Editor’s Choice: European stocks ride the bull

Spain’s listed real estate stocks are not the only property companies in Europe to ride the current wave of buoyant sentiment.

Spain may have taken the lead on the M&A front following a string of successful capital raises over the past few weeks, but Germany and France are also witnessing a new rush of activity. Barely a week after we reported that the bull has re-entered Spain’s listed arena, the beast has gone on the rampage in its larger neighbouring countries.

Hot on the heels of news that Spanish REIT Merlín Properties has emerged as the winner in the race to take control of Testa, the €3 bn property arm of Spanish construction giant Sacyr, German investor Alstria Office REIT announced it is on the brink of taking control of its smaller peer Deutsche Office. If successful, the takeover – which values Deutsche Office at €800 mln - will result in the creation of Germany's largest listed office real estate company.

The combined portfolio comprising 125 office buildings with 1.7 million m2 of lettable space will be valued at €3.5 bn. ‘Through the combination of both portfolios, Alstria expects to reinforce its presence in Hamburg and the Rhine-Ruhr area and to achieve a critical size in Berlin, Stuttgart and Frankfurt, giving it a critical mass in 6 of the top 7 German office markets,’ Alstria Office said in a statement.

The move is particularly noteworthy given that the consolidation that has so far taken place in Germany’s listed real estate sector has been largely confined to its residential sector. In fact, there was also movement on that front this week: on Monday Deutsche Annington, Europe’s largest residential landlord, unveiled plans to expand in southern Germany with the €1.9 bn acquisition of the Südewo Group from a fund managed by Patrizia Immobilien.

Deutsche Annington is already in the process of taking over its listed peer Gagfah and is now bolting on another local residential landlord with a portfolio of almost 20,000 units. ‘In the highly fragmented German market for rented housing we are availing of another opportunity to strategically expand our nationwide position,’ said Rolf Buch, CEO of Deutsche Annington.

The move follows the acquisition of Vitus Group in northern Germany and the acquisition of DeWAG in the south. Together with the merger of Gagfah, Deutsche Annington now has a stronger presence in the metropolitan regions of Berlin, Hamburg, Dresden and the attractive southern region, Buch noted. ‘With the acquisition of the Südewo Group we are moving a step closer to our goal of having a balanced portfolio in all attractive regions of Germany.’

Broad American interest
The ongoing consolidation of Germany’s listed sector coincided this week with a string of high-profile transactions which neatly display the breadth of American interest in the country. Earlier in the week, Hudson’s Bay Company (HBC), one of North America’s oldest firms, announced it has reached agreement to buy Germany’s 135-year old Galeria Kaufhof department store chain and its Belgian unit Immo in a deal valued at over €2.8 bn, including debt.

Toronto-based HBC, a major retail business in North America and the operator of Saks Fifth Avenue, said it would finance the acquisition through the sale of at least 40 of Kaufhof’s owned or partially owned properties to its US joint venture with Simon Property Group for at least €2.4 bn. Under the deal, HBC is taking over 103 Galeria Kaufhof stores in Germany from Metro Group, including 59 properties offering 760,000 m2 in prime inner-city locations that are part of the Galeria Real Estate portfolio.

In addition, HBC is acquiring 16 Sportarena stores, 16 Galeria Inno department stores located in Belgium, as well as various logistics centres, warehouses and other properties, and the long-standing Galeria Kaufhof head office in Cologne.

Metro had long been trying to sell Galeria Kaufhof, Germany’s largest department store chain, in an attempt to focus on its wholesale business Metro Cash & Carry, its consumer electronics division Media-Saturn and its hypermarket chain Real. In 2012 the German retail group suspended negotiations with interested parties because of worsening conditions on the financial markets. In 2014 the Galeria Kaufhof operating and property businesses were combined in a single platform operating under the name of Galeria Holding.

The deal will give the Americans a leading position in Germany’s strengthening retail market and generate a positive cashflow for Metro of around €1.6 bn. The German retail giant expects a positive EBIT effect of around €0.7 bn from the transaction.

In another major deal involving a North American player, US REIT NorthStar Realty Finance agreed this week to buy the iconic Trianon office tower in Frankfurt for €540 mln, reflecting a yield of 8%. The 186-metre-high Trianon skyscraper was put on the market in late 2014 by its US owners Madison and Morgan Stanley.

Meanwhile in Hamburg the name of canny Colony Capital has popped up as the buyer of a 50% stake in local specialist Hamburg Trust from Hamburg Trust Holding (HTH). The move by the US private equity firm is aimed at strengthening the capital base of the German real estate fund and asset manager and facilitating further project developments. Berlin-based HTH will retain a half-share in Hamburg Trust which is now aiming to ‘significantly’ accelerate its institutional asset management and engage in new project developments, Dirk Hasselbring, CEO of HTH, said.

Amundi float
Germany may have captured the top deals this week, but the announcement by French asset manager Amundi that it plans to list on the Paris stock exchange by the end of the year is a big deal in itself. With €7.7 bn of real estate assets under management in Europe and €954 bn in total assets, Amundi is a leading asset manager in Europe and top-10 player globally. The company was formed in 2010 by Crédit Agricole, which owns a 80% stake, and Société Générale (20%).

The two shareholders said the flotation is aimed at supporting the continued development of Amundi and providing liquidity to Société Générale, which could sell its entire stake as set out in the shareholder pact that was agreed at the time Amundi was created.

Commenting on the effects of the IPO on the property side of the business, Nicolas Simon, CEO of Amundi Real Estate, said it will improve the company’s liquidity position and enable the firm to develop new products. ‘It will help make us more international and enable us to attract new capital at a time when real estate is well positioned to draw new capital due to the good spreads relative to bonds,’ Simon told PropertyEU.

Amundi’s real estate business has really developed in the last five years, Simon added, and the company is looking to step up its activities in the US where it took over institutional asset manager Smith Breeden Associates in 2013.

American investors are expected to continue targeting Europe, thanks in part to a favourable euro-dollar exchange rate and a historic yield gap vis-à-vis government bonds. And a number like Blackrock, Blackstone and Brookfield are clearly here to stay.Meanwhile Amundi's news is a sign that European players also have ambitions to stand up and be counted in the global arena.

It remains to be seen whether Amundi's IPO will usher in more flotations. Already in Germany, lender Pbb has announced in a surprise move that it has abandoned its ‘dual track’ disposal process in favour of an IPO. Instead of selling the business, it is now planning a listing on the Prime Standard segment of the Frankfurt Stock Exchange in July this year, subject to market conditions.

Residential landlord Ado Properties is another company planning a float. Earlier this month the Berlin-focused value-add resi specialist set out to raise at least €400 mln in an initial public offering this year. Owned by Israeli listed Ado Group, Ado is a €1.2 bn residential landlord with about 13,700 homes and 700 commercial properties in the German capital.

Together with the ongoing consolidation in other parts of the continent, the IPOs and M&A wave are further signs that a bull charge is currently under way in Europe. That spells good news for Europe's listed real estate sector. Until recently its share of the global pie has been shrinking, but that trend may now be reversed.

Judi Seebus
Editor in chief