UK's Grainger selling €200m German residential assets

The UK's largest listed specialist residential landlord Grainger plc is to sell its £140 mln (€197 mln) portfolio of German assets to refocus its activities on its UK home market. The company has hired investment bank Lazard to handle the sale.

Describing the German operations as "non-core to our UK-focused strategy, the Newcastle-based Grainger said in a statement, "This will enable the group to accelerate its strategic and financial focus on its UK residential activities to enhance shareholder value whilst taking advantage of the currently strong market for residential property in Germany."

In March the company reported it had 2,814 managed, market-rent units, valued at €197m, in Germany. A joint venture between Grainger and US investor Heitman also owns a further 2,750 units, valued at €240m. Grainger's UK portfolio was valued at £840m sterling.

In Germany, the Grainger properties are mainly located in North Rhine Westphalia, Hesse, Baden-Württemberg and Bavaria. The assets held jointly with Heitman are not part of the German sale, said the company.

Grainger CEO Andrew Cunningham said the firm had bought into the German market at a time when it wanted to build up its rental incomes, while it had little opportunity to do so in the UK at the time. “At the time it was difficult to build a rental portfolio in the UK, but, going forward we now know the opportunities are great in the UK and that’s where we will focus… (The deal) has the added advantage that we’re selling into a rising market in Germany. If you’re going to sell a portfolio, now is the time to do it.”

Cunningham added, "Our focus on accelerating the growth of our UK PRS business is going well, with recent acquisitions bringing our total managed PRS portfolio in the UK to over 3,400 units, and with a pipeline of over 2,000 units,' said Grainger CEO Andrew Cunningham. 'And last week we were pleased to achieve a significant refinancing package for our syndicated bank debt, reducing our cost of debt and extending maturities."

The refinancing saw Grainger extending its debt to August 2020 from July 2016 and cutting the margin on its facility to 170 basis points, 50 bps lower than on its previous loans.

A recent report in the Financial Times suggested that activist investor Crystal Amber, a Guernsey-based fund with a record of targeting small-cap companies and which holds a 3.2% stake in Grainger, has been pressurising the group to refinance its debt and seek a takeover by an institutional investor. Grainger's shares have long traded at a discount to their net asset value, in contrast to most of their listed peers in London which trade at a premium.

Crystal Amber was quoted as saying it believe there is hidden value on Grainger's balance sheet because of its ownership of properties valued at below their open market sale price. Grainger owns £1.5bn of rent-controlled homes in the UK, and a further £1.1bn of homes rented at market rates, many of which are in London and the southeast, where property prices have risen strongly.