* No capital increase needed to fund investment
* Sees potential to increase rents by 13 percent
* Investors attracted by stable residential returns
By Kathrin Jones and Tom Bill
FRANKFURT, Jan 21 Property group LEG Immobilien
plans to buy 10,000 apartments in Germany over the next two
years, betting on a market increasingly sought out for its
The German company, which is due to list its shares on the
Frankfurt stock exchange next month, already owns 91,000 flats
and has 170 million euros ($226 million) of liquidity available,
LEG said on Monday, adding that it would not need to increase
its capital for the new investment.
German residential property portfolio transactions were up
70 percent at a five-year high of about 11.1 billion euros in
2012 as investors bet on the strength of a market closely tied
to the German economy, property consultant Jones Lang LaSalle
Despite a contraction in the country's economy in the final
quarter of 2012, investors are expected to keep faith with
German residential amid uncertainty elsewhere on European
property markets. There has also been talk of more residential
initial public offerings (IPOs), including Deutsche Annington.
"German residential property is a very stable market, though
not necessarily one where you can make fast money," Joseph
Schaesberg, of property consultant CBRE, said on Monday.
Investment yields, the annual rent as a percentage of the
property's value, are about 4.5 percent for the best housing and
6 percent in so-called secondary locations.
LEG said that the average rent for its flats is 13 percent
below the market average, a gap that it intends to close over
the next few years.
Investors are particularly attracted to Germany's stock of
rented apartments because it is a well-established market where
they can buy in bulk, said Chris Bell, managing director of
Europe at consultant Knight Frank.
In a further sign of investor appetite for housing in
Europe, British housebuilder Crest Nicholson on Monday signalled
its intention to return to the stock market after being taken
private five years ago.
LEG will not be issuing any new shares on its listing next
month, so will not reap any proceeds from its debut on the
Instead, the two investment funds that own the company aim
to sell up to 1.43 billion euros of their shares in what would
be the biggest IPO by a German real estate group since that of
GSW two years ago.
LEG's listing is set to value the company at between 2.2
billion euros and 2.5 billion euros, making it a candidate for
inclusion in Germany's mid-cap index.
Whitehall, a Goldman Sachs investment fund, will cut
its LEG stake to 33.4 percent from 89 percent, while Perry
Capital will reduce its holding to a little more than 9 percent
from 11 percent.
LEG's owners had originally planned to hold on to a larger
stake, hoping to benefit from a potential share price increase
in follow-on placements several months after the initial
"But it was the explicit request from investors to have a
liquid share with a high free float," Deutsche Bank capital
markets banker Foruhar Madjlessi said.
Deutsche Bank and Goldman Sachs are the main
banks managing the transaction.
LEG's shares will be offered at between 41 and 47 euros from
Jan. 21-31, with the first day of trading on the Frankfurt Stock
Exchange slated for Feb. 1.