H1 DEALS: Corporate takeovers head Top 10 investments ranking

Super heavyweight investors keep piling on the pounds in the European real estate sector by taking over dominant assets and platforms.

Merger & acquisition activity accounted for over 80% of the €26 bn of Top 10 deals by volume in the first six months of 2015, according to preliminary data analysed by PropertyEU Research.

Deutsche Annington led the feeding frenzy with two Top-10 transactions totalling totalling €5.8 bn. In the largest of the two transactions Deutsche Annington acquired peer Gagfah and its 190,000 residential units for almost €3.9 bn. The move creates a company - rebranded as Vonovia - with roughly €21 bn worth of assets and 350,000 residential units, making it the largest landlord in Germany.

This was a share transaction but we have included such corporate M&A in our list when it is clear that the main goal is the acquisition of bricks and mortar assets. Deutsche Annington also features in the Top 10 with its acquisition of the Südewo Group portfolio from Patrizia Immobilien for €1.9 bn.

The largest single transaction of H1, and the largest M&A deal, involved Klépierre taking control of its European shopping centre counterpart Corio for a share deal totalling €5.1 bn.

Other corporate deals in the Top 10 are QIA and Brookfield taking control of Canary Wharf; Brookfield acquiring Center Parcs, HBC and Simon Properties taking control of 40 retail properties as part of the takeover of the Galeria Kaufhof department store chain in Germany, and Finland's Citycon buying Norwegian shopping centre owner Sektor Gruppen for almost €1.5 bn.

Americans out in force
Overall, American investors dominated the top corporate deals in Europe over the period with alternative asset managers such as Brookfield and Blackstone and Canadian pension funds CPPIB and HBC playing a key role in one or more transactions.

But Asian investors are also starting to throw their weight around in mainland Europe, not just in deal transactions but also in joint ventures and other partnerships. In early July, Chinese private conglomerate Fosun Property announced it has partnered with asset manager Resolution Property to launch a new investment platform focused on value-add opportunities across Europe. And towards the end of the month Singaporean listed property developer Oxley Holdings announced it is acquiring a 20% stake in the enlarged share capital of UK residential developer Galliard Group.

Commenting on the recent surge in Asian deals, Stephen Barter, chairman of KPMG's real estate advisory practice, said Asian investors, particularly the Chinese but also the Malaysians and Singaporeans are beginning to ‘eclipse’ Middle Eastern players. ‘I think we will see further Chinese partnerships (like CIC and AEW Europe and Fosun and Resolution)… this is one of the most interesting themes in the current market.'

Some people are already calling Fosun China’s Blackstone, Barter told PropertyEU in an interview. 'Like Blackstone, it’s also creating a global platform and, through its insurance company acquisitions, it has access to a low cost of capital. I think we will see more from this area. There will be further partnerships for sure and further outright acquisitions. Some of the investment management activity will be two-way. The Chinese want to invest in Europe and Europeans want to invest in China. Partnerships and acquisitions give them access to product, capital and management teams.’

With European markets becoming increasingly competitive, iInvestors need to be very sophisticated to succeed, Barter said. 'Most are behaving cautiously and taking things step by step before they strike out alone. In terms of numbers, the quantum is certainly there.’

Another interesting area, Barter said, is construction. ‘UK contractors are under pressure. After the outbreak of the crisis they had to cut back and now with an upturn they’re facing a capacity constraint. I think we will see some newer international players focused on regeneration and infrastructure and the big Chinese groups will no doubt join the activity and the process of consolidation.’

Barter is predicting a very busy second half as well and further yield compression for the months ahead. 'We’re seeing more money than we have ever seen and transaction volume shows no sign of abating.'

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TOP 10 EUROPEAN REAL ESTATE DEALS
H1 2015

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1. Klépierre acquires shopping centre peer Corio
2. Deutsche Annington acquires Gagfah in €3.9b share deals
3. Brookfield, QIA close €3.6b acquisition of Canary Wharf
4. Brookfield agrees to acquire €3b UK holiday resort group
5. Canada's HBC, US Simon take over Galeria Kaufhof real estate for €2.4b
6. Deutsche Annington acquires 20,000 resi units for €1.9b
7. Citycon buys Norwegian shopping centre owner Sektor Gruppen
8. Blackstone, Wells Fargo buy GE Real Estate assets for €22b
9. Canadian pension fund inks €1.5b UK student housing deal
10. Ivanhoé sells €1.2b of Paris offices to Gecina, raises stake

For the latest investment briefing information on key European markets, see the digital Outlook edition of PropertyEU Magazine published in July.