Grand City Properties (GYC) has increased its stake in LEG to 20.04 percent, making it the new major shareholder.
Behind the GYC majority shareholder Aroundtown is the controversial Israeli investor Yakir Gabay.
LEG shares rose by around 2.5 percent after the announcement. However, analysts were surprised by GYC's entry and rapid increase in shares.
With LEG's entry, Aroundtown makes its residential real estate division the largest portfolio division with a share of 42 percent.
Dusseldorf. They were prophetic words from Lars von Lackum: “It would be absurd to say that there cannot be further consolidation,” said the head of the second largest listed landlord in an interview with Handelsblatt a year ago. The question was whether the industry didn't need further large takeovers and mergers for a good capital market story.
A year later he is faced with exactly this situation. The Düsseldorf company got a new major shareholder overnight. The residential real estate investor Grand City Properties (GYC) announced on Tuesday evening that it had significantly increased its stake in LEG to 20.04 percent. Behind this is the strategy of GYC majority shareholder Aroundtown to get more involved in the apartment and hotel business.
To date, Aroundtown has been known primarily as a commercial real estate investor. The controversial Israeli investor Yakir Gabay is behind the company. The company was repeatedly confronted with accusations from short sellers, among other things due to an alleged lack of transparency. These allegations have not had any major consequences so far. The company has always rejected the criticism.
GYC's LEG package is worth a good 700 million euros. How Aroundtown finances the purchase is still unclear. LEG reacted distantly to the announcement. They take note of the entry and agree with the new shareholder that “both LEG’s strategy and real estate portfolio offer significant upward potential.” However, LEG does not want to change anything in its strategy.
At the opening on Wednesday morning, LEG shares rose by around 2.5 percent to 47.50 euros. In October it fell to its lowest level in more than twelve years due to rising bond yields.
Analysts reacted with surprise to the entry. Pierre-Emmanuel Clouard from Jefferies wrote in an initial assessment: "We viewed LEG as a likely takeover candidate due to the significant discount to NAV (net asset value). However, we did not expect interest to come from another listed apartment landlord, given the level of debt in the sector."
It remains unclear how GYC was able to build up a 20 percent share so quickly. “The announcement suggests that the stake was acquired gradually and largely out of the sight of investors,” suspects Clouard.
Recently, another unexpected shareholder appeared: Fire Pale Capital had reported a stake of around five percent. “However, it seems clear that any serious bidder would probably have to speak to Aroundtown first before contacting LEG,” the analyst concludes his assessment.
Grand City Properties had not previously appeared as a LEG shareholder. The investor is now clearly ahead of the fund group BlackRock (eight percent) as the largest shareholder. The company is based in Luxembourg and is controlled from Berlin. However, it still has to wait for the approval of the cartel office before it can exercise its voting rights.
GYC explained that investing in LEG was significantly cheaper than purchasing additional properties, measured in terms of the proportionate profit from the rental business (FFO). The pro rata book value of LEG's real estate portfolio, which is concentrated in North Rhine-Westphalia, amounts to around 1.8 billion euros - which is significantly more than the starting price - so the purchase should lead to a considerable book profit. GYC boss Refael Zamir spoke of a “unique opportunity to invest in a company with a high-quality portfolio and a stable dividend policy”.
GYC views the share package as a financial investment and can increase it further up to 29.9 percent, but also reserves the right to reduce the shareholding or to exit completely, the statement said. From 30 percent, GYC would have to make a mandatory offer to the remaining LEG shareholders.
Behind GYC is the also listed real estate investor Aroundtown, which holds 63 percent of the shares. With the entry into LEG, the residential portfolio will become Aroundtown's largest division with a share of 42 percent, it said. Aroundtown deputy boss Kamaldeep Manaktala said the investment completed the expansion of the residential division. Most recently, Aroundtown has already increased its stake in Grand City Properties, converted offices into apartments and invested in the hotel portfolio.
