Heitman partners with Grainger PLC in German residential investment (DE)

Grainger plc and global real estate investment firm Heitman today announce that they have signed an agreement to create a joint venture (JV), 'MH Grainger JV Sarl', to invest in a c.3,000-unit German rented residential portfolio currently wholly owned by Grainger.

The JV will be 75:25 owned by Heitman, on behalf of a global institutional investor, and Grainger, respectively. The JV's long-term strategy is aimed at maximizing returns through income growth and active asset management. The completion of the deal is subject to a set of Conditions Precedent and is expected to complete soon.

Today's agreement is in line with Grainger's previously stated strategy to align itself with third party institutional capital to make more efficient use of its balance sheet and operational platform. The transaction will allow Grainger to leverage its management platform, acting as the JV's expert partner in German residential property investment. Grainger will receive fee income for its services to the JV and also retain a strategic stake in the portfolio.

For Heitman the JV represents a further step in its growth in Europe and the continuation of the firm's successful global strategy of identifying promising trends ahead of the overall market and aligning itself with strong local property firms in order to deliver results for its investors.

The JV will acquire a portfolio of German residential assets currently wholly owned by Grainger, representing €232 mln of Grainger's total €474 mln German portfolio as at March 31, 2012. The portfolio comprises 2,985 residential units across six regions in Germany and produces an approximate annualized profit of €5.2 mln, including revaluation gains.

The transaction will give rise to a one-off post tax charge currently estimated at £5.2 mln (approx. €6.5 mln) including costs. This will be taken into account in the income statement for the year ended September 30, 2012 as a non-recurring item. This equates to a reduction in Grainger's NNNAV of c.1.3 pence.

Grainger has arranged €152m of debt which will also be transferred to the JV, resulting in a JV LTV of 65%. The consideration payable to Grainger for the 75% stake is € 54 mln, subject to a normal completion balance sheet process. Consequently, Grainger's debt will reduce by c.€206 mln.

Grainger will provide management services to the new JV for which it will receive standard management and incentive fees.

Grainger continues to directly own a further 3,400 assets in Germany.

German residential property investment is an attractive sector offering strong income generation characteristics, with limited new supply coming into the market, and offers the potential for significant rental and value growth in the medium to long term.

Commenting on the new joint venture, Rob Reiskin, co-head of Europe at Heitman, said: "We are very happy to partner with best-in-class operator Grainger in the German rented residential market where we view the fundamentals as particularly attractive. Moreover, with most of the assets located in high barrier to entry premier markets, Bavaria and Baden Württemberg, the JV provides a rare opportunity for institutional investment where it has
formerly been difficult to gain exposure."

Andrew Cunningham, chief executive of Grainger plc, said: "This new partnership with Heitman and its institutional client represents a strong endorsement of Grainger's operational platform and the prospects for the German residential investment market. This deal supports our on-going program of generating greater fee income from third parties, balancing our trading income with other recurring income - a key aim for the Company, and our process of deleveraging.

"Grainger has established a strong track record of creating co-investment vehicles and we are extremely pleased to be partnering with such major international institutional investors in Germany. There is a strong interest among many other global real estate investors in the residential market at the moment which allows us to align our interests closely

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