Bank buys DIY stores in Germany for €175m

In one of the largest overseas investment deals this year, Anglo Irish Bank has bought eight DIY stores in Germany for a net yield of just under 7 per cent, writes Gretchen Friemann

Anglo Irish Bank has made a major property acquisition in Germany with the purchase of eight DIY stores for €175 million.

The deal ranks as one of the largest international transactions this year by Irish investors and is Anglo Irish Bank's first foray into the German market.

The bank bought the portfolio of eight retail warehousing outlets from the DIY chain Hornbach in a privately negotiated sale and leaseback deal.

As with previous transactions in the UK and Ireland, Anglo Irish Bank has paid up front for the properties.

But Anglo Irish Bank says it intends to recoup the money by raising three-quarters of the equity from its private client base.

Anglo Irish Bank's partner in this venture, Taurus Investment Holdings, will fund the remaining quarter. The US/German company is a client of Anglo Irish Bank's Boston office and pitched the Hornbach deal to the bank nine months ago.

According to David Hayes, a senior manager at Anglo Irish Bank's private banking division, the attraction of the portfolio was its net yield of just under 7 per cent.

He said a number of clients have "expressed an interest in investing in the German property market where yields are significantly higher than the UK or Ireland".

And he described the purchase of the retail warehousing outlets, which range in size from 14,864sq m to 18,581sq m (160,000sq ft to 200,000sq ft) as "reflective of our clients' wishes".

Hornbach is Germany's third largest DIY chain and is part-owned by B & Q's parent company, Kingfisher.

The retailer, which is listed on the Frankfurt stock exchange, has 88 stores in Germany and a further 29 across Europe.

It has occupied the eight properties acquired by Anglo Irish Bank for the past 15 years but decided to sell and lease them back in order to fund an expansion drive on the Continent.

Six of the outlets are located outside major German cities while two are in Sweden and Holland.

Together, the properties generate an annual rent roll of €13.1 million or just under €108 per sq m (€10 per sq ft).

But rental growth is not the selling feature of this deal. In Germany, rent adjustments must be linked to inflation and the country's sluggish economy means even predictions on capital appreciation are a risky business.

When Anglo Irish Bank's private clients are invited to invest in this portfolio for a minimum sum of €1 million, the bank will be stressing the attractive returns generated by the gap between the yield and the cost of borrowing.

Mr Hayes said that on "debt reduction alone this deal is likely to show a simple return on client equity of between 10 and 12 per cent per annum.

"And that's assuming the German market doesn't go anywhere. The returns will obviously get far more exciting if the yields in Germany tend to converge with their UK or Irish or western European peers."

Anglo Irish Bank has banked large profits off the back of its property lending and investments.

Most of these have been in the UK and Ireland where lease structures are practically identical.

But Mr Hayes claimed that, as value in these markets becomes increasingly difficult to secure, Germany is likely to remain a focus for the bank.