Analysts from CGS International, RHB Bank Singapore and PhillipCapital have kept their “add” and “buy” calls on Cromwell European REIT after its results for the 1QFY2024 ended March 31.
However, CGS International analysts Natalie Ong and Lock Mun Yee, as well as RHB analyst Vijay Natarajan have lowered their target prices after the REIT’s 1QFY2024 distribution per unit (DPU), which fell by 10.2% y-o-y to 3.505 Euro cents (5.1 cents), missed their expectations.
“Cromwell European REIT’s indicative 1QFY2024 DPU came in slightly below on a timing mismatch from divestment income losses and contributions from redevelopment projects,” notes Natarajan in his May 2 report.
“Nonetheless, the REIT has been making steady progress on its EUR400 million divestment plans, with another three asset divestments since the start of 2024,” he adds.
The analyst has lowered his DPU estimate for the FY2024 to FY2026 by 3% after factoring in the REIT’s divestments as well as tweaking his margin and finance cost assumptions. The analyst expects financing costs to peak at mid-3% levels in 2024 with debt hedges of 86% and no loan maturity till the 4QFY2025. Following his lowered DPU estimate, Natarajan’s target price is lowered to EUR2.05 from EUR2.10.
CGSI’s Ong and Lock have also lowered their DPU estimates for the FY2024, FY2025 and FY2026 by 5.1%, 5.7% and 5.9% respectively after the three divestments announced in April. The lower DPU estimates also include the higher cost of borrowing.
As such, their target price is lowered to EUR2.02 from EUR2.06 previously.
Cromwell European REIT’s 1QFY2024 DPU stood at 23% of their full-year forecast.
That said, the CGSI analysts also continue to like the REIT as they see its portfolio transformation being on track.
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“We remain positive on Cromwell European REIT’s clear divestment and redevelopment strategies, which we believe will rebalance its portfolio to a 60%/40% industrial/Grade A office composition, allowing it to capture leasing tailwinds,” write Ong and Lock in their May 3 report.
RHB’s Natarajan also sees some light, estimating that contributions from the three asset redevelopments of Nervesa 21 (Italy), Lovosice ONE Industrial Park I (Czech Republic), and Novo Mesto ONE Industrial Park I/III (Slovak Republic) to kick in from the 2QFY2024.
“Pre-leasing for these assets stands at 70% - 90%, with full leasing expected by mid-2024 based on current active leasing interest. Cromwell European REIT expects a return on investment (ROI) of [around] 6.5% on these redevelopments, well above market comparable cap rates of [around] 5%,” he writes.
He also notes that the REIT has been among performers, with its unit price gaining 5% year-to-date (ytd).
“We see share price recovery continuing with the European Central Bank well poised to begin rate cuts in 2H2024,” he says.
PhillipCapital analyst Darren Chan has kept his target price unchanged at EUR1.91 as the REIT’s 1QFY2024 DPU came within his expectations at 25.5% of his full-year forecast.
“We like Cromwell European REIT for its clear divestment and redevelopment strategies, which will help to keep gearing below 40% and foster organic growth,” says Chan in his May 3 report.
“It will also take Cromwell European REIT closer to its long-term 60:40 target asset class split between light industrial / logistics and well-located Grade A offices,” he adds. “Despite accounting for the loss of income from the divestments, Cromwell European REIT still trades at an attractive FY2024 DPU yield of 9.2%. There is no change in our estimates.”
As at 3.04pm, units in Cromwell European REIT are trading 1 Euro cent higher or 0.68% up at EUR1.49. Units in the REIT’s SGD counter are trading flat at $2.17.
