Cromwell European REIT's portfolio demonstrates resilience with minimal 1.6% FY 2022 valuation decline

Pursuant to Rule 703 of the SGX-ST Listing Manual, the Board of Directors of Cromwell EREIT Management Limited, the Manager of Cromwell European Real Estate Investment Trust (“CEREIT”) wishes to announce that CBRE Ltd (“CBRE”) and Savills Advisory Services Limited (“Savills”) have carried out respective independent valuations (“Valuations”) for 112 properties in CEREIT’s portfolio as at 31 December 2022 resulting in a total portfolio valuation of €2,488 million1.

The portfolio valuation has slightly reduced by €39.3 million or -1.6% compared to the June 2022 valuation, taking into account the benefit of valuation increases on properties under development in Italy and Czech Republic.

Denmark and France showed slight valuation increases of €12.2 million and €2.4 million respectively, due to asset management enhancement initiatives and market rent growth. The Czech Republic portfolio valuation was higher due to the increase in value of properties under development. However, modest valuation declines were recorded in the Netherlands (down by €25.4 million) and the United Kingdom (down by €16.6 million). Valuations in Germany, Italy and Poland were also lower by approximately €6 - 7 million each, reflecting the higher capitalisation rates (“cap rates") caused by the recent increase in interest rates.

Accordingly, the Manager expects to report CEREIT’s 31st December 2022 aggregate leverage below 40% and net asset value (“NAV”) of approximately €2.42 per Unit, both subject to the finalisation of the FY2022 Financial Statements and completion of the external audit. These metrics will be confirmed upon announcement of the FY 2022 results which is expected on 24 February 2023.

Simon Garing, CEO of the Manager said: “It is pleasing to note that CEREIT continues to demonstrate both the resilience of the portfolio and quality of the asset management team, with only a slight reduction reflected in the December 2022 valuations.

Although global interest rates have increased significantly, the impact on CEREIT’s portfolio has been relatively minor due to a number of reasons, all positively offsetting the global rise in cap rates:
(i) the high weighted average initial yield of 5.7% has provided a conservative cushion to rising European interest rates;
(ii) CEREIT’s asset value enhancement initiatives and successful leasing programs have lifted occupancy to record levels;
(iii) properties under development in Italy and Czech Republic have created additional value;
(iv) the majority of CEREIT assets are well-located in good / very good macro / micro locations which are experiencing market rent growth with little new competitive supply; and
(v) the majority of CEREIT’s leases have inflation indexation clauses, and coupled with strong rent reversion, provide a hedge to the rise in cap rates.

The strategy to pivot CEREIT to a majority weighting to logistics / light industrial sector continues to contribute positively, with this sector recording a small valuation gain of €3.5 million over the 6 months, while the office portfolio was 3.2% lower.

The Manager is pleased to inform the market that gearing has remained within the Board’s LTV policy range of 35-40% and the preliminary unaudited NAV is approximately €2.42 / Unit as at 31 December 2022. Yesterday’s closing unit price of €1.65 is 32% below the expected NAV. While cap rates are expected to generally rise further in FY 2023 as central banks continue to target high inflation, broader market conditions are currently more supportive of an improved European outlook than was the case 3-6 months ago”.

The Valuations summarised below will be reflected in the financial statements of CEREIT for the financial year ended 31 December 2022 on completion of the external audit with additional portfolio management discussion and analysis accompanying the release of the FY 2022 financial results on 24th February 2023.

The valuation reports will be available for inspection by prior appointment at the Manager’s registered office during business hours, for three months from the date of this announcement

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1 Excludes Sognevej 25 in Brøndby, Copenhagen, Denmark which was acquired in October 2022 for DKK117.4 million (approximately €15.8 million) which has been carried at its purchase price. Including Sognevej 25, as at 31 December 2022 CEREIT’s portfolio comprised 113 properties at a total portfolio valuation of €2,504 million