Deutsche Industrie REIT-AG (DIR) is continuing its expansion course with the purchase of four further commercial properties with a volume of 34.3 million euros – thereby increasing the portfolio value to over 600 million euros. “With purchase yields of 9 percent to 10 percent, an essential purchase criterion is met,” explains DIR-CIO Sonja Petersen in an exclusive interview with the editorial team of Personal-Financial.com. For the current financial year, Petersen is aiming for purchases with a volume of between 100 million euros and 200 million euros. And the financing of the next acquisitions is already in place, as DIR CFO René Bergmann affirms: “The last capital increase is now paying off.” The DIR also plays into the cards that the demand for sale-and-lease-back transactions is constant increases.
Personal-Financial.com: Mr. Bergmann, why is there with Dt. Industrie REIT and Dt. Konsum REIT two different companies from the same house?
Miner: Both companies have the same basic structure and very similar goals: maximum transparency, high cash returns, investment in real estate that is not really an option for institutional investors, combined with a platform as a REIT-AG, which is very suitable for these institutional investors fits. The asset class at Deutsche Konsum REIT is more defensive and geared towards stable, cyclical rents. That is why our colleagues invest in retail properties for everyday needs. The Deutsche Industrie REIT is about adding value from a considerable potential for rent increases in logistics and production real estate. In our experience, the focus on a clearly defined asset class is a unique selling point on the capital market.
Personal-Financial.com: When we met for an interview in August 2019, Deutsche Industrie REIT-AG had 56 light industrial properties with an annualized total rent of 37.3 million euros and a total value of around 436 million euros in its portfolio . What do these key figures look like 15 months later, including the most recent acquisitions?
Miner: We continued our expansion as planned. Including the most recently reported acquisitions, we now have pro forma 77 properties with a rent of almost 50 million euros and a portfolio value of around 618 million euros – with a steadily growing trend.
Personal-Financial.com: Ms. Petersen, as Investment Director you are responsible for the acquisition strategy. How has the corona pandemic affected your existing portfolio so far? Do you have to fear large losses of rent or do you see yourself as a holder of logistics real estate as a winner of the e-commerce boom?
Petersen: So far, the corona pandemic has had little to no impact on our existing portfolio. There have been rent deferrals, a large part of which has already been compensated for, and there will probably also be one or two defaults to a small extent, but fortunately we have not been able to record anything worth mentioning here. As a portfolio holder of light industrial properties, which for us also includes logistics, we actually see ourselves among the winners in this challenging time – we have the right properties for the e-commerce boom.
Personal-Financial.com: What were the decisive purchase criteria for the four most recent acquisitions?
Petersen: The decisive purchase criteria for the four most recent acquisitions, along with other factors, were mainly the location, the condition of the properties, the tenant structure and their creditworthiness, and of course their ability to be used by third parties. In addition, it is not surprising that the negotiated prices also played a major role for us – with purchase yields of 9 percent to 10 percent, an essential purchase criterion is met. We bought a good mix here that reflects the portfolio of Deutsche Industrie REIT-AG well – from single to multi-tenant, from short to long terms and from large to small purchase volumes, everything was included.
Personal-Financial.com: Are sale-and-lease-back deals like the recent purchase in Gevelsberg to be expected more often due to the pandemic?
Petersen: Even before the corona pandemic, we were able to observe that the sale-and-lease-back share of the offers we were offered had steadily increased. The demand for such transactions continues to rise today and the sale-and-lease-back ideas that are usually already in place are often additionally accelerated by the pandemic.
From our experience the reasons for a decision regarding a sale-and-lease-back are many and varied, but company successions, research and development projects, the restructuring of the companies as well as company transactions are often mentioned. Above all, sale-and-lease-back deals create flexibility for companies. On the one hand, this offers the seller the opportunity not to have to raise additional outside capital and to be able to use the sales proceeds freely without further coordination. This increases their equity ratio. On the other hand, companies prefer the ability to plan financially, which is created through agreed rental contract terms and rents. In addition, thanks to our on-site purchase, everything stays the same and the daily business process is not disrupted.
Personal-Financial.com: How do you proceed after buying new properties? What measures can you use to leverage potential for added value?
Petersen: Of course, we consider what the future strategy for this specific property should look like before purchasing new properties. After the purchase, we therefore operate very proactive asset management. This includes establishing and maintaining contact with the tenants on site in order to build a long-term partnership that is successful for both sides. Thanks to the growing portfolio, we are also able to further expand our tenant network in order to leverage synergies here. In addition, we are of course interested in continuously reducing our vacancy rates and have created a Germany-wide rental network here in order to leverage the corresponding potential for value growth.
Personal-Financial.com: Mr. Bergmann, you spent around 34 million euros on the four properties mentioned. How do you finance this?
Miner: Initially, we usually pay from the equity available and then later refinance around 50 percent to 60 percent of the purchase price through bank loans secured by real estate. To this end, we have further expanded our banking network. This is supplemented by unsecured financing instruments such as convertible bonds or borrower’s note loans.
Personal-Financial.com: In the summer you carried out a capital increase and brought 58 million euros into the company. How much of this money is there for further purchases?
DIR-CFO René Bergmann. Image and copyright: Deutsche Industrie REIT-AG.
Miner: As an exception, we carried out the last capital increase as a precaution in order to have a liquidity buffer during these times and to be able to take all opportunities with us. It is now paying off. Assuming our usual refinancing, we can easily finance a further 100 million euros in purchases.
Personal-Financial.com: Ms. Petersen, are there any further acquisitions in the current calendar year? In what volume do you want to buy in the entire 2020/21 financial year (September 30th)?
Petersen: The pipeline for the financial year is well filled and we expect more deals in the near future. For the 2020/21 financial year, we have set ourselves the goal of investing EUR 100 million to EUR 200 million.
Personal-Financial.com: Your most recent purchase has a factor of around 11 in terms of the annual rent and the purchase price. Is that your target for further acquisitions?
Petersen: It is our goal to buy high quality objects as cheaply as possible. Our target factors here normally range between 9 and 11 times, which we also see as a target for further acquisitions.
Personal-Financial.com: What medium-term target have you set for the important FFO indicator?
Petersen: We don’t have a specific medium-term FFO target and plan to do so from year to year. A look at the development in the first nine months of 2019/2020, in which we were able to increase FFO per share by around 60 percent compared to the same period of the previous year, shows that our expansion is paying off. The further FFO development essentially depends on how much real estate volume we can buy. For every EUR 100 million of purchase volume, the FFO increases by around EUR 6 million per year, whereby an annual transaction volume of between EUR 100 million and EUR 200 million is still realistic.
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