Uruguayan investor snaps up 21% of TLG in muted IPO

There was little fanfare recently in Frankfurt for the listing of eastern German property specialist TLG Immobilien, in part due to the somewhat cool reception afforded stocks throughout October. Sentiment has picked up somewhat on global markets since then, with the DAX having picked up from a steeply falling month to recover a fair amount of lost ground, despite what looks like a deteriorating economic outlook for Germany.

The TLG share price is also holding steady, but it was forced to launch at the lower end of its price spectrum to ensure that the issue got away cleanly, and avoid a repetition of the stumbling start experienced by fellow-listed group Deutsche Annington last year, in a similarly nervous market phase. TLG, owned by US turnaround specialist Lone Star, launched at €10.75, the lower end of its indicative price range of €10.75-13.75.

A notable feature of the share take-up was the purchase by a Uruguayan-based equities dealer, who scooped up fully a third of the equity on offer for its own position and on behalf of several Latin American institutional clients. This makes Mercantil Valores Agente de Valores SA of Montevideo a 21% shareholder in the Germany company. Following its investment, its first in Eruope for many years, the company commented: “We regard TLG as a unique investment opportunity in high yielding real estate assets in a growing economy with a safe legal environment,” it said. “According to our analysis TLG ratios and multiples appear to be more attractive than those offered by comparable Latin American real estate investment companies (e.g. Mexican REITs or Fibras)."

TLG Immobilien owns and manages about 800 offices, shops and hotels in eastern Germany which gives it a strong equity story based on its focused management and solid business model. It has strong presence in Berlin, and also generates about 35% of its rental income from grocery retailers such as Edeka and REWE and the discount groups Aldi and Lidl.

At the offer price, TLG was valued at €659m in equity or €1.24bn with debt, which sees it trading at a discount of 17% to its net asset value. The company will have brought in about €100m (less about €5m issue costs) from selling new shares as part of the flotation, now earmarked to expand its core portfolio through acquisitions, while parent company Lone Star should earn €296m in reducing its shareholding from 100% to its current 40%, while retaining the upside potential of selling further stakes at subsequently higher prices. It paid €1.1bn including debt in 2012 for TLG Immobilien from the German state (€594m in cash and €504m in assumed debt)

TLG is now capitalised at about €670m. CFO Peter Finkbeiner recently confirmed the company's intention to pay a dividend of 70-80% of the annual Funds from Operations.