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Cromwell European REIT Beats IPO Forecast Again

Cromwell European Real Estate Investment Trust (SGX: CNNU) reported its 2019 first-quarter earnings this week. The trust, which owns 97 properties, reported higher revenue but distribution per unit (DPU) declined due to an enlarged unit base.

Here are some of the key takeaways from its first-quarter earnings update.

Financial performance compared to the same period last year

  • Gross revenue increased by 31.7% to €39.9 million
  • Net property income increased by 33.8% to €26.4 million
  • Income available for distribution rose 36.9% to €22.4 million
  • DPU was 1.02 Euro cents down from 1.45 Euro cents

It was a mixed quarter for the REIT. While contributions from newly-acquired properties led to higher gross revenues and net property income, the larger unit base due to a rights issue resulted in lower DPU.

Balance sheet

  • As of 31 March 2019, gearing stood at 37.0%
  • Interest coverage ratio was 9.2 times, up from 8.9 times
  • The weighted average term to maturity was 2.7 years
  • 86% of the debt was hedged
  • Annualised cost of debt was 1.39%

The REIT remains in a safe financial position. Its debt-to-asset ratio of 37% is below the regulatory ceiling of 45% for REITs and gives it additional debt headroom to fund more acquisitions. More importantly, the REIT has managed to keep its cost of debt low at just 1.39%, while hedging most of its debt.

The access to cheap debt should enable it to utilise its debt headroom to fund growth when the opportunity arises.

Portfolio statistics

  • As of 31 March 2019, the occupancy rate was 90.2%
  • Weighted average lease expiry stood at 4.7 years
  • 90.4% of its properties are freehold
  • 4.0% rental reversion rate across its assets in the quarter
  • New leases will commence in the second quarter, which should have a positive impact on occupancy rates

There are a few positives to take away here. The first is that occupancy should improve from the second quarter onwards, as new leases signed start to commence. Second, the positive rental reversion rate should provide further uplift in rental income going forward.

Looking ahead

So far, the three new acquisitions made in Poland have only contributed from February 2019. Next quarter, investors can expect DPU growth due to a full-quarter contribution from these acquisitions. The Manager’s Chief Executive Officer, Mr. Simon Garing, remains confident of the REIT’s prospects saying:

The solid fundamentals of CEREIT’s recently acquired properties have been validated by CEREIT’s 1Q 2019 results. We have onboarded the properties and are excited about the prospects of extracting greater value by lifting occupancy rates, renewing expiring leases, and securing positive rental reversions. Coupled with the greater resilience of the portfolio now that it is diversified over seven countries with earnings generated from over 1,000 leases, the potential upside from our proactive leasing activities positions CEREIT to continue delivering attractive risk-adjusted returns to unitholders. Looking ahead, I am confident that CEREIT is well-positioned to take advantage of accretive acquisition opportunities in Europe with attractive yield/debt spreads while divesting non-core assets.”

At the time of writing, units of Cromwell European REIT trade at €0.495 apiece, which translates to a price-to-book ratio of 0.98 and an annualised distribution yield of 8.2%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore writer Jeremy Chia does not own shares in any companies mentioned.