- Record portfolio occupancy of 95.7% and blended +6.8% rent reversion as at 30 September 2022.
- Net property income up 4.5% year-on-year, leading to a 3.8% increase in income available for distribution for the nine months ended 30 September 2022 (“YTD 2022”).
- 38.9% aggregate leverage, 6.5x1 interest coverage ratio, 76.4% hedged / fixed debt with no material refinancing until November 2024.
| 3Q 2022 | 3Q 2021 | Variance | YTD 2022 | YTD 2021 | Variance | |
|---|---|---|---|---|---|---|
| Gross Revenue (€’000) | 55,944 | 50,653 | 10.4% | 163,361 | 149,672 | 9.1% |
| Net Property Income (€’000) | 34,513 | 33,157 | 4.1% | 101,843 | 97,444 | 4.5% |
| Income Available for Distribution to Unitholders (€’000) | 24,179 | 24,272 | (0.4%) | 73,081 | 70,431 | 3.8% |
SINGAPORE – Cromwell EREIT Management Pte. Ltd., the manager (the “Manager”) of Cromwell European Real Estate Investment Trust (“Cromwell European REIT” or “CEREIT”), today announced CEREIT’s business update for the third quarter ended 30 September 2022 (“3Q 2022”).
CEREIT posted a 9.1% and 4.5% year-on-year (“y-o-y”) increase in gross revenue and net property income to €163.4 million and €101.8 million, respectively, for YTD 2022. These were primarily driven by new acquisitions, indexation, stronger market rental growth and higher occupancy in the light industrial / logistics sector. YTD 2022 income available for distribution was 3.8% higher y-o-y at €73.1 million, as the higher net property income was offset by higher interest, trust and tax expenses.
Active portfolio and asset management
Overall portfolio occupancy reached a record-high of 95.7% as at 30 September 2022, a 0.3 percentage point (“p.p.”) increase compared to 30 June 2022 and a 0.7 p.p. increase from 31 December 2021. Weighted average lease expiry (“WALE”) remains unchanged at 4.6 years. Over the course of 3Q 2022, the Manager secured and renewed a total of 83 leases, covering 70,358 square metres (“sqm”) of space or 3.5% of the portfolio, at a positive 6.8% rent reversion.
Light industrial / logistics sector: +7.6% rent reversion rate
CEREIT’s office portfolio occupancy fell slightly from 90.1% to 89.9% this quarter, mainly due to a slight drop in occupancy in the Dutch office portfolio. Nonetheless, an aggregate of 23,343 sqm of new and renewed leases were signed in 3Q 2022 at a positive 6.1% rent reversion. A new 4,059 sqm lease was secured at a 36% rent reversion at Haagse Poort in The Netherlands. Overall, the focus on prime and core space, coupled with the ongoing tight supply, is expected to continue driving rental growth in CEREIT’s prime and core office locations.
Despite the muted GDP growth outlook across Europe, inflation, low vacancies and market rent growth have positively impacted CEREIT’s overall rental income, with inflation indexation built into most of CEREIT tenant-customers’ leasing contracts.
Focus on asset and capital recycling
Since the beginning of 2022, CEREIT has completed ~€108 million worth of acquisitions across Germany, Italy, the UK and most recently Denmark, at a 7.4% net operating income (“NOI”) blended yield and 12% discount to independent valuation. Sognevej 25 in Copenhagen, Denmark was recently acquired at a 9.1% NOI yield, including a rent guarantee over its 70% vacancy. The asset is strategically situated adjacent to CEREIT’s existing Priorparken 700 and Priorparken 800 assets, in a well-established business park. The asset houses several last-mile and inner-city ring tenant-customers, and has attractive long-term fundamentals due to the presence of substantial projects improving regional freight and last mile transport infrastructure in the vicinity. YTD 2022, the Manager has completed four divestments for €30 million, at a blended 10% premium to valuation.
Transaction activity is expected to slow down in the near term, with the Manager postponing CEREIT’s acquisition pipeline until there is greater visibility on asset prices and capital markets. The Manager’s current focus remains to be on asset recycling, with further sales planned for smaller, non-strategic assets to refresh the portfolio.
Proactive capital management
In early October this year, a new €180 million 4-year sustainability-linked term loan facility was signed. This will be used to refinance a majority of the debt maturing in November 2023. In addition, the Manager is in advanced stages to secure additional loan facilities of up to €100 million to complete all refinancing till November 2024.
As at 30 September 2022, CEREIT enjoyed ample liquidity on hand and substantial headroom to its debt covenants. CEREIT’s aggregate leverage stood at 38.9% with ~€220 million in cash, undrawn revolving credit facility and assets held for sale. Weighted average debt expiry has been raised to 3 years and interest coverage ratio was maintained at 6.5x1 , well in excess of the covenants for loans and the Euro MediumTerm Note.
During the quarter, Fitch Ratings Singapore Pte Ltd (“Fitch Ratings”) also re-affirmed CEREIT’s credit rating at “‘BBB-' with stable outlook”.
Outlook
The Manager’s Chief Executive Officer, Mr. Simon Garing, commented, “We are pleased to report a strong operational performance with a record 95.7% occupancy and +3.8% YTD 2022 income available for distribution. The Manager’s active portfolio and capital management strategies continue to underpin the resilience of CEREIT’s portfolio. Notably, the recent €180 million 4-year sustainability-linked term loan facility coupled with 76% of the debt being fixed or hedged, with no material refinancing until November 2024, puts CEREIT in a strong position, and cushions impact on DPU from rapid increase in interest rates.
“The rising interest rate environment may negatively impact cap rates and potentially offset some of the gains from higher rentals and occupancy on the overall portfolio valuation in 2023. In light of this, the Manager will continue to recycle assets to refresh the portfolio.”
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