IVG Immobilien's OfficeFirst still on track for IPO this year

It now does look as if OfficeFirst Immobilien, the core office portfolio of IVG Immobilien, is teeing up its public listing for launch before the end of the year. What looked like a pre-emptive bid from private equity giant Blackstone over the past weeks has obviously not proved sufficient to entice OfficeFirst to deviate from its plans to list – and now obviously sooner rather than later.

IVG Immobilien's core portfolio was spun out of the parent company earlier this year in preparation for a sale, either public or private. The portfolio is one of the largest office property portfolios in German, consisting of 97 separate assets with a total value of €3.3bn, focused (96%) on six big cities – Frankfurt, Munich, Hamburg, Stuttgart, Düsseldorf and Berlin.

OfficeFirst plans to issue about €450m of new shares in the IPO, and to use most of the net proceeds to fully repay ists outstanding debt and partially fund the company's planned conversion into a REIT. A listing of a likely 40% to 60% of the company's shares would raise €700m to €900m. The enterprise value of OfficeFirst was recently put at €3.25bn, including €1.25bn of equity and €2bn of debt.

According to Michiel Jaski, OfficeFirst's CEO, “We have reached our strategic goal: OFFICEFIRST Immobilien is ready for the capital markets. The past months have shown that we can further increase the profitability of the portfolio through asset management activities. 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."

The portfolio has an occupancy rate of 91.4%, and generates rent of €207m annually. The average WALT from tenants, who include many of Germany's blue-chip corporate names, is 5.3 years. Net rental income for the first six months of this year was €99.5m (up from €97.7m last year), recurring EBITDA was €76.6m {up from €72m), FFO rose to €46.6m (€40.9m) and consolidated net profit rose to €122m (from €87.8m).

Just this month the company refinanced €695m of loans via a consortium of banks, which included a bridge loan which the company plans to repay with the proceeds of the IPO. Finance director Fabian John said the IPO would halp to lower the company's cost of capital and help to reach the target of 45% LTV.

The company plans to pay a dividend from the beginning of 2017 of 65% to 70% of FFO. For 2016 the planned dividend is 50% of the year's FFO.

IVG Immobilien is owned by 30 hedge fund ex-bondholders who took over the company in a debt-for-equity swap three years ago that wiped out the original shareholders in what had been Germany's largest listed property company in its heyday. Talks had been held with big office players such as Alstria Office REIT and Patrizia Immobilien, and latterly Blackstone, but I it looks as if none of the offers were compelling. A direct sale to an investor would have given the company's investors cash up front, whereas an IPO would be likely to provide them with an exit only partially, and in stages.

The old IVG has now been separated into three divisions: OfficeFirst for the office properties, Triuva for the funds management business, and Storage Etzel for the company's underground caverns business for the storage of oil and gas.