Cheap Shots

Shine Comes Off Germany's Lone Star Deal

Gone for a song?
  • Why it matters

    Why it matters

    The German government sold TLG Immobilien to Lone Star Funds, a U.S. investor, for €1.1 billion in 2012. The real estate company now has assets valued at €1.5 billion and is due to go public. Opposition parties say the German taxpayer has been cheated.

  • Facts


    • TLG owns about 800 properties in eastern Germany.
    • Operating profits from rentals in the first half of this year were €26 million ($33 million).
    • It’s thought the company will raise about €500 million ($633.66 million) from its initial public offering.
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It’s what you call a bargain deal.

Barely two years ago, the Texas-based private equity investor, Lone Star Funds, bought the real estate company TLG Immobilien from the German government for €1.1 billion ($1.39 billion). Now, as TLG prepares to launch an initial public offering, the company’s properties are valued at €1.5 billion. Did executives at TLG simply do a great job or was the German government taken to the cleaners?

Sven-Christian Kindler, the budgetary policy speaker for the country’s Green Party has already demanded an explanation from the German Federal Ministry of Finance (BMF). “Ultimately, the question remains whether the government has been cheated,” he said.

But the BMF has refused to speculate on the value of the company’s properties, which it says are based on rumors, and has said there is no hard information available on the issue price.

“Ultimately, the question remains whether the government has been cheated.”

Sven-Christian Kindler, Green Party

The fact, a spokesperson for the BMF maintained, is that Lone Star made the best offer. But the ministry did not agree a so-called debtor warrant at the time of the purchase, which would have provided for a better price when reselling or issuing stock. “That would have been neither enforceable nor financially reasonable,” the spokesperson added.

TLG announced its plans on Friday, saying a sale of shares will commence in about a month. The co-Chief Executive Officers, Peter Finkbeiner and Niclas Karoff, believe the time is right for the company to go public. “In the last two years, we have been preparing the company for this step,” Mr. Finkbeiner told Handelsblatt.

The company remains silent about issue volume. Financial experts expect the stock sale, which is being handled by Swiss-based UBS and JPMorgan Chase and Co. in the U.S., to generate about €500 million. This would make the IPO smaller than those of the online fashion retailer Zalando and the start-up conglomerate Rocket Internet, in whose wake TLG is following. It’s unclear how much money from the IPO will go to the current owners, Lone Star, though statements from TLG say the company wants to raise about €100 million through new stock to finance future growth.

German commercial real estate stocks are not performing as strongly when compared with companies that manage large residential portfolios.

TLG owns some 800 office and retail properties in eastern Germany. Among its prime properties, for example, is the Spreestern, a prestigious office building in Berlin. Operating profits from rentals rose in the first half year by 6.6 percent to €26 million. TLG is holding out the prospect of a dividend for future stockholders with up to 80 percent of profits to be distributed.

This is the first commercial property portfolio brought to the market that focuses solely on eastern Germany, which makes some commercial real estate experts skeptical of its success. But TLG’s Mr. Karoff is convinced there is further growth potential in the eastern German cities of Berlin, Dresden, Leipzig and Rostock. “We know the market here better than any other rival,” he said.

Yet German commercial real estate stocks are not performing as strongly when compared with companies that manage large residential portfolios. The share price of TLG’s rival DIC Asset, for example, has fallen 16 percent in the past three months alone. In response, Mr. Finkbeiner points to his company’s “top quality core portfolio.”

Investors will be paying close attention to the issue price against that uncertain backdrop. “The stock must be reasonably priced,” said Helmut Kurz, a fund manager at the private bank Ellwanger & Geiger in Stuttgart. “Then it will sell.”


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Michael Brächer and Peter Köhler are editors on Handelsblatt’s finance desk in Frankfurt, Reiner Reichel is an editor covering the real estate market and Frank Drost covers banking and politics from the Berlin office. To contact the authors:,,,

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