Editor's Choice: Consolidation moves up a gear

The consolidation of Europe’s listed real estate sector has accelerated in 2014 with a string of mergers and acquisitions of leading companies across Europe. And more is on the way in 2015, experts have told PropertyEU.

Earlier this week, Germany’s largest listed residential landlord, Deutsche Annington, announced that it had signed an agreement to acquire Essen-based rival Gagfah for €3.9 bn in a shares and cash transaction. The deal will create the biggest residential powerhouse in Germany – and one of the largest in Europe - with a combined portfolio of €21 bn, representing 350,000 units. The deal is also the largest of its kind in Germany for many years and will create a nationwide platform.

That move follows a major shake-up in the European retail industry earlier this year with the proposed merger of French retail giant Klépierre and its smaller Dutch peer Corio. If approved by shareholders next week, the takeover will create the second-largest listed retail company in Europe with gross assets of over €21 bn. Market leader Unibail-Rodamco has €26.8 bn of shopping centre assets.

France has also witnessed a string of smaller takeovers over the past year. In early June, French REIT Eurosic agreed to acquire an interest of nearly 89% in peer SIIC de Paris from shareholders Société Fonciere Lyonnaise and Realia, in a deal which gives it full control of the €1 bn business park landlord. Similarly, Société de la Tour Eiffel (STE) has found a new owner in French mutual insurer SMABTP after a year-long battle for control with an existing shareholder, French-Vietnamese investor Chuc Hoang.

TAKEOVER MACHINE REVS UP
Elsewhere in Europe, the takeover machine has also started to rev up. In Spain, recently launched Spanish REIT Hispania has launched a €151 mln takeover offer for indebted Spanish developer Realia after reaching an agreement with the company's creditor while in the UK, private equity giant Blackstone agreed in July to take over AIM-listed Max Property Group.

Back in Germany, market watchers believe further consolidation in the country’s listed residential sector is now on the cards with Deutsche Annington slated to take over the residential units of TAG Immobiliën. Other deals are also in the offing, according to Dieter Thomaschowski, head of Thomaschowski Research & Advisory. 'We will most likely see a takeover of LEG Immobilien through Deutsche Wohnen next year,' he told PropertyEU.

Deutsche Annington has already been very active on the acquisitions front this year. In February, it acquired Vitus Immobilien and homes owned by DeWAG in separate deals for around €2.4 bn, boosting its residential portfolio at the time by 24%. Together, the residential companies have more than 40,000 units. Its proposed acquisition of Gagfah follows a year of escalating rumours that Gagfah was on the brink of being taken over by one of its larger competitors.

There has been a sizeable amount of activity elsewhere in the sector this year. Listed real estate firm Adler Real Estate bought a majority stake in housing association Jade in Wilhelmshaven, northern Germany - totalling 6,750 units - in October for around €200 mln. Earlier in July, listed housing firm Westgrund bought the Phoenix portfolio comprising 13,300 units from Berlinovo, which is majority owned by the state of Berlin, for €390 mln.

Now, further consolidation is looking like a given, according to Konstantin Kortmann, national director and team leader of residential investment at JLL in Germany. ‘Companies such as Gagfah have reduced their inherited debt piles since their IPOs in 2005-2007, refinanced their debt at much better conditions, so they can now pay higher prices. Subsequently, we’re likely to see further consolidation in the sector going forward.’

ANALYSTS ARE HAVING A FIELD DAY
Analysts are having a field day trying to predict the next merger. Aside from a move by Berlin-based Deutsche Wohnen on Hamburg-based TAG Immobilien, some are predicting a merger between Westgrund and Adler Real Estate, or with other parties. Other German property companies including Patrizia Immobilien and Deutsche Office have also been signalled as potential candidates for further stock market deals in 2015.

According to Bernd Janssen, head of research at Frankfurt-based Victoria Partners, Patrizia may sell shares for the first time in GBW Gruppe, the Bavarian rental home owner it bought for one of its institutional funds in 2013 for €2.5 bn. Speaking to newswire Bloomberg, he said an IPO would allow the pension funds and insurance companies which bought GBW through a Patrizia fund to cash in on part of their investment.

Deutsche Office and Alstria Office REIT would also make good merger partners, he added.

The consolidation in Germany’s residential sector is forcing some players to change their tactics. Zug-based private equity company Corestate, which has a record in building up opportunistic residential portfolios, is now looking beyond Germany at the Netherlands and Spain. ‘And we’re looking at everything, also commercial assets including offices and retail,’ chief investment officer Thomas Landschreiber told PropertyEU.

One of the reasons for the change in strategy is the new competition from listed companies such as GSW and Deutsche Wohnen, Landschreiber said. ‘These investors have access to cheap money from the stock exchange, we can’t compete with that.’

Following the outbreak of the global financial crisis, the Swiss investor amassed up to €1.5 bn in residential portfolios and just in the past year, it has sold off a similar amount, Landschreiber noted. ‘We saw that it was time to exit the portfolio and have sold off assets worth €1.5 bn in the past 12-14 months. It was a good time to sell residential portfolios. On average our club deals achieved an IRR of 29% per annum.’

Economies of scale are a key driver behind the wave of mergers and acquisitions in Germany’s residential sector. But that remains a very high benchmark.

Judi Seebus
Editor in chief PropertyEU