Analysts are keeping their “buy” calls on Cromwell European REIT CWBU after the REIT reported a distribution per unit (DPU) of 17.189 Euro cents (24.557 cents) for the FY2022 ended Dec 31, 2022, 1.3% higher y-o-y.
DBS Group Research analysts Dale Lai and Derek Tan note that the REIT’s FY2022 DPU stood slightly above their estimates.
The REIT, which posted strong rental reversions of 5.7% in the FY2022 and a record-high portfolio occupancy of 96.0% during the year, had resilient metrics that were underpinned by organic income growth, the analysts note.
“The REIT has been an active asset recycler, driving portfolio yields and optimising returns to unitholders,” the analysts write.
On navigating the slowing European economy, Lai and Tan see that the REIT’s focus in Italy, France and the Netherlands will “result in more resilience” going forward as their properties in these countries have relatively better fundamentals “as evidenced by [the analysts’] site visit”.
“The consumer price index (CPI)-pegged rental escalations in place for its leases will drive steady organic income growth,” they write.
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In their report dated Feb 27, the analysts add that the REIT’s pivot to logistics properties could drive yield compression.
“Faced with a slowing economy and weakening Euro, Cromwell European REIT’s year-to-date (ytd) 40% decline in its share price appears to have priced in most of these risks. Yields have expanded to +1 standard deviation (s.d.) above normal to 8.0%, which we believe is attractive,” they write.
“The REIT’s pivot to focus more on the logistics sector is expected to drive earnings resilience. Thus, we expect a compression in yields, given its improved earnings visibility and growth profile,” they add.
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The analysts have kept their target price at EUR2.10.
Meanwhile, RHB Group Research analyst Vijay Natarajan has also kept his target price of EUR2.15, noting that the REIT’s FY2022 results were “good” and came within his expectations.
“Despite challenging market conditions occupancy rose to a record high, coupled with positive rent reversions reinforcing managers’ superior leasing abilities and under-rented nature of its assets,” the analyst writes.
“We like Cromwell European REIT’s proposed portfolio reshaping strategy via divestments of non-strategic assets and recycling proceeds into higher yielding development project pipeline as well as enhance logistics exposure,” he adds.
As at 11.51am, units in Cromwell European REIT are trading 1 Euro cent lower or 0.59% down at EUR1.68.
