German real estate company IVG Immobilien plans to list its German office arm, Officefirst Immobilien - which holds assets worth more than €3.24 bn - by the end of the year, according to a statement released by Officefirst.
The move comes after negotiations about a sale of Officefirst to private equity firm Blackstone collapsed, a source close to the deal told PropertyEU. IVG is believed to have rejected Blackstone's offer of around €3.3 bn, according to those who track the market. Blackstone declined to comment.
The IPO will consist of new Officefirst shares amounting to €450 mln as well as stock owned by IVG, Officefirst said. The proceeds raised will be used to repay debt and cover part of the conversion cost of turning the company into a REIT next year. The shares will be traded on the Prime Standard of the Frankfurt Stock Exchange.
'We have reached our strategic goal: Officefirst Immobilien is ready for the capital markets,' said CEO Michiel Jaski. 'Following the new refinancing, the next logical step is to take the company public. The IPO will provide us with access to the capital markets and further improve our capital structure. By doing so, we want to ensure that we can continue our successful long-term strategy - the powerful combination of stability and sustainable value creation.'
IVG may have rejected Blackstone's offer because it is banking on investors paying a premium to access a German office portfolio of this size, one analyst, who asked not to be identified, told PropertyEU. 'Plenty of investors are looking at German REITS and German real estate is very much in demand,’ he said. 'It's hard to price this portfolio because there isn’t a comparable one but if you're bullish on Germany, maybe you’d be willing to pay a premium for access like this. Only an IPO will tell.'
Other investors may be concerned that up to 300,000 m2 - or a fifth of the portfolio - could become vacant as a number of existing tenants, including Allianz, are in the process of building new headquarters in Munich. Lufthansa also plans to vacate half of its existing space – or 9,500 square metres - at the Squaire scheme at Frankfurt airport. Many of the leases in question are due to expire by 2020. 'Re-letting space is potentially a capital intensive process, especially if tenants want to consolidate some of their existing space,' the analyst said.
IVG's investors – it is owned by 30 hedge funds, of which Anchorage Capital Group is the largest and which also includes York Capital - are understood to be seeking to raise €800 mln to €1 bn from the stock. Officefirst plans to pay a dividend for this year equivalent to about 50% of its funds from operations. From 2017, the payout will amount to between 65% and 70% of funds from operations.
IVG spun off its office portfolio into a stand-alone entity in June this year. At the time, Jaski billed the move as a way to 'fully exploit our entrepreneurial potential that is a solid basis for our company.'
Officefirst is one of the biggest office portfolios in Germany, comprising 97 properties in Frankfurt, Munich, Berlin, Hamburg and Stuttgart. The portfolio also includes The Squaire office development at Frankfurt airport. The occupancy rate stood at 91.6% at 31 March 2016. The total annualized in-place rent was around €207 mln at the end of the first quarter 2016.
IVG went through insolvency proceedings in 2013 after cost overruns at its Squaire premises made debt levels unsustainable.
