Good afternoon and welcome to the Cromwell European REIT's third quarter business update briefing. We will begin with a presentation by the Cromwell European REIT Management Team, followed by Q&A. During Q&A, please click the raise hand button to be placed in the virtual queue. Alternatively, you can submit text questions via the Q&A feature. Now I will hand across to the CEO of the manager of the Cromwell European REIT, Simon Garing. Simon, over to you.
Thanks, Chiara, and good afternoon, and thank you for joining us today for the CREIT's third quarter business update. Turning to page three of the deck we uploaded to the SGXNet today, we are pleased with the headline that CREIT's portfolio delivered 7% NPI growth in the third quarter, supported by redevelopments and the resilient portfolio occupancy, which remained around 94%. Stripping back to benefits of our recent office and logistics development, such as Nervesa 21 in Milan, like-for-like NPI growth for nine months was still a pleasing 4.4%. The 2.3%+ rent reversion for the quarter was impacted by a single renewal to a bank in Kraków, which we will touch on later in the presentation, which was actually an outstanding result nonetheless. The logistics portfolio showed a very high 8.8%+ rent reversion, and overall we kept the WALE long at just under five years.
During the quarter, Fitch Ratings also revised CREIT's outlook to positive from stable and affirmed its BB B- investment grade rating. We agreed terms with our syndicate of lenders on EUR 472 million of new debt facilities that will provide ample liquidity to retire the November 25 bond and enable flexibility on the timing and pricing of potential debt issuance to optimize a longer term debt duration. CREIT also maintained its GRESB four star rating in the quarter for a second year running, achieving 83 points in this key industry ESG benchmark, ranking us third in the European peer group. A very busy Q3. The recent unit price rally shown in the chart on page four reflects strong investor support of our strategy and our performance, with institutional investors continuing to be net buyers into October.
The multiple interest rate cuts by ECB and other central banks helped create a positive momentum for interest rate sensitive sectors of the market, including the Cromwell European REIT, with further European cuts expected ahead, also providing positive sentiment tailwind. While Cromwell European REIT is a top three performing S-REIT year to date, delivering 26% total return and vastly outperforming the Singapore REIT index by more than 22%, we still have a lot more work to do to close the 21% discount to NAV, which is currently at around SGD 2.05 per unit. We note that the average European and Singapore listed logistics and industrial REITs are both trading at slight premiums to their NAVs, as CREIT did back in the beginning of 2022. So some more work to do. On the credit side, this chart shows CREIT's November 25 bond performance.
The bond price now trades almost at par with implied yield to maturity of around 4.6%, benefiting also from interest rate cuts coupled with CREIT's improved credit metrics and proactive capital management following the bond buyback at the end of last year. The team have been very busy securing a bridge to bond and additional liquidity and time needed to optimize our longer term cost of debt at the same time that interest rates are coming down, so Shane will discuss this more in his presentation shortly, but turning to the next page, we received a very strong third-party endorsement in October when Fitch Ratings revised CREIT's credit outlook to positive. This will also aid our new bond issuance. In their commentary, we'd like to highlight a number of factors that led to Fitch's outlook upgrade.
Firstly, the success of CREIT's pivot to logistics, now at a majority 54% weighting, but moving higher. A strong track record in divestments and capital recycling with EUR 264 million of non-core, non-strategic assets sold at almost a 14% premium to the last valuations over the past two years to retain net gearing below our policy range of 40%. The third point includes the healthy financial profile and access to capital markets, with now EUR 532 million of undrawn facilities, including the new facilities to backstop the bond out to 2027. No change in the strategy and governance of CREIT with the upcoming new sponsor, Stoneweg, also will demonstrate strong support and alignment with enhanced resources and an excellent European track record over the past nine years since Stoneweg was formed. So a very pleasing third party endorsement. Turning over to page seven, really, what's the resilience of our portfolio?
Why do we continue to deliver very good income performance? And it's really due to the strength of our tenant roster with over 800 tenants and 1,000 leases across 1.7 million square meters. So it's a very large and diversified portfolio across many countries and industry sectors throughout Europe and are generally under-rented versus the current market rents, with most leases also having annual indexation clauses and almost 95% of our properties being freehold. The vast majority of our top 10 tenant customers are global MNCs, corporates, or government agencies with, again, very good credit quality. Our top 10 tenant customers now account for less than 23% of the total headline rent, again with no one tenant exceeding 5%, again improving the diversification of the portfolio.
So turning to page eight, the left-hand chart shows Oxford Economics' view that the three-month Euribor will decline to about 2.0 below 2% towards the end of next year, supporting credit pricing and underpinning real estate valuations. The right-hand chart plots cap rates of prime European office, high street retail, and logistics against the 10-year German Bunds, considered the risk-free index, with Bunds back down to 2.1% after reaching almost 3% last year. The expectation now is for stabilization in asset valuations over the next 12 months or so. And again, as a reminder to investors, CREIT's average portfolio initial yield is a high 6.3%, providing even additional cushion to this benchmark.
Turning to a very busy slide, page nine, almost half of CREIT's debt facilities now have sustainability linked KPIs, which comprise targets based on an annual GRESB score, percentage of green leases in the portfolio, and the number of green building certifications. So as of this date, 83% of CREIT's office assets are now BREEAM or LEED certified. Remember, that was up from zero six years ago. 37% of the leases across the portfolio now have green clauses where the tenants cooperate with us as the property owner to ensure the efficiencies of the property improve. All in all, CREIT remains ahead on all its sustainability linked debt facilities, which are also in place and positive for attracting tenants and additional capital. CREIT also continues to enjoy the MSCI ESG double A rating, which was most recently reiterated earlier this year alongside only two other Singapore REITs.
It was also accorded the 2024 Sustainability Best Practices Recommendation Gold Award for a second year running by the EPRA Association, so with that, I'll turn over to Shane to run through the finance and capital management highlights for the quarter. Thank you, Shane.
Thanks, Simon, and good morning. We are very pleased to report that CREIT delivered 7% NPI growth in the third quarter, boosted by the completion of the Nervesa 21 office redevelopment in Milan and the Nové Mesto One Industrial Park logistics development near Bratislava in Slovakia. Importantly, distributable income was 4.1% higher in the third quarter compared to the second quarter, as the substantial proportion of our sales program is now largely behind us. For the nine months year to date figures, the NPI was slightly lower as the impact from disposals was not quite fully offset by the NPI growth from the existing portfolio. In terms of distributable income, the third quarter was 8.9% below the PCP due to the asset divestments and higher interest costs.
The third quarter has been a busy one for the treasury team, as Simon mentioned, as we have been working on securing €472 million of new debt facilities. I will go into more details on this in the capital management section later, and as Simon mentioned in October, Fitch Ratings revised CREIT outlook to positive from stable and affirmed the BB B- investment grade rating to reflect, among other things, our strategy and success in transitioning to a more logistics-based portfolio. Gross revenue was slightly up in the third quarter. However, on a year-to-date basis, it declined slightly, mainly due to the asset sales, in particular two of CREIT's largest assets in Italy, Bari Europa and Piazza Affari.
These divestments were timely, as in the case of Bari Europa, resulted in a significant reduction in exposure to a high risk bespoke Italian police barracks and were sold at a 34% premium to valuation. In the case of Piazza Affari, the divestment of this prime asset at the peak pricing of 3% yield reduced the REIT's exposure to office and furthered the pivot to logistics. Importantly, the divestments were crucial in keeping the net gearing below the board approved threshold of 40% through the down cycle. Pleasingly, the third quarter saw the benefit of the recent AEIs and the scaled down sales program, with, as I mentioned, the 7% NPI growth really driven by the redevelopments. Overall, distributable income was lower due to the asset sales and a 58 basis point increase in all in interest costs compared to the PCP.
CREIT's balance sheet remained in a good liquidity position, with cash high at over EUR 50 million even after paying the first half distribution in September. Asset sales of EUR 264 million have provided funding for developments and CapEx in the past two years, and this includes the sale of a small office annexure in Paris called Lénine on the 30th of September at the book value of EUR 3.1 million. The balance sheet now reflects stabilization with total assets over the €2.3 billion mark, following the largely completed asset sales program over the last two years. The decline in the current assets is the complete completion in 2024 of previously held assets for sale.
NAV was slightly lower due to the marginal fair value loss on investment property after taking into account capital expenditure in the first half of the year and also from distribution payments equivalent to 12 months paid so far in the year to date. The EPRA NAV, which excludes deferred capital gains taxes, is EUR 2.17 per unit. Capital metrics, our capital management metrics remain comfortable with plenty of buffer to the covenants within our EMTN program and debt facilities. CREIT's net gearing, as mentioned, is below, remains below 40%, and the ICR is comfortable at 3.6x . 87.6% of CREIT's total debt was hedged or fixed as at 30th of September, and the all in interest rate was slightly lower at 3.16 compared to 3.19 at the end of last year.
As I mentioned, the primary focus over the last few months on capital management has been actively addressing the November 25 bond maturity. Terms for a new EUR 340 million bridge facility with a final maturity in 2027 have had credit committee approval and are in the final stages of documentation. Together with EUR 192 million undrawn capacity from the revolving credit facility, these facilities provide ample liquidity and flexibility to backstop the November 25 bond. Two other new facilities are also credit committee approved and in the process of being documented. Firstly, a EUR 50 million secured facility with a 2029 maturity, and in addition, a new EUR 82.4 million unsecured debt facility with a maturity in 2029, which is earmarked to refinance the secured loan that matures in 2026.
Taking into account all of these facilities, the weighted average debt to maturity would increase to 2.7 years, and that's prior to any longer dated issuance over the next 12 months or so. The euro 5-year mid-swap rates are now around about 2.3%, well below the current three-month Euribor at around about 3.06%, both almost 100 basis points lower than at the beginning of this year. As such, the strategy to put in place additional bridge facilities to increase liquidity has enabled us to benefit from the improved outlook on interest rates as we continue to consider longer term debt issuance at more attractive rates than would have been available early this year.
The table in the middle shows a sensitivity on a change in all-in interest rates, where a 100 basis points increase in the all-in rate would have an impact of around 8% on the distributable income. CREIT's refinancing of the 2025 bond will depend on the five- to seven-year swap rates and acceptable margins. CREIT's liquidity position has been confirmed following these new facilities, with the next focus being an issue of long-term debt at optimal pricing. With that, I'll pass back to Simon to talk about the key highlights on the portfolio and asset management.
Thanks, Shane. So turning to page 18, the third quarter was relatively quiet due to a lower number of leases expiring during the period. Our teams on the ground released over 40,000 square meters, or roughly just over 2% of the portfolio in the quarter, and over the nine months, a very healthy 150,000 square meters, or over 8% of the portfolio, which is roughly the same as last year. We've also further de-risked 64% of leases that are expiring over the next six months already, and what will be a busier year next year of releasing into a slightly stronger economy. Portfolio occupancy inched up 30 basis points to just under 94%. Logistics light industrial occupancy rate is back to above 95%, while the office portfolio occupancy rate further increased to just under 91%.
Tenant retention in the third quarter was at 72%, which is slightly above our long-term average of 66%, and has pushed the nine-month tenant retention towards that 70% mark. The chart on page 19 shows our occupancy has ranged between 92%-94% over the last five or six years, while the rent reversion on new leases tends to follow the trajectory of inflation of between 2%-7%, reflecting the under rented status of the portfolio and the annual indexation clauses, which keep rent growth up during the actual lease period until we get to that end of that lease in between five and 10 years, depending on the market, when we then get that under renting kicked back in again. Rent reversion for the nine months of 2024 was 4.3%, close to our long-term average of 5%.
The rent reversion for the nine months was lowered by the Q3 number of 2.3%, which I'll explain in more detail. We retained over 72% of the leases expiring in the quarter above our normal run rate, again as we manage the relationship between increasing rents on the one hand and retaining tenants in strategic locations on the other. CREIT's portfolio occupancy is now close to 94%, as we've mentioned before, but the occupancy of our four core countries in the Netherlands, France, Germany, and Italy represents about 75% of our portfolio, and the occupancy in that core component of our portfolio stands at 97%.
Notwithstanding what I've said about Western Europe, our Czech portfolio occupancy jumped up 2.4% with the new six-year lease for 1,500 square meters in our development project in Lovosice near Prague, while the Slovakian portfolio is almost 100% full after very good success of our Nové Mesto project. And in fact, on the back of this development success, we have just pre-let 100% of a new unit to be constructed over the next nine months to HELLA, the German lighting company, again outside of Bratislava, the capital of Slovakia. We continue to focus on the lease up of two vacant warehouse units in Lovosice and the signing of leases that are already in advanced negotiations for our Danish light industrial portfolio. So we look forward to bringing some good news on those two fronts.
For our Finnish office assets, the strategy, as we've mentioned before, is to reduce the exposure by selling these partly vacant assets to developers and, in the meantime, retaining the existing tenants and cash flow off a high yield that we acquired the portfolio on. We've recently signed a sale contract for one of the Finnish office assets to a residential developer, and we are now working jointly on the rezoning to residential before closing this transaction.
Likewise, in Poland, we have recently awarded exclusivity to a Resi developer to acquire our partly vacant office asset in Gdańsk after we successfully closed on our Warsaw asset to a similar profile buyer earlier this quarter. So turning to page 19, Cromwell European REIT's logistics and light industrial portfolio continues to see strong rent reversion, recording a positive 8.8% in the third quarter, increasing the year to date rent reversion to over 6%.
A new lease for just under 12,000 square meters in our recently upgraded and repositioned Vittuone logistics asset near Milan enjoyed a rent reversion of 30% and was the main driver of this very high rent reversion in the quarter. The asset has now secured leases for 100% of the redeveloped space, and we now are exploring further upgrades on another part of the site to enjoy the same benefits. The logistics light industrial portfolio is still slightly under rented, with passing rents around 7% lower than market rents, another potential driver for future rent reversion. 30,000 square meters of new leases were signed in the quarter, as compared to roughly 43% signed in the first half. So again, on the quarter basis, we're ahead of the first half run rate. Tenant retention improved also to just under 60%, taking the year to date retention to just over 40%.
The WALE is now just under five years. Again, good visibility of income, again, something that this portfolio is becoming well known for. Other than the key lease in Milan that I've already mentioned, other logistics leasing highlights include a three-year lease renewal prolongation in Bischofsheim in Germany, where the tenant has the option to extend at the passing rent. However, leaving the 12,000 square meters asset still considerably under-rented, we will be able to tap at the end of this lease. Our Kapoeasweg asset in Amsterdam is now also fully occupied to a new five-year lease for just under 800 square meters, with a 45% rent reversion on the previous passing rent and only a very short vacant period.
Various new leases in units smaller than 1,000 square meters continue to attract even double digit rent reversions across Denmark, France, Italy, and the Netherlands, the core strength of our logistics portfolio. Turning to slide 23, putting CREIT's logistics leasing portfolio performance in context, the broader European logistics market and especially the space take up rates continued to be slightly soft in the third quarter, reflecting the softer European GDP growth and the e-commerce growth trending back to more normal pre-pandemic rates. This is a lot more manageable for the industry. Market vacancy across our eight markets rose slightly to 3.8% in the quarter, but this is still sub 4% across all of Europe, a very low vacancy level in historic terms.
The six monthly rolling take up is slightly higher compared to the previous six month period, while rents were flat or across the main CREIT European markets slightly up. Again, a very sustainable performance. So let's now turn to office. Leasing activity in CREITs office sector in the third quarter was 14,000 square meters, taking the year to date leasing to a very healthy 73,000 square meters. The softer minus 4.3% rent headline reversion rate in the quarter was driven primarily by very specific renewal in Krakow, where we retained our key anchor tenant, BNP Paribas. Overall, tenant customer retention rate for the office was very high at 88% in the quarter. Again, the year to date retention rate in our office portfolio is at the same high level.
The office portfolio occupancy again increases from previous quarters, mainly due to new leases in the Netherlands, particularly in Central Plaza in Rotterdam and in France, both in Paris and in Cap Mermoz in particular, where a semiconductor company tenant continues to absorb more vacant space. The office WALE is still a long 4.4 years, up from 4.0 years a year before, again due to the leases commencing late last year, particularly with two very large tenants in Haagsche Poort in The Hague, Aramco and Goldman Sachs Asset Management. So a couple of office leasing highlights in the quarter. The key semi-government tenant in Blaak 40, Rotterdam, took up its five-year extension option across the entire 4,000 square meters of space at the passing rent with no incentive needed.
We're also pleased to have renewed over 7,000 square meters for three years in Kraków with our anchor tenant, BNP, again with no space returned and close to zero incentives at a rent only 4% lower than passing, but close to almost 20% above the ERV assumptions in the valuation. This was a competitive process with BNP looking at alternative options. BNP were attracted to our building's BREEAM excellent rating, our new green energy supply at 32% lower than the average 2024 prices, its modern efficient floor plate, and the attractive inner city location. This is the bifurcation that we've been talking about this year between those assets like our Kraków asset versus the secondary market locations. We're also in positive negotiations with several of our key office tenants in both Poland and the Netherlands and expect to sign these renewals over the coming months again at pleasing levels.
The top chart on page 26 shows that the total European office leasing space take up was soft at this period, with overall office vacancy ticking up, reflecting the softer economy. However, the bottom left chart shows that the prime vacancy rates in the REIT's five key markets continue to remain at a very low level at 3.6%, 3.6% for our prime locations in our five key markets, and this again reflects the two-tiered office market in Europe, where roughly only 20% of the office stock is up to what's known as this modern prime level that the tenants are after.
This is our strategy to continue to upgrade our well located, slightly older office assets, make them more efficient, and make them much more attractive to command higher rents for new tenants, similar to our project that we completed in Milan at Nervesa 21, which is delivering very high levels of return now that we've completed and fully leased that asset. Vacancy in Finland and Poland have dropped slightly to 14%, down 1% over the previous quarter as new supply has reduced and the economic growth picks up. As we've discussed widely, the prime rents continue to be driven by high demand for good quality future-proofed top space, and a lot more research is coming out on post-COVID office tenant trends. Low availability prevails in these central submarkets, as the chart describes, particularly with these new efficient and green-certified buildings.
As seen on the chart on the left hand side, the prime rent growth in key REIT markets is north of 4%, while vacancy shown on the right hand side is sub 4%. Again, showing that link at the lower vacancies with the higher rent growth. Turning to page 29, investors can expect to benefit from the incoming new sponsor, Stoneweg, providing additional European resources and expertise to CREIT. Final sign off from the Luxembourg regulator is still being worked through and is expected shortly. We have spent several months now working on the pending integration with Stoneweg and look forward to hitting the ground running under the dynamic leadership of Jaume and Joaquin.
So, in conclusion, further expected ECB interest rate cuts, improving credit markets, generally stable cap rates, continued rent growth are all contributing to the stabilizing operating and valuation conditions in both Europe and Singapore, notwithstanding the current soft economic fundamentals and geopolitical risks. The REIT's quality portfolio is now 54% weighted to logistics light industrial, and we're looking to increase this exposure through asset recycling and acquisitions. We are seeing the benefits of the EUR 200 million+ AEI program taking shape. We are nearing the end of the current investment strategy with approximately only EUR 70 million of non-strategic investments to come over the next one-to-two years, reducing that recent drag on DPU. We continue to stay laser focused on refinancing the November 2025 bond maturity.
Now that we have the backstop bridge facility in place, we now are able to focus on issuing long term bonds at a more optimal pricing, more optimal timing, which is now backstopped by EUR 532 million of new liquidity, giving us time to be selective. With the recent unit price rally narrowing the discount to our NAV of 20%, we believe CREIT continues to offer a compelling investor proposition with a resilient, high yielding logistics focused portfolio, experienced local asset management teams with sustainable plans, comfortable gearing levels, and a new strong dedicated European sponsor to enhance the European resources and expertise. So, on behalf of the board and the management team, again, we continue to thank you for your continued support and investment. Now, Chiara, hand over to you for questions and comments from investors. Thank you.
Thank you, Simon. We'll now begin the Q&A session.
As a reminder, if you would like to ask a question, please select the raise hand button to be placed in the virtual queue. For those who have dialed in, please select star nine to raise your hand and star six to mute or unmute. Alternatively, you can submit text questions via the Q&A feature. Both of these features can be found at the bottom of your Zoom interface. Our first question comes from Dale. Dale, please unmute yourself to ask your question.
Yep, thank you. Thank you. Hi, morning, Simon and Shane. Thanks for the question. Yep, congrats on the strong results. Just one main question I have on the capital management front. You know, I think on the gearing, it remains at about 41%. I just wanted to understand, you know, your long-term plans for gearing.
The board policy range has been to keep net gearing below 30%, in between 35%-40% in the medium term. That has not changed. And as we've said for the last few months now, even under Stoneweg, they've again supported this policy range of 35%-40%. So, no change to that. So, we're in that range. And with the stabilization of asset values now, as we've talked about over the last six months, we're not in this need to stay ahead of the game to keep that gearing at that sub 40% mark by having to sell assets to keep that gearing lower. So, we've finished a large part of that program.
As we've explained now, unfortunately, the downside of keeping the balance sheet in really strong shape and giving the confidence to both bond and equity investors around the confidence of the balance sheet, there has been a slight impact on DPU. We're not the only ones to have that, but it's still a very high distribution, annualizing over S$0.14 on an NAV of S$2.05, still delivers one of the higher return on equity of the Singapore REITs. This is one of the key reasons Singapore investors and other Singapore REITs that have choices of going to other countries are going to Europe because you can pick up a very high yield spread between prime asset value and cost of borrowing. Again, our portfolio is yielding 6.3% and our average cost of debt is currently 3.16%. That delivers that high return on equity.
So, we're very comfortable in that 35%-40% range. We're expecting asset values to have stabilized and therefore we're not under the same rush to sell assets as we were over the last two years, rush being the poor choice of words, but a tactical decision to do so. And so, therefore, we feel we're in very good shape going into 2025.
Okay, okay, sounds good. But just following on that, right, you know, I think in addition to your first six months seeing a bit of positive revaluation, should we be expecting more for year-end?
So, I think as we showed in the chart, going back to compare prime yields versus German bonds, our pre-prepared remarks is stabilization over the next 12 months.
I mean, there's a spread there you can see on the right-hand chart with bonds around the 2.1% and prime yields around that 4.5%-5% mark. So, you're sitting roughly on a 250-300 basis point yield spread. And you can see other than the recent correction, that has roughly been the spread over the last 10 or so years. So, we're calling this more of a stabilization over the next 12 months, really than a massive step up in valuations. We would need stronger economic growth and a lower risk-free rate, I think, for that to occur. That may occur, but that's not in our base case.
Okay, fair enough. Okay, got it, got it. Okay, and just a second question for me is with regards to financing costs.
So, you know, given where financing costs have moved and the expectations here, right, in the Euribor, has that changed your guidance in terms of, you know, overall financing costs come year end and even as we move into next year as this bond is refinanced?
Dale, you know that we can't provide guidance. So, well done, I'm trying. But what Shane has done on page 16 here is provide a sensitivity to the impact on our distributable income or change to distribution on any scenario here on the left hand side about increasing our interest rate costs or in costs from the current 3.16%.
So, our point on the capital management initiatives for this quarter is we now have a backstop bridge facility that even if over the next 12 months we don't issue a new bond to refinance the existing bond, we then have this comfort that we have the capital to repay those bond investors. So, this means coming into the year end this year, this financial year, we'll have more liquidity than the short term current liability. So, that's a very important point for investors and for the auditors to ensure that that's taken care of. So, that liquidity risk, more than taken care of, got ample liquidity going into year end.
That now means we can talk to the bond investors who may support us on the next bond issuance at a time of our choosing when the window is open to try and access, as we can see on this left hand side, a continuing reduction in the five to seven year mid-swap rates, which is the base from which we would issue a bond at. So, the other variable then is the margin. So, we try and time a new bond at a lower swap rate and at a time when margins for CREIT's credit continues to improve. So, the point in Shane's remarks was that if we had done a new bond at the beginning of this year, today, you know, we're 100 basis points lower than we were six months ago.
You know that if that trend continues, then we can hit the button at the right time to optimize the potential issue of a new bond. That's certainly sort of the thinking around the two step plan. Get the bridge in place, but then takes the timing pressure off us because now we have a final maturity date on the bridge to 2027. We have time to optimize the right time to issue a bond. Now, it could be sooner, it could be later, but that's now in our control rather than necessarily in the markets because we have that time with that bridge facility in place.
Okay, just a quick one, Simon. Are you able to remind us what is the cost of this bond current, this $450 million bond?
About 2.12%.
Okay, okay, got it, got it. Okay, that's clear.
Okay, that's all from me. Thank you.
Thank you.
Our next question comes from Terrence. Terrence, please go ahead and unmute yourself to ask your question.
Hey, Terrence.
Hi, hi, good afternoon. Hello, Simon and team. I'm just following up on the question on cost of financing. I remember that the margins you guys have is somewhere in the region of, say, 180 basis points. So, with the recent credit facilities that you guys are talking about, is it fair for me to assume that credit facility will cost you about 410 basis points or so?
Well, we're not giving guidance on the price of what we would issue the bond at. We're just setting the scene that says we can now choose the time that we think is optimal.
Yeah, I think I wasn't referring to the bond, more so the facilities that you talked about that you guys have secured.
Oh, the secured, yeah, the two secured facilities. Yeah. Yeah, they're roughly in the range that you've mentioned.
Got it. So, essentially, we're hoping that the swap rates come down and there's some headroom, some lower rate to get from the bond financing side of the equation. So, in other words, the worst case is 410 basis points for the refinancing of the bond tranche.
That's your words. We won't comment on your words. I never like using the worst case because we don't know what the worst case is.
But what I can say is we now have time that if there is a blip in the short term, we're not under pressure then to hit the market at the wrong price.
Got it. And with the recent upgrade of the Fitch's Outlook, is there any savings in credit margins?
It's so with an Outlook upgrade, it is slightly tricky to put a number on it. You know, it's basis points. It's not 20 basis points, but we do know that there's sort of 20 to 30 basis points per notch. So, from BBB- to BBB. What we do like, however, and we note in Fitch's own report that they provide a path of 12 to 18 months for them to upgrade us to BBB. So, that's in their notes as well.
That's part of why they upgraded the Outlook to positive is based on us refinancing the bond and providing a little bit of time under the Stoneweg sponsorship. They would be then comfortable, all things being equal, to upgrade us to BBB. And that itself would have some material difference in margins.
Okay, but just to clarify, for that to happen, the bond refinance would have to have happened already for the Fitch's Outlook.
It's a little bit vague because we at that point, they did the upgrade. We obviously didn't have this facility, bridge facility in place. So, let's stay tuned. We'll continue to focus on with them. But again, the bond investors that are listening in on this call that we speak with, they do their own research. They understand our credit is improving.
They understand, as Fitch have highlighted here, that our portfolio has improved. We're going towards majority of logistics. We've managed the gearing through the down cycle. Our asset enhancement program has started to deliver. So, you know, a lot of our bond investors are doing their own work. And you can see with the improving price of our bonds that, again, that's flowing through to an improved outlook for us from a fixed interest perspective. I mean, if you want to add anything else to that.
I think it's pretty easy.
And earlier, did I catch it right? I think there's a Finnish and Polish asset that is possibly going to be divested. Is it possible to share the dollar value quantum we're looking at?
Well, we mentioned one is in Gdańsk. So, you'll be able to look up the valuation in June for that asset. The expectation is around Val for that sale. And then the Finnish asset, we haven't publicly announced which one it is. But again, that's going to be very close, if not at Val. The buyers are doing their due diligence at the moment. So, we're just being a little bit careful on talking prices until they conclude their due diligence and hand over the money.
All right. And for the L&I reversions that are so high that it even surpasses the spread between your reversionary and initial yield. What is this? What is driving this? Is it more a function of a low base? And I guess more importantly, how much more of such deals are there? Should we expect?
Again, that's helping you underwrite your forecasts, which we have to be very careful of. I love you guys for doing this. So, specifically the project in Vittuone in Milan, that was taking an older light industrial shed that we acquired a few years ago and we've upgraded and modernized the building. We've put in more cross docks. This is the building on the left-hand side. We've put in new amenities, new power, all the sort of key aspects that modern logistics companies like Stellantis are looking for. And that was certainly something that attracted major tenants into this building. We only upgraded half the building because the original tenant, ABB, the big Swiss electrical robot company, still occupies half the space for light manufacturing.
We'll work with them to try and get some of the space back, upgrade that space, put it back onto the market and deliver that very high 30%-40% reversion again. That one's quite bespoke, but it goes to, you know, our asset management initiatives, being able to take some of these older buildings and upgrade them, not just office, but also in logistics. In terms of our more modern stock in places like Copenhagen, like in Paris, like in Amsterdam, the rent reversion there of double digits, again, is just the function of lack of supply of last mile logistics, well located modern space such as we have in Amsterdam, at Kapoeasweg here or Westpoort on the other side of Amsterdam. They're continuing to attract higher rents.
And so, we continue to see that in our valuations and we continue to see that in our rent reversion.
Okay, so is it fair to say that there should be more such? How do you say strong reversion opportunities in the portfolio?
Well, like I think previously we've said, look, if we can deliver better than inflation, like for like NPI growth, that's something that we'd be very happy with. Again, we're on a 6.3% initial yield. So, if we can deliver 3%+ like for like NPI growth, be it a combination of leasing up, rent reversion, market reviews, inflation increases, investors should be very happy with that. I mean, we're trading at a 21% discount to NAV and an annualized yield of just under 9%. So, that in itself is driving this total return. So, we'll continue to work the portfolio hard.
We don't want to set, you know, a high bar for investors because frankly, we're not even priced at that level. You know, we've been priced for big declines in our dividend and big declines in our valuation compared to the other logistics stocks. And we just don't see that. And that's why we said at the beginning on page four that we're very pleased with the recognition in our share price or unit price that investors are starting to see that track record now come through. So, I don't want to give you too specific guidance, but just to, you know, there's enough there to say as an overall investment proposition, CREITs, you know, should be attractive for your investor clients.
Got it. For the office, I'm just curious how come it seems that across a lot of the assets, you are able to not have to give incentives at all. I think just this morning, a fellow peer REIT with European assets just made a comment that they would have to give more incentives to fill up spaces.
Well, again, it depends on the quality of the assets. You know, so from a general perspective, you know, there may be 15%-20% market incentive levels across Western Europe cities. But as we showed, prime assets that are well located, with improving energy efficiency, with improving amenities, we're able to keep the tenants. There's also a difference.
You know, if we were looking at some of the leases in Poland, perhaps some of our larger bank tenants, again, we're able to offer quite low rents on a per square meter basis compared to Western Europe. So, even groups like Motorola or BNP, when they look at their total European operations, it's still much cheaper for them to be in Poland than it is, say, for them to be in Germany. So, we don't have assets, office assets in Germany, for example. We don't have material assets in Paris. We're not in La Défense. We're not in Canary Wharf. We're not in some of these very high service company sectors where there has been a reduction in space take up from large service companies that are sort of moving more to more flexible relationships with their employees.
We were able to attract new tenants into Haagse Poort, such as Aramco and Goldman Sachs. Their European asset management is headquartered in this building. There's enough quality in the portfolio. I think this is one of the reasons we said a few years ago that we started off, you know, with zero BREEAM certification. I mean, certification in itself is nice, but what does it actually reflect? It means that there's an active landlord that's prepared to invest in building upgrades. While that may not be seen as a tenant incentive, we're able to get the returns from the higher rent bumps, taking a B grade building to an A grade building and getting that big difference in rent growth.
Okay, primarily we're talking the difference from a lease evolving from zero BREEAM to BREEAM very good and onwards, right?
Yeah, these leases are 10, you know. In our markets, they tend to be 5-10 years, you know, most 10 years. So, you know, 10 years ago in Amsterdam, vacancies were almost 20%. I mean, landlords 10-12 years ago were giving space away in Amsterdam to keep the lights on. So, rents for us in our Dutch portfolio started at very low levels. Now they've increased each year with inflation. But when they come to the end of the 10 years, they've only lifted by inflation at a very deflated starting point. So, this is again, come back to reversionary yield. Not many other rates will give you the reversionary yield. What does that mean? That means the valuer's view and expectations of income in five years' time versus the current passing rent or the current passing NOI.
So, if our initial yield is 6.3% and our valuation reversionary yield is 7.5%, 7.6%, 7.7%, something like that, that's telling you that the valuer's expectation because of where rents are today versus market rents is for that upgrade to happen. And we, again, we say we're 7% thereabouts under rented.
Okay, got it. Thank you very much. Thank you. Our next question comes from Vijay. Vijay, please go ahead and ask your question.
Yeah, hi, good afternoon, Shane and Simon. Can you hear me?
Hi, Vijay. Good to see you.
Yeah, hi. Just a couple of follow-up questions. I think firstly, in terms of it was a good quarter overall. In terms of your margin, I noticed that it has increased considerably quarter on quarter and as well as year on year by 2% and 4%. Was there any one-off driving this phenomenon? Nothing really significant.
I think, you know, just some lower expenses, slightly lower expenses. But yeah, it was a good result, but no material number that really driving the margin expansion. Let's hope we see it continuing.
Is it safe to assume that this is the, I mean, your margin has moved to close to 64% kind of level moving forward from 62%, which we have seen before? I mean, that's a big jump.
Yeah, big jump. In part, it's better recovery of operating costs in part from improving occupancy in some of our office buildings where, you know, you have common area expenses that can't be recovered. The more tenants you have in a building, the more you can pass those common areas on. Electricity bills have certainly come down. Again, that's from an unrecoverable perspective. That's also improved.
General efficiencies have improved. Focus on costs is something of this year that we've from a budget perspective. We've also been looking forward to, we're in the budget process for next year. That's something, again, we'll continue to ask the asset management teams and the property management teams to stay focused on.
Okay, that sounds great. My second question is in terms of a redevelopment. I mean, earlier you had put a pause on some of the redevelopments like Maxima, waiting for some kind of visibility in terms of tenant signups. But this quarter, I have noticed that you have put some more stress on redevelopments. Are you seeing more leasing on this upfront? And are you going to start redevelopment some of these assets in 2025?
Yeah, so what's this space?
I mean, it's such a busy quarter that we didn't want to add other messages here in the presentation, you know, trying to deliver it within 30 minutes and make sure we get the key highlights for Q3 in. You know, we're close to agreement with our key tenant in Haagse Poort . So, that's sort of watch this space. We just weren't in a position to announce anything today, but continue to make really good progress on that major upgrade of that building to Paris Proof, anchored by Nationale-Nederlanden. Rome, we have some offers out with prospective owners, tenants. There's a range of options that's currently on the table on that one. De Ruijterkade, we are close, very close to signing an agreement with the local municipality to undertake that particular project.
It is about a year delayed because we had to shrink the size of the new development slightly to fit within the UNESCO sightlines of the old canals in Amsterdam. So, that's the latest one year. But again, we're very confident with the returns. The board was over there only a few weeks ago and very pleased with the progress that the local teams are making on the ground. So, look, these projects are, you know, seem as though we've been talking about for some time, but we're getting to the pointy end of agreements. So, watch this space.
That's great. One last question. I think you have been very prudent in terms of acquisitions all through the years. I think congrats to the team on that.
I mean, with things now seems to be settling down and also a new sponsor coming in at this point of time, have you, would you be starting to relook at acquisitions in this point of time, maybe which asset class and which market right now looks attractive across Europe because dynamics have been quite volatile across various different markets?
Yeah, so I'm glad you prefaced the question by about discipline and capital management. I mean, we're still at a 20% discount to NAV. We're still on a relatively high cost of equity. And as you've heard from some of the other analysts on the call today, there's still a little bit of a question mark around what price are you going to reset your bond at?
So, there's a few things that we sort of need to sort of iron out before we can get more confident on the acquisition trail. But in our pre-prepared remarks, we did say we would continue to recycle assets to fund the next wave of acquisitions. So, that was certainly something in the board meeting that was discussed yesterday. But in terms of being specific, no, we're not at that point of specifying. We really wanted to get the message across at the moment that the platform has stabilized, the portfolio has stabilized, our outlook is a lot more positive. Let us get through this next little period before we can then start saying, yeah, we've got this great cost of capital that we can get out and make ac cretive acquisitions again. We're getting there, but it's not quite there yet.
Sounds great. All the best.
Thank you. That's all I have.
Thank you.
Vijay. Maybe just to add a little bit, add a few numbers. We're talking before about the OpEx costs. So, one key item that we saw over this period or in the year to date is the net non-recoverable costs, which were actually 16% down. And if we look at that on a like-for-like basis, there was still 7.5% down. So, that was one of the key drivers in the margin. But, you know, I would say that number, that non-recoverable expense can be lumpy from time to time. So, yes, it's a good result for these nine months. But as I say, it can be up and down a little bit.
Okay, got it. Thank you.
Thank you. We've got a couple of questions that have come through from Ramesh.
Ramesh's first question is in relation to slide three. He asks, slide three indicates gearing is at 39.7%. Presumably, this includes the SGD perp counted as capital. What would this figure be, please? And will the SGD perps be called in 2025 as swap rates successfully issues favorable bonds?
Okay, so thanks, Ramesh. The gearing does not include the perp because the perp is treated as equity on our balance sheet. And I don't see that changing in the future in terms of the way perpetuals are recorded from an accounting perspective. The gearing does not include the perp. The perp was SGD 100 million, so about EUR 64 million. And you can see in the balance sheet that that number fluctuates a little bit because of the exchange differences from time to time. That's around about EUR 64 million.
If you were to add that to the gearing, even though it's not relevant, the number would be. The net gearing would be around about 42%. Then in terms of whether it will be called, so I think it's not. There's no relationship between the issuance of a bond and the calling or not of the perp. I think really it depends on market conditions at the time and how the perp market is when it comes to expiry.
Thank you. Referring to slide 13 from Ramesh, can you kindly explain what is meant by the line item NAV to perp of EUR 64,785 9M24 versus EUR 64,204, please? And do you expect any improvement in the NAV?
That's just the value in euros of the perps. As I mentioned, it can fluctuate from time to time based on the Singapore dollar euro cross.
So, that's just simply the value of the perp. It comes back to SGD 100 million.
Thank you. And we've got a couple of questions around the DPU. So, Stevie asked, can you please comment on the trend of cap rate DPU, especially going forward with reduced interest? And a follow-up from Ramesh on the DPU is the DPUs have been shrinking over the past two years. Will 2025 see a halt and reversal towards an upward trajectory given favorable interest rate outlooks, rent reversions and asset management, please?
Yep, thanks for mentioning, Stevie, for the question.
At the beginning of 2022, when it looked like the interest rate cycle was going to turn negatively, i.e., the central banks were going to have to lift interest rates and therefore there was going to be a consequent negative decline in valuations, that's when we commenced our degearing, our asset sale program. Unfortunately, while it kept the balance sheet in good shape and avoided the mess that some other REITs got themselves into, and therefore you could see the performance of our unit price being more robust, it did have the negative consequence on the dividend through that degearing. As we've shown over the last couple of years, that strategy to sell assets to have a strong balance sheet did cause around two-thirds of the slippage in our dividend over that two and a half year period.
The other third was roughly through the increase in interest rates, as you've noted. One of the key highlights we wanted to point out for this period is now that we've stopped the selling because our view on properties has stabilized, this quarter actually delivered 4.1% DPU growth on the sequential quarter. So, you're starting to see the NPI growth not being dragged down through the decline in the asset base. So, then going into next year, all things being equal, you would expect that to continue to happen. Now, but the second part of your question really is then around the interest rates. And as you've heard from the other analysts on the call, really it's about trying to manage the refinance of that bond, which we're currently enjoying at a 2.12%.
What rate do we need to refinance that at will determine what the negative impact through higher interest expense on that 450 million of bond will then have on the overlying DPU outlook. So, we're not in a position to give you that guidance. Certainly, that's what the analysts are looking to do themselves and therefore to talk to investors about through their own forecasts. But I think it's fair to say we're reasonably comfortable with the consensus forecast that's out there, taking into account all of the factors that we've just mentioned.
Thank you, Simon. And we've got a final question from Rajiv who says, great study results. And you have answered this to a certain level. So, redevelopments have little mentioned, have been little mentioned in the results presentation. Is that a reflection of the new investor in Stoneweg or a rethink?
Is this particularly in relation to the Paris property? Thank you.
Yeah, okay. So the other assets, as I've just mentioned, that are under planning stages, we're in quite detailed commercials and sensitive discussions both with the prospective tenants and municipalities. So, that's why I think we've gone a little bit radio silent on the first three properties here is because we're very close and don't want to jeopardize on behalf of unit holders by revealing too much too early. So just please be patient with us on those three projects.
In terms of our much longer project with Parc des Docks, yes, we are having been told by the local municipality that our initial plan was far too large and far too ambitious at a time when the local community have just gone through major renovation works for the Olympics, bearing in mind that we're right in the middle of the Olympic precinct, which has benefited from new infrastructure, new rail, new metros, new public space. The town hall has asked us just to rest a bit easy, to allow the dust literally to settle in this part of Paris. So, we're going back to the drawing board and working with the municipality a more staged version of this plan, which we've got the support of the new sponsor. So, this has got nothing to do with change in sponsorship.
It's actually got to do with change of the attitude of the local mayor, who's obviously looking for reelection next year. He was on the shortlist for the recent presidential nomination of Prime Minister. So, that's playing through the planning stages. So, we're still very committed to that project. We're actually quite excited about some of the new designs that we picked up over the last few, called last three, four months. We presented again that plan to the board yesterday. And we're working towards an outcome that we think will be beneficial both for REIT unit holders as well as the local community. It's such a big program. It's 10 hectares. It's very rare to get 10 hectares this close into, you know, a capital city of Europe.
So, we just want to make sure that what we do is for the best for both CREIT unit holders and also for the local community to make sure that we bring them on board, which on something that's such a mega project. Just bear with us for a couple of years on that project, but rest assured we're working very hard on it.
Thank you, Simon. That brings our Q&A session to a close. I'll hand it back to you for any closing remarks.
Just conscious of time, again, we thank everyone for their investment and their support and interest in CREIT. You know, we think that with the sort of the macro tailwinds, particularly from the stimulus coming through from central bank easing, that should continue to stabilize property valuations in Europe.
And that continues to then mean that we can focus on our asset management, we can focus on the AEI program, and that we can focus at, you know, what's expected to be a better refinance of the bond now that we have EUR 473 million of new credit facilities approved and in final stages of documentation that then enables us to go out there and get the best result for unit holders. And we continue to ensure that we're ready for all of the sustainability reporting. Elena, who's off screen here, you can see all the work she's doing in terms of improving our reporting and our sustainability initiatives. And that's bearing fruit from a tenant perspective as well.
So, again, we thank everyone throughout the whole Cromwell network through Europe. The 200 boots on the ground continue to focus on what's important and continue to hopefully help support the momentum in the unit price. So, thank you everyone. Thanks, Shane, and have a great day.
Thank you.