Lone Star considering flotation of TLG Immobilien

A recent report by news agency Bloomberg citing three company insiders said that US private equity group and turnaround specialist Lone Star plans to float the Berlin-based TLG Immobilien GmbH, which it bought last year for €1.1bn. The IPO could happen as early as the second half of this year, the report said.

When Lone Star bought TLG Immobilien last year, the eastern German-focused TLG managed about 780 offices, warehouses and hotels. Its assets included the prestigious Hotel de Saxe in Dresden and the Kulturbrauerei, a former brewery in east Berlin that has been converted into a campus venue housing restaurants, bars and music venues. The Dallas-based Lone Star paid €594m in cash and assumed €504m of debt for TLG Immobilien, which is now held in Lone Star’s Real Estate Fund II.

TLG had had a valuation of €1.38bn prior to the sale to Lone Star, with its 266 retail properties valued at €525m and 73 office properties at €420m, plus the hotels valued at €80m, and unspecified valuations for diverse nursing homes, elderly home and light industrial buildings. Lone Star is known to have sold non-core parts of this portfolio, along with its share of Dresden’s landmark Altmarktgalerie shopping centre, valued at €130m, although it’s not clear from TLG’s own website exactly how many assets remain in the portfolio.

TLG Immobilien evolved out of the old Treuhand Gesellschaft, the holding company run by the government to oversee the restructuring and sale of thousands of old East German companies after the 1990 reunification. The housing division of TLG was also sold off separately as part of the privatisation of the group last year.

Given the favourable climate for German real estate and rising stock market valuations in the listed sector, the move would likely make sense for the opportunistic Lone Star. It probably won’t be alone; fellow-US private equity group Cerberus is also considering bundling its €2bn of German retail assets together for a market listing. Investor enthusiasm for the sector remains positive, with the EPRA/FTSE NAREIT index of German property stocks gaining 11.4% so far this year, compared to 0.2% in the German benchmark DAX-30 index.