TLG Immobilien offers enhanced dividend on improved prospects post-IPO

Recently-floated eastern German commercial property specialist TLG Immobilien has dangled the enticing prospect of up to 6% dividend yield for next year, based upon sharply higher FFO for the first nine months, up 28% to €40.4m. The company’s management announced last week that it expects this to rise to €50m next year, and had instigated a rigorous programme of new acquisitions to deliver the necessary growth.

In the last few weeks TLG bought an office complex in Leipzig, as well as another office building and a neighbourhood shopping centre in Berlin. Focused on eastern Germany, TLG owns offices and hotels, while grocery retail property now makes up fully a third of its business, with chains such as Edeka, Rewe and discounters Aldi and Lidl being major tenants. Its recent flotation and capital increase – executed at the lower end of its possible price spectrum – raised €375m, of which €100m went to TLG “to be committed for expanding its core portfolio”, said the company. Previous owner Lone Star still retains a 43% holding following the IPO.

TLG’s chief financial office Peter Finkbeiner has made his influence felt since coming to join CEO Niklas Karoff at the helm of TLG. REFIRE sat down with the Lone Star veteran in TLG’s headquarters recently to discuss the company’s financial strategy (before the announcement of and subsequent listing of the company on the stock market). Interest costs have been reduced due to more favourable refinancing. Staff numbers have been reduced from 241 to 155, a savings in personnel costs of €7.4m. The company’s holding are being streamlined, by geography and asset category.  About 44% of TLG’s 489 different assets (valued at €1.5bn) are now in Berlin, 15% in Dresden and 9% in Leipzig.

We carried a brief interview in REFIRE recently with Milan Cvisic of Colony Asset Management in Berlin, where Cvisic was very bullish on office property in East Berlin. TLG Immobilien has now produced its own comprehensive report, “Property markets in Berlin and eastern Germany 2014”, a report which the group has produced religiously since 1993, documenting statistics, analysis and development trends. The 2014 Report provides the most up-to-date information on economic and demographic trends, office and retail rents, investment volumes and all the key statistics on office, retail and hotel markets, as well as price ranges in the hospitality industry.

CEO Niklas Karoff confirms that investor interest in, particularly, Berlin shows no sign of abating, leading to further price rises. All the major broker groups confirm this – BNP Paribas Real Estate, for example, says that in the first three quarters of this year, investors bought €2.7bn of offices, shopping centres, hotels and other commercial property in the city, a rise of 18% over last year.

Yields in Berlin have fallen commensurately, with quality office properties in top locations now at about 4.6%. Support for the rising investor demand is underpinned by a healthy rise in the number of workers employed, which has seen office vacancy rates fall to 5.5%, while office rents have risen ba 1.8% over the past year.

The TLG report pays particular attention to the hotel market in the city, with mixed results for investors. Although the hotel industry enjoyed a record number of guest nights in 2013, at 27m nights, the key indicator REVPAR, or revenue per room was a comparatively lowly €64.00 per room – lower even, as the report point out, than up in Rostock on the Baltic coast. For eastern Germany as a whole, key performance indicators in the hotel sector in all the largest eight cities have been rising steadily since 2008, particularly in Leipzig, Dresden and Rostock. Leipzig in particular has been as stellar performer, with the REVPAR rate jumping 30% since 2008.

In retail real estate, rents have remained very stable. Grocery store properties have held up remarkably strongly, partly due to the lack of any inroad into the market yet by online sales. Rents for food discounter stores have risen by 7.4% in 2010-2014 compared with the period 2005-2009, a factor which has probably played a big role in TLG Immobilien’s own increased involvement in the sector.