Despite falling markets and fading appetite for risky investments, a Berlin-based property firm, TLG, and its U.S. investor Lone Star are pushing ahead with plans to sell shares and seek a listing on the Frankfurt Stock Exchange later this month.
TLG, which owns about $1.5 billion (€1.18 billion) worth of offices, retail space and hotels in Berlin and other parts of the former East Germany, plans to sell up to €128 million worth of new shares, while Lone Star hopes to sell up to €379 million worth of existing shares, TLG said on Tuesday.
Lone Star bought TLG for about €1.1 billion at the end of 2012 from the German government, which had been managing the property portfolio since the early 1990s after the reunification of the former East and West Germany.
“For the moment it’s still the case that there is not enough product in the market, we have more demand than supply.”
Buoyed 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, investor appetite for property has been strong of late in Germany, pushing up prices for real estate.
“For the moment it’s still the case that there is not enough product in the market, we have more demand than supply,” Helge Scheunemann, the head of research at the German arm of real estate services company Jones Lang LaSalle (JLL), told Handelsblatt Global Edition.
The transaction volume for the German property market was €16.9 billion in the first half of this year, up 29 percent compared to a year earlier, a study from JLL showed in July.
Whether prices have peaked is difficult to say and depends on the type and geographic location of the property being sold, Mr. Scheunemann said.
“If you are looking at the yield, then you would say that the prices have increased in the last couple of the months, during this year and last year. In some areas we have reached 2007 levels, but we don’t see any bubble or anything like that,” Mr. Scheunemann said.
In some parts of Germany, some property prices have reached peak levels last seen in 2006 and 2007, but in general this is not generally true of all real estate in East Germany, he said.
TLG is the latest property company to want to target investor appetite for German real estate.
Residential property firm Deutsche Annington sold its first shares of stock on the Frankfurt Stock Exchange last year, raising €400 million months after rival LEG Immobilien raised €1.3 billion ($1.7 billion) through its own IPO.
Annington bought €320 million worth of residential property last month.
TLG, which has seen its debt pile increase to €934 million at the end of June from €713 million at the end of 2012, is seeking a listing despite sagging stock markets and disappointing listings of German Internet firms Rocket Internet and online retailer Zalando earlier this month.
“It is a risk, absolutely, especially under the current circumstances with great uncertainty in the market about the economic situation and political risks,” Mr. Scheunemann said.
TLG, which rents property to German companies including Mercedes producer Daimler, software firm SAP and supermarket discounter Aldi, had a net income of €57.4 million in the first half of 2014, compared with €99.1 million in the full year 2013.
The TLG shares are being sold for €10.75 to €13.75 each, with banks J.P. Morgan, UBS, Commerzbank, Kempen & Co and HSBC responsible for the sale.
If the transaction is successful, the shares will list in Frankfurt on Oct. 24.
Gilbert Kreijger is an editor for Handelsblatt Global Edition and has covered companies and markets across Europe. Lára Hilmarsdóttir has reported for several publications. To contact the authors: Kreijger@handelsblatt.com, L.Hilmarsdóttir@vhb.de