The manager of Cromwell European Real Estate Investment Trust (CEREIT) announced, on July 3, that its total portfolio valuation has inched up by 0.6% to EUR2.24 billion ($3.04 billion) as at June 30, compared to its valuation as at Dec 31, 2023.
The valuations were conducted independently by CBRE and Savills Advisory Services for the 107 properties in CEREIT’s portfolio.
The primary drivers of this valuation increase include stabilising market conditions in Europe, lower risk-free rates, improved financing conditions for selective asset classes, and the completion of development projects. The valuation boost was largely attributed to higher market rents driven by positive economic factors such as inflation, easing monetary policy, and improving demand prospects.
In the light industrial and logistics sector, the initial yield is now 6.0%, supported by a high occupancy rate of 95% and a weighted average lease expiry (WALE) of 5.1 years. The reversionary yield for this sector is 7.0%, indicating expectations for further market rent growth. In the office sector, the initial yield is 6.5%, with a stabilised occupancy rate of 90% and a WALE of 4.56 years. The reversionary yield for the office portfolio is 8.5%.
Country-specific valuation movements reveal a more mixed picture. In the light industrial and logistics sector, positive valuation uplifts of EUR7.5 million or 4.9% were recorded in Italy, EUR6.3 million or 4.9% in Denmark, EUR2.8 million or 2.8% in the Netherlands, EUR1.4 million or 2.3% in the UK, EUR7.2 million or 1.8% in France and lastly, EUR200,000 or 0.1% in Germany.
These uplifts were generally due to higher passing and market rents, new leases signed, and ongoing rent inflation indexation. The valuation uplift in the UK was also influenced by the 2.3% appreciation of the GBP against the EUR over the last six months.
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Conversely, valuation declines of EUR1.0 million or 1.3% were recorded in the Czech Republic and EUR1.0 million or 1.4% in Slovakia, largely due to widening terminal cap rates and rising vacancies. These were also partially offset by increases in passing and market rents.
Meanwhile, in the office sector, valuation uplifts of EUR4.0 million or 2.0% were observed in Italy and EUR0.4 million or 0.7% in France. This is an improvement compared to six months ago, where no countries in this sector recorded valuation increases. The uplift in Italy was mainly due to compression in discount rates and increases in passing and market rents, partially offset by terminal cap rate expansion.
In France, the valuation increase was driven by compression in discount rates and increases in passing and market rents, despite a slight expansion in terminal cap rates and an increase in vacancy allowance.
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Conversely, declines of EUR3.6 million or 0.7% were seen in the Netherlands, EUR2.7 million or 4.27% in Finland, and lastly, EUR8.4 million or 5.1% in Poland, largely due to widening terminal cap rates and weak occupier demand in secondary office markets.
In the ‘others’ sector, Italy recorded a modest valuation uplift of EUR0.1 million or 0.2%, driven by an increase in market rent despite a slight widening in terminal cap rates and discount rates, as well as an increase in vacancy allowance.
The completion of properties under development or extensive asset enhancement in Italy, Czech Republic and Slovakia have also created additional value via lease-up and pre-letting and increase in market rents, while better asset quality is expected to result in a reduction in future capital expenditure (capex).
Simon Garing, CEO of the manager, says: “The European Central Bank (ECB) cut interest rates to 3.75% for the first time in five years on June 6 ahead of its counterparts in the United States and the United Kingdom. With further ECB base rate cuts expected in the coming months, transaction volumes are expected to pick up and see an improved sentiment towards the sector. The board remains focused on the divestment program with proceeds aimed at recycling into the core portfolio's asset enhancement program to provide unitholders with longer-term sustainable dividend per unit (DPU) and net asset value (NAV) per unit while keeping gearing over the medium term between 35% to 40%.”
“Taking into account the EUR23.1 million in divestments in 1HFY2024 (at a blended 5.8% premium to valuations), the manager now anticipates reporting CEREIT’s net gearing at approximately 39.0% as at June 30, subject to the finalisation of the financial results. NAV per unit is anticipated to be approximately EUR2.094 as at June 30, unchanged since December 2023, and 49% above CEREIT’s most recent EUR1.40 unit price,” concludes Garing.
Units in CEREIT closed flat at $2.04 and EUR1.39 on June 2.
