To The Moon

ACCORDING to a Savills report on the European logistics sector outlook published in mid-March, the region’s logistics market is faced with a mixed economic outlook and slowdown, but tailwinds are expected to return soon.

European GDP results have outperformed previous forecasts, and despite lower retail sales volumes in recent months, consumer sentiment has held up and record low vacancy rates continue to support rental growth.

Three S-Reits poised to benefit from tailwinds in Europe’s logistics sector

Listed in Singapore are three Reits with significant exposure to European logistics real estate properties – Cromwell European Reit $Cromwell Reit EUR(CWBU.SI)$ , Frasers Logistics & Commercial Trust $FRASERS LOGISTICS & IND TRUST(BUOU.SI)$ , and CapitaLand Ascendas Reit $ASCENDAS REAL ESTATE INV TRUST(A17U.SI)$ .

1. $Cromwell Reit EUR(CWBU.SI)$

Cromwell European Reit (CEReit) is a pure-play Pan-European Reit with light industrial/logistics and office assets. In its latest earnings update for the year ended Dec 31, 2022 (FY22), it noted, citing CBRE’s Q1 2023 report, that occupier fundamentals remain solid in the European logistics sector as the rapid rise in e-commerce in the last six years continues into 2023.

The reshoring of supply chains has driven demand to record levels and a space shortage in warehouse and logistics space has applied upward pressure on prime rents. Average occupancy rates for logistics properties in the eight countries that CEReit has exposure to was also at an all-time low of 2.4%.

CEReit announced a net property income (NPI) of 136.8 million euros (S$197.8 million) for FY22, expanding 5.1% year on year (yoy). This was mainly driven by a 23.9% yoy growth in the light industrial/logistics sector.

Distribution per unit (DPU) for FY22 rose 1.3% yoy to 17.189 euro cents. Its portfolio occupancy in FY22 was at a record-high of 96%, with strong positive 5.7% rent reversion boosted by stronger leasing pace in H2 2022.

CEReit continues to execute its strategy of pivoting towards logistics assets. In 2022, it acquired five light industrial/logistics/life sciences assets for an aggregate amount of approximately 107 million euros at a blended net operating income yield of 7.4%, 11% below acquisition valuations.

Light industrial/logistics assets now make up 46% of CEReit’s total portfolio value as at FY22 compared to 35% in FY18. The Reit plans to continue developing this segment and expects it to reach 60% in the future.

2. $FRASERS LOGISTICS & IND TRUST(BUOU.SI)$

Frasers Logistics and Commercial Trust (FLCT) has around 31% of its total portfolio value in 36 European logistics/industrial assets. Its overall logistics/industrial portfolio is fully occupied and has a long weighted average lease expiry (WALE) of 5.2 years. FLCT noted that prime rents in countries such as Germany and the Netherlands are increasing amid robust demand and limited supply.

3. $ASCENDAS REAL ESTATE INV TRUST(A17U.SI)$

CapitaLand Ascendas Reit (CLAR) has around 5% of its total portfolio value in logistics assets in the UK. The Reit’s overall European portfolio which comprises logistics properties and data centres has a long WALE period of 5.9 years and they are expected to benefit from the strong adoption of e-commerce and digitalisation of activities.

https://www.sgx.com/research-education/market-updates/20230402-reit-watch-three-s-reits-poised-benefit-tailwinds