Cromwell E-Reit to buy six French and Polish office properties for 246.9m euros

Singapore

CROMWELL European Real Estate Investment Trust (Cromwell E-Reit) will buy six European freehold office properties - three in France and three in Poland - for 246.9 million euros (S$378.2 million), to be financed with a mix of debt and equity via a private placement.

The acquisitions will strengthen the Reit's portfolio, its manager said on Friday morning.

For illustrative purposes, the manager also said the acquisitions are expected to increase the Reit's 12-month distribution per unit (DPU) for calendar 2018 from 3.75 euro cents to 3.99 euro cents.

Based on the independent valuation of each property, the purchase price for the three French assets is 78.1 million euros while that of the Polish assets is 168.8 million euros.

The total cost of the acquisitions, including acquisition fees, real estate transfer tax and professional fees, is around 248.7 million euros.

To fund the acquisitions, the manager intends to draw down loans from new debt facilities that are currently being established.

It will also issue new units in Cromwell E-Reit via an oversubscribed and upsized private placement to raise gross proceeds of 150 million euros, the manager announced in a separate filing on Friday evening after market close.

The joint lead managers and underwriters, Credit Suisse (Singapore) and UBS AG, Singapore Branch, closed the book of orders for the placement on Friday.

They exercised the placement upsize in full, to raise an additional 50 million euros, up from the initial 100 million euros. As a result of the upsize, pro forma aggregate leverage would be 36.6 per cent for Cromwell E-Reit.

The manager said on Friday evening that the private placement was "considerably oversubscribed" and "well-supported" by existing unitholders and new investors, including regional and global long-only institutional investors, property specialist funds and private wealth clients.

Some 326 million new units will be issued at 46 euro cents apiece - which is at the lower end of the range of 46-47 cents earlier announced on Friday morning for the placement.

The 46-cent issue price represents a discount of 5.9 per cent to the adjusted volume weighted average price of 48.86 euro cents for trades in the units done on the Singapore Exchange on June 20, excluding married trades.

Trading of the new units is expected to start on July 2.

Cromwell E-Reit's manager said the acquisitions mark its entry into the office property market in Greater Paris, a tier-one European capital city.

In France, the two predominantly office properties and one office property have a total net lettable floor area (NLA) spanning 33,786 square metres, a combined 95.9 per cent occupancy rate as at May 31, and a 5.2-year weighted average lease expiry (WALE) profile as at March 31. They are located in or near major business districts. Key tenants include Accenture, Interforum and Regus.

As for Poland, the new assets comprise two predominantly office properties in Krakow and one office property in Poznan. The three have a total NLA of 76,562 sq m, 100 per cent occupancy, and a 4.7-year WALE as at March 31. Key tenants include BGZ BNP Paribas, Motorola Solutions Systems, GSK, UBS Krakow, CapGemini, MAN Group and Santander Group.

The Polish acquisitions will increase Cromwell E-Reit's exposure to Poland to 11.8 per cent by value. The Reit had earlier acquired two predominantly office properties in Warsaw in February 2019.

Together, the six assets are valued at 248.1 million euros. Their total purchase price of 246.9 million euros translates to 2,238 euros per sq m including land value, well below their estimated replacement cost, said the manager. They have a combined NLA of 110,348 sq m, 98.7 per cent occupancy, and a 4.8-year WALE as at March 31.

They will be acquired at a net initial yield of 7.4 per cent, compared to the 5.8 per cent net initial yield of the Reit's existing office assets.

Its portfolio after the acquisitions will increase from 97 properties with an appraised value of 1.8 billion euros, to 103 properties with an appraised value of two billion euros.

Also, office properties will account for 62.1 per cent of its portfolio's value, and the proportion of freehold and ongoing leasehold assets in the portfolio will increase from 90.4 per cent to 91.6 per cent by valuation.

The manager on Friday morning requested for a trading halt, pending the release of the announcements.

Units in Cromwell E-Reit last traded at 50.5 euro cents on Thursday, down two cents.