SINGAPORE (Aug 14): DBS Group Research is maintaining its “buy” call on Cromwell European Real Estate Investment Trust (Cromwell REIT) with a target price of EUR 66 cents.
DBS continues to be bullish on the REIT’s prospects, given expectations of rising rents on the back of an improving European economy as well as benefits from having inbuilt rental escalations in the majority of its leases.
In a Tuesday report, lead analyst Mervin Song says, “We believe Cromwell REIT delivering or exceeding its IPO forecasts will provide assurance over management’s ability to manage its portfolio, as well as supporting the theme of rising rents on the back of an improving European economy which would act a rerating catalyst for the stock.”
To recap, Cromwell REIT last night reported a distribution per unit of EUR 2.53 cents, for Nov 30 2017 to June 30, 3.0% above IPO forecast, given its policy of distributing 100% of its annual distributable income. This translates to annualised distribution yield of 7.9%, based on its IPO price of EUR 55 cents.
Gross revenue for the period under review was 2.2% higher than projected at EUR 72.8 million. In line with the better topline performance, net property income was 3.1% higher than projected at EUR 47.7 million. This was primarily due to the higher NPI recorded by Cromwell REIT’s pan-European light industrial portfolio, which exceeded the IPO forecast by EUR 1.5 million, while Cromwell REIT’s portfolio of office and other properties performed in line with expectations.
Income available for distribution to unitholders amounted to EUR 40.1 million in the reporting period, 3.0% above the IPO forecast.
Apart from the more than 15 years of experience sponsor Cromwell Property Group’s (CPG) have had in Europe, Cromwell REIT has the key advantage of having “on the ground” presence in key European markets, says Song.
Furthermore, Song’s confidence in Cromwell REIT’s capability is supported by John Lim co-founded ARA Asset Management which has taken a 19.5% stake in CPG -- effectively giving the REIT a “stamp of approval”.
DBS has a higher target price compared to consensus as it has priced in a EUR 238 million acquisition and EUR 150 million equity raising.
“Our confidence in Cromwell REIT delivering on DPU-accretive acquisitions is due to the strong investor support as seen by the 10% share price rally since its listing and its sponsor’s expertise,” says Song.
As at 12.13pm, units in Cromwell REIT are up 0.84% at EUR 60 cents with a FY19F distribution yield of 7.5%.
