The Motley Fool

Better Buy: Cromwell European REIT vs. IREIT Global

Cromwell European REIT (SGX: CNNU) and IREIT Global (SGX: UD1U) are two real estate investment trusts (REITs) with properties in Europe. The former was listed in November 2017, while the latter went public in August 2014.

For investors who are wondering which of the two REITs offers better value, look no further. We’ll compare a few metrics for Cromwell European REIT and IREIT Global to determine the better buy.

Portfolio size

Cromwell European REIT owns 97 assets, with 57% of them in the office space, 35% in the light industrial or logistics sector, and the remaining 8% categorized as “others” (which includes three government-let campuses, one retail property, and a hotel).

Source: Cromwell European REIT Q1 2019 earnings presentation

IREIT Global has a smaller portfolio with just five office properties in Germany’s cities of Berlin, Bonn, Darmstadt, Munich, and Münster. On top of commercial buildings, its investment mandate allows it to invest in retail and industrial (including logistics) properties in Europe.

Source: IREIT Global Q1 2019 earnings presentation

Winner: Cromwell European REIT

Gross revenue growth

Next, let’s compare the companies’ gross revenue growth. I usually like to compare five-year growth rates as that will be more representative of long-term growth. However, since both REITs have short listing histories, we will compare their gross revenue from the 2018 first quarter to the 2019 first quarter.

 Metric Cromwell European REIT IREIT Global
Gross revenue growth Q1 2018 to Q1 2019 31.7% 1.4%

Source: REITs’ 1Q 2019 earnings report

Cromwell European REIT’s gross revenue growth of around 32% easily trounces its counterpart’s growth of below 2%. The huge increase for Cromwell’s top line was largely thanks to contributions from 23 properties that were acquired after listing.

Winner: Cromwell European REIT

DPU and NAV growth

The distribution per unit (DPU) reveals how much unitholders get from owning the REITs. Meanwhile, the net asset value (NAV) per unit is the difference between a REIT’s assets and its liabilities. The increase in a REIT’s unit price tends to track the growth in both its DPU and NAV per unit over the long term.

The table below compares the DPU and NAV growth of the two REITs on a year-on-year basis in the first quarter of 2019:

 Metric Cromwell European REIT IREIT Global
DPU growth 6.3% -1.1%
NAV growth -9.8% 9.3%

Source: REITs’ Q1 2019 and Q1 2018 earnings reports

It’s a mixed bag, here. While Cromwell has better DPU growth than IREIT Global, its NAV has not grown year on year.

Winner: It’s a tie

Financial strength   

Now let’s compare the REITs’ gearing ratio and interest cover. The gearing ratio shows how much leverage a REIT has taken on, while the interest cover reveals how easily a REIT can pay interest expenses on its outstanding loans.

 Metric Cromwell European REIT IREIT Global
Gearing ratio 37.0% 38.0%
Interest cover 9.2x 10.0x

Source: REITs’ Q1 2019 earnings report

It’s another close fight. IREIT Global has a slightly higher interest cover than Cromwell European REIT, but it loses out in terms of the gearing ratio.

Winner: It’s a tie

Valuations

As investors, we should focus on the REITs’ value and not on the daily changes in their unit prices. Let’s now look at the price-to-book (P/B) ratios and distribution yields of the two REITs. The values below are as of the closing prices on 24 July 2019.

 Metric Cromwell European REIT IREIT Global
P/B ratio 1.0 1.1
Distribution yield 6.1% 7.4%
Unit price 0.505 euros

(S$0.77)

S$0.78
Market capitalisation 1.28 billion euros

(S$1.95 billion)

S$495.0 million

Source: SGX Stocks Screener (currency conversion done through Google)

Cromwell European REIT has a slightly lower P/B ratio, but its distribution yield is worse than IREIT Global’s.

Winner: It’s a tie

The Foolish conclusion

Cromwell European REIT is the overall winner as it triumphs over IREIT Global with a bigger portfolio and a better gross revenue growth rate in the first quarter of 2019. Having said that, investors who are looking to buy Cromwell European REIT should further research the risks associated and its growth prospects, among other things.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.