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IVG Caverns €1.7bn deal fails to impress

Last month, under-pressure German property company IVG Immobilien decided to keep an energy storage business but sell its sites to a newly established fund for €1.7 billion. It wasn't enough to keep shareholders happy.

No one can have failed to notice that oil and gas consumption, along with energy prices, have soared in recent times. It is hardly surprising, then, that German property company IVG Immobilien considered selling its underground storage business IVG Caverns to help strengthen its balance sheet and prop up the share price.

However, last month Bonn-based IVG, which owns a series of property funds as well an investment and development business, announced it would keep its cavern business but sell 70 sites – 40 of them completed – to a newly established fund for €1.7 billion.

The move seemed clever, but managed to anger investors who believed an outright sale would have provided a more immediate boost. DZ Bank property analyst Ulrich Geis told the Wall Street Journal: “They chose the option that generates the least amount of cash flow for IVG.”

Rather than selling to a third party, IVG agreed to sell 40 completed caverns to a Specialfonds with €836 million to be paid in the current fiscal year. Under terms of the deal, it would then sell to the fund a further 30 sites under construction when they become complete between 2008 and 2014.

In the face of criticism about the phased structure of sale receipts, chief executive Wolfhard Leichnitz argued that selling would have led to a missed opportunity for future earnings. In a statement he said it would generate considerable “earnings potential” in the future.

All of IVG'S sites are located in Etzel, northern Germany, where it has been developing underground storage facilities since 1971. The facilities are linked to Europe's main energy pipeline and close to Germany's deepwater port near Wilhelmshaven. They are leased on long tenancies to energy companies who use the storage facilities to cover peaks in demand as well as to temporarily store imported energy.

Although there are reports that oil and gas production in Germany has dropped 10 percent in the first six months of 2008, events in the past year suggest IVG's caverns business is strong. Last year, power company E. ON Ruhrgas agreed to lease 15 gas caverns, enough space for nine million cubic meters of gas, from 2011 to 2013.

In any other environment, perhaps IVG would not have attracted anger from shareholders for not selling IVG Caverns. However, in the first half of 2008, IVG reported a 72 percent fall in profits. After the cavern deal, its shares fell a further 21 percent. The final blow arrived a few days later: in a statement, IVG announced Leichnitz would resign for personal reasons at the end of September. It seems for Leichnitz, IVG Caverns was too good a business to let go of, but now he is paying the price.

Curzon lights up UK
Curzon Global Partners and Mountgrange Capital have acquired 28 properties from UK fund manager Prupim for £139.3 million (€173 million; $255 million). London-based Curzon and affiliate AEW Europe is making the acquisition from its €800 million opportunity fund, European Property Investors Special Opportunities, which closed in May. The 28 assets are 60 percent retail and 40 percent offices in various parts of the UK. The expected net initial yield on the portfolio is 7.5 percent, Curzon said in a statement. “This is our first UK transaction positioning our investors to take advantage of the dislocation in the real estate markets stemming from the credit crunch,” said Ric Lewis, chief executive of Curzon.

Carlyle buys German site
The Carlyle Group, the global private equity firm, has acquired a site in Dusseldorf, Germany, from DEKA ImmobilienFonds, an open-ended fund owned by DEKA Bank. Despite fears in Germany that the country could plunge into recession, Carlyle plans on demolishing Cecilienallee 6-9 when tenancies expire in August 2009 and then constructing a new modern office building in its place with roughly 14,000 square meters of space. Wulf Meinel, managing director, said in a statement that the region of Dusseldorf was one of the economically strongest and most stable in Germany.

Argo gets Cyprus funding
Argo Real Estate Opportunity Fund has got agreement from Cyprus-based Marfin Laiki Bank for a €75 million loan facility to embark on a scheme in UKraine. The fund is using the finance for the first phase of the 110,000 square meter Riviera Shopping City retail shopping centre in Odessa, it said. The Real Hypermarket and Obi-DIY is anchoring the scheme which will be opened in stages during the course of 2009, it added. Commenting on the financing, investment manager Robert Provine said: “In a market environment where access to debt has been significantly reduced, this new facility reflects well on the strength of our property portfolio and the market's confidence in our ability to add significant further value.” Argo Real Estate Opportunities Fund, which changed its name in February from North Real Estate Opportunities fund, is a Guernsey based closed-ended investment company.

Ferrovial sells Belfast airport
Ferrovial Aeropuertos, the airport investment arm of Spanish construction and infrastructure firm Grupo Ferrovial, has reached an agreement to sell a 100 percent interest in George Best Belfast City Airport to ABN Amro Global Infrastructure Fund for £132.5 million ($234.1 million; €164.2 million). Ferrovial said the deal was part of its strategy to focus its UK airport business on the British Airports Authority (BAA), which it acquired in 2006 for £10.23 billion as part of a consortium that included Caisse de Dép^t et placement du Québec and Baker Street Investment. BAA owns seven airports in the UK and has a 65 percent stake in Naples Airport in Italy. Belfast City Airport was owned directly by Ferrovial, not BAA.