Strong foundations – European real estate firms expected to up cap raises

Data Insight ECM Explorer 4 August

Strong foundations – European real estate firms expected to up cap raises

European real estate firms are expected to hit equity capital markets for financing once issuance returns following the continent’s traditional quiet period in August.

Real estate companies, often regular users of equity financing either through straight share raises or convertible bonds, have been largely absent from Europe’s equity capital markets this year but there are some green shoots of market recovery.

Last week, German firm TAG Immobilien [ETR:TEG] raised EUR 202m in a heavily subscribed rights issue with 98% shareholder take-up.

The deal, which was tied to repaying an acquisition facility for ROBYG S.A as well as to strengthen the company’s equity position, also managed to be a success at a time when markets remain volatile.

The macroeconomic situation is “quite difficult at the moment” and the capital market acts uncertain, a spokesperson for Tag confirmed. Nevertheless, the company’s strategic goal in Germany as well in Poland is understood by the market, the spokesperson said. Two market sources agreed that clear goals helped in the execution of the rights issue.

Sources speaking to this news service have predicted that there will be several real estate names among Europe’s equity issuers across the rest of H2 given the high capital requirements and sometimes indebted balance sheets of many real estate companies.

The top five real estate repeat issuers in Europe since 2016 have been Vonovia SA [ETR: VNA], Aroundtown [ETR: AT1], Segro Plc [LON:SGRO], Aedifica [EBR: AED] and Tritax, which has raised funds for its Big Box REIT [LON: BBOX] and Tritax EuroBox [LON: EBOX], which both invest in logistics real estate.

Like Tag, many firms have raised capital for M&A and a spokesperson for Vonovia told this news service that it would only seek to raise more equity should it wish to make an acquisition, something the company is unlikely to do given a downturn in the economy.

Most real estate raises would be to pursue acquisitions, as Tag did, one ECM banker said. However, fewer deals are likely to be struck because of the economy, he said, adding that low underlying share prices meant it was the wrong time for some to build a war chest.

Should companies decide to do a raise, the asset class was a far easier sell than other likely capital raising candidates, particularly recently listed tech firms, this banker also said.

Of the other most frequent issuers, Aedifica, has already raised capital in 2022, pricing a EUR 254.5m raise in June to strengthen its balance sheet so that it can pursue growth.

Tritax though declined to comment on whether it was exploring a capital raise soon and both Segro and Aroundtown did not respond to requests for comment.

Despite uncertain markets, there will be real estate companies keen to keep growing their portfolios and some that will need to restructure balance sheets. There is an expectation that as long as they have a clear strategy, equity capital markets will be open to support them. It might be time to shore up the foundations.

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