Europe Property M&A at Six-Year High on Klepierre-Corio Deal

Klepierre SA (LI) sold almost all its Spanish shopping malls three months ago to focus on better spots in Europe. Now, company values are so attractive it’s willing to become Iberia’s second-largest mall landlord as part of its proposed purchase of Corio NA.

Improving economies, pent-up demand and cheap funding costs propelled European real estate deals to their highest number in six years in the first quarter and the next three months topped that. Paris-based Klepierre’s 4.2 billion-euro ($5.6 billion) offer for Corio, announced Tuesday, would be the biggest transaction in Europe’s real estate industry in at least two-and-a-half years.

“We are observing an enormous amount of appetite for real estate assets in Spain and other European countries,” said Ismael Clemente, chief executive officer of Madrid-based real estate investment trust Merlin Properties SA, which yesterday announced it bought the Marineda City mall in La Coruna, Spain, for 260 million euros. “Investors perceive that these markets have reached bottom.”

Cash piles amassed by sovereign-wealth funds and private-equity firms for property in Europe are making formerly undesirable assets like Spanish malls look increasingly attractive. In the three months through June, 223 property deals totaling $30.8 billion were announced in Europe, according to data compiled by Bloomberg that includes pending, completed and proposed transactions. That topped 222 deals in the first quarter, the most since the second quarter of 2008.

Photographer: Balint Porneczi/Bloomberg

Paris-based Klepierre’s 4.2 billion-euro ($5.6 billion) offer for Corio, announced Tuesday, would be the biggest transaction in Europe’s real estate industry in at least two-and-a-half years. Close

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Photographer: Balint Porneczi/Bloomberg

Paris-based Klepierre’s 4.2 billion-euro ($5.6 billion) offer for Corio, announced Tuesday, would be the biggest transaction in Europe’s real estate industry in at least two-and-a-half years.

European Targets

More than half of the $11 billion raised for real estate investment worldwide in June is targeting Europe, according to research from Indirex Ltd., which compiles data on property funds that aren’t publicly traded. Sovereign-wealth funds are expected to spend about $7.5 billion on European property this year, little changed from last year, according to a May report by broker Savills Plc. That’s making buying companies look more attractive than purchasing individual properties.

“It’s increasingly evident that real estate investment trusts cannot buy buildings at the cap rates they are valued at on their balance sheets, so M&A looks likely,” Jefferies Group LLC real estate analysts including Mike Prew wrote in a July 28 note to clients, citing Derwent London Plc’s July 22 sale of two London properties for 49 percent more than book value.

“A way of assembling a high-quality property portfolio promptly is to buy a REIT and there’s a lot of hidden value in these companies,” Prew said by phone. “M&A is an increasing theme.”

Attractive Bets

The deal between Klepierre, Europe’s second-largest publicly traded-shopping mall operator, and Corio may make other acquisitions more attractive. “For companies such as Unibail-Rodamco SE, we believe that the U.K. seems like a good place to expand,” Valerie Guezi, a real estate analyst at Exane BNP Paribas wrote in a July 29 note.

Targets may include Intu Properties Plc, the U.K.’s largest shopping-center owner, and London-based mall operator Hammerson Plc, according to Guezi.

Buyers spent 1.1 billion euros on stores and malls in Spain in the first half of the year, according to data compiled by broker CBRE Group Inc.

Purchases of Spanish malls may reach as much as 1.5 billion euros this year as buyers anticipate a recovery in consumer lending, said Gema de la Fuente, an analyst at real estate agent Savills in Madrid. That’s at least 10 times more than in 2012.

Values Rising

Real estate values across Europe are rising. U.K. commercial-property values last month surged the most since the market began to recover in May 2013, led by office buildings, Investment Property Databank Ltd. said. Land Securities Group Plc, the U.K.’s largest REIT, bought a 30 percent stake in the Bluewater Shopping Centre, one of the best malls in the U.K., from Lend Lease for 656 million pounds in June for a yield of 4.1 percent.

“Euro zone real estate still offers a large premium” relative to corporate bond yields, Patrick Moonen, who helps oversee $241 billion as a senior strategist at ING Investment Management, wrote in a note today. “In the U.K. yield of real estate is actually lower than the yield on corporate bonds.”

Investment in Italian real estate reached 1.8 billion euros and transaction volumes jumped almost 40 percent in the first half as investors such as Blackstone Group LP (BX), Orion Capital Managers LP, and the Qatar Investment Authority bought malls, warehouses and office buildings, according to broker Cushman & Wakefield Inc.

Discount Trading

Klepierre offered to pay an 8 percent premium to net asset value for Utrecht, Netherlands-based Corio a mall operator “that has continually traded at a discount” and “shown negative net asset value growth of 7.7 percent” compound annual growth rate over the last five years, JPMorgan Chase & Co. analysts including Tim Leckie wrote in a note to clients.

If that deal is completed, Klepierre will have 23 assets in Spain and Portugal valued at 1.3 billion euros, making it the second-biggest mall owner there, according to a July 29 presentation to shareholders.

Still, Klepierre plans to sell non-essential assets if the deal to buy Corio is approved by shareholders, Laurent Morel, chief executive officer of Klepierre said July 29 without being more specific.

Spanish developer Metrovacesa SA’s sale of its 27 percent stake in French developer Gecina SA for 1.55 billion euros to institutional investors including Blackstone had been the biggest real estate deal in Europe this year. It made June the biggest month for deals by dollar amount since January 2012. July was even bigger, with $14.8 billion worth of deals, led by Klepierre’s bid for Corio.

The acquisition data compiled by Bloomberg includes announced asset sales, sale-and-leasebacks and takeovers involving homebuilders, REITs, housing authorities, property managers, lodging companies and developers in Europe. It doesn’t include lease signings, raw land purchases and non-public transactions. Cross-border deals involving at least one company based in Europe are included.

To contact the reporters on this story: Neil Callanan in London at ncallanan@bloomberg.net; Sharon Smyth in Madrid at ssmyth2@bloomberg.net

To contact the editors responsible for this story: Andrew Blackman at ablackman@bloomberg.net Jeffrey St.Onge, Ross Larsen

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