TLG priming for imminent stock market launch

All the indications are that Lone Star Funds is pressing ahead with the preparation for the stock market flotation of subsidiary TLG Immobilien GmbH, with the IPO expected to see a share placing of upwards of €500m. Market rumours of a launch as early as this year may be somewhat optimistic, but when it happens the IPO is likely to be the first significant flotation of a German commercial property company for some time, after several recent residential property launches.

Lone Star bought TLG from the German government privatisation agency last year for €1.1bn, while the residential assets of the old TLG were hived off into a separate company and sold to listed Hamburg residential investor TAG Immobilien, which is focused on modestly-priced housing.

Lone Star has now appointed UBS and JP Morgan as lead managers to handle the flotation of the eastern Germany commercial property specialist, which owns more than 800 assets including offices, hotels and retail properties in large eastern cities such as Berlin, Dresden and Rostock. Among their most prominent assets are the Kulturbrauerei campus and the Spreestern in Berlin, and the Hotel de Saxe and the Zwinger-Forum shopping centre in Dresden. The company is valued at about €1.5bn including debt.

In a recent interview with newspaper Die Welt, TLG Immobilien’s CEO’s Peter Finkbeiner and Niklas Karoff described how they have been slimming down the group’s holdings over the past number of months, “to set up the whole portfolio in a much more efficient manner”, as they said.

TLG has certainly been disposing of smaller office and retail assets and concentrating its attention on the larger cities, with cities such as Berlin, Rostock and the Leipzig/Dresden region taking priority for its office properties, while B- and C-locations are being primed for retail – particularly those with imminent lease expiries that can be renegotiated upwards.

TLG has also been renegotiating its debt arrangements. According to Finkbeiner, “We now have average loan maturities of around five years, which gives us much more room to plan. In many cases we’ve been able to avail of the low interest rate environment to secure loans at less than 3%”

The company’s growth plan envisages buying office properties in 1-B locations in the larger cities as well as supermarkets in smaller towns with good growth prospects, of which there are still plenty in eastern Germany, despite countervailing demographic trends, say the TLG managers.