Domicil Real Estate Group has struck a deal with Germany's largest public insurer, Versicherungskammer Group (VKB), that will see Domicil increase its acquisition firepower.
VKB is acquiring a 9.76% stake in the Munich-based residential property specialist in a co-operation agreement that envisages VKB proving Domicil with fresh backing to finance investments.
This is the second time Domicil has organised a capital increase in this way. In September 2020, fellow Bavarian insurer, Bie Bayerische, acquired a 5.4% stake for €10 mln and the parties concurrently announced a €250 mln credit line.
In both instances, the insurance companies have acquired the stakes from Domicil founder and CEO, Khaled Kaissar, who is now 85% majority-owner.
Kaissar said: ‘The participation by Germany’s largest public insurer in our company shows that we have established an excellent reputation within the industry and among investors.
‘Residential real estate is becoming increasingly important as a safe investment for institutional investors, and not least of all as a result of the coronavirus crisis. Thus, specialist real estate companies are increasingly of interest for investors.
‘Thanks to our many years of expertise in the marketing of existing properties as a capital investment we have been able to generate a regular cash flow in addition to rental income.
‘With the capital increase by Versicherungskammer Group we are reinforcing the sustainability of our strong growth path in recent years and can continue to pursue further growth.’
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Domicil is unusual in Germany because its business model is not to buy and hold residential assets. Instead, the firm trades units. For instance, the company might buy a residential block of 100 units and then sell them to tenants and private investors. The company said: ‘The focus is placed on the acquisition of mid-size to large portfolios of apartments and the prompt resale to tenants, owner-occupiers and investors. This can encompass individual apartments as well as entire properties and portfolios.’
The company also advises and buys properties for third parties. For example, in December 2020 it orchestrated the €252 mln purchase of 1,480 micro-apartments with a leasable area of 42,000 m2 across 13 properties on behalf of Danish pension fund, PFA.
Domicil and PFA retain a co-operation agreement but Domicil does not have an exclusive mandate. Further, there is no overlap in strategy between VKB and PFA because PFA is keen on large forward funding transactions in Germany’s top 7 cities, whereas VKB is interested in existing regional properties. When buying for its own account, Domicil focuses on “B” and “C” locations.
IPO still on
Domicil’s capital increases are, however, not a substitute for an IPO according to CIO, Andre Schmöller.
He said: ‘We are still aiming for an IPO, but we are just looking for the right time window. In the meantime, we looked into other options to attract more capital to the company.’
In 2019, Domicil appointed Citigroup as lead advisor and joint bookrunner for a primary listing on the Frankfurt Stock Exchange in a move that would have raised around €150 mln. However, the company was forced to indefinitely postpone the plan citing difficult market conditions.
Schmöller said the preparatory work had already been done, although it had not renewed talks with potential IPO advisors. ‘We have everything prepared but are just waiting for the right point in time.’
Residential property is resonating more and more with institutional investors, especially with ESG matters coming to the fore.
Isabella Pfaller, CFO of VKB, said: ‘Affordable living space in Germany’s major cities has become a perennial issue unfortunately. As a regional insurer, Versicherungskammer Group bears responsibility towards society for ensuring more living space and quality of life with its investments.
‘At the same time, as a long-term investor it is important for us to attain sustainable returns. We are looking forward to the cooperation, and above all in the financing and acquisition of residential real estate for our capital investment,’ she added.
