IPO

European listed real estate sector to expand via acquisitions and IPOs

The European real estate equities sector is well positioned for a strong expansion over the next few years via acquisitions and initial public offerings.

The resilience of the listed Reit model, in terms of access to capital, has proved to be more robust than non-listed property funds in the credit crisis, brokers Kempen concluded in a research paper presented to journalists at the European Public Real Estate Association’s annual conference.

Dick Boer, director property research at Kempen, told a news conference: “The ability of Europe’s listed real estate industry to largely refinance itself at the peak of the crisis last year and to make acquisitions that have boosted cash flows, has left the industry very well positioned. We expect the momentum of expansion to gather pace over the next three to four years as companies have locked in low interest rates via the bond markets and as a new wave of IPOs emerges as a solution to the gridlock in the CMBS market.”

The annual conference, which gathers together industry executives, investors, analysts and bankers from across Europe and beyond, is being held in Amsterdam for association members between 2 and 3 September.

Kempen said listed real estate firms are expected to further increase their growing dominance of the European retail property sector on the back of attractive valuations and at the expense of non-listed funds, many of which are struggling to obtain refinancing.

Dutch Corio ranks as the most active recent buyer with over EUR1.7bn of acquisitions carried out over the last 12 months including the EUR1.3bn Multi portfolio (mainly in Germany) and the 50/50 joint venture acquisition of the largest shopping centre in Italy (Porta di Roma). In France, nine of the ten largest shopping centres, in terms of turnover, are now all owned by listed companies including Unibail-Rodamco (six), Klépierre (two) and Hammerson (one).

Real estate companies are also looking to lock in current low interest rates and are using the bond markets as a new source of financing in order to obtain seven to ten year maturities (banks currently only offer three to five years as a maximum). The loan books of UK large caps such as British Land, Hammerson, Land Securities and Segro are mainly comprised of long-term debentures. Although Continental European listed real estate bond markets are still in their infancy, French Unibail-Rodamco and Klépierre have proved to be successful issuers of debt in the last 18 months and Corio recently issued EUR250m in ten-year bonds.

Although recent IPOs in Europe have been mainly related to opportunistic real estate vehicles seeking to benefit from distressed sales in the UK, or have been in Turkey in response to a cut in the free float hurdle for new listings, Kempen sees Germany as a future major source of IPOs.

Most German property companies are currently trying to expand the duration of their loan books - rolling over debt with expirations until 2013 - in anticipation of a shortage of liquidity following the expiration of EUR26bn of commercial mortgage-backed securities in Germany over the next three years. A significant portion of these CMBS, along with some private equity vehicles whose terms are expiring, are likely to result in IPOs particularly in the residential and office property sectors.

The UK may also be a future source of further real estate IPOs as the British Reit has proven to be a flexible structure able to de-lever in difficult markets. It could therefore play a role in the consolidation of the UK real estate sector as banks move property assets off their balance sheets. There are already signs that the banks are making progress in setting up property pools, although problematic loans are predominantly in mediocre assets - often comprising of inner city development schemes outside London.

Kempen’s Dick Boer said:  “Forecasts of a wave of new property listings in Germany have, in the past, proved to be a false dawn. This time around we think the catalyst of the impending German CMBS expiries will result in a strong boost to the capitalisation of the European real estate equities market, particularly if it is combined with banks using the British Reit as an exit route for problematic property assets in the UK.”

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