Cromwell European REIT cuts IPO size.

UPDATED (15 NOV 17):
After cancelling its IPO after cutting its IPO size, Cromwell European REIT is making another IPO attempt with a much smaller offer of a billion units instead.

"Cromwell European REIT's prospectus Wednesday showed that the company is offering 428.54 million units to institutional and retail investors, and another 581.8 million units to investors who have agreed to take them up ahead of the IPO (at 55 European cents each).

"Cromwell had, in September, offered 1.91 billion units at up to 57 European cents each. The company has also reduced the number of assets that will be in the REIT--down from September's 81 assets."

Source: WSJ




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Earlier this month, when I blogged about Cromwell European REIT, I mentioned that the sponsor, post IPO, would be holding a rather smallish stake in the REIT. 

To me, it seems as if the REIT is a place for the sponsor to dump their rojak portfolio.

"It gives me the feeling that the sponsor wants to dump everything into a pot and be done with it." (See related post at the end of this blog.)






Well, things have changed. 

I don't know why but it seems that they have decided to shrink the size of the IPO and the sponsor will now have a stake of 25.9% to 26.8% in the REIT. 

These are much better numbers.

There will be a better alignment of interests with other investors in the REIT, for sure.

Simply put, if Cromwell European REIT should do badly, the sponsor will hurt much more now compared to when they were going to have just a 12.7% stake. 

So, unless they enjoy pain, with a much larger stake in the REIT, they have a stronger incentive to do better.






Although this is a positive development for retail investors in the REIT, I still cannot help but feel somewhat uneasy with the rojak nature of the portfolio from the get go. 

I understand that they bought these properties from various funds looking for exits but it seems rather hasty to me.

Having said this, all investments are good investments at the right price. 

Trading starts on 28 Sep (Thu).

Related post:
Cromwell European REIT IPO.
Reference:
Cromwell REIT cuts IPO size, ST, 18 Sep 17.

https://www.theedgesingapore.com/negative-view-cromwell-european-reit-down-under

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?