Cromwell European REIT (CEREIT) CWBU plans to expand or redevelop 8% of its light industrial/logistics properties as part of its plan to achieve a majority-weighted logistics portfolio.
One of these properties earmarked is the freehold Parc des Docks, a “last-mile” light industrial/logistics property located in Saint-Ouen sur Seine in the northern suburbs of Paris, France. Parc des Docks, which spans 10ha of land and has a net lettable area (NLA) of 73,371 sqm, was acquired on Nov 30, 2017, for EUR98 million.
“This is the jewel in the crown, this is why many of our investors are in the REIT,” says Simon Garing, CEO and executive director of CEREIT’s manager. Parc des Docks is said to be attractive for its location in the inner city of Paris, as well as its proximity to the River Seine and the city’s new Olympic precinct. Paris will host the Olympic Summer Games and the Paralympic Games in 2024.
“With the Olympics, you also get new roads and you get new metro stations. So, on either corner, we’ve now got new metro lines. And then there’s a brand-new major hospital [the Paris Nord Hospital and Medical School] being built [within 200m of the site],” he continues.
“Because [the land] is so close to the city, luxury brands, who will pay for example EUR5,000 psm on [France’s famous arrondissement] Champs Elysees, will keep their inventory here because they’re paying a much lower warehouse rent. They’ll have the car and the bicycle and just come and get the handbags and the shirts from here every day. That’s how close it is,” says Garing. According to Google Maps, Parc des Docks, at 50 rue Ardoin, is 9.5km away from Champs Elysees or about a 29-minute drive, depending on traffic.
Development potential
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At present, Parc des Docks has a cluster of 11 industrial buildings that were first built in the 1960s and 1970s.
The REIT intends to redevelop the area which will significantly increase the property’s total lettable area as well as include other mixed-use and public facilities.
The redevelopment of the property will take place between 2026 to 2035 for a sum that was not disclosed. The progressive pipeline was also in keeping with the Monetary Authority of Singapore’s regulatory limits of 10% development and 15% redevelopment limits for Singapore REITs (S-REITs). During the results call for the 1QFY2023 ended March, Garing stressed that the REIT is mindful of the risk appetite of the board as well as its investors, pointing out that the redevelopment of Parc des Docks could take 10 years given its size and scale.
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The property is currently in its third phase of planning with the REIT manager targeting to get planning and feasibility approvals by 2026.
“We are a couple of years from being able to give concrete visibility analysis,” says Garing, although he adds that the valuation of the site has now increased to EUR158 million as at Dec 31, 2022, or 61.2% higher than the REIT’s acquisition price. Rents for tenants in the property have also increased to EUR160 psm from EUR90 psm.
As at March 31, Parc des Docks has an occupancy of 96%. It has two nine-year new leases occupying 3,528 sqm and 637 sqm with an average rent reversion of 9%. During the same period, the property also conducted two lease renewals. The first is for a nine-year lease for a 637 sqm property at a rent reversion of 4% while the second is for a seven-month lease for a 577 sqm property at a rent reversion of 4%.
As part of the AEIs will be partly funded by the EUR400 million ($582 milliion) worth of assets that the REIT has already identified, Garing is confident that the REIT will be able to execute its divestment programme for this year.
In the same call, the CEO of the REIT manager acknowledged that the total volume of transactions in Europe during the first quarter was down by 50%. However, the REIT is “fortunate” in that many of the assets that it is looking to sell have a relatively smaller average asset size of EUR26 million, compared to the EUR500 million mega deals that are struggling to find the appropriate levels of financing, notes Garing.
He claims that the market for the smaller-than-average size of assets he wants to divest is a lot more liquid as price points are within the reach of institutional and private clients such as dentists and doctors.
On the total sum of EUR400 million, Garing notes that the divestments, which will take place over the next two to three years, are also more than what the REIT needs for its capital expenditure and is thus a “conservative buffer”. He acknowledges that with CEREIT’s unit price at current levels, it doesn’t make sense to raise equity. He adds that the REIT manager is “pleased” with the progress it is making with various buyers.
“Some of the assets sold to local developers are older B- and C-grade office assets that can be converted to condominiums, student housing, university buildings,” says Garing. He adds that the REIT manager has also received “really good traction” in its Milan office assets as property fundamentals are “very strong” there with a tighter vacancy rate of 2.7% compared to the average vacancy rates of 3.6% for Grade A offices.
