RHB's Vijay Natarajan has kept his "buy" call and EUR2.15 target price on Cromwell European REIT, following its accretive divestment of its Italian office asset, Piazza Affari 2.

The divestment, at EUR93.6 million, is in line with the property’s valuation as of June, and a 15% premium to its purchase price.

In his July 3 note, Natarajan believes that the move is positive and one in line with its stated strategy of rebalancing its portfolio towards the industrial (logistics) sector.

He expects the REIT to hive off 2-3 more assets this year, mostly from the Italian portfolio.

"The execution of its divestment plans in this current challenging investment market further enhances the REITs good operational track record since its listing," says Natarajan.

Currently, the counter is trading at an attractive 35% discount to book value and offers a yield of more than 10%.

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The analyst believes the divestment is DPU-accretive at +2.1%, as the exit net property income yield is low at 2.7%, assuming that proceeds will be fully used to repay its revolving credit facilities (interest rate of around 4.5%).

The sale would also slightly lift the REIT's weighted average lease expiry to 4.49 years.

In addition, with the divestment, light industrial and logistics will become REIT’s largest real estate segment, at 48.3% of its total portfolio (from 46.4%) – followed by office (46.7%) and others (5.1%).

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This move will is further aligned with the REIT manager's medium-term strategy of having 60% of its portfolio weight to light industrial/logistics, with high-quality grade-A office assets will make up the remainder.

In addition, the REIT has also entered into a conditional sale agreement regarding its asset in Bari, Italy with Italian government, valued at EUR73.3 million as at end-Dec 2022.

Citing local news sources, Natarajan says that divestment is likely to be a premium to its valuation.

Cromwell European REIT traded at EUR1.59 at 11.45am.

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