KWE confirms €185m Italian office debut

Kennedy Wilson Europe Real Estate (KWE) has confirmed it is buying nine government-occupied offices in its debut transaction in the Italian market, as reported by PropertyEU seven months ago.

London-listed KWE said on Wednesday that it had conditionally acquired the portfolio for €185 mln, reflecting a yield on cost of 6.3%. CBRE advised on the transaction.

The office locations include Milan, Rome, Brescia, Florence and Trieste.

'This is KWE’s first investment in Italy, having kept a close eye on the market since IPO,' said Mary Ricks, president and CEO of KWE. 'This is an exceptional portfolio backed by strong covenants to the Italian government with long unexpired lease terms relative to local leases. The portfolio includes institutional quality assets with significant reversionary potential, redevelopment angles and good liquidity of smaller assets with good income returns and a sticky government tenant.'

PropertyEU reported back in March this year that KWE was in exclusive negotiations to acquire a portion of a larger 21-asset portfolio offered for sale by Fondi Immobili Pubblici (FIP), a state-owned fund managed by Investire Immobiliare. The deal was negotiated off-market. FIP had sold other assets from the portfolio in 2014.

The properties acquired by KWE comprise nine office buildings 100% occupied by Italian government ministries. The assets provide a total of 99,200 m2 of lettable space, generating a day one NOI of €12.1 mln, subject to annual indexation of 75% of CPI.

The majority of the offices have been comprehensively refurbished with 50% of NOI being generated from properties refurbished from 2014. The unexpired lease term is 7.1 years with all existing leases expiring simultaneously in December 2022.

In 2014, Blackstone bought five FIP office buildings in Milan (2), Genoa, Turin and Como for about €160 mln. In a separate transaction, FIP has sold another sub-portfolio consisting of three army barracks in Bari, Rome and Bergamo as well as a number of other smaller assets across Italy to US private equity group Cerberus for around €250 mln.