Cromwell European REIT (CEREIT) CWBU has reported a distribution per unit (DPU) of 8.494 Euro cents (12.084 cents) in the 2HFY2022 ended Dec 31, 2022, 0.4% higher than the DPU of 8.459 cents.
This brings the REIT’s FY2022 DPU to 17.189 Euro cents, 1.3% higher y-o-y.
Gross revenue for the 2HFY2022 grew by 13.4% y-o-y to EUR114.7 million as revenue from the REIT’s light industrial/logistics and office segments as well as other property assets grew y-o-y.
2HFY2022 property operating expense increased by 28.2% y-o-y to EUR45.2 million due to higher operating expenses which are mostly recharged to tenants by way of service charge.
Net property income (NPI) for the same period grew by 5.5% y-o-y to EUR69.4 million. On a like-for-like basis, excluding acquisitions, divestments, redevelopments and writebacks, NPI grew by 0.8% y-o-y.
2HFY2022 distributable income grew by 0.6% y-o-y to EUR47.8 million.
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During the period, the REIT made a loss of EUR11.2 million mainly due to fair value losses compared to the profit of EUR36.1 million in the 2HFY2021.
In the light industrial/logistics segment, gross revenue and NPI grew on a y-o-y basis during the 2HFY2022 mainly due to the REIT’s five properties in Italy, Germany, UK and Denmark that were acquired in the FY2022. Another five properties in the UK, the Netherlands and Italy, that were acquired in the 2HFY2021, also contributed to the higher revenue and NPI.
On a like-for-like basis, the segment’s NPI grew by 6.0% y-o-y mainly due to higher NPI in Parc des Docks from new leases and catch-up rental income, and additional income in Parcay-Meslay. Higher occupancy in Priorparken 700, Priorparken 800 and Naverland 7-11 in Denmark also contributed to the higher NPI.
In the office segment, the REIT’s 2HFY2022 gross revenue grew while NPI fell with all countries underperforming except for the Netherlands. The negative performance in office NPI was mainly due to the Poland, France, Italy and Finland portfolios, says the REIT manager. In particular, Poland saw higher revenue for the period but this was offset by higher service charge expenses and non-recoverable expenses due to higher utilities and other operating expenses.
On a like-for-like basis, the segment’s NPI fell by 6.4% y-o-y mainly due to its Polish portfolio as well as lower income in Paryseine and Cap Mermo, France and Via Nervesa 21, Italy. The lower income in Italy was due to Via Nervesa 21’s redevelopment.
During the 2HFY2022, other property assets saw gross revenue and NPI increase on a y-o-y basis mainly due to turnover rent received in FY 2022 for Starhotels Grand Milan.
In the FY2022, gross revenue increased by 11.0% y-o-y to EUR222.1 million as all segments saw y-o-y growths.
Property operating expense for the FY2022 increased by 21.8% y-o-y to EUR85.3 million due to higher operating expenses which are mostly recharged to tenants by way of service charge.
FY2022 NPI grew by 5.1% y-o-y to EUR136.8 million. On a like-for-like basis, NPI stood at EUR118.6 million, largely in line with the year before.
FY2022 distributable income increased by 3.3% y-o-y to EUR96.7 million
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As at Dec 31, 2022, CEREIT’s occupancy reached a record high of 96.0%, one percentage point higher y-o-y. The occupancy rate excludes the REIT’s hard refurbishment/development projects in Via Nervesa 21 (Italy), Via dell’ Amba Aradam 5 (Italy) and Lovosice ONE Industrial Park I (The Czech Republic).
CEREIT’s weighted average lease expiry (WALE) stood unchanged at 4.6 years as at Dec 31, 2022.
The REIT’s rent reversion came in at a positive 5.7%.
Gearing stood at 39.4% as at Dec 31, 2022, 2.8 percentage points higher y-o-y.
As at Dec 31, 2022, cash and cash equivalents stood at EUR35.4 million.
“I am pleased to report that CEREIT has once again delivered an excellent set of results for FY2022, underpinned by higher net property income in the light industrial / logistics sector. DPU growth would have been close to 10% if not for divestments, higher non-recoverable operating expenses, increased effective income tax rates and higher interest costs,” says Simon Garing, CEO of the manager.
On the record-high portfolio occupancy and strong positive rent reversion, Garing attributes this to “an achievement made possible by the resilience of CEREIT’s assets, index-linked rental income and the proactive efforts of our capable on-the-ground asset management teams.”
“Due to a confluence of macroeconomic risk factors and negative sentiment from the ongoing Russia-Ukraine war, CEREIT’s one-year annualised rolling total shareholder return (TSR) underperformed the market for the most of 2022. Since the beginning of 2023, however, CEREIT’s TSR performance has shown encouraging signs of recovery and has been trending upwards, in tandem with improving European outlook,” he adds.
Looking ahead, Garing believes the REIT’s income growth will be supported by its high occupancy, rising market rents and indexation.
“Sustainable developments and asset enhancements will further improve the overall quality of the portfolio and provide growth in DPU and net asset value (NAV) over the medium term. Approximately EUR400 million in non-strategic asset divestments will be staggered over the next two to three years to fund the development programme and offset any potential pressure on loan-to-value (LTV),” he says.
“The manager’s rejuvenation strategy and rising interest rates may have a small negative impact on earnings in the short term,” he adds.
Unitholders will receive their distributions on March 31.
Units in CEREIT closed at EUR1.65 on Feb 23.
