Real estate investment trust IReit Global's purchase of a Berlin office building will diversify its tenant mix and boost distribution per unit, the trust's manager said yesterday.
The value of IReit's portfolio will rise 50.7 per cent to €438 million (S$656 million) after the deal, with net lettable area rising 65.1 per cent to 200,603 sq m.
It will be the Reit's fifth property, after its properties in the German cities of Bonn, Darmstadt, Munster and Munich.
IReit announced on Tuesday that it had entered into a conditional sale and purchase agreement to buy the property for €144.2 million from a closed-end fund managed by WealthCap.
The property is 98.8 per cent let to Deutsche Rentenversicherung Bund (DRB), an AAA-rated federal pension fund and the largest of 16 such institutions in Germany.
DRB's lease is for nine years, with fixed rent uplifts of 2.5 per cent each in 2019 and 2022.
The acquisition, which is expected to be completed some time next month, will lift the Reit's weighted average lease expiry from 6.2 years to 7.5 years.
Occupancy rates across the portfolio will slip slightly from 100 per cent to 99.8 per cent.
With the enlarged portfolio, annualised net property income yield could rise from 6.7 per cent to 7.1 per cent, with annualised distribution per unit yield rising from 8.3 per cent to 9.6 per cent.
The Reit's gearing ratio is expected to increase from 31.8 per cent to 43.7 per cent, which Mr Choo Boon Poh, IReit Global Group's chief financial officer, said is in line with its target of below 45 per cent.
It will be the Reit's first property in Berlin, where weighted average office rents have had a compound annual growth rate of 2.9 per cent over the past five years.
The building is in the borough of Lichtenberg, in the former East Berlin and about 6km from Berlin's city centre.
The area has attracted many Internet, technology and media companies of late, said Ms Adina Cooper, IReit Global Group chief investment officer.
IReit Global proposes to fund the acquisition through a mix of equity and debt.
A rights issue will raise about $88.7 million while the balance will be through a bank loan facility.
The Reit's major shareholders have committed to taking up about 86.5 per cent of rights units.
The acquisition fits within the group's strategy of what it calls "ABBA" - having an "A" building in a "B" city, or a "B" building in an "A" city, Ms Cooper said.
This means it has the best property in a smaller city with economic activity, but little or no speculative construction as it is a B city.
For example, IReit has good buildings in Bonn and Darmstadt.
On the other hand, the Berlin property would be in a B location where the group believes in letting prospects, she said.
IReit Global was listed on the Singapore Exchange in August last year. On the stock market yesterday, its units closed up a cent at 80.5 cents.