Grainger ties up with Heitman for German residential JV
The UK’s Grainger plc has tied up with international fund manager Heitman to create a joint venture to invest in a 3,000-unit German rented residential portfolio currently owned by Grainger, and representing nearly half of its total German residential holdings.
The new Luxembourg-registered joint venture, known as MH Grainger JV Sarl, will be 75% owned by Heitman, on behalf of South Korea’s NPS pension fund, while Grainger will hold 25%. The JV’s long-term strategy is aimed at “maximising returns through income growth and active asset management”, according to the partners.
In a statement, Grainger said the agreement was in line with its strategy “to align itself with third-party institutional capital to make more efficient use of its balance sheet and operational platform”. The transaction will allow Grainger to leverage its management platform, acting as the JV’s expert partner in German residential property investment. Grainger will receive fee income for its services to the JV and also retain a strategic stake in the portfolio. The deal still leaves Grainger with a further 3,400 apartments in Germany, currently valued at €242m.
The Newcastle-based Grainger, the UK’s largest private residential landlord and which numbers the Norwegian sovereign wealth fund and Dutch pension fund manager APG among its shareholders, has more than €3.0 billion in residential assets under management in the UK and Germany. Top management at the company told REFIRE in a meeting last year that its emphasis in Germany would be shifting to a closer relationship with third party investors to capitalise on its local skills and knowledge, and avoid undue reliance on capital growth. CEO Andrew Cunningham underlined that strategy in commenting on the joint venture deal: “This deal supports our on-going program of generating greater fee income from third parties, balancing our trading income with other recurring income - a key aim for the company, and our process of de-leveraging.”
The new JV will acquire a portfolio of German residential assets currently wholly owned by Grainger, representing €232m of Grainger’s total €474m German portfolio (as at 31 March 2012). The portfolio comprises 2,985 residential units across six regions in Germany and produces an approximate annualised profit of €5.2m, including revaluation gains. Grainger will receive €54m for the Heitman 75% stake, which will see its debt level fall by €206m, and will receive asset management and incentive fees for continuing to manage the portfolio. The portfolio itself is made up of 112 properties, the majority of which are no more than five stories high, featuring balconies and well-maintained gardens, along with other interesting period features, from what REFIRE understands.
Grainger has arranged €152m of debt with German lender Corealcredit which will also be transferred to the JV, resulting in a JV loan-to-value ratio of 65%. This is notable in that this would normally be quite a bit higher than most pension funds would be willing to risk on their own investments, even on very stable income-producing assets such as the Grainger properties.
Rob Reiskin, Heitman’s co-head of Europe, commented: “Grainger is a best-in-class operator in the German rented residential market, where we view the fundamentals as particularly attractive. With most of the assets located in high barrier-to-entry premier markets, Bavaria and Baden Württemberg, the JV provides a rare opportunity for institutional investment where it has formerly been difficult to gain exposure.”