Cromwell E-Reit reports 1.6% portfolio valuation decline for FY2022

CROMWELL European Real Estate Investment Trust (Cromwell E-Reit) on Tuesday (Jan 31) reported a total portfolio valuation of about 2.5 billion euros (S$3.6 billion) for FY2022 ended Dec 31, 2022, after taking into account valuation increases on properties under development in Italy and the Czech Republic. 

The latest valuation represents a drop of 1.6 per cent from June last year, as the Reit’s assets in most countries saw a valuation decline. 

In the Netherlands, Cromwell E-Reit saw a valuation decline of 25.4 million euros, while valuation of the UK portfolio also fell by 16.6 million euros. (*see amendment note)

Valuations in Germany, Italy, and Poland were also down by six million to seven million euros each. The Reit manager attributed this to higher capitalisation rates caused by increased interest rates.

On the other hand, the Denmark and France assets reflected valuation increases of 12.2 million euros and 2.4 million euros respectively, which the manager said was owing to asset management enhancement initiatives and market rent growth. 

The Czech Republic also saw a higher valuation due to the increase in value of properties under development. 

Simon Garing, chief executive of Cromwell E-Reit’s manager, noted that the logistics or light industrial sector recorded a small valuation gain of 3.5 million euros over the six months, while the office portfolio was 3.2 per cent lower. 

Ahead of Cromwell E-Reit’s FY2022 results which are expected to be announced on Feb 24, 2023, its manager is projecting an aggregate leverage of under 40 per cent, which lies within the board’s loan-to-value policy range of 35 per cent to 40 per cent. 

Preliminary unaudited net asset value is also expected to be about 2.42 euros per unit as at end-December 2022.  The resultant overall portfolio valuation decline of 1.6 per cent for FY2022 is considered “minimal” as well as demonstrates the Reit’s portfolio resilience, said the manager. 

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In Garing’s view, broader market conditions are currently more supportive of an improved European outlook despite expectations of rising capitalisation rates in FY2023.

Commenting on the overall valuation decline, he said that the impact of rising interest rates to the portfolio’s valuation was cushioned by a high weighted average initial yield; asset value enhancement initiatives and leasing programmes; and properties under development in Italy and the Czech Republic. 

Most of the Reit’s assets are in “good or very good macro or micro” locations which are experiencing market rent growth with little competitive supply, he noted, while the majority of its leases also have inflation indexation clauses which – together with strong rent reversion – helped with the rise in capitalisation rates.

“The strategy to pivot Cromwell E-Reit to a majority weighting to logistics or light industrial sector continues to contribute positively,” Garing said. 

Units of Cromwell E-Reit were trading down by 2.4 per cent or 0.04 euros at 1.61 euros as at 12.51 pm on Tuesday, after the news.

*Amendment note: An earlier version of this story incorrectly referred to the valuation of Cromwell E-Reit’s UK portfolio as its US portfolio. The error has been rectified.