IReit Global to acquire portfolio of retail properties in France for 76.8 million euros

SOME two years after IReit Global snagged a portfolio of assets from sporting goods giant Decathlon in a sale-and-leaseback transaction, the Europe-focused real estate investment trust (Reit) is looking to add a new blue-chip tenant via another acquisition.

The manager of IReit Global announced on Thursday (Jun 1) that it is planning to acquire a portfolio of 17 retail properties in France for about 76.8 million euros (S$112.2 million).

The portfolio of out-of-town retail parks are fully leased to a wholly-owned subsidiary of B&M Group, a leading discount retailer in Europe that is listed on the London Stock Exchange and a constituent of the FTSE 100 index.

An out-of-town retail park is an asset class that refers to shops or facilities that are situated away from the centre of a town or city.

“It’s something that was important also for us, to show that we’ve got some tenants with strong financials, and what we have here demonstrates it,” said Louis d’Estienne d’Orves, chief executive officer of the Reit’s manager, at a briefing on Thursday following the announcement.

He noted that the UK-focused B&M Group “recently” expanded into France in 2018, where it currently has 113 stores under the B&M brand.

In the UK, the group has 705 stores under the B&M brand and 315 stores under the Heron Foods brand.

“If we compare the number of stores they have in France versus a number of stores that they have in the UK, there is a significant gap – meaning that they would continue to develop the brand in France,” d’Estienne d’Orves noted.

Post-acquisition, B&M Group will become IReit Global’s fourth-largest tenant at 12 per cent of gross rental income (GRI) of the enlarged property portfolio.

By GRI, Deutsche Rentenversicherung Bund (21 per cent), Deutsche Telekom (18 per cent) and Decathlon (14 per cent) will remain the Reit’s top three tenants.

“In this macroeconomic environment marked by high inflation, the proposed acquisition is in line with our strategy of strengthening our exposure to index-linked assets in established European markets, supported by a strong blue-chip tenant,” d’Estienne d’Orves said.

The aggregate purchase consideration of 76.8 million euros is about a 1.7 per cent discount to the average of two independent valuations for the properties.

The total acquisition cost, including fees and expenses, is about 90.9 million euros.

To partially fund the deal, the Reit manager said it plans to launch a preferential offering to be announced at a later date.

The transaction will also be financed through external bank borrowings and borrowings from joint sponsor Tikehau Capital.

For illustrative purposes, assuming 167.6 million new preferential offering units are issued to raise gross proceeds of about S$75.4 million to partially finance the acquisition, the transaction would result in flat distribution per unit (DPU) accretion on a pro forma basis for FY2022.

However, the Reit manager said that the transaction would be 2 per cent accretive to DPU on an adjusted basis.

This is assuming its Darmstadt Campus in Frankfurt was fully vacant for FY2022 from Jan 1, 2022 – with no revenue but with operating expenses of 0.6 million euros.

The Reit manager earlier announced that it had secured a 15-year lease with a German federal government body for approximately 25 per cent of Darmstadt Campus from June this year.

“In 2022, we had the Darmstadt property that was fully occupied until the end of November. So what we wanted to show to people is reality. And what is the reality today is the fact that Darmstadt has been let at 25 per cent, but only from June 2023,” d’Estienne d’Orves explained.

Meanwhile, the new portfolio is also expected to generate an initial net property income yield of 7.9 per cent.

However, net asset value (NAV) per unit is expected to fall 7.4 per cent.

“NAV impact is negative, obviously, because here we have assumed a preferential offering with a discount. So that’s the main reason why,” d’Estienne d’Orves pointed out.

The transaction is also expected to see the Reit’s aggregate leverage increase to 33.3 per cent, from 32 per cent previously.

The properties have a total gross lettable area of 61,756 square metres (sq m) and a weighted average lease expiry by GRI of about 6.8 years as at Mar 31.

Among the new properties, 13 have a freehold land tenure, while the remaining four are leasehold.

The Reit manager said there are plans to install electric charging stations at the car park spaces of some of the new properties, which is expected to generate additional rental income.

In addition, the new properties have an untapped gross floor area of approximately 5,000 sq m, which could be further developed for commercial use and may generate additional rental income, the manager added.

Post-acquisition, the number of properties in IReit Global’s enlarged portfolio will increase to 54 assets, with a total gross lettable area of 446,038 sq m.

IReit Global’s portfolio asset valuation, which stood at 950.5 million euros as at Dec 31, will also be lifted above the one billion euro mark for the first time.

The Reit manager said that a circular will be issued in due course, together with a notice for an extraordinary general meeting, to seek unitholders’ approval of the proposed acquisition.

Units of IReit Global closed flat at S$0.485 on Thursday.