German real estate lender Aareal Bank is said to have shortlisted several private equity groups interested in a stake in its software business Aareon, according to a number of reliable reports.
Among those still involved in the final round of bidding are EQT, Blackstone and Bain. In an eventual sale, the winner will gain a a minority stake in Aareon, which is expected to be valued at €500-600 million euros as a whole, including debt.
Back in January, the MDAX-listed Aareal had set out new guidelines for its medium term strategy, prompted in part by pressure from an activist investor, Teleios Capital, to clarify the role being played by software division Aareon in the bank’s overall strategy. Teleios had been urging a sale of the software division, accusing the bank’s top management of being ‘stubborn’and had been calling for an extraordinary general meeting should the bank continue to reject calls for a special independent review.
In May, Aareal Bank said it was working with consultancy firm Arma Partners and inviting bids for a minority stake in Aareon to help finance the software business’s future growth.
The software provided by Aareon helps professional landlords manage their properties and rental income streams, and permits customers to lodge rental income with Aareal, which helps Aareal in refinancing itself.
Aareal CEO Hermann Merkens has said in the past, “Aareon is set to significantly speed up its growth momentum in the years to come, and develop a strong independent value proposition as a software company with a standalone market position. It is also clear that we are prepared to embark upon a new path should circumstances necessitate it.” So far, the bank has said it is only looking for a minority investor.
Aareal has itself recently joined up with energy service provider ista to take a stake in newly-founded Essen-based proptech objego. Objego provides property management software for smaller landlords, generating detailed and instantaneous digital service charge settlements for large numbers of tenants.
There are estimated to be about four million of these private landlords, managing about 14m houses and apartments. Much of the management of these properties is handled with rudimentary Excel lists and reams of bank statements.
In the longer term, objego aims to cover the entire real estate life cycle using its Internet-based platform. As a next step, the company is planning an intelligent financial administration function including bank interface, as well as digital document management.
On the bank’s overall development, CEO Merkens gave an interview recently to business daily Börsen-Zeitung, in which he downplayed prognoses that the corona crisis will lead to an overall collapse in demand and thus in the prices and rents for office property.
Referring to a recent study by the think-tank IW Cologne which warned of sharp impending falls in real estate values across German cities, Merkens said, "Just as I do not agree with the widely propagated swan song for the hotel sector, I do not share the gloomy forecasts for the office property market. In my view, there is no reason to believe that there will not be a normalization here as well."
Merkens said that Aareal Bank will survive the crisis without major damag. He said that the loan portfolio, currently valued at about €26 billion, including € 8.5 billion in hotel financing, will give the bank "work, but no worries". He said he anticipates "overall manageable growth in risk provisions", for which Aareal is prepared.
He said he had been surprised by the level of interest from third parties in buying a stake in IT subsidiary Aareon – “which we had not expected.” Should the sale go well, the “value-creating use” of the inflows could be to accelerate Aareon’s growth course, or for further commercial property lending, or possibly, in the form of a special dividend to shareholders. This would be less likely than either of the first two options, he said.
