Part-exit for IVG owners after sale of OfficeFirst to Blackstone
Once Bonn-based IVG Immobilien had pulled its mooted IPO of office subsidiary OfficeFirst recently after breaking off negotiations with potential partners for a trade sale, it was inevitable they would immediately re-examine the status quo ante and either act quickly or put the public listing on the long finger – probably well into next year and the murky perspectives stirred up by Brexit, Trump, et al.
After an almost indecently short interval following the aborted IPO, IVG Immobilien closed the deal with private equity group Blackstone to sell OfficeFirst for a price put at about €22 per share, which - with €1.5bn of debt - would put an enterprise value on OfficeFirst of €3.3bn. Back in September, this was the price that Reuters reported was insufficient when Blackstone and IVG broke off talks, prior to the attempted flotation.
However, what would have been the second-biggest market listing in Germany this year failed when not enough buyers were tempted by the €21-23 price spectrum. In a statement following the IPO cancellation, OfficeFirst's recently appointed CEO Michiel Jaski had said “We have to recognize that the market environment has become so much bleaker in the last few days that a fair price would currently be hard to attain.”
OfficeFirst owns a €3.2bn portfolio, consisting of 97 separate properties, mainly located in Frankfurt, Munich, Berlin, Hamburg and Stuttgart. The assets include the landmark The Squaire office and hotel property at Frankfurt Airport.
The portfolio, one of the largest in Germany, 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).
According to Dietmar Binkowska, CEO at IVG Immobilien, “In roughly two years, we have fundamentally restructured IVG’s real estate business and, by spinning off and refinancing the core portfolio in OfficeFirst Immobilien AG, successfully created a standalone platform ready for the capital market that holds and manages an attractive commercial property portfolio.”
Blackstone is buying the OfficeFirst portfolio through one of its regional real estate funds, the €6.6bn Blackstone Real Estate Partners Europe IV. This is an opportunistic fund that targets a 20% gross IRR, or 15% net of fees, and generally holds assets for about five years. The deal – the largest property deal in Europe this year - is expected to close in the first quarter of 2017.
The portfolio is facing challenges, including the sort of capex that only a big player like Blackstone could stomach. Several existing tenants, such as Allianz which is building a new headquarters in Munich, and Lufthansa which is also planning to downsize its operations in The Squaire in Frankfurt, have given notice to quit large amounts of space, and several other leases are up for renewal by 2020.
The thirty hedge fund owners who have owned IVG since a debt-for-equity deal following the company's insolvency in 2013, and who include York Capital, Anchorage and Davidson Kempner, plan to pay themselves a special dividend of €1bn out of the proceeds once the deal to Blackstone officially goes through. This will be resolved at an extraordinary general meeting scheduled in Bonn on 23rd December.
The next step for the hedge fund owners is to focus on the future of the other two divisions within IVG – The Triuva closed-end fund business, and the caverns business on German's northeast coast, which stores strategic oil and gas reserves underground, but which require heavy maintenance expenditure.