Merger Market
IVG Immobilien’s asset portfolio could be the next target of real estate consolidation in the German market should it decide against a listing, three bankers and a lawyer following the situation said.
It is questionable whether IVG could sell its whole portfolio in the current market, which is why it is opting for a dual-track process, the first banker said. A sale at a premium to NAV would require convincing investors of its superior portfolio quality, as previously reported.
An asset sale would not be an easy route as the company may still be viewed in the market as distressed given its ownership by a group of financially motivated shareholders “with an IRR (internal rate of return) clock ticking” and a motive to sell, a third banker said. IVG emerged from insolvency proceedings in September 2014.
Companies previously reported as valuation benchmarks for an IVG IPO could also be buyers of parts of the portfolio, including Alstria [ETR:AOX], TLG Immobilien [ETR:TLG] and DIC Asset [ETR:DIC], the third sector banker said.
DIC Asset teamed up with KKR in January 2015 to create a joint venture called German Estate Group which could show interest in IVG’s portfolio, the third banker said. The JV launched its first German investment with a EUR 160m purchase of two properties in Munich in July this year. Alstria’s CEO, Olivier Elamine, told the local press in November that he was monitoring the situation when asked about interest in IVG.
Patrizia Immobilien [ETR:P1Z] could also be a buyer as it has been highly acquisitive in the commercial space, purchasing EUR 1bn worth of office buildings in Hesse in 2014 and EUR 800m worth in the same state the year prior, the third banker noted.
Austrian commercial property companies CA Immobilien Anlagen [VIE:CAI] and Immofinanz [VIE:IIA] might also look to broaden their portfolio inside Germany, the third banker said.
Alternatively, IVG’s assets could also be bought by investment funds interested in adding real estate to their portfolio, the lawyer said. Family offices could be also buyers, the first banker said.
At the average price/NAV multiple of Alstria, Deutsche Euroshop [ETR:DEQ], TLG and DIC of 1.03x, IVG’s core portfolio would be worth EUR 1.24bn based on its EUR 3bn asset value, as previously reported. This would be based on a typical sector loan-to-value (LTV) ratio of 60%.
Portfolio streamlining
However, any transaction depends heavily on other deals in the space, such as the ongoing situation between Deutsche Wohnen [ETR:DWNI] and Vonovia [ETR:VNA], the second banker said. Germany’s cartel office approved Vonovia's Deutsche Wohnen buy on Monday (7 December).
An IPO could be the prudent option for IVG as it would allow the company to sell all assets at once, reducing the need for separate due diligence for different buyers and properties, the first banker said. On the other hand, sellers would need to consider the required IPO discount, he said.
It is too early to speculate whether IVG’s core portfolio could be broken down further in a strategic sale scenario, a person familiar with the situation said. A transaction may not take place before 2017, as it is dependent on market conditions and a satisfactory valuation, the person said.
Non-core assets are already in the process of being sold, in order to streamline the target portfolio, the person familiar said. A dual-track process will not need to wait for these to finish, he added.
Vonovia could also decide to buy IVG, the second banker suggested. However, this would involve a crossover of asset classes, since Vonovia is a residential property specialist.
IVG is regrouping its core office property portfolio into a new vehicle, a company spokesperson said. With new management in place to run the portfolio, its legacy – including any concerns about its previous insolvency – should not be an issue, the first banker said.
The parent company will carve out its core portfolio into an independent subsidiary and establish this under its own name in 2016, as previously reported. It makes sense for IVG to restructure the company in order to give itself a clearer profile in the market, a fourth banker said.
Goldman Sachs and Deutsche Bank are running a dual-track process, according to press reports. The largest of IVG’s assets is its Frankfurt office building The Squaire, the first banker said. It was reportedly valued at USD 1bn, and its sale was called off by IVG in January 2015.
Following the carve-out process, IVG Immobilien will purely be a financial holding with three subsidiaries: IVG Caverns, IVG Institutional Funds (Triuva) and the asset portfolio, the person said.