SINGAPORE – CapitaLand Commercial Trust (CCT) will acquire an effective 94.9 per cent interest in the holding companies of a freehold office building in Frankfurt, Germany, from its sponsor CapitaLand and Lum Chang Holdings.
The purchase consideration will be 133.4 million euros (S$205.3 million), the manager of the real estate investment trust (Reit) said on Wednesday morning (July 17).
The property, Main Airport Center (MAC), is a multi-tenanted office building located close to Frankfurt Airport and a 20-minute drive to Frankfurt’s central business district.
Post-transaction, CapitaLand will hold the remaining 5.1 per cent stake in the holding companies. The real estate heavyweight is selling an 89.8 per cent stake out of its 94.9 per cent interest to CCT, as part of its asset recycling strategy.
Meanwhile, Lum Chang will sell all of its 5.1 per cent effective interest in MAC. The mainboard-listed property and construction group said in a filing on Wednesday that the stake sale is in its ordinary course of business and allows it to recycle capital for other investments.
The property has a total net lettable area (NLA) of about 60,200 square metres (sq m). Of this, 53,900 sq m is high-specification office space while the remaining 6,300 sq m is ancillary space housing a conference hall, meeting rooms and 1,510 car park lots.
MAC’s committed occupancy was about 90 per cent as at June 30.
The proposed transaction is expected to increase CCT’s distribution per unit (DPU) by around 1 to 2.5 per cent, based on pro forma H1 2019 DPU.
The property’s agreed market value is 265 million euros on a 100 per cent basis, or 251.5 million euros for the 94.9 per cent interest.
CCT will spend a total of around 253.4 million euros for the transaction, which includes the 133.4 million euro purchase consideration, an acquisition fee payable in CCT units to the manager, and transaction-related expenses.
Also included in CCT’s total acquisition outlay is 94.9 per cent of a new bank loan to be drawn down by the property holding companies amounting to 115.9 million euros. This new loan is for repaying part of the 122.1 million in loan liabilities, which comprise 17.5 million euros in shareholders’ loans and 104.6 million euros of an existing bank loan, both owed by the property holding companies.
The Reit will fund the acquisition fully with euro-denominated debt facilities or a combination of equity and euro debt facilities.
CCT’s gearing ratio will increase from 35 per cent as at June 30 to 37 per cent after the acquisition.
The acquisition of MAC will bring a net property income yield of 4 per cent.
Post-transaction, CCT’s portfolio property value will grow from $10.7 billion to $11.1 billion.
Kevin Chee, chief executive officer (CEO) of the Reit manager, said Frankfurt’s office vacancy rate has seen a steady decline over the years, while average office rents in the city have risen steadily and are expected to continue increasing in light of the low vacancy rates.
The MAC transaction is subject to the approval of CCT’s independent unitholders, which is expected to be obtained in September. The acquisition is expected to complete in the third quarter of 2019.
This is CCT’s second asset acquisition in Frankfurt, and will increase the Reit’s overseas exposure from 5 per cent to 8 per cent of its portfolio property value. CCT remains predominantly Singapore-focused.
CCT made its entry into Frankfurt last year with Gallileo, a Grade A freehold commercial property in the city’s prime banking district. CCT owns a 94.9 per cent stake in Gallileo, while CapitaLand holds the other 5.1 per cent.
Soo Kok Leng, chairman of the Reit manager, said CCT can look forward to a larger pipeline of projects in Singapore from its sponsor, following the completion of CapitaLand’s merger with Ascendas-Singbridge.
CapitaLand group CEO Lee Chee Koon said: “Post-transaction, CapitaLand will continue to benefit from Main Airport Center’s steady yield and participate in its future growth through our direct holding as well as CapitaLand’s stake in CCT.”
CapitaLand has a 30.14 per cent stake in CCT.
Including the MAC stake sale, Mr Lee said CapitaLand has announced divestments of about $3.46 billion year to date – exceeding the group’s annual target of at least $3 billion – and made investments of about $2 billion.
The divestments include the sale of its interests in three shopping malls to CapitaLand Retail China Trust and the injection of two office properties into the CapitaLand Asia Partners I discretionary equity fund.
On Tuesday, shares of CapitaLand were down two cents to $3.66, units of CCT were up three cents to $2.18, while shares of Lum Chang closed flat at 34.5 cents.