CROMWELL European Real Estate Investment Trust’s (Cromwell E-Reit : CWBU 0%) portfolio valuations fell 3 per cent for the full year ended Dec 31, 2023, to about 2.3 billion euros (S$3.3 billion). 

The total portfolio valuation was based on a like-for-like comparison and excluding capital expenditure, and accounted for benefits of valuation uplifts for properties under development in Italy, the Czech Republic and Slovakia.

It comes after valuations fell “only slightly” by 1.5 per cent or 34.1 million euros for the second half of the year compared to June 2023, said its manager on Monday (Jan 15).

Including capital and development expenditure incurred in H2 of FY2023, Cromwell E-Reit’s manager estimated a gross valuation fair value loss of 2.9 per cent.

The impact of the weakening economic environment, high inflation and rising interest rates on Cromwell E-Reit’s portfolio valuations for the full and second half of FY2023 has been “relatively minor”, said the manager.

Declines across the Reit’s overall portfolio value largely stemmed from its office assets which saw valuations fall in France (-10.1 per cent), Finland (-9.5 per cent), the Netherlands (-1.8 per cent), Italy (-5.4 per cent) and Poland (-7.3 per cent).

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This was mainly a result of widening terminal cap rates and a more negative view of secondary office markets in Poland and Finland, said the manager.

In the light industrial and logistics sector, valuation declines were recorded in the United Kingdom (-1 per cent) due to the depreciation of the British pound against the euro.

The value of Cromwell E-Reit’s light industrial and logistics portfolio in Germany fell a further 3.3 per cent in valuation due to an expansion in terminal cap rate, though Cromwell E-Reit’s manager said it was partially offset by higher passing and market rents. 

A 3 per cent valuation decline was also reported in Italy’s “other” portfolio, attributed to a higher terminal cap rate that was offset in part by higher passing face rent and market face rent.

The manager’s chief executive Simon Garing said that overall, the like-for-like portfolio valuation was estimated to have fallen “only” 3.5 per cent over the past 18 months since the onset of rising interest rates.

Active leasing and renewals of the Reit’s portfolio, longer weighted average lease expiry and higher rent growth helped to largely offset the impact of higher discount rates and terminal cap rates across the portfolio, added Garing.

“The strategy to pivot to logistics and light industrial has delivered excellent results, with valuations in this sector increasing on average 4.8 per cent over the past 18 months. This growth can also be partly attributed to the expertise of the Cromwell asset management team, supported by the favourable demand/supply warehouse fundamentals across Europe.”

Ahead of the Reit’s H2 FY2023 results due on Feb 26, 2024, the manager is anticipating a net gearing of 38.4 per cent as at end-2023 considering 196.5 million euros in divestments for the full year, and the Reit’s recently completed 50-million-euro bond buyback.

Net asset value per unit is expected to come in around 2.14 euros.

Garing pointed out that this is 51 per cent above the Reit’s last traded price of 1.42 euros as at Friday (Jan 12), which was up one euro cent or 0.7 per cent at the day’s close.