Cromwell European REIT - DBS Research 2022-08-15: Higher Valuations Backed By Growing Income

Cromwell European REIT - Higher Valuations Backed By Growing Income


Cromwell European REIT's 1H22 Earnings highlights

Higher revenues and NPI driven by pivot to logistics and light industrial

  • Cromwell European REIT (SGX:CWBU)'s 1H22 revenues increased 8.5% y-o-y to EUR107.4m, mainly driven by new acquisitions over the past year, and partially offset by disposals and redevelopments.
  • Cromwell European REIT acquired four light industrial and logistics properties in 1H22 that were valued at ~EUR92m and carried out divestments of ~EUR19m in 1H22.
  • NPI of EUR67.3m was 4.7% higher y-o-y, also driven mainly by acquisitions. On a like-for-like basis, NPI would have been flat y-o-y.
    • NPI for the logistics property segment grew at the highest rate, at 24.3% y-o-y, driven by pivot to logistics with ~EUR212.6m in acquisitions in FY21 and a further ~EUR92.0m in 1H22.
    • NPI for the office segment was down 3% y-o-y, mainly due to the absence of income contribution from Via Nervesa 21 in Italy that is currently being redeveloped.

1H22 DPU of EUR0.08695; slightly above our estimates

  • Cromwell European REIT's 1H22 DPU of EUR0.08695 was 2.3% higher y-o-y, forming slightly more than 51% of our FY22 DPU estimates.
  • Distributable income of EUR48.9m was 5.9% higher y-o-y, which includes EUR1.1m of capital gains distribution in lieu of the redevelopment of Via Nervesa 21.
  • Cromwell European REIT expected to continue tapping into capital gains distribution in lieu of properties that are taken off for redevelopment. An estimated ~EUR8m in capital gains remain.

Higher occupancies of 95.4% and positive rental reversions

  • Cromwell European REIT’s overall portfolio occupancy inched up 0.6ppt q-o-q to 95.4%. Higher occupancies were reported for both its office and logistics/light industrial portfolios.
    • Office portfolio reported a slight improvement in occupancies for France and Finland, partially offset by a slight dip in occupancies in the Netherlands and Poland.
    • Light industrial/logistics portfolio reported a pickup in occupancies across the board, with the only dip in occupancies reported in the Czech Republic.
  • Positive rental reversions of 2.9% in 1H22 (Office portfolio: +3.4%; Light industrial/logistics portfolio: +2.7%).
  • Remaining leases due to expire in FY22 are well spread out across its office and light industrial/logistics assets. Strong leasing demand and rental rates for light industrial/logistics portfolio expected to be more than sufficient to offset any weakness in the office portfolio.

Slight dip in NPI margins

  • NPI margins in 1H22 seemed to have tapered off slightly to ~63% currently (vs. ~65% a year before).
  • Dip in NPI margins due to a combination of higher property management fees and higher operating costs:
    • Property management fees are charged at 0.67% of AUM.
    • With AUM rising, property management fees have also increased.
    • Inflation in operation expenses and higher energy costs.

EUR25.2m increase in valuations

  • Portfolio valuations increase EUR25.2m (1.1% higher) compared to December 2021. The increase in valuations are mainly coming from the light industrial/logistics portfolio.
  • Some revaluation losses were seen for the office portfolio due to weaker trends (Poland: EUR8.6m loss, Finland: EUR2.6m loss).

Commenced early refinancing of maturing debt, financing costs expected to creep up

  • Cromwell European REIT's all-in financing costs were maintained at 1.72%. Financing costs are expected to creep up to ~2.0% when the refinancing of FY22 and FY23 loans are carried out. ~77% of all loans will be hedged to fixed rates or interest rate caps for at least the next 2.5 years.
  • Post-refinancing, the higher borrowing costs could potentially lead to a ~4% impact to DPU. However, we believe the organic growth in Cromwell European REIT’s earnings should more than offset the impact of higher financing costs.
  • Cromwell European REIT's gearing inched up to 38.6%, mainly due to additional loans taken to finance recent acquisitions.

Portfolio recalibration plans on track

  • Redevelopment of Via Nervesa 21 in Milan is on track, with construction having commenced and on track for completion by the end of FY23. Estimated redevelopment cost is ~EUR25.7m.
  • Extension at Lovosice ONE Industrial Park is ongoing. Estimated cost is ~EUR15m.
  • Cromwell European REIT is targeting EUR250m in redevelopment and upgrades over the medium term.
  • Plans to redevelop another office property in Rome (Amba Aradam) progressing well and slated to commence in FY23 once tenant vacates.

Our view on Cromwell European REIT

  • Cromwell European REIT continues to benefit from its pivot to light industrial/logistics properties. Despite the continued weakness seen in its office portfolio (mainly in Poland and Finland), its growing light industrial/logistics portfolio has led to earnings growth. With record low vacancies for logistics properties across Europe, we believe that it would drive further growth in occupancies and rents for Cromwell European REIT’s light industrial/logistics portfolio.
  • As Cromwell European REIT continues to pivot away from its office exposure, we understand that it will continue to look at divesting its office properties when the opportunity arises. Just last month, Cromwell European REIT divested the Opus 1 office property in Finland for EUR16.2m, 6.4% above its latest valuation in December 2021. Cromwell European REIT could look at further divestments in Poland, and divestment proceeds are expected to be redeployed into higher yielding light industrial/logistics assets.
  • Although Cromwell European REIT’s all-in financing costs are expected to creep up to ~2.0% by the end of FY22, we have already accounted for this in our estimates previously. As such, we remain confident that Cromwell European REIT is on track to deliver a FY22 DPU of 17.0 Ects.
  • We remain confident of Cromwell European REIT’s operating performance and will maintain our BUY recommendation with a target price of EUR2.60.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @

Dale LAI DBS Group Research | Derek TAN DBS Research | 2022-08-15
SGX Stock Analyst Report BUY MAINTAIN BUY 2.600 SAME 2.600

Previous report by DBS Research:
2022-06-13 Cromwell European REIT - Kicking The Tires In Europe

Relevant links:
Cromwell REIT Analyst Report,
Cromwell REIT Target Price,

Cromwell REIT Share Price History,
Cromwell REIT Announcements,
Cromwell REIT Dividends/ Corp Actions,
Cromwell REIT News Articles


SGX Stock / REIT Search


Trust Bank Referral Code