Dream Global REIT acquires Merin for €622m
TPG and Patron Capital Partners have entered into definitive documentation for the sale of their investment in Merin, a commercial real estate platforms in the Netherlands, to Dream Global for a total consideration of €622 million ($714 million).
The overall occupancy of the portfolio is currently 82 percent, and the transaction portfolio currently includes 734 tenants with a weighted average lease term of 4.1 years. The majority of the transaction portfolio, by gross asset value, consists of core assets which are expected to provide the REIT with long-term stable and growing cash flows.
The transaction portfolio includes approximately €502 million ($576 million) of office real estate. It consists of 101 properties, totaling more than 4.8 million square feet of gross leasable area, of which approximately 68 percent is located in the Randstad, which constitutes the Netherlands' largest urban regions and primary office markets, and includes Amsterdam, Rotterdam, the Hague and Utrecht. The transaction represents a compelling opportunity for the REIT to enter the Netherlands, one of the largest and growing office real estate markets in Europe, at an attractive point in the real estate cycle. The majority of the office portfolio offers the REIT stable cash flows from a diverse roster of high-quality tenants. It also includes some value-add properties which are currently being repositioned and are expected to be a source of growth for the REIT.
And the transaction Portfolio includes approximately €120 million ($138 million) of light industrial real estate. The industrial portfolio consists of 34 properties, totaling approximately 2.9 million square feet of GLA, that are primarily located in the Netherlands' five largest industrial hubs. Given the strong fundamentals supporting the European industrial real estate market, the REIT believes that investment in this sector is highly desirable. The transaction offers the REIT an opportunity to achieve immediate scale in what has historically been a difficult segment to enter. The industrial portfolio offers the REIT stable, high-quality cash flows, with the potential to provide further strategic benefits in the future.
Merin was acquired by TPG Real Estate, TPG Sixth Street Partners and Patron in 2012, in a complex transaction that represented the first restructuring of a European commercial mortgage-backed securitization at legal final maturity.
Under TPG Real Estate, TSSP and Patron’s ownership, Merin has been transformed into one of the largest and most successful Dutch real estate platforms. A new management team led by Bas van Holten has substantially repositioned the portfolio through a combination of asset management, refurbishment and more than 50 acquisitions and disposals. The sale represents the third significant transaction for Merin this year following a significant add-on acquisition and a €440 million refinancing.
Today, Merin is dedicated to the creation of high-quality, sustainable and tenant-focused modern working environments, with approximately 170 office and industrial assets. Due to a strong focus on tenant satisfaction, Merin has one of the highest customer satisfaction scores in the Netherlands and has significantly improved occupancy and tenant retention since the initial acquisition.
The Netherlands has the highest population density in Europe and is the second largest exporter in the Eurozone with a robust infrastructure network. The Dutch economy is the sixth largest in the European Union and is closely linked to the economy of Germany, which serves as the Netherlands' largest trading partner. The Dutch economy has performed well in recent years, with gross domestic product growth of 2 percent and 2.2 percent in 2015 and 2016, respectively, outperforming the Eurozone, including Germany over the same two periods. GDP growth in the Netherlands continued to accelerate during the first quarter 2017, achieving year over year growth of 3.2 percent , outpacing the Eurozone and Germany. The Netherlands' unemployment rate has also experienced significant improvement over the last few years, having declined from 7.4 percent in 2014 to 5.6 percent in 2017, comparing favorably to the Eurozone average unemployment rate of 8.3 percent.
Following the financial crisis, the Dutch office market experienced a period of oversupply and higher vacancy which peaked at approximately 16.9 percent in 2014. However, the office market has and continues to recover. Vacancy levels are currently approximately 14.6 percent nationwide and continue to decrease, driven by accelerating market absorption due to the combination of steady demand, minimal new supply, and the removal or conversion of large amounts of obsolete office space. New office development in the Netherlands has decreased since peaking in 2007. Annual new supply is projected to be approximately 3.23 million square feet of space per year, representing approximately 0.6 percent of total existing inventory. This compares favorably to new office development in Canada and Germany's top five office markets, which are currently at 2.2 percent and 1.9 percent of existing inventory, respectively.