Cromwell European REIT IPO.

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.

Alamak.

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