my research and opinion which I don't guarantee accuracy, completeness, and reliability. It should not be taken as financial advice or a statement of fact. I shall not be held liable for errors, omissions and 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.

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