Schroder European Investment Trust sells its office asset in Paris
CAPE TOWN - Schroder European Real Estate Investment Trust is selling its Boulogne-Billancourt office asset in Paris for about R2 billion.
The group, which invests in European growth cities, yesterday said that the transaction was expected to deliver a profit, post acquisition and development costs, of about 28m, representing a net profit of about 35 percent, a statement said.
The share price leapt 7.04percent to close at R14.90 on the JSE yesterday after the sale announcement, but it remains well below the more than R20 per share it traded at, at the start of the year, as property companies share prices have fallen due to the impact on the sector of the Covid-19 lockdowns.
Schroder chairperson Sir Julian Berney said the sale would strengthen the company’s balance sheet and net asset value, and provide additional funds for reinvestment and other initiatives to grow earnings.
The sale was structured as a forward funding, with the building being handed over to the purchaser in the first half of 2022, following completion of a refurbishment being undertaken by Schroder.
The refurbishment and sale followed the agreement of a new 10-year pre-let contract with existing tenant Alten in June this year. The rental uplift was 39percent higher than the previous rent paid.
The final sale price of about 104m was anticipated to deliver net sale proceeds of about 70m when completed, after deducting the 30m cost of refurbishing and re-letting the building. This represented a profit on cost of 35percent.
The sale proceeds would be received in stages and Schroder expected net asset value to increase incrementally, by up to 15percent overall, as sale receipts occur.
Fifty percent of the price was to be received on exchange of the deed prior to this calendar year end 2020, with the remainder payable in instalments over the next 18 months as construction was completed.
The building was originally acquired in 2016 for 37.5m, with the company identifying an opportunity to create value by undertaking a major repositioning of the asset, whilst taking advantage of the rapidly improving market dynamics in the Boulogne-Billancourt sub-market of Paris.
Sale proceeds would strengthen the balance sheet and were expected to provide operational and financial flexibility.
The funds would primarily be redeployed into new earnings enhancing initiatives including new investments.
“This is a strong endorsement of the company’s strategy, to identify real estate where we can create significant value for shareholders through asset management, benefiting from our team’s local expertise inside the key markets,” said Berney.
He said they would continue to focus on driving the performance of the existing portfolio.
The company owned 13 properties in growth cities of Continental Europe as at June 30, independently valued at 244.7m at a blended net initial yield of 5.8percent.
Some 75 percent of the portfolio was invested in business space assets in cities including Paris, Berlin, Stuttgart and Hamburg.