CROMWELL European Real Estate Investment Trust (Cromwell E-Reit) has entered into an agreement via a wholly-owned vehicle to acquire a logistics park in Italy for 52.6 million euros (S$84.2 million).

 

The freehold intermodal logistics park with 156,888 square metres (sq m) of net lettable area (NLA) will add around 10 per cent to Cromwell E-Reit' s overall portfolio NLA, the manager of Cromwell E-Reit said in an exchange filing on Wednesday morning.

 

" The logistics park is expected to generate stable and recurring cash flows with scope for further rental upside and will increase Cromwell E-Reit' s exposure to the resilient logistics sector, which is consistent with our stated purpose of delivering long-term distribution and net asset value per unit growth to unitholders," Simon Garing, chief executive officer of the Reit' s manager said. He added that the asset has a net operating income yield of 7.4 per cent.

 

The acquisition price of 52.6 million euros is around 3.5 per cent below the independent valuation of 54.5 million euros as at Nov 13, 2020, and around 33 per cent below its estimated replacement cost.

 

The Reit manager said the total cost of the acquisition is estimated to be around 55.1 million euros, comprising the acquisition price as well as other fees and expenses. The total cost of the acquisition is expected to be funded from available cash reserves and/or committed undrawn debt facilities.

 

The acquisition is expected to be completed in December 2020, once certain customary conditions are satisfied, the manager added.

 

The logistics park is located in Monteprandone, a municipality in central Italy along the eastern Italian coast. It has nine warehouses, an office building and a canteen. Around 18,000 sq m of its NLA is used for cold storage, which commands significantly higher rental rates than space used for general warehousing purposes, the Reit manager said.

 

It also includes a railway with four tracks, each about one-kilometre long, with direct loading platforms and a freight terminal connected to national railway services.

 

The logistics park is over 99 per cent leased to a tenant-customer base comprising 24 different occupiers, with four major ones being Spinservice and its parent brand Eurospin, Tod' s, and White Solution.

 

The acquisition will increase the weighting of the light industrial and logistics segment in Cromwell E-Reit' s portfolio to 32.3 per cent, up from 30.6 per cent, based on portfolio value, as at Sept 30, 2020. The Reit manager said this is consistent with its strategy of rebalancing the portfolio more evenly between the office and light industrial and logistics sectors.

 

CROMWELL European Real Estate Investment Trust' s (Cromwell E-Reit) indicative distribution per unit (DPU) rose 5.8 per cent quarter on quarter to 0.882 euro cent for the three months ended Sept 30.

 

The indicative DPU is based on a 100 per cent payout of the distributable income and takes into account no capital distribution, as well as base manager fees and property manager fees paid fully in cash.

 

Gross revenue was up 2.1 per cent to 46.1 million euros (S$73.4 million) for Q3, from 45.2 million euros in Q2 2020, the manager said in a business update on Tuesday.

 

Net property income grew 14.3 per cent to 30.6 million euros in the third quarter, from 26.8 million euros in the previous quarter. This was mainly attributable to the absence of doubtful debt provisions in Q3 and the reversal of a 0.3 million euro provision for Covid-19 related doubtful debts, the manager said.

 

Meanwhile, distributable income rose 5.8 per cent quarter on quarter to 22.5 million euros, from 21.3 million euros.

 

As at end-September, Cromwell E-Reit had a net gearing of 35.9 per cent and a weighted average lease expiry of about five years for its overall portfolio.

 

Looking beyond the pandemic, the manager plans to increase the Reit' s portfolio exposure to light industrial/logistics and data-centre assets while divesting several office and other assets. It will also continue to plan for key redevelopment pipeline opportunities in gateway cities such as Paris, Amsterdam and Milan.

CROMWELL European Real Estate Investment Trust (Cromwell E-Reit) posted a distribution per unit (DPU) of 1.74 euro cents for the half year to June, 14.7 per cent lower than a year ago. 

 

But excluding the provision for Covid-19 related doubtful debts of three million euros (S$4.87 million) and distribution of 2.8 million euros in divestment gains - items considered one-off - DPU would have been 3.4 per cent lower, at 1.97 euro cents, the manager said on Friday night. 

 

The distribution will be paid out on Sept 28.  

 

Gross revenue for the half year was up 13.7 per cent year on year at 93.7 million euros, largely due to contributions from properties acquired over the course of the past year. As such, net property income was 6.6 per cent higher on the year at 57.7 million euros. 

 

Income available for distribution to unitholders stood at 44.6 million euros, similar to the 44.8 million euros available for the year-ago period. 

 

Despite the ongoing coronavirus pandemic, the manager said that it is resuming investment activity. It noted the " re-emergence" of its acquisition pipeline and pick-up in investment activity in Europe. 

 

The manager said it is currently focusing on acquiring attractive assets in Germany and neighbouring markets to increase the Reit&rsquo s exposure to logistics properties. It is also eyeing the potential divestment of " a number of office assets" .

 

The manager added that key redevelopment opportunities continue to exist in Paris, Amsterdam and Milan.

 

Cromwell E-Reit' s net gearing was 34.4 per cent as at June 30. 

MANY European countries have been easing out of their lockdowns. With Europe gradually returning to business-as-usual, investors should not overlook the investment opportunities in the European region.

 

In this article, we take a look at Cromwell European Reit (Cromwell E-Reit), the only Reit listed on SGX with a pan-European exposure. Cromwell E-Reit owns a diversified portfolio of predominantly freehold office and light industrial/logistics properties in seven European countries.

 

Underpinned by light industrial/logistics sector

 

In 1Q20, Cromwell E-Reit recorded a 17.2 per cent year-on-year increase in net property income (NPI) that was largely attributed to new properties acquired over the past year.

 

Notwithstanding the impact of Covid-19 containment measures that commenced on Feb 21, Cromwell E-Reit' s available distributable income per unit for Q1 2020 amounted to 0.91 cent euros. This was in line with Q1 2019 on a " like-for-like" basis.

 

The outstanding positive average rental reversion of 12.1 per cent was driven by the continued outperformance in the light industrial/logistics sector.

 

This sector recorded a positive rental reversion of 22.1 per cent, with Cromwell E-Reit continuing to see strong leasing activity in Parc Des Docks, a " last-mile" logistics asset in an industrial area close to River Seine in Paris.

 

Meanwhile, the office sector has lagged behind the light industrial/logistics sector with a positive rental reversion of 2.1 per cent.

 

With a slowdown in office leasing activity, we believe that rental reversions in Cromwell E-Reit will continue to be driven by the light industrial/logistics sector where good leasing momentum persists.

 

Cromwell E-Reit' s tenant base is well-diversified, which can help to mitigate the impact of Covid-19. Government and semi-government leases account for around 26 per cent of total headline rent.

 

As of March 31, 2020, the top 10 tenants represent 34.3 per cent of the total headline rent.

 

Some tenants, such as government agencies, state-owned companies, and listed companies like Nationale Nederlanden Nederland B.V, have investment-grade ratings and are likely to have lower default risk.

 

Growth opportunities

 

Covid-19 has caused some companies to reimagine the role offices should play in the future. Some may decide to telecommute and reduce their office spaces, a trend that will certainly have a negative impact on the demand for office spaces in the longer term.

 

At the same time, companies may also wish to de-densify or decentralise their offices in order to ensure there is sufficient space for social distancing and reduce single cluster risk. This may help to offset the impact of the shift to telecommuting.

 

Cromwell E-Reit believes it is in a good position to capture the opportunities from the trend of decentralisation and office density reduction. Currently, some tenants have demanded more office spaces since social distancing measures need to be implemented as employees gradually return to the office.

 

Cromwell E-Reit' s office sector has a Weighted Average Lease Break (WALB) of 4.0 years. This provides substantial downside protection in the near term while waiting for a clearer picture about the future of the office market to emerge.

 

Meanwhile, Cromwell E-Reit' s light industrial/logistics sector is more resilient.

 

Before Covid-19, the light industrial/logistics sector in Europe has long been benefiting from economic growth and the structural shift towards Internet retailing.

 

Notwithstanding the contraction of the Eurozone economy this year, we believe that Cromwell E-Reit' s light industrial/logistics sector will continue to deliver strong growth. Logistic operators, such as DHL and UPS, are some of Cromwell E-Reit' s largest tenants in the segment, and have benefited from the acceleration in e-commerce brought by the Covid-19 outbreak.

 

Last but not least, Cromwell E-Reit has entered into a Heads of Terms Agreement with its sponsor Cromwell Property Group and Stratus Data Centres to preliminarily co-invest directly into 50 per cent stakes in two data centre projects in London and Frankfurt, subject to various milestones. These first two projects are just the beginning. Cromwell E-Reit has the " first look" rights for 50 per cent co-ownership of future European data centres.

 

Data centres, an essential service, have long leases which adds to the predictability of cash flows. The Covid-19 pandemic has accelerated technological adoption and cloud computing. This has led to strong demand for data centres, and the role of data centres in the digital economy will only continue to grow.

 

Accretive acquisitions part of long-term growth strategy

 

Since its listing on November 2017, Cromwell E-Reit has grown its portfolio size by more than 50 per cent through acquisitions. Despite the challenges stemming from Covid-19, Cromwell E-Reit has continued to divest and acquire more properties.

 

In March 2020, as part of its capital recycling strategy, Cromwell E-Reit sold a portfolio of 12 light industrial/logistics assets located in France, Denmark, and the Netherlands at a 4.1 and 15.2 per cent premium over the valuation and purchase price, respectively.

 

At the same time, Cromwell E-Reit has also acquired three light industrial/logistics assets in Germany, all of which are located within a dominant manufacturing cluster near Stuttgart. Cromwell E-Reit is also initiating an acquisition of a fourth light industrial/logistics asset that is located in Sangerhausen, an emerging distribution hub in central Germany.

 

One point worth highlighting about European industrial/logistics assets is that they are primarily freehold, whereas similar assets in Singaporean have a much shorter land lease of approximately 30 years. Owners of freehold properties do not have to worry about the lease running out.

 

Looking beyond Covid-19, we expect Cromwell E-Reit to continue to take a proactive approach when it comes to acquisitions. As part of its investment mandate, Cromwell E-Reit will still be maintaining at least 75 per cent of its portfolio weightage to Western Europe (for example, France, the Netherlands, Germany).

 

We recommend long-term investors to consider Cromwell E-Reit, which not only offers a decent yield, but also provides a resilient pan-European exposure to their portfolios.

CROMWELL European Real Estate Investment Trust (Cromwell E-Reit), whose current portfolio is mostly made up of office and light industrial or logistics properties in Europe, is now planning to make its foray into the data-centre business.

 

On Monday, its manager said the trust has inked a heads of terms agreement with its sponsor Cromwell Property and Stratus Data Centres, to co-invest directly into 50 per cent stakes in two European data centre projects, subject to various milestones.

 

The first project is a two-stage, 100 megawatt (MW) data centre serving London. The six-acre (2.4-hectare) site is located on fibre-optic routes in the east of London, and will be powered by renewable energy.

 

Negotiations with potential tenant operators are " well advanced" , and construction is expected to be completed in 2021, the parties said in a joint media statement on Monday.

 

The second, larger project is on a 34-acre (13.8-hectare) site serving Frankfurt. It is a multi-stage 300MW project with advanced pre-leasing agreements and planning processes underway.

 

The Frankfurt site will be one of the largest data centre campuses in Germany and Western Europe once completed, the statement noted.

 

Meanwhile, Australia-listed Cromwell Property Group has entered into a strategic partnership with Stratus to invest in and manage the rollout of a data-centre property platform across Europe and the Asia-Pacific through the new Stratus Cromwell Data Centre Fund.

 

Stratus is a member of private equity real estate investment group EXS Capital, which has offices in Hong Kong, Singapore and the Cayman Islands.

 

This partnership is " highly complementary" , combining Stratus' s data-centre sector specialisation and EXS' s Asian network with Cromwell Property' s capital, funds management and real estate investment experience, according to their joint statement.

 

Stratus will be responsible for project development, leasing, design and construction.

 

Cromwell Property will be a cornerstone investor in the new fund, which is targeting an eventual gross asset value of over US$1 billion, with 25 per cent of the portfolio already identified by the first two strategic sites under exclusivity.

 

Cromwell Property will also source investment funding and subsequently provide joint fund management and asset management services upon the completion of each project.

 

Simon Garing, chief executive of Cromwell E-Reit' s manager, said: " Data centres are a natural fit with our existing investment strategy and portfolio composition, and we expect to realise attractive risk-adjusted returns for Cromwell E-Reit unitholders from the partnership.

 

" The platform will also allow us to extract additional value through a number of potential future data-centre opportunities in strategic locations within Cromwell E-Reit' s existing 1.4 million square metre portfolio." The trust' s portfolio comprises 94 properties in or close to major gateway cities in Denmark, Finland, France, Germany, Italy, the Netherlands and Poland. As at March 31, it had close to 800 tenant-customers.

 

Rob Percy, chief investment officer of Cromwell Property, said this is an " exciting" investment opportunity that will be in strong demand from both hyperscale data-centre operators and international capital partners.

 

EXS and Stratus chairman, Eric Solberg, noted that the London and Frankfurt projects are " just the beginning" . Further projects have been identified in key gateway cities in Europe, including Dublin and Milan, and in Asia, including Tokyo, Manila, Jakarta and Mumbai, he added.

 

In the joint statement, the parties said data centres can provide investors with " stable income, downside protection and strong potential upside" , with strong real estate asset backing and long-term leases against world-class cloud operators.