Cromwell European REIT has completed the purchase of a freehold office building in Italy for 17.7m.
What You Need To Know
1. Background Of The Property
The freehold office building is located at the northeast of Milan, with about 30-minutes drive. It was built in 1982 and recently refurbished as part of the Collleoni Business Park. The purchase price will take into consideration the capex spend on the property as well as outstanding incentives to be funded by the vendor. This would translate into the capital value of 1,539 per square meter (excluding the car park area).
2. Quality Tenant Base But Income Is Concentrated
The property maintains a high occupancy rate of 94%. While more than 20 high-quality tenants occupy the property with a weighted average lease expiry of 4.9 years, but its top three tenants contributed just over 50% of the total income.
3. The Acquisition Is Part Of The Capital Recycle Strategy
The REIT has recently sold the Parc d'Osny property in France. Part of the EUR $19m proceeds will be used for this purchase. The management reiterated that this is in line with its strategy of recycling capital by selling ageing and non-core assets and reinvesting them in a higher-yielding one, which will then improve the DPUs distributed to the unitholders.
With a portfolio of 102 properties, valued at more than EUR $2 billion, the acquisition just consists of less than 1% of its total portfolio. The impact will be small to the future performance of the REIT. However, the management's strategy to recycle capital might work well and could be DPU accretive in the mid to long term.