30 November 2017
Cromwell European REIT – Singapore’s First Diversified Pan-European REIT
  • Cromwell European REIT, first Singapore REIT with a diversified Pan-European Portfolio, made its trading debut on the Mainboard today. It has an initial portfolio of 74 properties across the office and light industrial/logistics sectors in Denmark, France, Germany, Italy and the Netherlands.
  • In its IPO prospectus, it has identified some drivers for Europe’s real estate market which include 1) improving macroeconomic fundamentals with headroom for further growth, 2) favourable consumption, investment and production trends, and 3) stable rental growth in European office and light industrial/logistics sectors.
  • Prior to Cromwell European REIT’s IPO, SGX lists five REITs and property trusts with exposure to Europe’s real estate market. The five trusts are Ascott Residence Trust, CDL Hospitality Trusts, Keppel DC REIT, Frasers Hospitality Trust, and IREIT Global with a combined market capitalisation of over S$8 billion.

Drivers of the European Property Market

 

In its IPO prospectus, Cromwell European REIT has identified some drivers for Europe’s real estate market:

 

§  Improving macroeconomic fundamentals with headroom for further growth – According to the Independent European Property Market Research Report by Cushman & Wakefield, real gross domestic property growth in the Eurozone area has shown positive momentum over the past three fiscal years and is projected to increase to 2.2% in 2017 (up from 1.7% in 2016) coupled with lowest unemployment levels since 2010.

 

§  Favourable consumption, investment and production trends – As economic recovery in the Eurozone is projected to gradually strengthen, household consumption, investment and industrial production activity in the Eurozone is expected to improve from 2017 to 2020. This is supported by improving business sentiments, strong recovery in credit growth and growth in employment and real earnings.

 

§  Stable rental growth in European office and light industrial/logistics sectors – The REIT manager believes that stable demand and growth for industrial properties in Europe is supported by limited quality supply and increasing positive sentiment on manufacturing. Industrial production is also expected to grow by an average of 1.1% to 1.6% per annum (Cushman & Wakefield).

 

Cromwell European REIT’s IPO

 

Cromwell European REIT is the first Euro-denominated Singapore REIT with a diversified Pan-European portfolio to list on SGX, offering investors the opportunity to gain exposure to income-producing real estate assets in Europe. It has an initial portfolio of 74 properties across the office and light industrial/logistics sectors in Denmark, France, Germany, Italy and the Netherlands.

 

Some key extracts from Cromwell European REIT’s prospectus include:

 

Business Strategies and Future Plans

§  Active asset management and enhancement strategy to improve and/or enhance income streams.

§  Acquisition growth strategy supported by a rigorous research driven selection process and an extensive on-the-ground presence in Europe with strong sourcing capabilities.

§  Prudent capital management strategy to optimise cost of debt financing and minimise exposure to market volatility and maximise risk-adjusted returns to unitholders.

§  Best practice approach to Sustainability, Corporate Governance, and Corporate Social Responsibility.

 

Competitive Strengths

§  Large, geographically diverse portfolio with balanced asset class exposure.

§  Long and well-staggered lease profile across all asset classes.

§  High quality and diverse tenant base with different businesses.

§  88.0% of the total appraised value comprises of either freehold land or ongoing leasehold land.

 

Breakdown of Appraised IPO Portfolio Value By Geographies

Source: Company prospectus.

 

Key Risks (page 58 of IPO prospectus shows complete list of risk factors)

§  The REIT may be adversely affected by economic and real estate market conditions, political or constitutional instability, conflicts and/or crises, as well as changes in regulatory, fiscal or governmental policies in Europe.

§  Properties in the REIT might be adversely affected if the manager does not provide adequate management and maintenance.

§  The REIT’s ability to make distributions is dependent on its financial position of the corporate entities.

§  The REIT may be exposed to risks associated with exchange rate fluctuations and changes in foreign exchange regulations.

 

Financials from Prospectus

§  According to the forecasted and projected financial statements, gross revenue for projection years 2018 and 2019 are €123.4 million and €127.0 million respectively.

§  Net income for distribution to unitholders for projection years 2018 and 2019 are €68.0 million and €70.2 million respectively.

§  The REIT has a distribution policy to distribute 100% of its annual distributable income for the period from the listing date to the end of projection year 2019.  Thereafter, the REIT will distribute at least 90% of its annual distributable income for each financial year. It has a distribution yield of 7.8% and 8.0% for projection years 2018 and 2019 respectively.

  

Source: Company prospectus

 

Valuation

§  According to the prospectus, Cromwell European REIT’s unaudited net asset value as at the listing date is €0.53 per unit (based on 1,573,990,000 units in issue). This implies a price-to-net asset value (P/NAV) ratio of 1.04x based on the offer price of €0.55.

§  Aside from Cromwell European REIT, SGX lists five REITs and property trusts with exposure to Europe’s real estate market. The five trusts have diversified asset classes and over 40 properties across Europe, and have a combined market capitalisation of over S$8 billion.

§  Prior to the listing, SGX lists a total of 42 REITs and property trusts with a combined market capitalisation of S$87 billion and a market capitalisation weighted P/B ratio of 1.1x. The 42 REITs and property trusts have an average dividend yield of 6.2% and have generated a market capitalisation weighted average total return of +23.3% in the YTD.

Of the 42 REITs and property trusts, there were 15 Office and Industrial REITs (GICS®) which make up 36% of the REITs and property trusts cluster.

List of REITs with Exposure to Europe’s Real Estate Market on SGX

Name

SGX Code

Market Cap S$M

Last Price*

Total Return 1 Yr %

Total Return YTD %

P/B (x)

Gearing %

Dvd Ind Yld %

GICS Sub Ind

Ascott Residence Trust

A68U

2,537

1.180

16.3

16.3

1.0

38.9

6.6

Residential REITs

CDL Hospitality Trusts

J85

1,954

1.630

37.0

34.9

1.1

36.6

5.9

Hotel & Resort REITs

Keppel DC REIT

AJBU

1,623

1.440

25.7

27.9

1.5

29.7

4.5

Specialised REITs

Frasers Hospitality Trust

ACV

1,442

0.775

29.6

27.6

0.9

32.0

6.5

Hotel & Resort REITs

IREIT Global

UD1U

476

0.760

14.3

15.1

1.1

41.4

8.3

Office REITs

Average

 

 

 

24.6

24.4

1.1

35.7

6.4

 

Market Cap Weighted Average

 

 

25.5

25.1

1.1

35.4

 

 

Source: Bloomberg & SGX StockFacts (data as of 29 November 2017).

*Last price of companies are denoted in their respective trading currencies. SGD equivalents are shown in table.

 

Additional Information from Prospectus (click here)

 

Company Background

 

Cromwell European REIT’s initial portfolio has 74 predominantly freehold, perpetual leasehold or continuing leasehold properties, with an aggregate net lettable area (NLA) of approximately 1.1 million sq m. The REIT’s initial portfolio has an occupancy rate of 87.7% as at 30 Apr 2017, and projected occupancy rates for projection years 2018 and 2019 are 90.0% and 92.6% respectively.

 

Cromwell Property Group, a global real estate investment manager in Australia, is the sponsor of the REIT. As at 30 Jun 2017, it had a total AUM of approximately A$10.1 billion (€6.7 billion) across Australia, New Zealand and Europe and manages over 330 properties globally across 16 countries.

 

IPO Details

 

§  Offer price at €0.55

§  428.5 million units under the offering (subject to over-allotment option) comprising:

§  392.2 million shares under the placement tranche

§  36.4 million shares under the public offer

§  Estimated IPO market capitalisation at €865.7 million (assuming the over-allotment option is not exercised)

 

Cornerstone Investors

 

At the same time as but separate from the offering, each of the cornerstone investors has entered into separate subscriptions agreements with the manager to subscribe for an aggregate of 581.8 million units (37.0% of the total units in issue). The cornerstone investors are Cerberus Singapore, Hillsboro Capital, and Mr Gordon Tang and Mrs Celine Tang. For more information, please refer to page 98 of the Prospectus.

 

Over-allotment Option

 

An option granted by the Unit Lender to the Joint Bookrunners to purchase from the Unit Lender up to an aggregate of 45.5 million units at the Offering Price.


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