SINGAPORE - CapitaLand Commercial Trust (CCT) is buying a majority stake in a prime Frankfurt property for 342.7 million euros (S$548.3 million), which will be partially funded through an equity placement of at least $212 million.
Together with CapitaLand, CCT will acquire the freehold commercial property, known as Gallileo, situated in the central business district (CBD) of Frankfurt, Germany. CCT will hold a 94.9 per cent stake in the property, with CapitaLand holding the remaining 5.1 per cent. The acquisition is expected to be completed in June this year.
Gallileo's agreed property value of 356 million euros represents a 1.4 per cent discount to the open market value of 360.9 million euros as at March 31, CCT said. The open market value was appraised by independent valuer Cushman & Wakefield LLP.
To partially fund the acquisition, CCT will undertake a private placement of 130 million new units in CCT to investors at an issue price between $1.631 and $1.676 per unit. The issue price range represents a discount of approximately 3.2 per cent and 5.8 per cent to the volume weighted average price of $1.7306 per unit for trades in the units done on May 16, being the preceding market day on which the placement agreement was signed.
About $208.7 million, or 98.4 per cent of the gross proceeds will be used to partially fund CCT's stake in the Gallileo property, with the rest used for expenses related to the private placement and working capital.
With the proposed private placement, CCT Management, which manages the trust, intends to declare an advanced distribution of income for the period from Jan 1, 2018 to the day immediately prior to the date on which the new placement units are issued. The estimated distribution per CCT unit under the advanced distribution will be approximately 3.49 cents, with the actual amount to be announced.
Located in Frankfurt's prime banking district, the Gallileo property has a net lettable area of 436,175 sq ft (40,522 sqm). It is a 38-storey Grade A commercial building with ancillary retail, and a four-storey heritage building for office use. The weighted average lease expiry is 10.6 years, and occupancy stands at 100 per cent, with Commerzbank AG anchoring approximately 98 per cent. Net property income yield is expected to be about 4 per cent.
CCT is of the view that its latest investment represents a strategic expansion into Germany, as the property fits in with its existing portfolio. In addition, the DPU (distribution per unit) accretive acquisition will provide geographical diversification, the trust said.
Looking ahead, CCT noted that it will continue to be predominantly Singapore-focused, but will allocate 10 to 20 per cent of its deposited property for overseas investments.
Said CEO of CCT Management, Kevin Chee: "Expanding overseas is a strategic move to deliver long-term sustainable distribution growth to our unitholders and inject diversity to the portfolio... Germany is a key focus for CCT given the depth of good quality investment grade commercial assets."
Mr Chee added that the acquisition is expected to increase CCT's Q1 DPU by 1.4 per cent to 2.15 cents from 2.12 cents on a pro-forma basis.
"Post-acquisition, CCT's portfolio value will increase from $10.4 billion to $10.9 billion, with a 5 per cent exposure to Germany. This joint venture with CapitaLand also allows CCT to leverage our sponsor's operational expertise and network platform to deepen our presence in Germany," Mr Chee said.
Separately, Gerald Yong, deputy chief investment officer of CapitaLand and head of CapitaLand International, noted that this deal represents CapitaLand's second acquisition in Germany in less than six months, following its acquisition of the Main Airport Center in Frankfurt last December. He added that the investment is in line with CapitaLand's strategy of increasing its holdings in developed markets outside of Asia, and that the group will continue to utilise capital to achieve higher risk adjusted returns.
Units in CCT last traded down 1.7 per cent to $1.72 per unit. The trust requested a trading halt on Thursday morning pending the release of the related announcements.
Meanwhile, shares in CapitaLand were trading 0.6 per cent higher to $3.59 apiece as at 10.38am on Thursday.