Results First Take: 1H21 – Revaluation gains in Europe underway

  • 1H21 NPI increased 11.4% y-o-y, mainly due to acquisitions in Italy, the Czech Republic and Slovakia
  • Positive rental reversions in 2Q21, a reversal from the negative rental reversion in the prior quarter
  • Key positives: positive rental reversions, uplift in portfolio valuations, organic growth in income with AEIs
  • Key negatives: 1H21 DPU was lower y-o-y, portfolio occupancy declined marginally
  • Maintain BUY with a TP of EUR3.00

(+) 1H21 NPI increased 11.4% y-o-y to EUR64.3m

  • 1H21 NPI increased 11.4% y-o-y
    • Mainly due to acquisitions in Italy, the Czech Republic and Slovakia
    • Partially offset by divestments in France, the Netherlands and Denmark
    • Also partially offset by rent reductions in 5 government-let properties in Italy
  • Lower income from Central Plaza (the Netherlands), Lissone (Italy) and Saronno (Italy)
    • Properties were affected by the ongoing COVID-19 pandemic in 1H21
    • These properties only impacted earnings in 2Q20 last year

(-) DPU of 8.502 EUR cts in 1H21 was 2.5% lower y-o-y

  • 1H21 DPU was slightly below expectations; making up c.48% of our FY21 estimates
    • Mainly due to absence of EUR2.8m capital gains paid out in 1H20 (equivalent to 0.55 EUR cts in 1H20)
    • Drag in 1H21 DPU due to timing difference between private placement and completion of acquisitions
  • However, 2Q21 DPU of 4.367 EUR cts was 5.6% higher q-o-q

(+) Positive rental reversions of 5.9% in 1H21

  • Positive rental reversions of 5.9% for the overall portfolio 
    • Office portfolio reported a positive 13.7% rental reversion; more than 17,000 sqm of new leases and renewals
    • Industrial/Logistics portfolio reported a positive 4.0% rental reversion: more than 66,000 sqm of new leases and renewals
  • On a q-o-q basis, rental reversions were a positive 10.0%
    • A reversal from the negative rental reversions of 1.3% in 1Q21
  • Portfolio occupancy dipped slightly by 0.2% h-o-h to 94.9%
    • Lower portfolio occupancy due to office portfolio, mainly in France and Poland
    • Improvement in occupancy for industrial/logistics portfolio, led by France and the Netherlands
  • Only 11.7% of leases due to expire for the rest of FY21

(+) 1.9% uplift in valuations for 80% of its portfolio

  • Valuations for 80 properties (80% of portfolio) was carried out in June 2021
    • Reported a 1.9% uplift in valuations h-o-h
  • EUR31.8m increase in valuations on a h-o-h basis
    • Mainly due to revaluation gains in Germany, France, Italy, the Netherlands and Denmark
    • Valuations in Finland and Poland were maintained

(+) Ongoing rejuvenation of portfolio

  • Recently completed the acquisitions of a EUR11.7m logistics property in the UK
    • Completed on 3 August 2021
    • 100% occupied property with a WALE of 10 years
    • NOI yield of 5.6%
  • EUR20m AEI planned for Via Nervesa 21 office property in Milan, Italy
    • AEI to commence in 1H22 and complete by mid-2023
    • Potentially see a 20% increase in NLA

Our thoughts
Although 1H21 DPU came in slightly lower than our projections, we had anticipated it as the drag in earnings was mainly due to absence of one-off capital gains and timing difference between the private placement and completion of acquisitions. On the positive side, portfolio occupancy remained relatively resilient and rental reversions posted a positive 10.0% in 2Q21. This was a strong rebound from 1Q21 which reported a negative rental reversion of 1.3%. 

The portfolio revaluation exercise carried out in June 2021 led to a 1.9% uplift in valuations for 80% of its portfolio. Given the continued strength of its portfolio, we believe that there could be further portfolio valuation uplift at the end of the year. CREIT has also been very active in rejuvenating its portfolio as it executes its long-term goal to have a even split between office and industrial/logistics assets. Having already completed c.EUR242m of industrial/logistics assets since the beginning of FY20, this segment now makes up c.39% of CREIT’s portfolio. We believe that CREIT will be able to continue growing its footprint in the industrial/logistics segment accretively given their established networks and pipeline from its Sponsor. Most recently, CREIT completed the EUR11.7m acquisition of a logistics property in the UK at a relatively attractive yield of 5.6%.

We continue to remain positive on CREIT and we expect 2H21 earnings to improve mainly due to the full quarters of income contribution from recent acquisitions.
We will be maintaining our BUY recommendation with a TP of EUR3.00.