The first portfolio deals: Pegasus & Co.
The major portfolio sales of 2006 and 2007 reflected an increased focus at Union Investment on active portfolio turnover – an important contribution to securing the future viability of the company’s holdings both then and now.
The 2006 and 2007 portfolio sales mark a turning point in Union Investment's involvement in real estate: older properties and properties that were no longer fit for the future would be sold off. In conjunction with the ongoing acquisition of younger, superior properties, this leads to a reduction in the average age of fund holdings and an improvement in quality. The disposals coincided with strong and growing foreign interest in German real estate, making it possible to maximise returns for our investors. In the first half of 2006, four properties with a total value of EUR 371 million were sold. The sale proceeds exceeded the expert valuation by an average of 6 per cent – a promising foretaste of what was to follow.
In 2007, 54 properties held by UniImmo: Deutschland and UniImmo: Europa were sold to Morgan Stanley and IVG for a total of EUR 2.56 billion, including Neues Kranzler Eck in Berlin and the Frankfurter Welle complex. “The Pegasus deal saw us achieving a sale price which was EUR 325 million or 14.5 per cent above the market value overall,” says Dr. Frank Billand, who was a member of the management team at the time. The successful transaction resulted in a sharp rise in the unit price, in particular that of UniImmo: Deutschland .In order to ensure that the profits benefited existing investors, issuing of new units was temporarily suspended.
Portfolio sales leveraged for future opportunities
From the start, Union Investment’s portfolio sales were geared towards a long-term objective. The aim was to reinvest the proceeds in attractive opportunities, including entering new markets. “We saw the disposals as a way of enhancing the positioning of our funds and equipping them to meet future challenges,” explains Dr. Billand. Previously, the proportion of German office properties in the two funds had been too high. The disposals created a more balanced and well diversified portfolio structure. In UniImmo: Deutschland, the fall in the proportion of office property led to a corresponding increase in the share of retail and hotel properties .
At the same time, the occupancy rate improved by 2.5 percentage points to 92 per cent. The current occupancy rate is higher still, at 97.2 per cent. In the case of UniImmo: Europa, the vacancy rate fell to under 7 per cent. Although Germany still accounts for a substantial share of total assets, the continuing focus on international expansion means that foreign markets make up the majority of the fund’s holdings, at over 60 per cent. The portfolio optimisation and asset age reduction programme launched ten years ago remains an ongoing process. Between 2014 and 2016, Union Investment sold commercial properties with a total value of more than EUR 3 billion via individual and portfolio transactions. As demonstrated by the spectacular EUR 1 billion Aqua portfolio sale in 2016, the experience of Pegasus has left Union Investment well prepared for international mega deals.