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Cromwell European REIT IPO.

Saturday, September 9, 2017

Cromwell European REIT is a mega IPO that will raise S$ 2 billion.

I looked at the distribution yield first. 

7.5% (@ 57 euro cent per unit) to 7.7% (@ 55 euro cents per unit).

Then, I looked at the gearing level. 

34.3% to 36.6%. 

It would have been better if it were below 30% but it is not excessive.

Then, I do what I do pretty often which is to compare with other REITs in the same sector.


This is where the problem lies.

This REIT has a rojak portfolio of 81 retail, office and light industrial properties in 6 European countries (Denmark, France, Germany, Italy, Poland and The Netherlands).

How to do comparative analysis like that?

OK, with IREIT Global taking a pan-European strategy, it could be a good candidate for comparison in future. As of now, IREIT Global still has properties in Germany only.

IREIT Global offers a similar distribution yield (7.6% at 76 cents per unit) but its gearing level is higher at 41.3%.

Of course, we should say that IREIT Global's portfolio consists only freehold properties while the proposed Cromwell European REIT's portfolio has less than 70% of assets on freehold land.

Yield should be higher for shorter leases to make investment sense.

In a rojak portfolio, it is very easy to hide bad assets and let the good assets pull the weight and we have seen this with some S-REITs before.

As this could well be the most rojak of portfolios when it comes to S-REITs, I find hard to analyse.

We might be able to get a clue as to what the sponsor thinks of the REIT by looking at the stake they will be retaining after the IPO.

8.7% (if popular) to 12.7% (if unpopular).

Pretty low numbers.

Cromwell European REIT's distribution yield might look decent and the gearing might look comfortable but I don't feel comfortable with the rojak nature of its portfolio.

It gives me the feeling that the sponsor wants to dump everything into a pot and be done with it.

For me, it would have been better if the IPO offered one asset class in one country or even a few asset classes in one country.

Then, if the REIT would like to expand its portfolio to include assets in other countries, justify why and take it from there.

Or it could offer a single asset class cutting across a few countries and then expand to include other asset classes later on.

It would be more orderly.

It could be the OCD in me but, now, it does not feel as if there is any clear strategy other than the REIT is holding European assets and, hence, the name of the REIT. It feels messy to me.

I have avoided IPOs for years and this will be no exception.

If Mr. Market should go into a depression and offer me a much lower price to compensate for the rojak nature of the portfolio, I could be tempted.

Read article: HERE.
Related post:
Would AK invest in IREIT today?


AK71 said...

IREIT Global's presentation of 10 August 2017:

AK71 said...

An Australian real-estate company has pulled its plans for an up to EUR1.09 billion (US$1.30 billion) initial public offering in Singapore as demand for its units were tepid, people familiar with the process said Friday.

Cromwell European Real Estate Investment Trust, a unit of Australia-listed Cromwell Property Group, had started taking orders earlier this month in what would have been Singapore's second-largest IPO this year.

It would have also been the first company to offer shares denominated in euros in the city-state, which is one of the sought-after destination for REITs in Asia.

People familiar with the process said that demand from institutional investors wasn't up to the company's expectations as the deal size was too large. Also, some investors were skeptical of the growth prospects in some of its European assets given its unfamiliarity with those markets.

A spokesman for Cromwell Property Group declined to comment. The shelved IPO plan also indicates investors remain wary of new offerings in a volatile global market.

Write to P.R. Venkat at
(END) Dow Jones Newswires
September 22, 2017 03:40 ET (07:40 GMT)

Kevin said...

Hi AK,

One of the worst REIT so far according to IPO prospectus. It is quite clear that they are trying to dump the euro assets when they only hold less than 20% stakes after IPO and hoping to charge high management/performance/divestment fees along the way.

I am glad the IPO did not happen. ;)

AK71 said...

Hi Kevin,

I got emails from a couple of readers who asked if I would agree with another blogger that the REIT offered an attractive distribution yield. I just asked them to read my blogs on the REIT again. I too lazy to repeat myself... -.-"

Having said this, I want to remind everyone that we could take in diverse perspectives but we should arrive at our own conclusion.

You don't have to seek affirmation from anyone else, especially not from AK because you will get the typical AK answer. What is it? I don't tell you. ;p

Pete said...

Hi AK, sorry to comment on such an old post. I was looking at Cromwell recently when the price dropped. Do you still feel that Cromwell is a rojak? Worthy even at this price level? I'm attracted to its wide tenant base, as compared to IREIT, albeit IREIT tenant is higher quality

AK71 said...

Hi Pete,

I have a very large investment in IREIT Global which I much prefer over Cromwell European REIT which I feel is still very much a rojak REIT. ;p

I am not interested in Cromwell European REIT even now.

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