Singapore’s German real estate IPO is just the tip of the iceberg

Mr. Tong Jinquan is a selfmade property tycoon, ranked by Forbes magazine as China’s 35th richest man. Like many wealthy Chinese, he is keeping a beady eye on developments in Singapore’s REIT market, and at the moment prefers to invest his wealth there given the uncertainties in mainland China’s own property market.

In fact, Mr Tong now has holdings in nine Singapore REITs, valued at about US$780m. His shares in Suntec Real Estate, Cambridge Industrial Trust, Viva Industrial and several other REITs give him a broad exposure to the real estate markets in Singapore and throughout Asia, including Australia. In his day job, he is the chairman of Summit Property Development in Shanghai which owns highend hotels and the Longemont shopping centre in the city, among others.

Mr. Tong is about to buy 60% of the IPO of I-Reit Global Management which is floating on the Singapore stock exchange next week. I-Reit’s assets consist of four office buildings in Germany, three of which (in Bonn, Darmstadt and Münster) are fully-let to Deutsche Telecom, and the fourth, in Aschheim near Munich, to multiple tenants, including insurer Allianz.

The IPO aims to raise €224m, which will pay off most of the debt on the four properties, leaving Mr. Tong as the majority owner of the assets. He has studied the prospectus and will be expecting a yield of 8% on his investment, which should suit him very well.

Here at REFIRE we remember well the rash of companies that sprang up on London’s lightly-regulated AIM market to invest in German real estate back in 2005-2006. Most are now penny stocks, if they still exist at all. In many cases they were barely serious attempts to cash in on rising real estate markets – ANY real estate markets - while the getting was still good. Once the funny money started washing into Germany, though, the end was nigh. The era of the lawyers and the special servicers was upon us, and they’ve been feeding off the carcasses of those listed property vehicles ever since.

It might have escaped people’s notice, however, that since the start of the financial crisis there have in fact been five IPOs of German real estate companies OUTSIDE of Germany, including listings in Canada and Israel, as well as in the UK. These have been of a different breed to their predecessors, and most have done well. With I-Reit’s Singapore listing, more than €1.15bn will have been raised over the last five years on foreign exchanges for German property.

This is a testament to foreign investors’ perception of the stability and security of yield offered by the German market, underpinned by a widespread admiration for the efficacy of German business as well as sound macroeconomic management. But it is still small, compared to the extent of the capital we expect will flow over the coming years.

EPRA chairman Serge Grybowski commented recently after a tour to visit Chinese and South Korean investors, how those whom his team had met were highly interested in the Eurozone’s listed property sector, which they view as offering attractive dividend yields. “They consider that they already have an overweight allocation to the US and London, so the shift to the Eurozone is also part of a rebalancing of their property portfolios”, he said.

EPRA’s beat, of course, is the listed property sector in Europe, and hence it is not surprising that they are meeting with those Asian investors for whom investing in listed companies provides a liquid, cost-effective and efficient way of increasing their exposure to the Eurozone. As they become more familiar with European markets, Asian investors will certainly become more adventurous, and will seek out partners with whom they can invest directly in European real estate.

Our mission at REFIRE is, and has always been, to help interpret and explain to institutional investors what goes on in German real estate. We consider it a natural extension of this brief to now widen our remit to bringing the German real estate story to China.

We have spent the last couple of months establishing our team, both here in Germany and in mainland China, to ensure that we have the linguistic and cross-cultural competence to do justice to our forthcoming project.

REFIRE is organising a roadshow to bring German real estate service providers together with leading Chinese outbound investors, to explain how Germany works, to outline real estate opportunities and to make valuable connections that will serve to break down barriers and foster relationships with key Chinese investor groups.

REFIRE’s “1st Annual German-Chinese Real Estate Forum” will take place in Hong Kong on January 19th, in Beijing on January 21st, and in Shanghai on January 23rd 2015. Each day is a full-on programme devoted to German real estate for outbound Chinese institutional investors. With travel time, the touring party can expect to be a week on the road.

Potential sponsors are invited to get in touch, but we will be notifying our many thousands of German contacts more officially over the coming weeks. It promises to be a groundbreaking project.