REAL ESTATE – US private equity firm Fortress will float part of its €7bn German property portfolio on stock exchanges in October, the firm has announced.
Fortress’ German arm also said that for the IPO, it had chosen Goldman Sachs, Morgan Stanley, Deutsche Bank and Dresdner Bank as main bookrunners.
The firm did not, however, disclose how much of its German property portfolio it would float or whether the flotation would be done on a German stock exchange. Press reports valued Fortress’ floatation at between €1.5bn and €2bn.
Citing banking sources, the Financial Times Deutschland said 90% of the shares to be offered in Fortress’ IPO would go to institutional investors and the rest to retail ones.
Since entering the market in 2004, Fortress has acquired three residential property firms in Germany, including Gagfah, Nileg and Woba. These firms own 160,000 flats between them.
After acquiring them, Fortress bundled the three firms together in a Luxembourg-based holding. The holding’s market value is estimated at €7bn.
A classic short-term investor with a speculative business model, Fortress financed the acquisitions to a large extent with bank loans. For example, Goldman Sachs and Deutsche provided Fortress with a €2.66bn loan for its €3.5bn takeover of Gagfah.
But owing in part to rising interest rates, Fortress is under pressure to act. According to the FTD, Fortress had chosen not to wait until the German government legalised real estate investment trusts (REITs) to do the IPO.
The government plans to legalise REITs from January 2007. Unlike other listed companies, REITs are not taxed at the corporate level. Rather, shareholder dividends are taxed, and German REITs will have to distribute 90% of earnings as dividends.
Meanwhile, Fortress’ German arm said Udo Bachmann, who has been chief executive of Gagfah since 1994, was stepping down as of July 31. Bachmann had also taken operational control of Nileg since last April. A successor has not yet been named.
Separately, Germany’s Börsen-Zeitung reported that Ralph Winter, who quit as co-head of Cerebus’ German arm last April, had founded a Zurich-based investment company that specialises in German real estate.
Like its peer Fortress, Cerebus has bought a huge number of German flats over the last few years. It has more than 100,000 in its possession, while Terra Firma, the firm controlled by UK private equity mogul Guy Hands, owns 230,000 German flats.
