DIC Asset in strategy shift to funds from JV activities

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The Frankfurt-based listed German property firm DIC Asset has raised its acquisition target for its fund business to €500m from its earlier €400m to €450m, and said it had already invested over €300m this year so far.

Last month DIC Asset bought a 75,000 sqm portfolio consisting of three fully-let retail properties in Germany in two separate transactions worth a total of €220 mln. The assets will be allocated to a new as yet unlaunched retail fund. CEO Aydin Karaduman commented, "We have already received encouraging feedback from potential investors." In addition the firm also bought properties worth €77m for other existing funds.

One of the three acquisitions involved the Neustadt-Centrum, a mixed-use retail centre located in Halle from Curzon Capital Partners III (CCP III), a core-plus fund advised by pan-European real estate investment manager Tristan Capital Partners, in a joint venture with Cornerstone Real Estate Advisers, for €59.3m. HSH Nordbank financed the deal.

The Halle-Neustadt shopping centre offers 30,700 sqm of retail, restaurant and leisure space, and is a dominant scheme in the local catchment area with nearly 5 million visitors per year. The centre has a 99% occupancy rate, with the anchor tenant being the hypermarket REAL, part of the listed Metro AG. Other tenants include Modehaus Fischer, Aldi, Medimax, Rossmann and Deichmann.

Karol Bartos, executive director at Tristan Capital, said the company had spent the past three years improving the tenant mix of Halle-Neustadt, "resulting in this popular shopping centre increasing its dominance in the local catchment area and enhancing its institutional appeal.”

Christoph Wittkop, managing director at Cornerstone Real Estate Advisers, told REFIRE recently the company had worked hard on increasing tenant performance, which has “been reflected in strong tenant and investor recognition”. More than 13 leases have been renewed in the past three years, and most have renewed for 10 further years, or more.

The other two properties are recently-modernised Marktkauf-Centers in the districts of Hamburg Harburg and Bergedorf with a combined total of 44,500 sqm. DIC acquired them from a private seller. The properties are fully ocupied on long-term leases, anchored by grocer Edeka. Again, HSH Nordbank financed the purchase.

According to Karaduman, the properties are “superbly suited” for a retail investment fund with attractive dividend yields. "What distinguishes the retail properties we acquired are their long-term leases and therefore their highly stable revenues, the outstanding micro-locations, and the high degree of centrality in their respective sub-markets." In total, the three properties boast a weighted average lease term of about 11 years.

In its recent half-year report CEO Karaduman commented, "We have kept expanding our fund business with much success. As a result, the income of DIC Asset will have two major sources in the future: one is the fund business, and the other being the rental income from our commercial portfolio."

“With the optimisation of our real estate portfolio and the rapid expansion of our funds business, we are developing DIC Asset AG into an investment house for indirect real estate investments of institutional investors, with its own vertically integrated management platform. Simultaneously we are implementing the related reduction of our joint-venture investments, as announced – swiftly and successfully.”

Karaduman said the scaling back and exiting from DIC Asset's joint venture activities would be complete by end-2017. In the year to date, €73.2m from a total sales volume of €106.2m was attributable to sales from the joint venture portfolio, so the pull-back will be significant.

He re-affirmed the company's full-year FFO guidance of €43m to €45m and said he expects rental income to increase to between €105m and €107m this year. The company's LTV ratio dropped from 62.6% to 57.2% over the first six months of the year.