• Maintain BUY and EUR2.05 TP, 41% upside and c.11% yield. Cromwell European REIT’s announcement of a new sponsor and major shareholder is broadly neutral and should have minimal impact to its strategy and operations. The substantial stake acquired at a premium to the current traded price indicates good value in the REIT seen by its new sponsor. We expect CERT to continue its deleveraging and asset enhancement strategy, with a pivot towards the logistics and industrial sector, and see tailwinds to its share price from interest rate cuts in 2H.

• Stoneweg emerges as the new sponsor and substantial shareholder for CERT by way of acquiring Australian listed Cromwell Property Group’s (CMW AU, NR) – its current sponsors – entire European platform for EUR280m (~SGD 412m). The sum consideration includes CERT’s entire stake (27.8% stake) for EUR237.5m, or EUR1.52/share (7% premium to the 3-month volume-weighted average price or VWAP), and 100% of the REIT manager’s and property manager’s interest as well as other associated co- investments for EUR42.5m. The move does not come as a surprise to us and is mainly on the back of Cromwell’s plan to lighten its balance sheet and focus on the core Australian real estate market. The sale was done via a bidding process (link)with Stoneweg emerging as the winner among several bidders. The transaction is subject to regulatory approvals and is expected to be completed by 3Q24.

• Stoneweg is a Swiss HQ real estate manager and advisory group established in 2015 with a gross asset value under management of EUR4.0bn and has executed EUR6.2bn in transactions across asset classes and in markets such as Europe, the UK and the US. Stoneweg’s funds also currently manage logistics and industrial assets in harder to penetrate markets such as Switzerland, and last-mile logistics assets in Europe which in the medium term could act as potential pipeline assets for CERT. Additionally, it also manages Varia US Properties (VARN SW, NR), listed in the Swiss Stock Exchange, which has a portfolio of US residential real estate assets worth USD1.3bn.

• Divestments and asset redevelopment to continue as we expect CERT to achieve its stated EUR400m divestment plans by next year. Since 2022, the REIT has divested 11 assets for EUR262m, at a blended 14% premium to valuation and another EUR60m of assets are currently in advanced stages. This has helped the REIT better manage financing cost pressures as well as gearing challenges amidst valuation declines from rising cap rates. CERT has also achieved healthy preleasing for three of its redevelopment assets that will contribute positively to income from 2H.

• No earnings changes. ESG score of 3.3 (out of 4.0) is two notch above the country median, and as such, a 4% ESG premium is ascribed to our TP.

Source: RHB Research - 27 May 2024