TLG Immobilien buys stake in Aroundtown, mulling full merger

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Listed Berlin commercial property investor TLG Immobilien AG bought a nearly 10% stake in fast-growing rival real estate company Aroundtown AG for just over €1bn, and is contemplating a full merger with the company, which would create one of Europe’s biggest property companies.

The price paid values Aroundtown at €8.30 per share, corresponding to its EPRA NAV as of June 30th. The share was trading at just below €7.30 on Monday 2nd September, after the weekend share purchase announcement.

Should a merger go ahead, it would create a company with a gross asset value (GAV) of more than €25bn, said TLG, making it the fourth-largest publicly-traded European landlord by assets, after shopping centre owner Unibail-Rodamco-Westfield, and the two German residential housing giants Vonovia and Deutsche Wohnung AG.

Aroundtown, which is bigger than TLG, has risen to prominence in the last few years through a series of deals fueled by waves of capital-raising. It now has about €16.2bn of European commercial real estate, as well a sizeable shareholding in residential landlord Grand City Properties.

TLG Immobilien, which has its roots in eastern Germany but has been spreading its investment wings recently, has a property portfolio valued at €4.6bn (end-June 2019). This consists mainly of offices, particularly in Berlin, Dresden, Leipzig, Rostock, and Frankfurt am Main, and a regionally-diversified portfolio of retail properties, mainly grocery-anchored retail parks, together with seven good quality hotels.

TLG bought the 9.99% stake from Aroundtown’s largest investor, Avisco, who according to a company statement, has an option to sell a further 4.99% holding. TLG has recently itself been the subject of boardroom jostling, with Ouram Holding, the investment vehicle of Israeli real estate investor Amir Dayan, building up a 27% stake and installing a new CEO, Barak Bar-Hen, at the helm. If TLG exercises its option for the further stake, it would at 14.99% be the largest shareholder in Aroundtown. Both parties have the right to exercise the option before 28th February 2020, subject to cartel office clearance. The arrangement gives TLG and Aroundtown the option of weighing up a full merger between the two companies.

According to Sascha Hettrich, chairman of TLG’s supervisory board in a statement, “Whilst there are various ways to grow a company, the best is to combine forces with leading market players in the same field. Therefore, our strategy was to look for the industry partner who ideally fits with TLG… We welcome working with Aroundtown towards a future merger of the two companies and creating one of the largest commercial real estate firms in Europe, with a focus on top tier cities in Germany and the Netherlands.”

Avisco said: “This announcement is the first step to enable the potential creation of a pan European commercial real estate market leader, focused on Germany and the Netherlands and geared towards offices and hotels, which are the most attractive segments in commercial real estate… We support the leadership teams of both TLG and Aroundtown in their forthcoming discussions.”

TLG recently raised €222m by issuing 8.5m new shares at €26.13 from institutional investors, following a previous capital raising in May, which brought in €600m. In posting recent half-year results, it booked a €400m upward revaluation of its assets, mainly its Berlin properties and project developments, against a background of a shortage of office space in the city, which has seen rents rising sharply.

Should the two companies decide to merge, the new entity would almost certainly improve share liquidity, not least by its higher profile and potential inclusion in the DAX index of leading shares, which would automatically put it on many funds’ must-buy lists.