Goldman to start German property roadshow

Goldman Sachs will on Monday begin a roadshow to sell €1.4bn of shares in a huge German property portfolio, kick-starting what will be one of the biggest initial public offerings in the European property sector in recent years.

Goldman intends to sell 57.5 per cent of LEG Immobilien, which owns 91,000 homes in North Rhine-Westphalia – Germany’s most populous state – at a time of strong investor interest in the country’s housing market.

The rented German residential property market has become one of the most sought after real estate asset classes during the downturn. A combination of low vacancy rates along with stable rents and income streams has attracted pension funds, insurers and other long-term investors.

The IPO would be the largest in Germany since Telefónica’s German unit raised €1.45bn in October.

Goldman’s Whitehall property funds own 89 per cent of LEG, with the rest held by Perry Corp, the hedge fund. Goldman has set a price range of between €41 and €47 per share for LEG, hoping to raise between €1.25bn and €1.43bn if shares are fully taken up.

Whitehall and a number of other foreign investors took substantial holdings of German residential property in the years leading up to the financial crisis, often buying portfolios of tens of thousands of flats at a time.

Some foreign investors’ hopes for the German market were not realised over the past decade, with flats proving difficult to sell to tenants and rents and maintenance contracts closely regulated. But rising property values in Germany, particularly in larger urban areas, have tempted many investors back into the market.

More than €10bn was spent on German residential portfolios last year, a 46 per cent rise on 2011 and the highest amount since 2007. Shares in the handful of listed homeowners also performed strongly in last year.

The state of North Rhine-Westphalia has some growing cities such as Düsseldorf, but also some of Germany’s most depressed areas. While its population is set to fall by more than 6 per cent between 2009 and 2030, its number of households is forecast to grow by almost 3 per cent over the same period.

Following the IPO Goldman’s Whitehall will hold 33 per cent and Perry 9 per cent. The shares are expected to list on February 1.

The net asset value of the LEG portfolio according to measures used by the European Public Real Estate Association was €2.4bn at the end of September, the sale prospectus says, while the company generated rental and lease income of €244m in 2011. LEG has said it is considering more acquisitions.

The planned partial exit from LEG for Goldman comes after its Whitehall unit in December said it would divest part of its German commercial property portfolio, agreeing a €1.1bn deal to sell 17 department stores to an Austrian investor.

Last year, Terra Firma, the private equity group controlled by veteran investor Guy Hands, announced plans to refinance the €4.3bn of loans secured against its portfolio of 180,000 apartments. The refinancing paves the way for what is likely to be the largest stock market flotation of a German residential property business.

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