TLG residential sold, sale of TLG commercial imminent
The first part of the long-awaited TLG Group privatisation was completed earlier this month with the sale of the 11,300-unit residential housing division TLG Wohnen to the listed, Hamburg-based TAG Immobilien, long considered one of the favourites in the lengthy bidding process. The remaining sale, of the much larger commercial division TLG Immobilien, had been expected to be completed before the end of the year, but the latest word from Berlin is that this may now not take place until early next year.
TAG Immobilien is paying about €471m for the residential division TLG Wohnen, which includes debt of about €256m. The equity portion of the purchase price will be refinanced by issuing up to 30 million new shares to existing shareholders (with five new shares being offered to shareholders for every seventeen held), which should be enough for a number of further bolt-on acquisitions, the company said. The issue price will be determined on December 3rd. Credit Suisse and Barclays Bank are providing bridge finance until then, and are also acting as lead managers and bookrunners for the rights issue. Kempen & Co, UniCredit Bank and Close Brothers Seydler are co-lead managing the issue.
The TLG properties are located mainly in the areas of Berlin, Dresden and Rostock, have a total floor area of 695,000 sqm and generate annual rental income of €42.4m. They currently have a vacancy rate of 4.7%. While in good condition, many of the apartments are what Germans call ‘Plattenbauten’, the pre-cast concrete multi-storey blocks frequently built throughout East Germany in the communist era. The acquisition brings TAG’s residential holdings up to 69,000 units with more than 4 million sqm, generating net annual rent of more than €250m, and with a total valuation now of more than €3.6bn.
In keeping with the current climate of political sensitivity to housing privatisations, TAG are committing to a very stringent social charter, said by the German Finance Ministry to exceed any existing such charters designed to protect tenants’ interests. This includes heavy restrictions on the new buyers ability to raise rents, pressurise longer-term and elderly tenants, skimp on maintenance, or otherwise fail to fulfil specified ‘social’ obligations.
TLG is the legacy company of the old Treuhand Liegenschaftsgesellschaft, which was founded in 1991 after reunification to bundle together and manage East German state-owned property assets. It has since been streamlined and run as a diverse property company and has produced consistent profits for its state owners since 2002.
The commercial division TLG Immobilien is being sold separately, and has a current valuation of €1.38 billion. The division has more than 1,100 assets, including 75 office buildings, 270 retail properties, and a hotch-potch of other assets including nursing homes and some hotels. Among those thought to be leading in the current bidding is US private equity group Lone Star.
REFIRE: Another feather in the cap for the resurgent TAG Immobilien AG, which has undergone a renaissance since the arrival of CEO Rolf Elgeti in July 2009 – growing by a factor of ten since his arrival. Acquisitions include previous high-flyer Colonia Real Estate, and more recently the BayernLB subsidiary DKB Immobilien. Debt for these and for the latest acquisition are all scheduled to be optimised early in the new year, resulting in more favourable financing terms, says the company.
Elgeti’s board is so pleased with their man that they’ve signed a fresh contract with him ahead of schedule, binding him to the company until 2017. Shareholders too are delighted so far – they’ve seen the company’s share price rise eight-fold since he came on board. If there is really meaningful synergy in all these new residential holdings, that should start to flow through in the form of increased funds from operations very soon, which should keep investors smiling.