Should You Invest In Cromwell European REIT [Fundamental Analysis]

Updated: May 2

In this article, we'll be conducting a fundamental analysis of Cromwell European REIT and its suitability to achieve the following investment objective: To deliver a stable dividend yield of 5% to 6% per year while having high capital preservation ability.

Information Is Accurate Up To Feb 2024

Business Description

Cromwell European REIT is an Office and commercial REIT that was listed in 2018 and owns 110 properties across Europe. They are listed in Singapore with two separate EURO (CWBU) and SGD (CWCU) denominations.

What I Like About Cromwell EU REIT:

Distribution has been relatively stable (Fig 8)
Weighted Average Lease Expiry is well managed (Fig 12)
Management has a clear strategy, is pre-emptive and takes action to adjust the property portfolio to adapt to current trends. Currently, they are pivoting and diversifying away from office exposure into light industrial to manage the threats of WFH trends and take advantage of the onshoring trends.

What I Do Not Like About Cromwell EU REIT:

The counter is very illiquid (Especially for the SGD counter).
Financial health has been deteriorating over the years (Fig 4 & 5), though the management has highlighted their intention to get it under control or at least ensure that it doesn’t deteriorate beyond a certain point (No more than 40% gearing).
FX Risk is very high – as expected – given that the REIT is 100% focused in Europe. Furthermore, I have a bias against the EURO zone given the economic maturity of the region coupled with unfavourable long-term demographic trends.

Updates From Recent Performance (FY 2023)

General Comments:

FY NPI's decline of 1.8% is mainly due to the impact of the loss of income from the sale of two Italian assets and two Italian redevelopments.
The divestment program is coming along nicely at a 13.6% premium to valuation which had helped retain the N.A.V of Cromwell in a time when western office’s valuation is taking a large hit and European real estate volumes are at their “all-time-low” that was last seen in 2012.

Positive Headwinds:

The cost of debt is expected to remain stable for the next two years as Cromwell has no refinancing requirement until November 2023 of which, interest rates would have normalized by then near the range of the current average cost of borrowing.

Negative Headwinds:

Headwinds for the Eurozone area are relatively high as a result of economic weakness and political instability which may result in further downside in occupancy rate – especially for offices.

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Daniel is a Licensed Independent Financial Consultant with MAS and a Certified Financial Planner (CFP®).

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