Alstria Office focuses on refurbishment

Alstria Office REIT is concentrating on the refurbishment of its office portfolio to achieve further rental growth. 'We built an office portfolio in Germany worth EUR 1.9 bn in just 2 ½ years, but I don't expect to see such acquisition opportunities in the next 12 to 18 months,' CEO Olivier Elamine said in an interview with PropertyEU at Mipim on Tuesday. 'I do see opportunities though to grow organically through development projects.'

In February, Alstria Office REIT announced it had formed a joint venture with Hamburg-based developer and fund manager Quantum Immobilien to refurbish the Kaisergalerie in Hamburg. Over 50% of Alstria's portfolio is located in Hamburg where the top rents are EUR 21 per square metre compared to an average of EUR 10.50 for Alstria's offices. 'We never buy brand new buildings,' Elamine explained. 'We always buy older buildings where we have the advantage that we can improve our position.' Alstria aims to book an average cash yield of 8% on refurbishments and has an IRR target of between 10-15%, Elamine said.

Altria Office REIT worked previously with Quantum Immobilien on the refurbishment of the Alte Post complex in Hamburg. Such partnerships are a good way of harnessing know-how and skills, Elamine said, adding that the joint venture would add more value for shareholders than a dilutive capital raise would have done. 'We would be interested in doing more joint ventures, for example for the conversion of offices into residential where we don't have the know-how.'

Alstria Office saw the value of its portfolio fall to EUR 1.4 bn in 2009 following a 5% devaluation and the sale of EUR 226 mln worth of assets. The bulk of the writedowns were concentrated on single assets, Elamine said. 'We saw no devaluations for 75% of the portfolio.'

Alstria REIT is one of only two REITs in Germany, but Elamine does not expect that situation to change for the foreseeable future. 'I don't see the German REIT taking off in the short term. It's not that there's anything fundamentally wrong with the REIT, but the opportunities are limited.' He added that the number of German REITs was irrelevant. 'It doesn't matter how many there are, what matters is how big they are. We are the biggest REIT in Germany and we only have a market capitalisation of EUR 400 mln. We need more big REITs.'