Cromwell European REIT Accelerates Pivot to Logistics with its First Freehold Acquisition in the United Kingdom

  • Acquisition price of £10.0 million (approximately €11.7 million1 or S$18.8 million2)
  • Attractive 5.6% net operating income (“NOI”) yield3, ~3% below independent valuation and 32% discount to replacement cost4
  • The Asset is situated in a prime logistics location close to the major cities of Liverpool and Manchester, with good connectivity to major motorway networks, two airports and a deep-sea port
  • The Asset is 100% let on a 10-year lease, with opportunity for rental growth and value enhancement

CEREIT-freehold logistics

SINGAPORE – Cromwell EREIT Management Pte. Ltd., the manager (the “Manager”) of Cromwell European Real Estate Investment Trust (“Cromwell European REIT” or “CEREIT”), announced today that CEREIT, through an indirectly wholly-owned subsidiary, Europe 5 HoldCo S.à r.l., has entered into a sale and purchase agreement to acquire a freehold logistics asset (the “Asset” or the “Acquisition”) from a third-party vendor in the United Kingdom (the “UK”) and completed the Acquisition on the same day.

The Manager’s Chief Executive Officer, Mr. Simon Garing, commented, “I am delighted to announce CEREIT’s first acquisition in the UK – a freehold logistics property fully-let for a 10-year lease to a national 3PL5 tenant-customer in an excellent established UK logistics location. We’ve been studying the UK market for some time and actively looking for accretive opportunities for CEREIT to make our entry, so I am pleased that we, as the manager of CEREIT, are able to deliver on our stated strategy in 2021. The Acquisition further increases CEREIT’s exposure to light industrial / logistics property to 39%, accelerating CEREIT’s pivot towards logistics. We look forward to expanding our footprint in the UK, in line with the stated strategy. Cromwell Property Group’s6 experienced local, on-the-ground team has once again proven their local asset management capabilities and was instrumental in securing this deal amidst the highly-competitive property market in the UK.”

The Asset

The Asset is 100% occupied by Panther Warehousing Ltd, the UK’s leading two-man B2C7 premium home delivery specialist, with a long-weighted average lease expiry (“WALE”) profile of 10 years till May 2031.

A freehold single-story logistics building with 9,764 square metres (“sqm”) of net lettable area and spanning a site area of 20,438 sqm, the Asset was originally constructed in 1980 and was recently refurbished this year ahead of the new lease. It has 86 parking spaces, dual-access loading with three dock-level and 14 floor-level loading doors and a manoeuvring area with 60 metres (“v”) yard depth.

Floor Lettable Area (sqm)
Warehouse with an eaves height of 7 m 6,100
Warehouse with an eaves height of 5 m 3,451
Ground floor office / amenities 213

The long-term business plan includes adding value via lifting the lower ceiling span height of the older-style warehouse. Cromwell Property Group (“Cromwell”) has previous similar experience, achieving substantial increase in market ERV (estimated rental value for valuation purposes) and valuation.

Situated within the excellent logistics location of Kingsland Grange Industrial Estate in Warrington, North West England, the Asset is well-positioned in an ideal distribution location for UK logistics and industrial occupiers. It is adjacent to two of the most important motorways in the UK – the M6, which provides direct access to Birmingham, the second-largest city in the UK, and to the north and south through the wider motorway network, as well as the M62 motorway which links Liverpool on the West Coast to the East Coast via Manchester.

Warrington is situated in the heart of the North West region and has convenient access to three major sea and air connections within 30 minutes – the Liverpool John Lennon Airport, Manchester Airport and the Port of Liverpool. In addition, Warrington is forecast to achieve a five-year gross domestic product average growth rate of 4.3% per annum8.

The Asset was independently valued by Savills Advisory Services Limited (as commissioned by the Manager and Perpetual (Asia) Limited in its capacity as trustee of CEREIT) using the income capitalisation method, at £10.3 million (approximately €12.1 million or S$19.4 million).

CEREIT acquired the Asset for £10.0 million (approximately €11.7 million or S$18.8 million) (the “Purchase Consideration”), reflecting a 3% discount to valuation and 32% discount to replacement cost. The Purchase Consideration was arrived at on a willing buyer and willing seller basis.

The total cost of the Acquisition is approximately £10.8 million (approximately S$20.3 million), comprising the Purchase Consideration, the acquisition fee payable to the Manager in cash, as well as professional and other fees and expenses in connection with the Acquisition. The Acquisition is not expected to have any material effect on CEREIT’s net tangible assets.

Rationale and Benefits

Fully funded by cash, the Acquisition has an attractive NOI yield of 5.6%3 and is aligned with CEREIT’s stated purpose of delivering long-term distribution and net asset value per unit growth to unitholders.

Following this Acquisition, the weighting of the light industrial / logistics segment in CEREIT’s portfolio has increased to 39%, up from 38%. This is consistent with the Manager’s stated investment strategy to rebalance CEREIT’s portfolio towards a 50% exposure to quality light industrial / logistics assets. The Acquisition also marks CEREIT’s entry into the post-Brexit UK market, the region’s largest and most liquid real estate investment market. and further diversifies CEREIT’s portfolio geographical exposure.

From a sustainability perspective, the Asset has a ‘C’ Energy Performance Certificate rating and is expected to achieve a “Good” BREEAM9 rating in the near term, with further upgrades envisaged in the long term.

UK Market Fundamentals

According to data by Oxford Economics, the UK’s GDP is forecast to grow by 7.3% this year and 6.7% in 2022. Meanwhile, industrial investment volumes in the North West totalled £934 million in 202010, as investor demand continues to be largely driven by a buoyant occupational market tied to the accelerated consumer shift to online retail.

In Warrington, rental growth is further supported by limited vacant stock and a restricted development pipeline, especially for larger lot sizes. The COVID-19 pandemic accelerated the influx of e-commerce / logistics tenant-customers in the North West big box market, which has led to several high-profile occupiers taking up additional space in the region11.

2020 was a record year for the North West region, with an all-time-high of over 5 million square feet (“sqft”) in take-up in logistics space. The strong take-up rate has continued through 2021 and to date, exceeded 3 million sqft12 in space take up. At present, only 2 million sqft of supply12 is under construction, out of a total market size of 78 million sqft in the North West region12.

The UK is one of the most liquid real estate markets in the world and the largest logistics market in Europe by a fair margin – in 2020, the industrial and logistics assets transacted reached €11.4 billion, equivalent to 21% of Europe’s total transactions volume13. The strong fundamentals of the UK logistics market also provide stable cashflows, attractive running yields and income growth through active asset management. MSCI data14 shows that industrial total returns have exceeded all other sectors over the past three, five and 10-year periods. Fuelled by the strong supply and demand dynamic that has fostered positive rental growth, prime headline rents for logistics in the UK have increased by 2.2% and 4.3% for 2Q 2021 and the first half of 202115, respectively. The logistics market in the UK is structurally evolving, with the continued rise of e-commerce and technological advancements which facilitate the smoother integration of efficiencies and environmental, social and governance goals into communities.

Other Information

Based on the relative figures as computed on the bases set out in Rule 1006 of the Listing Manual, the Acquisition is a “Non-Disclosable Transaction” within the meaning of Rule 1008 of the Listing Manual.