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Cromwell European REIT: Resilient European Assets

Phillip Bonds  |   11 Nov 2021  |    153 views

Cromwell European REIT (CEREIT) is a diversified, pan-European REIT with a commercial real estate portfolio valued at €2.3 billion. CEREIT is managed by Cromwell EREIT Management Pte Ltd, a wholly-owned subsidiary of CEREIT’s sponsor and an experienced property manager with a 20+ year track record in Europe, with 17 offices in 11 European countries. CEREIT owns a resilient portfolio of predominantly office and light industrial / logistics properties, diversified across geographies, tenant-customers and trade sectors: 85% weighted to Western Europe and ~95% office and light industrial / logistics assets. The REIT has an investment-grade rating ‘BBB-’ (stable) by Fitch Ratings.

Highlights

Healthy capital management. CEREIT’s aggregate leverage stands at 37.9%, well below the MAS limit of 50%, with 6x coverage ratio, well in excess of loan and bond covenants. It enjoys a low all-in-interest rate of 1.72% with total gross debt fully hedged, mitigating interest rate fluctuations. Weighted average term to maturity is long at 3.8 years with no debt expiry until November 2022, on which €180 million is due. CEREIT has a €200 million of undrawn revolving credit facility with a 2024 expiry to use to repay the €180 million debt if needed. CEREIT’s BBB- investment grade credit rating from Fitch Ratings remains intact.

Stable portfolio. Total portfolio occupancy was stable at 94.9% as at 30 June 2021, unchanged for the past six months. Rental reversions were a solid +5.9% as Europe’s fast-tracked vaccination programmes and reopening of communities and businesses provide positive economic momentum and confidence. Weighted average lease expiry profile maintained at a long 4.7 years.

Moving towards a 50% portfolio weighting to light industrial / logistics in Western Europe. Rising demand coupled with low supply and vacancy rates has driven rent increases and expected capital value growth in the space. CEREIT’s ongoing pivot towards a 50% portfolio weighting to light industrial / logistics is supported by the sector’s continuing strength, underpinned by the structural shift towards e-commerce and impending recovery of global trade. CEREIT’s active pipeline of opportunities in Western Europe, including the UK, will bring it closer to its stated target of a 50% portfolio weighting to this sector. These aspirations can be funded by CEREIT’s cash position of €80.8 million and access to diverse funding sources and capital recycling.

Summary

Cromwell European REIT owns a resilient portfolio of predominantly office and light industrial / logistics properties. We think the REIT is stable and likely to retain its investment grade rating of ‘BBB-‘ (stable) by Fitch Ratings.

 

 

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