Flat Flotation

The Last Hurrah

First day of trading on the Frankfurt Stock Exchange. Source. Reuters
First day of trading on the Frankfurt Stock Exchange. Source. Reuters
  • Why it matters

    Why it matters

    The listing of German property firm TLG Immobilien shows that property companies in Europe’s largest economy are still considered a safe bet, despite lower economic growth prospects.

  • Facts

    Facts

    • German property company TLG Immobilien sold shares at €10.75 apiece, the low end of a previously set price range.
    • U.S. investor Lone Star bought the retail and office property firm for €1.1 billion in 2012.
    • Lone Start had wanted to sell part of its investments, while TLG wanted to raise money for investments.
  • Audio

    Audio

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Last week’s flotation of commercial property giant TLG Immobilien turned into something of a nail biter. In the end, the company floated on Friday, at a price of €10.75 ($13.64), which was at the bottom of the range, and the shares closed the day pretty much exactly where they began.

It could have been much worse. As late as Wednesday evening, there were suggestions that the IPO would be cancelled due to a lack of interest. Uruguayan securities dealer Mercantil Valores stepped in at the very last moment. The company, backed by some of the wealthiest families in South America, took 21 percent of the shares. German investors bought around 15 to 20 percent of the shares.

TLG Immobilien may just have got away with it, but its muted flotation is not a good omen for cable operator Tele Colombus and online classified ads group Scout 24, which are both preparing for the IPOs. It is hard to see how there can be much of an appetite for more IPOs this month or even for the rest of 2014. Bankers do not expect the stock market to stabilize this year, and concerns about the German economy, and the impact of the U.S Federal Reserve monetary policy have not yet disappeared.

Tele Columbus effectively postponed its IPO two weeks ago at the eleventh hour, as the stock market went into a tailspin. At the time, the Berlin-based company had still planned to come to the market in November, and accompany the IPO with a round of international fund raising. Sources say both plans have now been put on ice.

TLG was right to float with a price at the bottom of a range. Sparks may not have flown, but the IPO raised €95 million.

The only way either company could now list this year is by floating in the first week in December, but the market is unlikely to be keen on such a flotation so close to the Christmas holidays.

TLG Immobilien’s float comes a few weeks after the disappointing listings of German Internet incubator Rocket Internet and online retailer Zalando. Their shares are still trading below their issue price.  Internet incubator Rocket listed three weeks ago, raising around €1.4 billion but its shares have fallen 10.6 percent from the issue price of €42.50. Zalando raised €605 million three weeks ago but its shares have fallen around 14 percent from an issue price of €21.50.

Combined with a slump of stock prices globally, the poor performance of Zalando and Rocket Internet shares have led some firms to postpone their planned listings.

British bank Aldermore cancelled its 300 million pound listing altogether, citing the deteriorated equity market circumstances. French energy services group Spie pulled the plug on its €1.2 billion listing two weeks ago.

TLG, which owns about $1.5 billion worth of offices, retail space and hotels in Berlin and other parts of the former East Germany does have a major advantage over Tele Colombus and Scout 24. The real estate business is considered relatively resilient. Leases cannot be cancelled at short notice, so the income of real estate companies is only gradually affected by economic fluctuations. In addition, a large part of TLG income comes from discount supermarkets such as Aldi, which are regarded as recession-resilient.

The company had been managed by the German government until 2012, when it was sold to the U.S. based investor Lone Star for about €1.1 billion at the end of 2012.

Property companies in Germany have remained relatively stable in recent years. Investor appetite has been whetted by Germany’s relatively stable economy, which is Europe’s largest and the fourth biggest globally, as well as record-low interest rates in the euro zone and in the United States.

Past flotations of property stocks have gone well. Residential property firm Deutsche Annington sold its first shares on the Frankfurt Stock Exchange last year, raising €400 million months after rival LEG Immobilien raised €1.3 billion through its own IPO. Annington bought €320 million worth of residential property last month.

TLG was right to float with a price at the bottom of a range. Sparks may not have flown, but the IPO raised €95 million for TLG, and allowed Lone Star to offload a majority stake: it will retain 40 percent in what may be Germany newest public company for some time.

 

Michael Brächer, Robert Landgraf and Reiner Reichel report on companies and markets for Handelsblatt. To contact the authors: braecher@handelsblatt.com , landgrave@handelsblatt.com, reichel@handelsblatt.com.

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