ACTIVIST investor Quarz Capital is urging the management and board of Cromwell European Real Estate Investment Trust (Cromwell E-Reit) to initiate unit buybacks to “take advantage” of the current discounted unit price.

In an open letter on Friday (Nov 10), Quarz noted that Cromwell E-Reit’s units are currently trading at a “severe discount” of around 47 per cent to its net asset value (NAV) of 2.30 euros per unit. This is despite the “high-quality portfolio” and distribution per unit (DPU) growth catalysts, Quarz said. It noted that the Reit has the second-largest discount among Singapore-listed Reits with assets of over S$3 billion.

“This enormous valuation gap provides an unparalleled and highly attractive opportunity for Cromwell E-Reit to buy its units back, to the substantial benefit of existing unit holders, given its still-low leverage level,” the fund manager said.

Quarz added that the Reit’s forecast dividend yield for next year is currently “highly attractive and compelling” at around 13.2 per cent. It said that a S$60 million unit buyback programme, which “will only increase leverage slightly” from 36.8 per cent to 38.5 per cent, would result in improvements to both NAV and DPU.

Quarz estimates that DPU and NAV could go up by more than 6 per cent, resulting in a dividend yield exceeding 14 per cent, and NAV per unit of 2.44 euros. It noted that 94 per cent of the Reit’s debt is currently hedged to fixed rates, providing for strong DPU visibility and stability over the next 12 months. “Most importantly, the unit buyback at nearly half of Cromwell E-Reit’s NAV will also demonstrate the manager’s confidence in the high-quality portfolio and its own execution capability to further create value,” it said.

At the annual general meeting in April, Cromwell E-Reit unitholders approved the resolution to renew the unit buyback mandate, which authorises the manager to repurchase units up to a limit of 10 per cent of the total number of issued units. The Reit had 562.4 million units issued as at March this year.

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The manager said in April that repurchases would be made only when it is considered to be in the best interest of the Reit and unit holders, and that such buybacks may not necessarily be undertaken to the entire 10 per cent limit.

In response to The Business Times’ queries on Friday, a spokesperson for the manager said it is currently unable to comment due to the blackout period ahead of its Q3 business update, scheduled for Nov 14.

Quarz and its affiliates are unitholders in Cromwell E-Reit. The activist investor said it is “highly supportive of the current management team”, for its operational achievements as well as its “strong commitment to ESG (environmental, social and governance) and investor relations”.

“Our only concern relates to the unit buyback programme, which we believe should be executed immediately to benefit Cromwell E-Reit and its unitholders.”

Cromwell E-Reit : CWBU 0% units traded unchanged at 1.22 euros as at 2.39 pm on Friday.