Real Estate, General Equities

Will Tan

Equity Capital Markets

Cromwell European REIT / Equity Capital Markets

<p>Cromwell European REIT ("CEREIT") is seeking to raise EUR 903 million for the injection of a portfolio of 81 European properties into a first Pan-European diversified REIT to be listed on the Singapore mainboard. </p><ul class=""><li>Limited growth prospects: i) no right of first refusal (ROFR) of pipeline assets from Sponsor and ii) limited stepped rent increase linked to inflation which is likely to be tepid in Europe.</li><li>Yield is decent at 7.5% (higher end of the issue range), delivered on medium gearing of 35.5% (in line with S-REIT market). Yield premium over European peers is necessary in our view due to smaller size and limited growth.</li><li>IPO portfolio is acquired from fund exits so the portfolio injection price is unlikely to be bargain acquisition for the REIT.</li><li>There is currency risk as CEREIT’s operational cash flows are in Euros, Polish zloty and Danish Krone. From a currency perspective, this deal may appeal to some investors given the EUR exposure.</li><li>However, saving grace market cap size is decent which should appeal to institutional investors, compared to other smaller sized S-REITs with foreign assets.</li></ul><p>All in all, we think this IPO issue is a decent pick up for investors seeking yield and EUR exposure (overall economic recovery in the Eurozone is underway), and the market cap is sizable to gather some institutional interest. Just do not expect much solid growth as prospects are limited.  </p>

Cromwell European REIT ("CEREIT") is seeking to raise EUR 903 million for the injection of a portfolio of 81 European properties into a first Pan-European diversified REIT to be listed on the Singapore mainboard. Limited growth prospects: i) no right of first refusal (ROFR) of pipeline assets from Sponsor and ii) limited stepped rent increase linked to inflation which is likely to be tepid in Europe.Yield is decent at 7.5% (higher end of the issue range), delivered on medium gearing of 35.5% (in line with S-REIT market). Yield premium over European peers is necessary in our view due to smaller size and limited growth.IPO portfolio is acquired from fund exits so the portfolio injection price is unlikely to be bargain acquisition for the REIT.There is currency risk as CEREIT’s operational cash flows are in Euros, Polish zloty and Danish Krone. From a currency perspective, this deal may appeal to some investors given the EUR exposure.However, saving grace market cap size is decent which should appeal to institutional investors, compared to other smaller sized S-REITs with foreign assets.All in all, we think this IPO issue is a decent pick up for investors seeking yield and EUR exposure (overall economic recovery in the Eurozone is underway), and the market cap is sizable to gather some institutional interest. Just do not expect much solid growth as prospects are limited.  

Cromwell European REIT: Decent Yield, Decent Size - But Where Is the Growth?