Brokers’ take: Analysts positive on Cromwell E-Reit on attractive distribution yield, stable operating metrics
Derryn Wong
ANALYSTS continue to be positive on Cromwell European Real Estate Investment Trust (Cromwell E-Reit) for the Reit’s stable operating performance and long-term plans to transform its portfolio. In separate reports, research teams from DBS Group Research, RHB and UBS maintained “buy” on the Europe-focused Reit. Their target prices remain unchanged. DBS’ target price stands at 2.10 euros, implying a potential upside of 38.2 per cent from Cromwell E-Reit’s last trading price of 1.52 euros as at 3.09 pm on Wednesday (May 17). RHB has a 2.15-euro target on the counter, implying an upside of 41.4 per cent, while UBS’s target is 2.17 euros, implying a potential upside of 42.8 per cent. Both RHB and UBS noted the Reit’s attractive distribution yields, estimated at around 10.6 per cent to 11 per cent. “The Reit’s consistent historical operating performance and portfolio rebalancing track record lend confidence that it will emerge stronger from current market challenges in the eurozone,” said RHB.
On Monday, Cromwell E-Reit posted an increase in both gross revenue and net property income (NPI) for the first quarter ended Mar 31, 2023, although indicative distribution per unit (DPU) fell. Gross revenue rose 4.2 per cent year on year to 54.8 million euros (S$79.6 million), while NPI increased 3.6 per cent to 33.6 million euros, over the same time period.
All three research teams highlighted Cromwell E-Reit’s high portfolio occupancy rate and positive rent reversion as key indicators of its current portfolio health.
The Reit had reported an occupancy rate of 95.8 per cent in the first quarter of 2023, a 1 per cent increase over the previous corresponding period, with rental reversion at 6.7 per cent. Although occupancy rates fell compared to the previous quarter, overall operating metrics remained stable, said DBS. It believes continued positive rental reversions and inflation indexation will drive earnings even as the Reit’s portfolio leases undergo transitional vacancies.
RHB noted that net asset value declined only marginally by 1.6 per cent year on year, demonstrating diversification strengths, high asset quality and correct segment focus. The analysts were mixed on the Reit’s capital management. DBS expressed caution on the Reit’s capital management metrics as gearing and all-in finance costs inch up amid rising interest rates and higher margins on new loans.
DBS expects all-in financing costs to increase to 2.8-2.85 per cent from 2.7 per cent by the end of the year. UBS, meanwhile, said capital management “appears comfortable”. It believes DPU could bottom in 2023, with recovery projected in 2024, without having to assume a drop in cost of debt. In the long term, all three research teams praised the Reit’s strategic shift towards a portfolio consisting mostly of light logistics and industrial sector properties.
RHB called this “timely pivot” to the European logistics sector, which is seen as more resilient. It said the Reit’s plans to divest 400 million euros worth of non-strategic assets could help mitigate a drop in distributable income. “We believe Cromwell E-Reit offers an attractive entry level for mid- to long-term play on Western European recovery with near-term weakness sufficiently priced in,” RHB said.
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