Cromwell E-Reit's H1 results largely unaffected by Covid-19

Singapore

CROMWELL European Real Estate Investment Trust (Cromwell E-Reit) on Friday posted a resilient set of financial results for the first half ended June 30, despite widespread lockdowns across Europe during the second quarter as a result of the novel coronavirus outbreak.

Gross revenue increased 13.7 per cent year on year to 93.7 million euros (S$152.2 million) and net property income rose 6.6 per cent on the year to 57.7 million euros. This was largely attributed to contributions from properties acquired over the course of the past year, said the Reit.

Distribution per unit (DPU) fell 14.7 per cent from 2.04 euro cents to 1.74 euro cents.

But excluding the provision for Covid-19-related doubtful debts of three million euros and distribution of 2.8 million euros in divestment gains, which are considered one-off, DPU would have been 3.4 per cent lower, at 1.97 euro cents.

The distribution will be paid out on Sept 28.

"We remain hopeful that a lot of the tenants will still be able to pay their rents, just on a different time frame as opposed to how they would have normally paid," said chief financial officer Shane Hagan at a briefing on Monday.

The Reit also announced that management fees will be paid fully in cash for H1 2020, instead of 40 per cent in units as was the case in H1 2019, to demonstrate "alignment with unit-holders' interests by minimising future DPU and NAV (net asset value) per unit dilution".

This translates to a full payout of its distributable income, which stands at 44.6 million euros for the half year, just 0.6 per cent lower than the year before.

Despite lockdown measures across countries in Cromwell E-Reit's portfolio - the Netherlands, Italy, France, Poland, Germany, Finland and Denmark - it maintained a portfolio occupancy of 94.7 per cent.

Additionally, only 3.3 per cent of its leases are due to expire in FY2020, down from 14.5 per cent at the start of the year. The weighted average lease expiry of the Reit's overall portfolio stands at 5.1 years.

Apart from long-term leases, the diversification of Cromwell E-Reit's portfolio "across sectors that are likely to remain the least affected by Covid-19" also contributed to its strong results, said the Reit.

Assets in the industrial and logistics industry make up 30 per cent of its portfolio, where operators like DHL and UPS benefited from e-commerce pick up during the lockdown period.

In terms of rent payments, 23 per cent of Cromwell E-Reit's rent comes from government and related entity leases, which are typically paid in advance. In Italy, rents are paid up to six months in advance. Sixty-eight per cent of the Reit's rent also comes from multinational corporations and large domestic corporations.

Chief executive Simon Garing added that in the Netherlands - where the Reit has the greatest exposure at over 30 per cent - about 17 per cent of the population had already been working from home even before the Covid-19 outbreak. "So ... this sort of novelty in Singapore around the impact of work from home, the Dutch have already been undertaking that over the last 20 years," he said at the briefing.

With countries emerging out of lockdown and expectations of a rebound in economic activity for the second half of the year in Europe, Cromwell E-Reit said that it has "greater visibility" on its FY2020 performance. "We are now in a position with low gearing at 34 per cent to come out of hibernation, if you will, and actually start looking for logistics assets, continuing along with Germany and its neighbouring countries, where we're typically underweight," said Mr Garing.

The Reit is also looking to gain more exposure in the data centre market to "further diversify and make (its) portfolio even more resilient and future-ready". Last month, it signed a heads of terms agreement with its sponsor and Stratus Data Centres to co-invest directly into 50 per cent stakes in two data centre projects in London and Frankfurt.

Apart from increasing exposure across the various markets, Cromwell E-Reit is also targeting the divestment of some office assets, due to "the active asset management undertaken, which has seen that property value probably peaked in the cycle", added Mr Garing. "So we're not afraid to dispose of assets - even larger assets, to book profits on behalf of investors."

Cromwell E-Reit units gained 2.5 euro cents, or 5.7 per cent, to finish at 46.5 euro cents on Monday.