Cromwell E-Reit’s Bari asset sold for 94 million euros
Michelle Zhu
CROMWELL European Real Estate Investment Trust’s ( Cromwell E-Reit ) off-market divestment of Viale Europa 95 in Bari, Italy, was completed at 94 million euros (S$135.4 million).
The Reit manager on Monday (Oct 9) estimated the sale consideration to represent a 13.1 per cent premium to Viale Europa’s 2017 purchase price of 83.1 million euros. The sale price stands at 28.2 per cent above the asset’s valuation of 73.3 million euros as at end-2022.
No agent was engaged for the sale given the transaction’s off-market nature, said the manager.
Including the divestment of Viale Europa, the manager estimated it has completed 188 million euros in divestments at an average of 10.2 per cent premium to valuation in the year to date.
This represents almost half of the Reit’s targeted 400-million-euro divestment programme to 2026, said the manager’s chief executive, Simon Garing.
Assuming the transaction was completed on Dec 31, 2022, net tangible assets (NTA) per unit of the Reit would have stood at 2.453 euros after the divestment as opposed to the Reit’s FY2022 NTA of 2.416.
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Had the property been sold on Jan 1, 2022, based on the current rental paid by the tenant, FY2022 distributable income would have been a lower 94.1 million euros compared to 96.7 million euros – translating to distribution per unit (DPU) erosion of 2.7 per cent.
Its manager, however, said the impact on DPU would be positive if the proceeds were used to repay the Reit’s revolving credit debt drawn down at an all-in interest rate of 6 per cent.
“By lowering Cromwell E-Reit’s leverage proactively, we enable further funding options for Cromwell E-Reit’s accretive development and asset enhancement initiative pipeline. We also align with investors’ preference for lower-geared S-Reits and the preservation of net asset value during higher interest rates times,” said Garing.
“The flip side of this deleveraging strategy is a slight decline in DPU in the short term until we complete the new projects, and they become income-producing again, while we deliver a more future-proof and sustainable portfolio in the long term.”
The proposed sale of Viale Europa was first announced in June this year, although its consideration was then undisclosed.
Spread over 123,261 square metres, the asset was built in the early 2000s to accommodate the Military Academy of the Tax Police. It comprises 11 buildings, with uses ranging from basement car parking areas to a large parade ground.
Cromwell E-Reit’s manager estimated that Viale Europa’s divestment will reduce the Reit’s portfolio weighting in Italy to 17.8 per cent from 21.1 per cent, based on end-June 2023 valuations.
This would bring total pro-forma rent collected from the Italian government to 4 per cent as a proportion of total headline rent, from the current 8.5 per cent.
The reduction factors in a 15 per cent rental decline on Cromwell E-Reit’s eight assets to be leased to the Italian government which came into effect over the past two years.
Cromwell E-Reit’s manager noted that 2023 is the first year that no further annual inflation indexation would apply to rents, which drags on growth to the rest of the portfolio. Its Italian government properties’ leases are also now on a shorter rolling six-monthly break notice periods to expiries in 2028 and 2029.
Based on its Oct 4 closing price of 1.25 euros and its actual H1 FY2023 and H2 FY2022 distributions, the Reit is estimated by its manager to trade at a 50 per cent discount to NAV per unit, and a 13 per cent 12-month trailing DPU yield.
These levels are like those of “far more troubled ‘foreign’ Singapore-Reits”, said Garing.
“I believe that Cromwell E-Reit’s track record of high cash generation, investor-aligned strategy and stronger market fundamentals as compared to the US and China merit greater recognition.”
Units of the Reit ended Friday two euro cents or 1.6 per cent lower at 1.27 euros.
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