SINGAPORE (Sept 12): Investors shouldn't be carried away by news that SGX could see the listing of its first euro-denominated real estate investment trust (REIT) with €1.8 billion ($2.9 billion) of assets, says an Australian Financial Review commentary on Monday.

The Edge Singapore reported yesterday that Australian real estate investment manager Cromwell Property Group has launched a roadshow to raise about A$2 billion ($2.2 billion) to back the listing of Cromwell European REIT (CEREIT) on the Singapore Exchange (SGX).

See also: Aussie manager Cromwell Property to list $2.2 bil European REIT on SGX: reports

The REIT plans to list on Sept 28 with a market capitalisation of €1.2 billion to €1.25 billion. It owns a portfolio of 81 office, logistics and light industrial as well as retail properties across Denmark, France, Germany, Italy, the Netherlands and Poland.

An analysis of the proposed trust by DBS values it at between €1.2 billion and €1.4 billion. The yield for FY2018 would be between 6.3% and 6.9%.

DBS reportedly likes CEREIT for being well diversified across sectors and geographies. It is also bullish on the Eurozone growth outlook. Another plus is the current spread between Euro property returns and bonds.

However, AFR warns that Cromwell’s overall management fees are on the high side. “In particular, the property management fee is more than double the peer average,” say the writers. Cromwell will also collect performance and divestment fees from the vendors of the properties and then acquisition fees as manager of the new CEREIT. Cromwell is including three assets from its own balance sheet into the new trust.

In addition, the portfolio has more than 10% vacancy which is high by Australian standards for listed trusts.

“The bulk of the portfolio is split between Poland, the Netherlands and Italy–all of which are reasonably illiquid markets, with smaller exposures in Germany, Denmark and France,” says AFR.

The scepticism from Down Under is understandable. Things have often not gone well for Australian managed funds in Europe.

“No one in the Australian sector will forget fund manager APN Property’s unhappy exit from the Continent six years ago, which left investors in its Europe retail trust with just a pittance after commercial real estate values crashed,” says AFR.

"Perhaps the folks in Singapore don't know that story," add the writers.