- CEREIT is close to securing the funds to pay off €450 million in bonds due in November 2025 and plans to replace them with new, longer-term bonds.
- CEREIT is rebalancing its portfolio to focus more on industrial properties (60%) and high-quality offices (40%) to take advantage of leasing opportunities.
- CEREIT has sold €264 million worth of properties out of its €350 million target by the end of FY2026F and is negotiating the sale of two more assets.
Cromwell European REIT (CEREIT) (SGX:CWBU) (SGX:CWCU) is taking steps to strengthen its financial position and optimize its property portfolio. This includes successfully securing new loans to pay off upcoming bonds and shifting its focus towards industrial properties and high-quality offices to benefit from favourable leasing conditions.
CEREIT owns a mix of office, light industrial or logistics properties across Europe, including Germany, France, the Netherlands, and Poland. The REIT’s properties include Nervesa21, an office building in Milan, Italy, and Novo Mesto ONE Industrial Park, an industrial park in Slovakia.
3Q 2024 Performance
- Income Boost: CEREIT reported a 7% year-on-year increase in net property income for Q3 2024, reaching €34.5 million. This was driven by the completion of key projects like Nervesa21 and Novo Mesto ONE Industrial Park, as well as lower non-recoverable costs (expenses that the property owner cannot pass on to tenants).
- Higher Occupancy: The occupancy rate improved to 93.9% by the end of Q3 2024, with improvement seen across both office and logistics portfolios. There were positive rental reversions, particularly in the industrial sector, which saw an 8.8% increase in rental rates. The office sector experienced a slight decline due to the renewal of a lease in Poland, although the signing rent remained above market rates, indicating that the property is still highly valued.
- Distributable Income Growth: CEREIT’s distributable income grew by 4.1% quarter-on-quarter in Q3 2024, reflecting the stabilization of the portfolio as CEREIT toned down its divestment targets after achieving its desired gearing range of 35-40%.
Company Insights
- Capital Management: A significant focus for CEREIT has been on capital management, particularly in addressing its debt maturities. With €450 million in bonds maturing in November 2025, CEREIT has secured €472 million in new debt facilities with maturities extending to 2027-2029. This, along with a €200 million revolving credit facility, ensures that CEREIT has the necessary funds to redeem its maturing bonds. This approach allows CEREIT to optimize the timing and pricing for issuing new, longer-dated bonds, potentially reducing future borrowing costs.
- Divestment Progress: CEREIT has made substantial progress, having sold €264 million worth of properties out out of its €350 million target by the end of FY2026F. The REIT is currently negotiating the sale of two additional assets. However, redevelopment plans for properties in Amsterdam and Paris have faced delays due to the need for further discussions with authorities.
Future Outlook
CEREIT is rebalancing its portfolio to focus more on industrial properties (60%) and high-quality offices (40%). This shift aims to capture leasing tailwinds and drive future growth. By increasing its exposure to industrial properties, which are experiencing strong demand, CEREIT can benefit from higher rental rates and occupancy levels.
The focus on Grade A offices ensures that the REIT maintains a presence in prime locations, attracting reliable tenants and stable income streams. This balanced approach is designed to optimize the portfolio’s performance and enhance long-term value for investors.
Summary
CEREIT is implementing a clear strategy for managing its portfolio and capital. While there are key risks to watch, such as the impact of higher interest rates on borrowing costs, potential market slowdowns affecting rental income, and higher-than-expected redevelopment costs, CEREIT’s proactive approach to debt management and strategic asset allocation positions it for future growth.
Disclaimer: ProsperUs Manager of Content Hailey Chung doesn’t own shares of the company.
Reference
CGSI Note | Cromwell European REIT | Nov 5, 2024
