CGS-CIMB started coverage on Cromwell European Real Estate Investment Trust (Cromwell E-Reit) with an “add” rating and target price of 2.15 euros, while highlighting the Europe-focused Reit for its undemanding valuations.

In a report on Monday (Jan 8), the research house’s analysts noted that the Reit’s mid-term redevelopment plans announced thus far could potentially deliver an upside to net asset value (NAV) of 60 million euros (S$87.3 million) to 70 million euros or 11 to 12 euro cents per share.

This would in turn translate to a 4.7 to 5.5 per cent uplift on a NAV-per-share basis – and an even higher 16 per cent upside after accounting for the potential redevelopment of the Reit’s Parc des Docks asset in France in the long term.

Overall, CGS-CIMB thinks Cromwell E-Reit’s mid and long-term redevelopments could lift its NAV per share by as much as 21 per cent.

Such potential has been “overlooked by the market”, in the analysts’ view. 

CGS-CIMB expects the Reit’s portfolio to shift towards a “more defensible” composition of mainly industrial and Grade A office assets, while eliminating its current exposure to Grade B and C offices.

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It noted that the Reit’s light industrial and logistics assets are currently benefiting from secular trends, such as higher near-shoring and the growth of e-commerce penetration in Europe.

At the same time, Grade A/A green offices account for an estimated 60 to 80 per cent of the Reit’s office take-up – which CGS-CIMB attributed to a flight to quality and corporate commitments to net-zero emissions.

“We believe that earnings will be supported by Cromwell E-Reit’s portfolio recalibration, which will result in a future-ready portfolio with lower vacancy and devaluation risks.”

Citing improving macroeconomic outlook fundamentals, the research house believes the European market is at an inflection point, indicating reduced interest rate and valuation risks for the Reit.

Buying into Cromwell E-Reit would therefore be equivalent to “buying into the region’s nascent recovery near the bottom of the cycle”, suggested CGS-CIMB’s analysts.

The Reit has properties in 10 European countries, including the Tilburg asset in the Netherlands.

Units of Cromwell E-Reit : CWBU 0% were trading 1 euro cent or 0.7 per cent lower at 1.39 euros as at 9.53 am on Tuesday.