Stenprop exits German market to concentrate on UK multi-let industrial

UK REIT Stenprop has agreed to sell the Bleichenhof mixed-use property in the centre of Hamburg to Projekt Palais Verwaltungs GmbH, a vehicle beneficially owned by three German medical occupational pension funds. The price was €160m.

The Bleichenhof property is the largest single asset in the Stenprop property portfolio, making up approximately 21% of the gross portfolio by value. It is a mixed-use property situated in the centre of Hamburg with a total lettable area of 19,500 sqm of which currently 94% is let, generating a contractual rent of €7.0m per annum.

The disposal is in line with Stenprop’s strategy to become a 100% UK multi-let industrial (MLI) business via the sale of all non-MLI properties in its portfolio and the reinvestment of the proceeds into UK MLI properties. As at 30 September 2019, approximately 44.6% of the Stenprop portfolio was made up of UK MLI estates.

On completion of the disposal, assuming no further purchases of MLI estates, the MLI percentage of the portfolio will rise to 56% calculated based on Stenprop’s total property asset value. Stenprop intends to use the net cash proceeds of around €59.6m from the disposal to acquire additional UK MLI estates, and to pay down debt. The deal is expected to complete by 31 March 2020.

In November Stenprop said that strong valuations in Germany had resulted in the decision to accelerate the sale of German assets to focus on UK-based MLI assets. There it provides work spaces for small and medium business. Its CEO Paul Arenson said 60% of the group’s assets need to be industrial parks at the end of March 2020, and 100% of them at the end of March in 2021.

The company had wanted to time its sales in Germany with MLI acquisitions, but noted high valuations in that market, even as the pipeline of MLI purchase opportunities has decreased.

Stenprop now plans to bring three Berlin retail centres and its portfolio of five retail warehouses to market in January. These properties were valued at the end of September at £229.6m.

Among Stenprop’s peers in Germany would have been Sirius Real Estate, which specializes in branded business parks across the country. Like Stenprop, Sirius has a sizeable community of investors in South Africa, where in addition to its listing in the UK it is also listed on the Johannesburg Stock Exchange. 

On Stenprop’s exit from the German market, analyst Peter Clark of Investec Asset Management commented in a note: “Stenprop is on a transformational path towards a higher growth structure sector. It is also moving towards having a higher operational element to the business. The MLI investment together with the operational platform, industrials.co.uk, are starting to deliver.” “Although the business has come a long way, it has only transitioned just over half way into the MLI business, hence there remains some execution risk, and while the balance sheet is not strained, gearing remains higher than peers. Something the company plans to address in the short to medium term.”