Brokers’ take: RHB initiates Cromwell E-Reit with ‘buy’ on recovery prospects

RHB Research initiated coverage on Cromwell European Real Estate Investment Trust (Cromwell E-Reit) with a “buy” call, on expectations of a potential recovery in Western European property markets in the medium to long term.

The research house’s target price of 2.15 euros implied a potential upside of more than 40 per cent from current levels.

In a report on Wednesday (Dec 21), analyst Vijay Natarajan highlighted the Reit’s “attractive” 10 per cent dividend yield, after accounting for rising interest costs.

In his view, near-term weaknesses have been sufficiently priced in, as the unit price of Cromwell E-Reit has shed about 39.5 per cent year to date.

“The Reit’s consistent historical operating performance and portfolio rebalancing track record lends confidence that it will emerge stronger from current market challenges in (the) eurozone,” said Natarajan.

Cromwell E-Reit has 115 assets valued at some 2.6 billion euros (S$3.73 billion) in mainly Western European countries, with office assets accounting for 49 per cent of its portfolio value, and industrial/logistics assets making up an estimated 46 per cent.

Natarajan noted that the proportion of industrial/logistics assets in Cromwell E-Reit’s portfolio is likely to increase. In October, the Reit acquired a Danish logistic asset for 117.4 million Danish kroner (S$22.3 million).

“The Reit has also been active on the divestment front since the start of the year with more planned in the near term, which we believe could potentially unlock value for unitholders,” he added.

The analyst was positive on Cromwell E-Reit’s “record-high” occupancy rate, which currently stands at 95.7 per cent. He highlighted the Reit’s strong occupancy rates over the last two years amid the pandemic as evidence of the on-the-ground property management team’s expertise.

SEE ALSO

Cromwell E-Reit’s Q3 distributable income slips 0.4% to 24.2m euros

Cromwell E-Reit to acquire Copenhagen logistics asset for 117.4m Danish kroner

Cromwell E-Reit to divest 3 assets for 22m euros, above valuation

Inflation is unlikely to pose major challenges as well, Natarajan noted, as some 90 per cent of the Reit’s leases are pegged to inflation-linked rent escalation clauses, providing rental growth from the current high inflation environment.

The analyst however cautioned of risks of inflation remaining “stickily high”, which could result in higher interest rates and recession risks.

Units of Cromwell E-Reit were down 0.01 euro or 0.7 per cent to 1.52 euros, as at 3 pm on Wednesday.