The manager of Cromwell European REIT (CEREIT) has completed the divestment of Milan office asset Piazza Affari 2 at a price of EUR93.6 million ($138.5 million).
Affari represents 3.7% of CEREIT’s property portfolio and is its third-largest office asset. Simon Garing, chief executive officer of the manager, says the Grade A Milan office asset was divested at a 14.6% premium to the 2017 purchase price and EUR200,000 above the recent valuation in June.
CEREIT’s portfolio is now effectively 50% weighted to the light industrial and logistics sector, after taking into account the recently announced proposed divestment in Italy.
The divestment would increase CEREIT’s FY2022 distribution per unit (DPU) on a pro-forma basis by 2.1%, mainly due to the relatively low net operating income (NOI) yield of the asset and assuming the proceeds are used to repay debt at the current cost of funding.
The divestment proceeds reduce the aggregate leverage by 2.1% to 37.2% on a pro-forma basis as at Dec 31, 2022, with no material impact to the pro-forma net tangible assets.
With Affari’s divestment, the overall portfolio weighted average lease expiry (WALE), as at March 31, would increase slightly from 4.47 years to 4.49 years, due to the asset’s relatively shorter WALE of 3.6 years. CEREIT’s overall portfolio occupancy is expected to remain unchanged at around 96%.
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The divestment marks the first major step in CEREIT’s strategy of divesting non-core and non-strategic assets over the next two to three years, says Garing. “The strong buyer interest that we received for Affari demonstrates that there is good investor demand for very well-located Grade A office assets. We remain committed to our well-publicised strategy to recycle capital through rejuvenating some of CEREIT’s other strategically located older office assets in the Netherlands and Italy, where we also expect good tenant interest and superior risk adjusted returns.”
Built in the 1930s and partially refurbished in 2017, Affari is an office building located in the heart of Milan’s central business district with 7,787 sq m net lettable area, eight floors above ground and two basement levels. It currently holds a BREEAM “Very Good” rating certificate.
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Well-located assets with good ESG credentials and high BREEAM/LEED building certifications are highly sought after by corporate tenants in key European cities, says Garing.
Grade A vacancies are currently at all-time lows, such as Milan’s sub 3%, he adds. “We are confident that we will be able to take advantage of this trend through our first such redevelopment — the 10,000 sq m Nervesa 21 in Milan. The LEED platinum project is on track and set for completion by the end of 2023.”
The sales consideration of EUR93.6 million was fully paid in cash on completion. Transaction costs of EUR1.2 million are expected to be incurred, says CEREIT’s manager, made up of the manager’s disposal fee of EUR468,000, a third-party brokerage fee (EUR614,000) and professional fees and marketing expenses (EUR159,000).
Accordingly, the divestment net proceeds are EUR92.4 million and will be used for the repayment of CEREIT’s debt facilities and for other working capital purposes.
Units in CEREIT closed 3 Euro cents higher or 1.92% up, at EUR1.59 on June 29.
