Schroder European Real Estate Investment Trust has exchanged contracts to sell its Parisian Boulogne-Billancourt office asset for approximately €104 million. This is subject to programme and cost.
The significant transaction will deliver a profit and post all acquisition and development costs of approximately €28 million which represents a net profit of c. 35% subject to the programme and cost. It will also significantly strengthen the balance sheet and Net Asset Value (NAV) of the company and provide additional funds for reinvestment and earning enhancing initiatives.
The sale of Schroder’s office asset is structured as a forward funding with the building being handed over to the purchaser in H1 2022. The refurbishment and the sale follow the agreement of a new ten-year pre-let contract with the existing tenant Alten in June this year. The rental uplift is 39% higher than the previous rent paid.
The final sale price of approximately €104 million will deliver net sale proceeds of approximately €70 million on completion, after deducting the c.€30 million cost of refurbishing and re-letting the building, representing a profit on cost of c.35%. The sale’s proceeds will be received in stages and Schroder expects the NAV to increase incrementally as sale receipts occur. 50% of the price is to be received on exchange of the definitive deed prior to this calendar year end 2020 with the remainder payable in instalments over subsequent eighteen months as construction is completed. The overall increase to the most recent published NAV as of the 30th of June 2020 is expected to be approximately 15% – subject to the programme and cost.
The office building was originally acquired in 2016 for €37.5 million with the company identifying an opportunity to create significant 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. This transaction reflects Schroder’s ability to add value through active management of investments acquired in winning high growth locations.
The net sale proceeds strengthen the company’s balance sheet, providing significant operational and financial flexibility. The funds will primarily be redeployed into new earnings enhancing initiatives including new investments.
“This is a transformational transaction, which will be highly accretive to shareholder returns. It 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” commented Sir Julian Berney, Chairman of the Board.
“Our focus continues to be on driving the performance of the existing portfolio. This will provide a clear path to income growth and improving long-term shareholder returns and the Company’s rating” he concluded.