One of Germany’s residential real estate heavyweights, Grand City Properties, recently garnered very strong investor demand. While initially planning a €500 million perpetual notes issuance, Grand City was able to exceed that amount by €200 million, offering a €700 million issuance instead. The ability for such an increase was due to a very strong investors demand in the book building process which was 7 times over-subscribed and reached total demand of €3.5 billion.
The strong investors demand permitted Grand City Properties to reduce the perpetual notes spread significantly. This resulted in a 1.5% final coupon, setting a record for the lowest ever Euro yield by a real estate company for a perpetual note. Perpetual notes are used to strengthen the company’s equity base, as well as the balance sheet. They are a key factor in Grand City’s conservative financial policy and assist in the mix of diverse financing sources.
Like common shares, perpetual notes carry coupons that can be deferred at the company’s discretion. Their other notable attribute is the lack of maturity date, meaning that the company can redeem the notes on certain dates, at its own discretion.
The book-runners of the issuance where the leading international banks JP Morgan, Deutsche Bank, Goldman Sachs, Nomura, and Santander. Many financial giants participated in the issuance, such as Norges, Amundi, BNP Paribas, Blackrock, HSBC, Fidelity, Credit-Suisse, UBS, Millennium, Allianz, Swiss-Life, Pictet, and many others.
In the year 2011, property magnate Yakir Gabay (יקיר גבאי) founded Grand City Properties. At the time, stocks were trading at around €2.8 per share, with a €150 million market cap. In less than 8 years, the company shares have increased in value by over 800%, with a market cap exceeding €3.5 billion euros.
Grand City Properties has since become the fourth largest listed residential real estate company in Germany with an impressive portfolio including over 70,000 German properties and more than 4,000 apartments in London with Yakir Gabay (יקיר גבאי) remaining as chairman of the Advisory Board.
The Grand City Properties management team improves property value by raising tenant and occupancy levels. The corporate assets are concentrated on Germany’s most crowded areas such as the capital city Berlin, North-Rhine Westphalia, Leipzig and Hamburg.
The proceeds from this issuance provided Grand City additional equity capital. The majority of the issuance will be used to buy back the company’s last tender offer of perpetual notes, issued in 2015 with a significantly higher 3.75% coupon rate. The perpetual note refinancing will sustain Grandy City’s cash flows in the upcoming financial periods, as well as promote a stronger FFO I post-perpetual notes attribution.
