Saturday, 9 September 2017

Cromwell European REIT follow up - 7.5% dividend?

I've written about the IPO of CEREIT earlier in August when SGX has nodded for it's ETL.



Cromwell has since lodged it's preliminary prospectus to listing in SGX and their plans to start trading on 28 September. Being the 14th IPO of 2017, CEREIT is also the largest IPO since Netlink Trust with an offer size of S$2.3 billion. This will also be the first Euro dorminated REIT in Singapore, by which

What type of real estate do they hold?
CEREIT holds 81 properties from a diversified mix across six gateway cities in Denmarm, France, Germany, Italy, Netherlands and Poland which is valued at 1.83 billion euros. Their portfolio consists of office (35%), light industrail assets (33%) and retail (27%). Occupancy rate is ~89%

However, when being compared with the closest REIT (IREIT) which compromises of asset in Europe, CEREIT only has 69.1% of assets that is freehold. IREIT on the other hand has a portfolio that consists of only freehold properties. NLA is about 1.4sqm.

When will their IPO take place?
The public offering will open at 9pm on September 21 and close at 12pm on September 26. Trading will start on September 28.

Shareholders
Sponsor Cromwell will holds an 8.7% stake in the REIT if greenshoe option is fully exercised and 12.7% in the worse scenario.
Cornerstones investor includes Cerberus (7%) and Hillsboro Capital (8%) which will takes up a combined of 15%

Price/unit
1.58 billion units of CEREIT is expected to raise about 1.25 billion Euros (S$2 billion)
The offer size consists an international placement tranche of 1.2 billion units, a Japanese public offering of 268 million units, and 79 million units that will be offered to the Singapore public.
Prices/unit are between EUR0.55-0.57.

Goldman Sachs and UBS are the joint managers. DBS joins them as joint global coordinators

Gearing
The gearing of the REIT is between 34.3-36.6% which is below the ceiling of 45%. This is not exactly a low gearing when compared to FLT and definietly not as high an European peer, IREIT with gearing at 41%.

Dividend Yield:
The REIT has a forecast of 7.5% (EUR0.57) - 7.7% (EUR0.55) dividend yield for 2018 and distribution are declared in Euros by which investors can opt to receive their dividends in EUR or SGD. CEREIT also has a decent WALE of 5.1 year which suggests that their leases will expires mostly on 2021.

My take
- As CEREIT is a REIT that is dorminated in EUR, a depreciating euro against SGD will also impact the returns negatively. Hence, apart from the performance of the REIT, the country's currency also plays a risk in the investment. However if Europe's economy were to recover to the days when EUR2 = SGD 1, this will aso mean that the gains are amplified. EUR has appreciated ~6% since the start of this year to 1 EUR = 1.614 SGD today.
- The issue price offers a discount of 13% to its NAV which provides a margin of safety.
- Gearing of 34-36% do allows the REIT to take up some loans for acquistion in the future without the need to constantly issue rights for any acquistion.
- CEREIT compromises of assets that is of a diversified field, which allows the pain of declining sectors to be slightly mitigated. Also, they're diversified across different countries in Europe, which will reduce the concentration risk if one of the countries were to perform poorer. The economy in Europe however, will determine the performance of CEREIT heavily as all the assets are based in Europe.
- Distribution yield forecast in 2018 is pretty attractive at 7.5-7.7%

More details can be found here from Business Times and here from Straits Time.

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