Cromwell European REIT - Annual Report 2021

to result in an organic increase in NPI, albeit delayed, upon rent review due to the rise in inflation. More than 95% of CEREIT’s leases are ‘net’, meaning that tenant- customers on such leases bear their utility costs, so there is limited impact on CEREIT from the current rise in energy prices. Geopolitical Risk As this Annual Report goes to print, Russia’s invasion of Ukraine is into its second month and the resulting human toll, and economic and political fallout will have wide-ranging implications on the European and global economy, energy prices, supply chains and markets. It is still too early to gauge the full impact and make any meaningful long-term estimates. For now, notwithstanding a prolonged conflict and specifically related to CEREIT’s portfolio, I can say that we do not foresee any near-term impact on the business as CEREIT has no exposure to the geographies directly affected. More than 85% of CEREIT’s €2.5 1 billion European portfolio is in Western Europe, with only about 10% in Poland and 3% in Slovakia, the two countries in the portfolio which border Ukraine. Most of CEREIT’s tenant-customers in these two countries are multinational companies such as European banks and global pharmaceutical and tech groups. Only 2% of CEREIT’s leases in Poland and Slovakia are expiring in the near term. Pandemic Risk As we enter the third year of the pandemic, COVID-19’s impact on CEREIT’s portfolio is negligible, with the financial implications from rent reductions without any lease renewals amounting to less than €500,000 so far. This is mainly due to CEREIT portfolio’s low exposure to retail and hospitality sectors (with only one property from each) as well as CEREIT’s neglibible exposure to car park income with only one large parking facility at the mixed- use Central Plaza in the Netherlands. SME tenant-customers, retail and hospitality tenant- customers, particularly gym and restaurant operators, continue to be impacted by recent lockdowns. The COVID-19 pandemic has now structurally changed the office sector, with prolonged remote working, digitalisation and significant impact on retail, tourism and hospitality sectors just some of the effects. This has already affected CEREIT’s office portfolio, with one example a large tourism publishing tenant-customer in Paris winding down operations. As tenant-customers are reassessing their future office needs and location strategies, we see increasing bifurcation between core office assets with good ESG credentials and older office assets in secondary locations. 5. CURRENTLY, WHERE ARE THE OPPORTUNITIES IN EUROPEAN REAL ESTATE? Europe is the second most liquid real estate market in the world so there are plenty of opportunities for CEREIT. Our strategy for CEREIT still remains focused on pivoting to majority light industrial / logistics, while remaining invested in core office. The market fundamentals support our strategy. Specifically, in the European logistics sector, the accelerated shift to e-commerce in turn fuelled occupier demand from related sectors, such as third- party logistics and warehousing companies. The economic recovery and evolving strategies to tackle global supply chain disruptions further added to a booming logistics and industrial market demand. During the second half of 2021, physical retailers, third- party logistics and manufacturing companies intensified requirements for additional logistics space in Europe. EUROZONE INTEREST RATE VERSUS PRIME OFFICE YIELD, 2015-26 % 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 6 5 4 3 2 1 0 Spread Interest rate Yield Average Spread 2015-2026 1 As at 23 February 2022 CROMWELL EUROPEAN REIT 13 ANNUAL REPORT 2021