The Commerz Grundbesitz Group has just become the first German real estate company to float a REIT. The move was realised by transferring three office properties in Parisbelonging to hausInvest europa, an open-ended property fund managed by Commerz Grundbesitz-Investmentgesellschaft (CGI), to CeGeREAL SA, a public real estate company set up expressly for this purpose. The merger was followed by the companys IPO on March 29 2006 on the Euronext Paris Stock Exchange.
In the interest of hausInvest europa investors, who stand to benefit immensely from the newly launched REIT, CGI has adopted this strategy in order to take advantage of the well-known tax benefits associated with the French REIT equivalent (SIIC).
€6 million in income tax savings
The three Parisian office buildingsArcs de Seine, Europlaza and Rives de Bercyused to be held by three real estate companies. Thanks to the merger of these companies and the imminent granting of the SIIC status to CeGeREAL, Fund investors will be able to save €6 million annually in current income taxes on the company level.
€88 million in deferred tax savings
The SIIC status of CeGeREAL will moreover enable hausInvest europa to cut its deferred tax burden on sales profits (the difference between the book values and the actually realised sales prices) by 50% or, in other words, by approximately €88 million.
No market risk for hausInvest europa investors
For hausInvest europa investors, though, the restructuring has brought few changes, if any. The assets will continue to be listed in the Property Record, as a participation in CeGeREAL. This explains why Fund investors bear no market risk. As real estate assets, the value of the buildings is appraised by the valuation report issued by the German experts, not by the daily stock price of CeGeREAL.
Successful IPO for CeGeREAL
In the context of the IPO of CeGeREAL, 28.7% of the shares were placed in the market (free float), this could be increased to 33% if the over-allotment option is fully exercised by the end of April. The remaining stake continues to be held by hausInvest europa. €119 million worth of shares, out of a total volume of €122 million, went to about 50 international institutional investors. The remaining €3 million shares were distributed among about 850 private French investors. The issue price equalled €31.80 per share. Altogether, the flotation was nearly twice oversubscribed. At €32.89 per share, the first official quote on March 29, 2006 exceeded the issue price by about 3.4%.
Reasons for Floating a REIT
The tax benefits for our investors are enormous, and the yield of hausInvest europa is boosted. hausInvest europa continues to hold a stake in three high-end properties and at the same time it has stepped up the liquidity of the participation, says Dr. Frank Pörschke, management spokesman of the parent company CGG.
Commerz Grundbesitz expands operating areas
With CeGeREAL we are expanding our operating areas to include the new REIT asset class, while simultaneously adopting a pioneering role in the German real estate industry, Pörschke continues.
REITs to supplement product range
REITs are an optimal supplement to our range of products. With our broadly diversified open-ended property funds we will continue to cater to the needs of the more security-oriented and stock exchange-wary investor. REITs, by contrast, enable us for the first time to reach investors with an affinity toward equity who wish to invest into a specific real estate segment. This will win us new customer groups, and strengthen the growth perspectives of Commerz Grundbesitz Group, Pörschke elaborates.
REITs meet with major investor interest
With the French REIT vehicle, we are taking advantage of opportunities abroad that have not been available to us in Germany so far. Our talks with international investors have shown that there is a major interest in REITs, the manager emphasizes.