IREIT Global is partnering with Tikehau to acquire four freehold office buildings in Spain for $133.8m. The partnership is a 40:60 joint venture, IREIT Global will be holding 40% of the shares.
Background of the property
The four office buildings with a gross lettable area of 72,028 sqm are currently multi-tenanted with an 80.9% occupancy rate. The purchase price of $133.8m is a 3.3% discount to market valuation. The joint venture also allows IREIT Global to acquire 60% stake of Tikehau Capital, which provides a future growth opportunity. The REIT will also involve in the operational matters of the buildings.
Why the IREIT made the acquisition
It is part of the management long-term strategy to diversify its portfolio. The acquisitions will help the REIT to gain exposure on Spain's office market.
The buildings are occupied by a few big brands such as Coca-Cola, DXC Technology and Roche. And their rentals are currently below the market rates, which provides a potential upside from positive rental reversions.
The management believes that the occupancy rate of 80.9% could be improved through yield-accretive asset enhancement initiatives.
Screenshot from reitscompass' REITs Ratings
IREIT Global is currently trading at 7.3% yield, which is below its historical average yield. Once the deal is completed in Dec 2019, the REIT will start to look at funding solutions to exercise the call option to buy over the remaining 60% of the joint venture. This would potentially improve its yield. With a gearing ratio of 36% and 11 times interest coverage, the REIT has some headroom on debt financing.