Should You Invest In Cromwell European REIT?

Editor’s Note: This article was edited on 4th October 2019 to correct some calculation error. We apologize for the inaccuracy previously.

Listed on 30 November 2017, Cromwell European REIT (SGX:CNNU) is a full-fledged SGX-REIT that invests in a diversified portfolio of commercial real estate, mainly used for office, light industrial, and logistics purposes, across Europe. As I write, Cromwell European REIT is worth €1.1 billion in market capitalisation. In this article, I’ll provide a summary of my findings on Cromwell European REIT in terms of its portfolio, financial results and plans towards sustainable growth in the future. 

Thus, here are 11 things to know about Cromwell European REIT before you invest. 

• Portfolio Valuation
  Cromwell European REIT has expanded its portfolio valuation by 47.2 32.6% since its listing. It has increased from 74 properties worth €1.4 billion in November 2017 to having 97 properties worth €1.8 billion in June 2019. This is because CEREIT has completed a total of 23 acquisitions at €395.1 million. They are as follows:  

Source: Cromwell European REIT’s Investor Presentation Q2 2019

• Portfolio Composition
  As of 30 June 2019, 78.7%of its properties are situated in Holland, Italy and France. 90.6% of CEREIT’s properties are freehold and the portfolio has recorded an occupancy rate of 91.6%. The breakdown of properties in their respective geographical locations and valuations are as follows:
  
  

Source: Cromwell European REIT’s Investor Presentation Q2 2019

• Financial Results
  Cromwell European REIT has recorded growing quarterly revenues, net property income, and distributable income. In December 2018, which is Q4 2018, CEREIT has issued rights shares on the basis of 38 new units for every 100 units owned by its existing unitholders. As a result, CEREIT has raised €224.1 million in gross proceeds and were utilised to finance its acquisitions as stated above. As such, distribution per unit (DPU) figures of CEREIT had been revised downwards to 1.02 cents in Q1 & Q2 2019 despite making higher amount of distributable income in the past two quarters. Hence, CEREIT’s annualised DPU is 4.08 cents, calculated by multiplying DPU of 1.02 cents with four quarters. 

Figures in € ‘000 unless stated otherwise

Source: CEREIT’s Quarterly Results

• Balance Sheet Strength
  As of 30 June 2019, CEREIT has €687.3 million in total gross debt and a total of €1.94 billion in total assets. Thus, its gearing ratio is 35.4%. The REIT’s cost of debt is 1.34% per year and it has a weighted average debt to maturity of 2.4 years.
  
  
  
• Income Visibility
  As of 30 June 2019, Cromwell European REIT earns income from a base of 911 tenants. It has a weighted average lease expiry (WALE) of 4.7 years. 74.5% of lease agreements will only begin to expire in 2022 and beyond. Its ten largest tenants contribute 36.8% of CEREIT’s total headline rent. They include:
  
  
  

Source: CEREIT’s Investor Presentation Q2 2019

• Latest Acquisition
  On 21 June 2019, CEREIT has announced its recent acquisition of three properties in France and three properties in Poland for a consideration of €246.9 million. They carry freehold titles and are 98.9 98.7% occupied as of 31 May 2019. Combined, they have a WALE of 4.8 years, where their net initial yield is 7.4% per annum.
  
  
  
• Latest Disposal
  On 8 August 2019, Cromwell European REIT has announced that it disposed of a property in France for €19.0 million, which is €2.2 million above its valuation.
  
  
  
• New Portfolio Composition
  Upon the latest acquisitions and disposal, CEREIT’s portfolio will consist of 103 properties valued at €2.0 billion. The breakdown is as follows: 

• Major Unitholders & Sponsor Strength
  Cromwell Property Group (CPG) is the sponsor of CEREIT and has 35.4% indirect interests in the REIT. CPG is a global real estate investment and management group listed on the ASX which has a portfolio of 280+ real estate globally worth €7.3 billion in assets under management (AUM).
  
  The other major unitholders are listed as follows: 

Source: CEREIT’s Annual Report 2018 

• P/B Ratio
  As of 23 September 2019, CEREIT is trading at €0.50 per unit. Thus, its current P/B Ratio is 1.00 based on its net asset value of €0.50 per unit.
  
  
  
• Distribution Yield
  From above, CEREIT’s annualised DPU is 4.08 cents. Thus, CEREIT has a gross distribution yield of 8.16% per annum. 

VIA’s Verdict 

Cromwell European REIT has an eventful 21-month period since its listing for the REIT has further grown its portfolio from €1.4 billion in November 2017 to €2.0+ billion. CEREIT has delivered stable DPUs and is offering 8+% in distribution yields based on its unit price of €0.50 today. 

So, will you invest in Cromwell European REIT at €0.50 today? 

That, I’ll leave it to you. 

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