The CEO of Cromwell European REIT’s (CEREIT) manager, Simon Garing, has been planning something very special with the French authorities of late. He is busy working on the REIT’s next mega project — a redeveloped 10ha property with rooftops equipped with solar panels, decked with lush gardens and sprawling sports fields, in Paris. The space is primed for drone deliveries, designed to promote last-mile deliveries and help take traffic off the roads. The building comprises numerous high-tech medical and life science facilities used by staff from the brand-new hospital next door.
The Paris property is just one of a few exciting prospects in the portfolio of CEREIT, which owns office buildings, light industrial and logistics assets across key cities in Europe.
As most of the European real estate is freehold, that creates plenty of “wonderful opportunities” for investors thinking of longterm partnerships, says Garing.
Pivoting to logistics
Garing, whose career spans 25 years in the real estate sector, zeroed in on two main strategies when he took on the CEO role in 2018.
Firstly, he pivoted the company more towards logistics. At the time, CEREIT had a lot of older properties, and only 30% of the portfolio were logistics assets.
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Garing was conscious of the fact that e-commerce was the next big trend and that there was a need for storage space for goods, but Europe was still lagging the US and Asia in that aspect. Being relatively new to Asia and Singapore, the second thing on his mind was to build CEREIT’s brand presence. This involved “a lot of leather worn out”, as the team travelled around the Asian region to convince investors about the benefits of diversifying into the European real estate market.
Their efforts are starting to pay off.
CEREIT now has a portfolio of EUR2.5 billion ($3.6 billion) of predominantly light industrial/logistics and office assets. It has about 1,000 tenants across 10 key European markets including the Netherlands, Italy, France, Poland, Germany, Finland, Denmark, Slovakia, the Czech Republic and the UK.
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“I’m really thrilled that even European investors come to Singapore to invest in European real estate through Cromwell European REIT… It’s a very strong endorsement of what we do in Europe,” says Garing.
Push towards sustainability and strong governance
The other key priority was to redevelop the older offices, so they would continue to be attractive for employees to work in. In Europe, more than 80% of office stock was built more than 10 years ago, with close to half built in the 1980s. The redevelopment was especially urgent, given the shift towards more work-from-home arrangements post-Covid.
The manager of CEREIT invested significant resources to rejuvenate the older-style office buildings that were well-located within key capital cities.
“A number of large corporates in Europe are also now coming to the realisation that instead of moving to a new premise every 10 years, it’s actually better to work with what we have and repurpose an existing building rather than knock it down and build it again… It’s much better for the environment,” says Garing.
Currently, they get up to a 20% bonus of net lettable area of building area, so they can build more floors when they green the buildings. “Generally, we get a financial benefit from the local councils for improving the environment. It’s the right thing to do, but also the right business thing to do,” he adds.
CEREIT has also set the goal of long-term sustainability within its decision-making matrix. This goes beyond just green buildings; it is also about ensuring the right governance frameworks such that decisions on capital are made with a long-term vision in mind.
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He says: “It’s the guidance of the KPIs that the Board has set, the deliverability of those goals and accountability behind it… To me, that’s the most important part of the annual report, not what the CEO gets paid, but how they get paid. What does the team have to do? And have they achieved those?”
“I think investors may see more emphasis on ensuring high corporate governance standards in the Singapore-listed companies. And that’s something that we made a big conscious effort five years ago, as the new kid on the block, to ensure very high levels of governance,” he adds.
Resilience of team and portfolio
The journey was not without its challenges, with curveballs such as the Covid-19 pandemic, which upended the world. But Garing points out the opportunities in those challenges.
For instance, the pandemic still has some positive ramifications for “more transformational office owners”, he says. With a greater focus on health and safety, he envisions that more employers will start thinking about installing air-filtration systems to bring more fresh air into buildings.
Garing also shares that the Ukraine invasion by Russia introduced another complex set of issues. Being solely invested in Europe, CEREIT reported a substantial drop in net asset value as a result of the situation.
With the current challenge of rising interest rates caused by higher inflation, CEREIT management acted swiftly to guard against the financial impact.
Last year, CEREIT started an asset rejuvenation programme with selective divestments of non-strategic assets to fund developments and improve its liquidity. These efforts have helped put the REIT in good standing for the next few years to better manage the risk, says Garing.
In fact, CEREIT was able to drive higher rental income and deliver an increase in distribution per unit despite the economic slowdown in 2022, he adds.
For Garing, having an adaptive leadership style has helped CEREIT stay ahead of the trends. “Being part of the REIT space for so long, I think an inherent adaptability is required,” he explains.
He adds: “There’s a time to be growth-oriented, a time to batten down the hatches, there’s a time to be a pace-setter. There’s a time to be a counsellor and offer a listening ear, there’s a time to be transformational.”
“Having a strong team has also helped CEREIT stay atop despite the adversities,” says Garing.
The REIT’s sponsor has more than 200 staff in Europe, and there is regular communication among the teams across 17 cities. On top of that, it also has a regular tenant engagement programme, which provides objective, third-party feedback.
Having access to the “brightest minds” provides “local knowledge which helps to inform decision-making”, says Garing.
Learning something new every day
CEREIT recently celebrated its fifth anniversary of listing on the Singapore Exchange.
Reflecting upon its journey, Garing points out that the REIT has been able to deliver distribution growth despite facing numerous crises. He attributes this to the resilience of the portfolio.
In charting CEREIT’s future growth path over the next three to five years, the manager of CEREIT does not rely on blindly accumulating acquisitions, but takes a tactical approach in reinvesting and rejuvenating both its logistics expansion opportunities and office developments.
The goal is to move towards a portfolio consisting of 60% light industrial/logistics assets, with the remainder being core Grade-A quality office spaces.
With all these projects in the pipeline, Garing says it is the passion for the job that keeps him going. “Real estate has always been in my blood and my family’s blood. It encompasses so many different sectors and parts of the economy. I’ll always say to the team, ‘Let’s try to learn something new every day.’”
Cromwell European Real Estate Investment Trust
Cromwell European Real Estate Investment Trust (CEREIT) has a principal mandate to invest, directly or indirectly, in income-producing commercial real estate assets across Europe with a minimum portfolio weighting of at least 75% for Western Europe and at least 75% for the light industrial/logistics and office sectors. CEREIT currently targets a majority investment weighting for the light industrial/ logistics sector while also investing in core office assets in gateway cities. CEREIT’s EUR2.5 billion portfolio comprises 110+ predominantly freehold properties in or close to major gateway cities in the Netherlands, Italy, France, Poland, Germany, Finland, Denmark, Slovakia, the Czech Republic and the UK with an aggregate lettable area of approximately two million sq m (21.5 million sq ft) and 800-plus tenant customers. The company website is: https:// www.cromwelleuropeanreit.com.sg
About kopi-C: The Company Brew
kopi-C is a regular column that features C-level executives of leading companies listed on SGX. The series is curated by SGX Research in partnership with Beansprout, an MAS-licensed investment advisory platform, and is aimed at helping investors better understand the individuals who run these corporations.
