Cromwell European REIT - Recalibration To Drive Further Organic Income Growth

Cromwell European REIT - DBS Research 2024-02-27: Recalibration To Drive Further Organic Income Growth

SGinvestors.io

Published: 2024-03-07 02:54 PM

Cromwell REIT (SGX:CWBU)

Cromwell European REIT (SGX:CWBU)'s FY23 revenues and NPI experienced a decline of 2.5% and 1.8%, respectively, primarily attributable to divestments totaling around EUR237m since FY22. In FY23 alone, EUR196.5m in divestments contributed to this decline.
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FY23 DPU was in line with our projections, suggesting a current yield exceeding 11.1%. Cromwell European REIT's DPU experienced a y-o-y decline of ~8.7%, attributed to divestments, redevelopments, increased financing costs (up 32.8% y-o-y), and the absence of capital distribution top-ups.
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- lack of income from redevelopments resulted in a EUR0.68 cents decline.
- Higher financing costs accounted for a further EUR1.458 cents decrease, and
- the absence of capital distribution top-ups led to a EUR0.365 cents decline.
Excluding the impact of these disruptions to earnings, the DPU would have only declined by around 4.1%, partially offset by higher rents.
Looking forward, we anticipate that the EUR196.5m in divestments completed in FY23 will have a temporary impact on DPU.
Despite the proceeds being primarily allocated to loan repayment and into AEI and rejuvenation projects, the timing differences in the completion of significant rejuvenation projects (e.g., Nervesa 21, Maxima, etc.) are expected to result in a near-term drag on earnings. The completion and stabilisation of these assets are crucial to reversing this impact and contributing positively to the overall earnings trajectory.
Our revised projections estimates that Cromwell European REIT's DPU will return to growth trajectory in FY25 when the Maxima redevelopment is completed.