SGX Market Updates

1H2020 Earnings of SGX’s 3 European REITs


PUBLISHED ON |

18 August 2020

  • Of the REITs listed on SGX, the 3 REITs with 100% of their assets located in Europe are Cromwell European REIT (CEREIT), IREIT Global and Elite Commercial REIT (ECR), with the trio focused on commercial and/or industrial property segments. Between late July and mid-August, the trio reported their results for the first half ended 30 June 2020.

  • For 1H2020, Cromwell European REIT reported a DPU of EUR1.74 cents, down 14.7% y-o-y, while IREIT Global reported a DPU after retention of EUR1.82 cents, down 1.1% y-o-y. Elite Commercial REIT unveiled a DPU of GBP1.95 pence, up 1.0% from its IPO forecast for the period from 6 Feb 2020 (IPO date) to 30 June 2020.

  • As of 30 June 2020, the trio averaged an aggregate leverage ratio of 35.3%, with an average interest cover of 7.2 times. IREIT Global had the highest aggregate leverage of 39.0%, while Elite Commercial REIT had the lowest aggregate leverage ratio of 32.6%.




Of the REITs listed on SGX, the 3 REITs with 100% of their assets located in Europe are Cromwell European REIT, IREIT Global and Elite Commercial REIT, with the trio focused on commercial and/or industrial property segments. 

Cromwell European REIT’s portfolio comprises 94 properties as at present date in or close to major gateway cities in Denmark, Finland, France, Germany, Italy, the Netherlands as well as Poland, used primarily for office, light industrial / logistics, and retail purposes. The portfolio has an appraised value of approximately €2.1 billion as at 31 March 2020. 

IREIT Global has a portfolio of five freehold office properties in Germany, located in Berlin, Bonn, Darmstadt, Münster and Munich, and four freehold office properties in Spain, located in Madrid and Barcelona. The portfolio has an appraised value of €630.2 million.

Listed on SGX in February this year, Elite Commercial REIT is Singapore’s first and only UK-focused real estate investment trust. Elite’s portfolio comprises 97 commercial buildings, which are primarily occupied by the Department for Work and Pensions (DWP) for job centre, back office and call centre functions. About 40% of its portfolio by gross rental income is situated in London, the South and the Midlands. The portfolio is valued at about £319 million.

Between late July and mid-August, the trio reported their results for the first half ended 30 June 2020.



DPU Highlights 

For the six months ended 30 June 2020, Cromwell European REIT reported a distribution per unit (DPU) of EUR1.74 cents, down 14.7% y-o-y.  Net property income gained 6.6% to EUR57.7 million, while gross revenue rose 13.7% to EUR93.7 million, driven by contributions from properties acquired over the past year. Income from the new assets was, however, partially offset by EUR3.0 million of allowances made for uncollected rents due to COVID-19 and lower income from certain assets.

For the six-month period, IREIT Global reported a DPU after retention of EUR1.82 cents, down 1.1% y-o-y. Net property income rose 1.4% to EUR15.7 million, due to higher gross revenue from the new lease at Münster South Building and positive effects from finalisation of prior year’s service charge reconciliation. Gross revenue increased 2.6% to EUR18.0 euros.

From its listing date of 6 Feb 2020 to 30 June 2020, Elite Commercial REIT unveiled a DPU of GBP1.95 pence, up 1.0% from its IPO forecast. Profit after tax jumped 7.0% vs its forecast to GBP3.9 million, as a result of higher revenue, lower operating expenses, finance costs and tax expenses, while revenue gained 0.3% to GBP9.3 million.


Name DPU
(cts/pence)
YoY Chg
(%)
Net Property
Income
(mln)
YoY Chg
(%)
Gross Revenue
(mln)
YoY Chg
(%)
CROMWELL EUROPEAN REIT (€) 1.74 -14.7 57.7 6.6 93.7 13.7
IREIT GLOBAL (€) 1.82 -1.1 15.7 1.4 18.0 2.6
ELITE COMMERCIAL REIT (£) # 1.95 1.0 3.9 * 7.0 ^ 9.3 0.3 ^

Source: Company data.
# Period under review covers 6 Feb 2020 listing date to 30 June 2020.
^ % change computed against IPO Forecast as Elite Commercial REIT was listed in Feb 2020.
* Profit after tax disclosed instead of net property income.



Debt Profiles 

As of 30 June 2020, the trio averaged an aggregate leverage ratio of 35.3%, with an average interest cover of 7.2 times. IREIT Global had the highest aggregate leverage ratio of 39.0% vs 39.3% as at 31 December 2019, while Elite Commercial REIT had the lowest aggregate leverage ratio of 32.6%. No comparative data is available as Elite Commercial REIT was listed in February 2020.


Name Aggregate Leverage
Ratio (%)
as at 30 June 2020
Aggregate Leverage
Ratio (%)
as at 31 Dec 2019
Interest Coverage
Ratio (x)
as at 30 June 2020
Interest Coverage
Ratio (x)
as at 31 Dec 2019
CROMWELL EUROPEAN REIT 34.4 34.5 6.7 6.7
IREIT GLOBAL 39.0 39.3 7.4 8.7
ELITE COMMERCIAL REIT 32.6 NA 7.4 NA
Average 35.3   7.2  

Source: Company data.
NA: Not available as Elite Commercial REIT was listed in Feb 2020.



Outlook


Cromwell European REIT (SGX:CNNU)
  • In the European office sector, the uncertainty brought on by the COVID-19 pandemic has led to a small rise in vacancy rates across most European office markets.
    • Vacancy rates are still around historical lows, with Cromwell European REIT’s key Paris and Dutch market vacancies well below the average of 6.47%, based on data from CBRE.
    • Occupier demand is expected to be weak over the next 12 months due to the pandemic’s impact on corporate profits.
    • In the medium term, the effect of working from home on a large scale may also have an uncertain impact on the amount of office space that occupiers wish to lease, which may lead to a further increase of vacancy rates, albeit partially offset by the likely scaling back of speculative development.
  • In the European logistics sector, occupier demand for logistics properties has largely remained strong in 1H 2020, with online retailers and supermarket chains continuing to drive healthy take-up levels.
    • The high level of leasing activity thus far is expected to continue into the second half of the year, which will keep vacancy rates low at the current levels of ~4.1%, according to data from CBRE.
  • Prime rents are forecast to see positive growth over the next two years, supporting development activity, with a number of schemes set to be completed over the next 12 months.
    • Majority of these new spaces are expected to be leased quickly, meaning that a sharp rise in vacancy rates is not expected.
  • The weight of capital from European and global investors is expected to keep prime yields stable over the next 12 months.
  • The Manager is currently focusing on acquiring attractive assets in Germany and neighbouring markets, increasing Cromwell European REIT’s exposure to logistics properties, as well as the potential divestment of a number of office assets.
  • Key redevelopment opportunities continue to exist in Paris, Amsterdam, as well as Milan, and could allow the Manager to attract new high-quality tenant-customers and enhance Cromwell European REIT’s income streams over the long term.
  • On 13 July 2020, Cromwell European REIT entered into an agreement with its sponsor Cromwell Property Group and Stratus Data Centres, a member of the EXS Capital Group, to appoint Stratus as Data Centre Development Manager and to potentially acquire 50% stakes in two data centre projects in London and Frankfurt, subject to various milestones.
    • The sponsor is also partnering with Stratus to invest in and manage the rollout of a private data centre investment fund across Europe and Asia Pacific.
    • Cromwell European REIT has “first look” rights for 50% stakes in the fund’s European pipeline, providing it with possible opportunities to leverage the unprecedented demand for data centres to further generate stable income and deliver potential upside.

Click here for the full results release. 



IREIT Global (SGX:UD1U)
  • Macro Economy
    • The COVID-19 pandemic and ongoing geopolitical tensions, particularly that between US and China, have taken a toll on the business activity in Europe, with major economies in the region expected to fall into recession in 2020.
    • This has led to a number of measures taken by the EU, including the approval of the historic €750 billion pandemic recovery fund and new budget of nearly €1.1 trillion over seven years to support the European economy.
  • Real Estate Market
    • Amid the looming recession, the take-up in office space and investment activity in Europe is expected to slow down in 2020.
    • However, office rents where IREIT Global’s properties are located are not expected to be significantly affected due to their good quality and strong local fundamentals eg. low vacancy rates and lack of supply.
    • IREIT Global’s portfolio has remained resilient with a majority of the leases supported by a blue-chip tenant base. Portfolio occupancy rate has improved by 1ppt q-o-q to 95.7% as at 30 Jun 2020 as a result of major new lease with ÁREAS at the Il∙lumina property in Spain.
  • Key Focus
    • To deepen its strategic presence in Spain and increase its portfolio strength through enhanced scale and diversification, IREIT Global has today exercised the call option to acquire the remaining 60% stake in the Spanish portfolio from Tikehau Capital.
      • The proposed acquisition will  be funded by a rights issue whereby part of the proceeds will also be used to repay the €32 million term loan facility granted by City Strategic Equity Pte Ltd.
      • The Proposed Acquisition is expected to be completed in 4Q 2020, subject to approval from unit holders of IREIT Global for the proposed acquisition at an EGM to be convened.

Click here for the full results release. 



Elite Commercial REIT (SGX:MXNU)
  • The UK economy is expected to contract by 20% in 1H 2020, and more than 10% in 2020 due to the pandemic.
  • Analysts forecast a decline in UK real GDP by 7.8% in 2020, and unemployment rate to peak at slightly below 8% in 3Q 2020, averaging 7% in 2020.
  • Unemployment claims rose to ~3 million since the lockdown with ~9 million people on the UK Government’s furlough scheme, with various other support measures introduced such as the Coronavirus Job Retention Scheme (CJRS) and self-employed income support scheme.
  • Elite Commercial REIT continues to provide stable income to its unit holders as COVID-19 has minimal impact on business and rent collection.
  • The Manager remains focused on strengthening the portfolio and will closely monitor the market to explore opportunities for growth via yield-accretive acquisitions.
    • Granted a right of first refusal to acquire properties in Sponsor’s pipeline, most of which have been leased long-term by various ministries of the government.

Click here for the full results release.







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