With interest rates on a downward trend, barring unforeseen circumstances, further reductions are anticipated.

This year, the US Federal Reserve has announced 2 interest rate cuts, one in September (by 0.5%) and another in November (by 0.25%), lowering benchmark borrowing rates from a two-decade high of 5.25-5.5% to the current range of 4.5-4.75%.

The US Central Bank isn’t alone in taking this approach. The European Central Bank has also reduced rates this year, with cuts of 0.25% in July, 0.6% in September, and another 0.25% in October, bringing current rates to approximately 3.4%.

For REITs with properties and borrowings in Europe, lower borrowing costs lie ahead.

If you’re looking to diversify your portfolio to benefit from these lower rates, there are 3 Singapore-listed REITs with entirely European property portfolios: Cromwell European REIT (SGX: CWBU), IREIT Global (SGX: UD1U), and Elite UK REIT (SGX: MXNU).

In this post, we’ll explore these 3 Europe-based, Singapore-listed REITs. We’ll cover their investment focus and review their latest quarterly results, examining key aspects such as financial performance, portfolio occupancy, debt profile, and distribution payouts to unitholders.

Let’s dive in!

1. Cromwell European REIT (SGX: CWBU)

Cromwell European REIT, or CEREIT for short, invests in logistics/light industrial properties, as well as office assets across Europe.

As of 30 September 2024, CEREIT’s portfolio comprises more than 100 properties (predominantly freehold) in or close to major gateway cities in the Netherlands, Italy, France, Poland, Germany, Finland, Denmark, Slovakia, the Czech Republic, and in the United Kingdom, valued at approximately €2.2 billion.

In its business update for the 3rd quarter and first 9 months of FY2024 ended 30 September published in early-November, its gross revenue and net property income recorded a 0.6% and 7.0% year-on-year improvement to €53.9 million and €34.5 million respectively.

However, for the first 9 months of FY2024, both the REIT’s gross revenue and net property income inched down by 1.1% and 0.8% year on year to €160.2 million and €100.0 million respectively mainly due to divestments (of 6 properties) to keep net gearing within the Board-approved policy of 35-40%. Together with higher interest cost, CEREIT’s distributable in come fell by 8.9% year on year to €60.4 million.

As far as CEREIT’s portfolio occupancy is concerned, it is at a high of 93.9% as of the end of Q3 FY2024, with the occupancy rate of its logistics/light industrial properties at 95.1%, and the occupancy rate of its office properties at 90.9%. Portfolio WALE was at 4.2 years. Also, a positive rental reversion of 2.3% was recoded new and/or renewed leases in Q3 FY2024.

Aggregate leverage, as of 30 September 2024, was at 41.0% (which is still considered healthy), with interest coverage at 3.6x. The REIT’s all-in interest rate was at 3.16%, with its weighted average term to debt maturity at 1.8 years (while it has no refinancing obligations in the remaining quarter of FY2024, it has 28% [or €450 million] of borrowings due for refinancing in FY2025, and another 21.4% [or €346.5 million] of borrowings due for refinancing in FY2026).

2. IREIT Global (SGX: UD1U)

IREIT Global invests in real estate used primarily for office, retail, and industrial (including logistics) purposes, with its geographical focus in Western Europe.

As of 30 September 2024, its portfolio comprises 5 office properties in Germany, 44 retail properties in France, and 4 office properties in Spain, with a total portfolio valuation of €855.6 million.

No financial figures were reported in the REIT’s 3rd quarter business update released in mid-November, but looking at its financial figures reported for the 1st half of FY2024 ended 30 June, gross revenue and net property income jumped by 28.8% and 22.8% year on year to €36.6 million and €27.0 million respectively, mainly due to the contribution from the B&M Portfolio in France following the completion of its acquisition in September 2023, recognition of dilapidation cost (of €5.2 million) paid by the main tenant at Berlin Campus, and rental income from Darmstadt Campus.

At the same time, distributable income rose by 3.9% year on year to €12.9 million, with distribution per unit also up by 3.2% year on year to €0.0096.

IREIT Global’s portfolio occupancy as of 30 September was at 89.6%, with a portfolio WALE of 4.6 years. While it has 24.4% of leases due for renewal in the final quarter of FY2024, it has minimal leases (at between 1.8% and 6.8% per year) due for renewal each year over the next 4 years (between FY2025 and FY2028). A majority of the leases (61.3%) will only be due for renewal in FY2029 or later.

On the capital management front, the Europe-focused REIT has an aggregate leverage of 37.7% as of 30 September, with an interest coverage ratio at a rather high level of 8.1x, and weighted average interest rate at just 1.9%. However, its weighted average debt maturity is just 2 years.

3. Elite UK REIT (SGX: MXNU)

Among the 3 Europe-focused REITs we have looked at, Elite UK REIT is the ‘newest’ – where it was listed in February 2020, and the REIT is also the first and only UK-focused REIT listed in Singapore.

Elite UK REIT’s properties are located mainly in town centres, and near amenities and transportation nodes. As of 30 September, its portfolio comprises 149 properties (144 are on freehold tenures, and 5 are on long leasehold tenures), with a total asset value of £415 million. 99.1% of the REIT’s gross rental income comes from the UK Government (with nearly all the leases signed with the Ministry of Housing, Communities, and Local Government, which is a Crown Body), and leases are all on Triple Net basis (with the responsibility for the repair of the external and internal parts, as well as the structure of the property placed with the tenant for the occupied assets).

Revenue for the first 9 months of FY2024 inched down slightly by 1.8% year on year to £28.0 million (this excludes the effect of straight-line rent adjustments). However, distributable income went up by 2.8% year on year to £14.0 million, with distribution per unit up 3.9% year on year to 2.13 pence from higher distributable income and tax savings.

Elite UK REIT’s portfolio occupancy as of 30 September was at a high of 93.1%, with a WALE of 3.5 years. Rental reversion was at a positive 5.3% for the quarter, from Theatre Buildings, Billingham.

In terms of the REIT’s debt profile, as of the end of the 3rd quarter of FY2024 ended 30 September, aggregate leverage was at 45.1% (which is on the high side in my opinion), with interest coverage ratio at 3.0x, and all-in borrowing cost at 5.0% (while it is on the high side, but I note that the benchmark borrowing rates was also at around this level – where it was at 5.25% until a cut in interest rates in August and November [by 0.25% each time] saw interest rates at 4.75% currently). The REIT does not have any refinancing obligations till FY2027, when £215 million of borrowings are due for refinancing.

Closing Thoughts

To round up, all 3 European-based but Singapore-listed REITs have a pretty decent portfolio occupancy rate (where, apart from IREIT Global which had a portfolio occupancy rate of slightly under 90%, both Cromwell European REIT and Elite UK REIT had portfolio occupancy rates of above 90%).

In terms of capital management, both Cromwell European REIT and IREIT Global had a healthy aggregate leverage (with the former at 41.0% and the latter at 37.7%), and interest coverage of higher than 3.5x. However, Elite UK REIT’s aggregate leverage is at a rather high level of 45.1%.

Another thing to note, particularly for Elite UK REIT, is that more than 90% of its revenue comes from the U.K. Government (so in a way, there is a single-tenant concentration risk).

With that, I have come to the end of my share on the 3 European-based REITs listed on the Singapore Exchange, for those who like to have some portfolio diversification in Europe to have a look at. I hope the contents presented above have given you a good understanding of the 3 REITs. However, do take note that all opinions are purely mine which I’m sharing for educational purposes only. They do not comprise any buy or sell calls for any of the REITs. You are strongly encouraged to do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not invested in any of the 3 REITs discussed in this post.

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