Navigating opportunities in European S-REITs

Easing inflation leaves room for rate cuts

The European Central Bank (ECB) has cut interest rates by three times since June 2024, bringing its benchmark rate to 3.25%. 

With inflation easing further to 1.7% in September 2024, below the ECB’s target rate of 2%, we see scope for interest rates to be cut by a further 1%-point by end-2025. 

Likewise, the Bank of England has implemented two interest rate cuts since August. 

Property valuations stabilising amid decline in interest rates

With the interest rate cuts, the valuation of real estate assets in Europe has largely stabilised in the third quarter of 2024 following declines over the past two years. 

Encouragingly, the UK logistics and high street retail sectors, and France office sector saw a decline in the prime yields in the third quarter of 2024, according to CBRE. 

Divergence in performance across sectors

Despite early signs of recovery, the outlook across the office, retail, and logistics sectors varies significantly. 

Demand for logistics assets remains robust, driven by ongoing e-commerce growth, although leasing activity has softened compared to the post-Covid peak. 

The retail sector is experiencing a revival in key markets as easing inflation boosts consumer spending. 

Meanwhile, the office sector faces the greatest challenges due to persistent work-from-home trends, though well-located, environmentally sustainable buildings continues to outperform. 

Cromwell European REIT has largest portfolio by value

Across the three European S-REITs, Cromwell European REIT has the largest portfolio by valuation at €2.25 billion across 106 light industrial/logistics and office properties throughout Europe. 

Elite UK REIT has the largest number of properties at 149 office assets in the UK. 

IREIT Global has the smallest property portfolio with 53 office properties across Germany and Spain and retail properties in France. 

Cromwell European REIT has most diversified tenant base

Cromwell European REIT has the most diversified tenant base with the top 10 tenants representing only 23% of rental income. 

Elite UK REIT has the highest tenant concentration with 93.5% of its properties are leased to the Department for Work & Pensions (DWP), with other UK Government and social infrastructure assets making much of the remaining tenants. 

Leverage in the range of 37% to 44%

Elite UK REIT has the highest aggregate leverage at 44.1%, even though it has refinanced borrowings to 2027 in July 2024. 

IREIT Global has the lowest aggregate leverage at 37.7%, and similarly, has the most favourable credit metrics across indicators such as debt costs and interest coverage ratios, while Cromwell European REIT has an aggregate leverage of 41.0%.

Key risks

Geopolitical risks may drive higher tariffs which may lead to a slower than expected economic recovery. 

In addition, the outlook across various sub-sectors remains mixed, and selected assets which are poorly located may become obsolete.  

Higher distribution yields compared to sector average

All three European S-REITs have relatively high distribution yields ranging from 8.6% at Elite UK REIT, 9.3% at Cromwell European REIT and 10.3% at IREIT Global.

The European S-REITs trade at significant discounts to NAV at 0.53x for IREIT Global, 0.72x for Cromwell European REIT and 0.74x for Elite UK REIT.

• Elite UK REIT dividend history and dividend forecasts
• Cromwell European REIT dividend history and dividend forecasts
• IREIT Global dividend history and dividend forecasts 

Related Reports:

• Elite UK REIT: Room for positive asset repricing
• Cromwell European REIT: Stabilisation of asset values with interest rate cuts
• IREIT Global: Pure-play Western Europe-focused REIT

Join us at "SGX Discovery Series with Beansprout: Navigating the landscape of European S-REITs" on 19 November, where we’ll dive into the exciting prospects of investing in this dynamic sector. This event features exclusive insights from senior executives of leading European REITs, including Cromwell European REIT, Elite UK REIT, and IREIT Global. Register for free here. 

Join the Beansprout Telegram group for the latest insights on Singapore stocks, REITs, bonds and ETFs. 

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