Lone Star to build on TLG as German property platform
US private equity group Lone Star will use its successful acquisition this month of state-owned TLG Immobilien to create a new platform for its German real estate investments, centred around the firm’s Real Estate Fund II, which also recently bought a portfolio of property loans from the Bundesbank.
In a hard-fought bidding process, Germany’s finance ministry awarded TLG Immobilien to Lone Star for €1.1bn in what was Germany’s biggest property deal this year, and the largest federal privatisation for five years. Lone Star is paying €594m in cash and will take on about €500m in debt to buy the full package, which had had a nominal valuation of €1.38bn on the government books.
The portfolio consists of 780 individual assets ranging from office buildings and shopping centres to land, factories, and ‘alternative assets’ such as hotels and retirement homes across the eastern German states, including Berlin, Leipzig and Dresden. The company has 230 employees. The division generates actual annual rental income of €106m, led by the retail outlets at €44.7m, the office properties bringing in €32.3m, other commercial properties €14.7m, and operator-managed assets such as hotels or managed-care homes generating rent of €13.1m.
The sale completes the finance ministry’s disposal of the old TLG Group, which the government split up into a residential and a commercial company to facilitate the sale. TLG Group had developed out of the old Treuhandgesellschaft, the company that had overseen the sale and restructuring of thousands of companies after the collapse of the old East Germany. Just a few weeks ago TLG Wohnen, the residential division with 11,300 apartments, was sold to listed property investor TAG Immobilien for €471m including debt, netting the Finance Ministry €218m.
In a statement, Finance Minister Wolfgang Schäuble said, “The current market situation posed an ideal opportunity for the German Government to sell TLG Group .. and to realize a good price for tax payers. From the government’s perspective, the current market situation was ideal for the sale of the TLG Group”.
Alexander Hesse, Lone Star’s managing director in Germany, said that “TLG has attractive properties in good locations, most of which were acquired or developed in the past 10 years.” The assets will now be managed by Lone Star’s Real Estate Fund II, the vehicle that in April bought property loans formerly held by the German arm of the old Lehman Brothers from the Bundesbank, with a nominal value of €1.4bn.
Among those in the final bidding were Blackstone Group, Morgan Stanley and Cerberus Capital Management, but a government spokesperson said the deal went to Lone Star because it offered both the highest price and had lined up all its financing in advance.