Cromwell : CWBU 0% European Real Estate Investment Trust : CWBU 0% (Cromwell E-Reit) has sold its Milan office asset Piazza Affari 2, for 93.6 million euros (S$138.5 million), its manager said on Friday (Jun 30).

The selling price for the non-core asset comes at a 14.6 per cent premium above the original 2017 purchase price of 81.7 million euros, and 200,000 euros above its June 2023 valuation. The purchase was paid for fully in cash, the manager said in a bourse filing.

Following the sale, Cromwell E-Reit’s portfolio is nearly 50 per cent weighted to the light industrial and logistics sector. Its weighting towards office properties now stands at 48.1 per cent. 

Proceeds from this sale will be used to reduce Cromwell E-Reit’s aggregate leverage by 2.1 per cent to 37.2 per cent on a pro forma basis. The manager does not expect the transaction to have a material impact on the Reit’s net tangible assets.

Based on pro forma estimates, the divestment results in a distribution per unit (DPU) accretion of 2.1 per cent for FY2022, assuming it was completed on Jan 1, 2022 and debts were repaid using the proceeds. This is due to the relatively low net operating income yield of the asset.

The divestment will also lower the Reit’s net tangible assets per unit to 2.40 euros from 2.42 euros, assuming it was completed on Dec 31, 2022, based on pro forma estimates. 

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The buyer of Piazza Affari 2 is Italy-based Kryalos SGR, which specialises in transaction management, fund and credit management, advisory and development services. 

On Jun 9, the manager disclosed that it was in advanced negotiations to sell the asset, after a real estate news site reported that the asset will change hands for close to 100 million euros. 

Piazza Affari 2 was built in the 1930s and refurbished in 2017. It has a net lettable area of 7,787 square metres, with eight floors and two basement levels. 

With this sale, the Reit’s overall portfolio weighted average lease to expiry will increase slightly from 4.47 years to 4.49 years. The manager expects the portfolio occupancy to remain unchanged at 96 per cent.

DBS Group Research sees the sale as a positive development for Cromwell E-Reit, as the low exit yield leads to an improvement in gearing, coupled with DPU accretion. 

“Although we would have preferred that Cromwell E-Reit lower its exposure to office assets in Finland and Poland (where sentiments remain weak), we see this as a positive development for the Reit, as it embarks on its portfolio recalibration efforts,” the research team said.

DBS reiterated its “buy” call on Cromwell E-Reit, with a target price of 2.10 euros on the Reit’s attractive valuation and possible growth in earnings.

It noted that the Reit is trading at 0.7 times of its net asset value and a forward dividend yield projection of above 10 per cent.

The divestment of Bari Europa, which the Reit is negotiating, will also improve its gearing ratio, potentially lead to some DPU accretion, and help solidify the Reit’s exposure to light industrial/logistics assets.

Simon Garing, chief executive officer of the manager, said the sale of this Grade-A office property marks the first step of the Reit’s strategy of divesting non-core and non-strategic assets of up to 400 million euros over the next two to three years.

Garing added that the divestment is also in line with the Reit’s direction to keep gearing within 35 per cent to 40 per cent, pivot towards light industrial and logistics sector in its overall portfolio, reduce exposure to non-core and non-strategic office and other assets, as well as recycle capital into redevelopments and asset-enhancement initiatives. 

As at 10.20 am, Cromwell E-Reit units were trading 1.3 per cent or 0.02 euro lower at 1.57 euros.