Virus has 'minimal impact' on Europe income: Cromwell E-Reit

Singapore

THE manager of Cromwell European Real Estate Investment Trust (Cromwell E-Reit) said the novel coronavirus outbreak has had "minimal impact" so far on its income from properties in Italy and the wider European region.

The manager also expects distribution per unit (DPU) for FY2020 to remain at the FY2019 level, taking into account the current circumstances and having put in place the appropriate risk-mitigation measures. The DPU for FY2019 came in at 4.08 euro cents, up 8.8 per cent on the year.

"Our portfolio is well-diversified across asset classes, geographies, tenant-customers and tenant-customer trade sectors," said Simon Garing, chief executive officer of the manager, in a bourse filing on Friday.

"Together with its high occupancy rate, significant proportion of government tenants and generally long-leased office and light industrial/logistics assets, this provides resilience against any short-term economic shocks," he added.

In Italy, the Reit's 18 assets make up only 23 per cent of the entire portfolio by valuation, the manager said.

Mr Garing said last month that he believed Covid-19's impact on the Italian properties would be limited, given the long leases locked in at its logistics, industrial and office buildings, which would be less affected than those in retail and hospitality.

The portfolio is 63 per cent weighted to office assets, which on average have 94.6 per cent occupancy, a 4.6-year weighted average lease expiry profile and less than 6 per cent of leases due for renewal this year.

This week, Italy shut all stores except pharmacies and grocery shops to halt the spread of the virus. As at Friday, the country had more than 12,400 cases and over 800 deaths - the highest numbers outside of China.

At Cromwell E-Reit's Italian assets, three of its top 10 tenant-customers are Italian and together account for about 16 per cent of its headline rent.

The largest contributor is the Italian federal government, which makes up almost two-thirds of the entire Italian portfolio's income. The government is also committed to long-term leases through to 2023.

Mr Garing told The Business Times on Friday that at this stage, Cromwell E-Reit's manager has not seen any increase in rent arrears (late or non-payment of rents).

"Over 80 million euros of cash as at the end of 2019, as well as a long-weighted debt maturity, low gearing and undrawn revolving credit facilities underpin (the Reit's) liquidity and security of income," he added.

The manager has not provided rental abatement to its tenants as at Friday, and does not foresee any material impact on its income based on the current circumstances, Mr Garing told BT.

In total, the Reit has 62 Italian leases, with more than 80 per cent of them being office leases and leases representing less than 70,000 euros (S$110,504) of net property income (NPI) expiring this year.

Cromwell E-Reit also owns a four-star hotel and an asset with a cinema in Italy. These account for less than 2.5 per cent of the portfolio's NPI.

As at Feb 25, the portfolio comprises 103 properties in Denmark, Finland, France, Germany, Italy, the Netherlands and Poland. No country accounts for over 30 per cent of the portfolio by valuation or more than 28 per cent of the portfolio by NPI.

The Reit's sponsor, Cromwell Property Group, has made "significant investments" over the last few years in systems and processes to manage market disruptions such as the Covid-19 situation, Mr Garing said. These include cloud-based accounting, leasing, treasury management, risk management and document storage platforms.

Each year, the local teams in Australia, Singapore and Europe also refine business continuity plans for all assets, including those in Italy.

Units of Cromwell E-Reit fell 1.5 euro cents or 3.3 per cent to close at 43.5 euro cents on Friday.