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Singapore giant Capitaland pays €245m for first German CRE, eyes more in Europe

Main Airport Center next to Frankfurt Airport © D.R.

Singapore property giant CapitaLand, present in Germany with serviced residence REIT Ascott, has acquired its first commercial property there - and outside Asia - paying €245m for the Main Airport Center next to Frankfurt Airport. CapitaLand said it is reconstituting its portfolio and aims to step up acquisitions in Europe.

Founded in 2000 in a merger of two smaller firms, CapitaLand is now one of Asia's largest real estate groups with AUM worth over S$80bn (€50bn). Its two core markets are Singapore and China, while Indonesia, Malaysia and Vietnam have been identified as new growth markets - prior to its first CRE move into Germany and Europe. The group runs five listed REITs: CapitaLand Mall Trust, CapitaLand Commercial Trust, Ascott Residence Trust, CapitaLand Retail China Trust and CapitaLand Malaysia Mall Trust. It is Singapore’s largest prime office landlord, also owning commercial properties in China, Japan and Vietnam. In September it made headlines by paying S$2.09bn (€1.3bn) for Asia Square Tower 2 in Singapore.

Ascott has been operating in Germany for 15 years, with Ascott Residence Trust owning five properties with over 700 units across Berlin, Frankfurt, Hamburg and Munich. This includes the 165-unit Citadines City Centre Frankfurt, a 20-minute drive from the MAC.

The acquisition of the 60,000 sqm multi-tenanted Frankfurt Airport office building was made through a JV in which CapitaLand holds a 94.9% stake, and private Lum Chang Holdings, an unrelated third party, owns the rest. "We are very pleased to be able to have meaningful investment exposure in a quality income-generating office building well located in Frankfurt, a top investment destination in Europe," commented President & Group CEO Lim Ming Yan in a release.

"The acquisition of MAC leverages the group’s 15 years of experience in Germany," Lim said. "Besides key Asian markets such as Singapore, China, Japan and Vietnam, we also see significant investment opportunities in key gateway cities in Europe, Australia and the US."

The CapitaLand group is in the process of shifting its portfolio to higher-earning assets: "We will remain aggressive but disciplined to reconstitute our portfolio and deploy capital to quality higher yielding assets while continuing to grow our recurring income base by strengthening our operating platforms and assets under management," Lim said.

CIO Lee Chee Koon, also CEO of The Ascott Limited, noted that the Frankfurt asset is 84% occupied by over 30 tenants including Dell, Mastercard and Lufthansa customer loyalty operations. "MAC is expected to attain an occupancy rate of over 95% by June 2018 based on the leases already secured for next year," he said. "We will continue exploring the possibility of enhancing the property to further increase MAC’s value proposition for incoming tenants."

Lee expects demand for commercial real estate in Germany to rise given the nation's positive economic outlook. "Frankfurt’s office market is on an upswing as many major multinational companies and Japanese banks are planning to open new offices in Frankfurt," he noted. Office leasing market remained strong in 3Q17 with a 24%yy increase in take-up of leases, while office transaction volume also grew. "We see strong potential to step up investments in commercial real estate in Europe and key cities worldwide as we expand our serviced residence and mall portfolios," Lee said in the release.

CapitaLand's late-December announcement came almost simultaneously with that of a €257m German investment in cross-dock warehouses by Singapore peer Frasers Centerpoint.

BIE COMMENT: The message from CapitaLand - and from Frasers Centerpoint - is loud and clear: commercial assets in Germany and elsewhere in Europe now look cheap for Asian firms, and there is huge availability of capital from and via Singapore seriously starting to target assets here. Note that substantial proportions of capital allocated from Singapore emanate from mainland China. This augurs a tough year for European money competing to grow assets on the continent unless it has an Asian view - or at least awareness of balanced yield levels seen through the eyes of global players. The conclusion has to be that, despite some thoughts that European CRE yields have bottomed out, compression will continue in 2018.