Australia's Macquarie Group announced June 20 that it had agreed to buy a 132,000 square metre portfolio of logistics centres for €79mn logistics from HB Reavis, the Central and Eastern European property developer.
First reported by bne IntelliNews on June 8, the deal was being held up by a criminal investigation into suspiciously high rents at one of the properties. In the end, the Logistics Center Lovosice, in the Czech district of Usti nad Labem, where the Czech state-owned rail freight operator CD Cargo is the tenant, was not one of the assets included in the deal, suggesting that the ongoing police investigation into what the Czech state company claims was a “disadvantageous” lease contract, resulting in significant losses, was too much of a risk to take on.
The deal by Macquarie Infrastructure and Real Assets (MIRA) is in line with a series of recent moves by units of the Sydney-headquartered Macquarie Group investment bank into logistics properties globally. In February, Macquarie Group’s head of Europe, Middle East and Africa Business, David Fass, hinted at what was to come when he told the Sydney Morning Herald that the group was finding some very interesting opportunities in CEE, adding: “We are working on a couple of very significant transactions at the moment in Slovenia and Slovakia.”
The transaction, undertaken by an investment vehicle advised by MIRA, covers a portfolio of real estate assets developed by international real estate developer HB Reavis. Boasting an international blue-chip tenant base, they are located at three sites in Slovakia, with a strong focus on the Bratislava area, and at a site in the eastern Czech Republic city of Ostrava, which has direct access to the adjacent airport. The Czech component of the deal is a 14,500 sqm multi-modal logistics facility, while the Slovak properties are a 69,500 sqm logistics centre in Raca, Bratislava, the 31,500 sqm Svaty Jur logistics centre in Bratislava and the 16,500 sqm Maly Saris logistics centre in Presov, eastern Slovakia.
A source close to the transaction said: “It’s not a huge deal in terms of global logistics, but it’s a decent-sized portfolio of high quality assets and it’s relatively big for the local markets.” He noted that the sites are effectively fully developed and let.
HB Reavis said it had taken the strategic decision to divest its industrial development business and focus development activities entirely on European office and retail. The deal also represented the first disposal made by HB Reavis CE REIF, a €175m commercial property fund managed on behalf of institutional and high-net worth investors by HB Reavis Investment management.
MIRA is well used to announcing infrastructure transactions reaching the billions of euros (it has €92bn in infrastructure and real estate asset investments under management), but Steven Sewell, executive director, head of real estate EMEA at MIRA, was enthusiastic about the CEE logistics sector. It is, he said, “showing strong fundamentals and remains one of the most interesting property submarkets in Europe”.
“There is a growing importance of the Czech Republic and Slovakia as key European logistics markets and these assets were available at an attractive price level,” he added.
In its first-quarter 2016 industrial snapshot for Slovakia, global real estate services firm Cushman & Wakefield gave a gross prime industrial yield on an investment in the Bratislava logistics location of 7.75%, down from 8.50% in the same quarter of last year. The 10-year high to low range is stated as 9.00% to 7.00%.
M7 Real Estate Ltd, a pan-European investor and asset manager appointed to manage the portfolio of assets sold to Macquarie, said it was possible to secure attractive light industrial and logistics investments across CEE with yields that outshone those of many Western European markets.
Left on the shelf
The question remains about the future of the property left out of the deal. HB Reavis has insisted to bne IntelliNews that it is not under investigation itself, “however we are cooperating fully with the police in this matter and have presented all requested documents. Unfortunately, since this is an ongoing investigation, we cannot provide you with any further details.”
After commissioning a forensic audit, CD Cargo last year filed a criminal complaint against an unnamed defendant for breach of trust in drawing up the lease contract, which covers 42,000 sqm of space, much of it unused, for a period of 15 years at “unreasonably high rents”, CD Cargo’s chairman, Ivan Bednarik, was quoted by local media as saying in June 2015. According to local media reports, CD Cargo pays annually CZK90mn (€3.3mn) for leasing the underutilized warehouses, while revenue from the facility covers only about a third of this amount, meaning the state-owned company loses about CZK60mn a year.
The Czech anti-corruption police has refused to comment on an ongoing investigation.