Brokers’ take: DBS lowers target price of Cromwell E-Reit

DBS Group Research on Monday (Jun 13) lowered its target price for Cromwell European Real Estate Investment Trust : CWBU 0% (Cromwell E-Reit) to 2.60 euros from 2.80 euros, though it still maintains a “buy” position on the Reit.

Units of Cromwell E-Reit closed lower by 1.5 per cent or 0.03 euro at 2.00 euros on Monday. 

DBS analysts Dale Lai and Derek Tan added that the Reit trades at an “attractive” 8.1 per cent yield, close to 1 standard deviation with the risks of a slowing European economy likely priced in after the counter’s price fell around 20 per cent year to date. 

While the research team is of the view that Cromwell E-Reit has weathered the Covid pandemic “well”, it foresees new risks with Europe expected to face a period of lower growth and high inflation given the ongoing geopolitical crisis. 

However, the analysts believe that Cromwell E-Reit is well placed to deliver resilient returns and yield compression with its pivot into the logistics sector and its positioning in key European cities.

Noting that Cromwell E-Reit’s focus in Italy, France, and the Netherlands – which together accounted for 67 per cent of its portfolio – have “relatively better” fundamentals, the analysts predict this will result in more resilience. 

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They added that demand in most cities continues to outstrip supply, especially for light industrial and logistic spaces, while the Reit’s portfolio continues to benefit from being located close to city centres where supply remains tight. 

The analysts “remain excited” about Cromwell E-Reit’s focus on “greening” its portfolio and its target of net-zero operational carbon emissions by 2040. 

“We see this as a multifold strategy, with operational efficiencies to drive cash flows and capital values. This has also enabled them to capture tenant demand, given an increased focus on properties with ‘green’ attributes,” said the analysts.

The research team is also of the view that the interest rate risk is “overblown”, noting that Cromwell E-Reit is “well positioned and is fully hedged till October 2022 but is expected to remain substantially high at about 77 per cent in the medium term”.