Cromwell Reit relaunches IPO after makeover

Among the 74 properties in Cromwell Reit's revised portfolio is a large warehouse in Denmark with a two-storey side office.
Among the 74 properties in Cromwell Reit's revised portfolio is a large warehouse in Denmark with a two-storey side office.PHOTO: CROMWELL PROPERTY GROUP

Polish retail properties removed from portfolio after investors raised concerns over their value

Its first attempt was aborted two months ago, but Cromwell Property Group is having another shot at listing its European real estate assets here.

The trust has undergone a makeover since it hit the brakes on its initial public offering (IPO) in September, a move it blamed on "market conditions".

"We honestly believe that this is a sharper, more concentrated offering that has shown strong investor interest to date," said Mr Philip Levinson, chief executive of the trust manager.

Part of the makeover included axing Polish retail properties from its proposed portfolio because investors were wary of their value.

Another notable difference this time around is the doubling in stakeholding by its Australia-listed sponsor Cromwell Property Group. This has gone from 12 per cent to 13 per cent, depending on the offer price used, to 35.8 per cent now.

It is likely a move to further inspire investor confidence.

That will soon be tested, since the Cromwell European Real Estate Investment Trust (Reit) lodged its revamped prospectus yesterday, confirming its offer of 428.5 million units to raise gross proceeds of €236 million (S$376 million) on the Singapore Exchange.

The public offering opened yesterday and closes at noon on Nov 28 with the units expected to start trading on the mainboard on Nov 30.

The trust's portfolio comprises 74 properties after excluding seven Polish retail assets.

Mr Levinson told a briefing yesterday that when the IPO was registered two months ago, it became clear that investors were not accustomed to less core European real estate markets, and a "portfolio of this complexity and of this size".

Cromwell Reit's assets were in Denmark, France, Germany, Italy, the Netherlands and Poland at the time, and included a mix of fully and partially-owned freehold and leasehold properties with differing structures in different jurisdictions.

"So rather than push it through, we elected to take it off the market temporarily and review more concentrated investor feedback," said Mr Levinson.

One concern was over its Poland retail assets, so these were removed even though the firm believed in their merit.

He also noted the trust faced difficulty in raising capital - it earlier planned to raise at least €1.2 billion.

The offering now consists of an international placement of 392.2 million units to institutional investors, including some here, and an offering of 36.4 million units to the Singapore public at €0.55 per unit. This is at the bottom of the range in the first IPO attempt. The listing will raise total proceeds of €866 million.

"We are strong believers that scale is important to get regional and ultimately global Reit index inclusion," Mr Levinson said.

He believes the scaling down and having more cornerstone investors on board will help boost demand in the retail market. The trust counts Cerberus Singapore and Hillsboro Capital as cornerstone investors.

He said the trust's yield of 7.8 per cent is at a premium to the average 6 per cent yield of Singapore Reits, and is at a 300 to 330 basis points spread to European Reits. He added that the exceptionally high yield is not its way of compensating investors for the complex make-up of the portfolio.

The IPO proceeds will be used to acquire 60 properties in Denmark, France, Germany and the Netherlands from funds managed by Cromwell Property Group for third-party investors, and 14 Italian properties from independent third parties.

The portfolio has total appraised value of about €1.4 billion, with a focus on the office, light industrial and logistics sectors.

A version of this article appeared in the print edition of The Straits Times on November 23, 2017, with the headline 'Cromwell Reit relaunches IPO after makeover'. Print Edition | Subscribe