Editor's Choice: Winners and losers start to emerge in Europe

A wave of consolidation is sweeping over Europe’s real estate sector as the survivors of the global financial crisis position themselves for the next phase in the cycle.

Earlier this week, listed European shopping centre groups Klépierre and Corio said they are making ‘good progress’ on their proposed merger announced earlier this summer. The tie-up will create the second-largest listed retail company in Europe with gross assets of over €21 bn.

The alliance is the biggest but by no means the only M&A deal in the works in Europe’s listed sector. France boasts one of the most mature listed property markets and M&A activity in the segment has been particularly prolific over the summer.

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) is being taken over by French mutual insurer SMABTP after a year-long battle for control with an existing shareholder, French-Vietnamese investor Chuc Hoang.

Elsewhere in Europe, activity has been more muted but still stronger than in the past few years. In Spain, listed property firm Colonial has mounted a €650 mln bid for peer company Realia while in the UK, private equity giant Blackstone agreed in July to take over AIM-listed Max Property Group.

IPO ROUTE BECOMES POPULAR OPTION
Meanwhile, the IPO route has become a popular option for Spanish asset managers to attract international capital on the back of renewed interest in the local property market. So far this year, Spain’s property industry has seen four listings on the Madrid stock exchange, raising a combined €2.5 bn of equity (Hispania, Lar, Merlin and Axia). Many more will follow suit in the coming months: PropertyEU has identified at least three more in the works: Norfin, Urbas and Quabit.

Germany has also seen its fair share of IPOs in recent years, particularly in the residential sector with the likes of Buwog – a spin-off of Vienna-listed Immofinanz – making their debut on the Frankfurt stock exchange. Meanwhile market watchers expect the fate of Germany’s former listed giant IVG to become clearer in the coming weeks.

Earlier this summer, a Bonn court backed the company’s insolvency plan, but so far the company’s 30-odd owners have failed to reached a consensus on IVG’s future. A majority favours a sale of the remaining institutional fund business after the private closed fund business was sold to the family-owned Zech Group in March. A minority group would prefer to resurrect IVG as a listed company with an institutional fund business - a scenario which would enable trading of the stock to be resumed.

PATRIZIA HAS EMERGED AS A CLEAR WINNER
According to market watchers, Patrizia Immobilien has eyed the remaining IVG business as it seeks to expand its assets under management. The Augsburg-based company is one of the survivors of the financial crisis and has in recent years taken steps to broaden its platform both at home and in other parts of Europe including the UK, Scandinavia and the Netherlands.

Its larger global rival LaSalle Investment Management is understood to have looked at IVG’s books and withdrawn from the bidding process. According to sources familiar with the procedures, LaSalle judged the remaining duration of the institutional funds too short to make it worth their while and has opted instead to grow its own fund business. For Patrizia, however, a takeover would be a ticket to get into the market of setting up commercial real estate funds for institutional investors.

While the fog has yet to clear over IVG’s future, the recent takeover of Germany’s property service provider Corpus Sireo by Swiss pension and insurance group Swiss Life is a very clear signal, according to Fredy Hasenmaile, head of real estate and regional research at Credit Suisse. Indeed, he believes the takeover could spark new cross-border real estate ventures by Swiss pension fund providers.

SWISS LIFE ISSUES A CLEAR SIGNAL
‘The deal is a sign for pension funds to expand their real estate investments across the borders,’ Hasenmaile told PropertyEU in an interview. The 2,073 pension funds in the Alpine country account for 19.5% of the €553 bn in combined assets under management allocated to the property sector and have the largest real estate exposure of all European retirement funds. However, a big chunk of the €104 bn allocated to property - around €98.7 bn – is invested within Switzerland.

While Switzerland has fared well since the outbreak of the global financial crisis, sooner or later the current boom in the Swiss market will come to an end, Haisenmaile predicted. Pension funds would be well-advised, he said, to prepare for this by diversifying their property allocations across international markets.

Corpus Sireo may have been one of the biggest fish of its kind in the German market, but as the example of IVG illustrates, there are more opportunities in these particular waters. As clarity increases on who the winners and losers are in other markets around Europe, the wave of consolidation will no doubt gain momentum.

Judi Seebus
Editor in chief PropertyEU

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