Austria’s Immofinanz fattening up BUWOG for 2014 IPO

The recent somewhat bumpy track record of real estate IPOs in Germany may have caused the top brass at listed Austrian property investor Immofinanz to put any ambitions for public listings on ice for the moment. But the company is moving into a higher gear in making preparations for a 2014 flotation of its wholly-owned residential subsidiary BUWOG. That involves a rapid shifting of the centre of gravity of the company’s operations from its home market to Germany.

Its latest German deal involved the acquisition of a portfolio of 1,190 apartments in the city of Kassel in northern Hesse, central Germany. BUWOG paid €45.8m, reflecting a gross return of 9.16%. The 1,190 assets, with total lettable space of 88,483 sqm, are situated in three locations in the south-western part of the city.

The portfolio has a low vacancy rate of 2.5% and a stable tenant mix with low fluctuation. The average rent of €4.05 / sqm is below the market average for Kassel and therefore indicates upward potential as well, BUWOG said.

According to Alexander Hoff, BUWOG’s managing director, “Our acquisition strategy differs from those of numerous competitors in that we are not focused on the biggest, but on the best markets. For us the decisive criteria are the upward potential for rents and the opportunity to grow further at one location.”

More buys in the area may be in the offing, Hoff suggested. “The Kassel portfolio was an excellent buying opportunity with high yields
and sound pricing, and for that reason we are exploring other potential acquisitions in the city”, he said. “With 200,000 residents, Kassel is an attractive medium-sized market and its favourable business development - in the most important location rankings the city is listed among Germany's top 10 most dynamic cities - ensures excellent prospects. The city’s central location in Germany and connection to the high-speed rail network are other advantages.”

This is the third acquisition BUWOG has made in Germany this year, following the purchase of a 1,916-asset residential portfolio in Berlin along with a 900-asset portfolio in Lüneburg and Syke in northern Germany.

BUWOG is the leading private residential property company in Austria, with 27,200 of its 33,500 apartment located in its home country. As part of its medium term plan to build up holdings of 15,000 to 20,000 units in German prior to the planned IPO, the company has been shedding assets in Austria. Earlier this month it sold a portfolio of 1,135 apartment in 48 separate buildings in Upper Austria to Linz-based Wohnbaugesellschaft WAG, the strongest local housing investor. The sale came on the back of further sizable disposals in the provinces of Vorarlberg, Styria and Carynthia, in favour of further focus on Vienna and Germany. The company has stressed how the higher returns available in Germany on residential are the driving force behind the re-allocation of resources.

Over the coming months Immofinanz plans to buy a further portfolio in Lüneburg with 900 units from Israeli real estate group Tshuva, and has a further pipeline of about 10,000 apartments under negotiation. Floating half of BUWOG next year with its bolstered holdings should raise about €700m for Immofinanz, CEO Eduard Zehetner said in a talk with media recently.

Immofinanz recently posted full-year 2012 figures which saw profits plunge by 59.1% to €110.8m. The poor results were attributed to higher than expected downward valuations - from €170.7m to €37.9m. By contrast, operating profits rose 15.3% to €542m, with rental income rising by 12% to €655.8m, and sales volumes reaching a record €661.3m.