IVG Immobilien has agreed to sell 70 of its underground gas and storage facilities for €1.7 billion ($2.4 billion) to a special fund to be set up by the German property company.
In a statement, the Bonn-based publicly-listed company, which will use the proceeds to reduce debt, said the new fund would acquire 40 operational caverns at Etzel in Germany which are let out to third parties. It will also acquire 30 additional underground faciltiies that are under construction but for which long term tenancy agreements have been reached. Under the terms of the deal, IVG will sell the properties between 2008 and 2014 as they become complete.
The fund acquiring the caverns will be the largest established by the company to date. IVG will invest €50 million in the vehicle. Institutional investors have subscribed for €680 million, leaving another €120 million still to be raised. However, the company said talks with investors had reached “an advanced stage” and that the vehicle should be fully invested by the middle of November.
IVG began considering realizing value from its subsidiary IVG Caverns in February this year, when it contemplated either selling the entire business or only a part of it to an investor or to a fund developed by IVG. It said selling to a fund guaranteed earnings and long-term cash contributions.
The deal is expected to lead to earnings before interest of €261 million in 2008 and €574 million between 2009 and 2014.
Chief executive Wolfhard Leichnitz said the company had considerable earnings potential by developing at least 60 additional caverns. “The demand for secure deposit facilities for the short as well as long-term storage of oil and gas will increase further,” said Leichnitz.
IVG has been in the cavern business since 1971. In 2005 it acquired 33 properties previously owned by the Federal Republic of Germany at Etzel near Wilhelmshaven. Since then it has increased licenced expansion in the area from 90 to 130 properties.
IVG was privatized in 1993 and changed its name to IVG Immobilien in 2002 having disposed of all non real estate-related activities. The company opeates four divisons; IVG Investment which concentrates on office properties, IVG Funds which controls €10 billion of assets some of which are held in closed funds, IVG Development, which concentrates on projects in Germany as well as Paris, London, and parts of Central Europe; and IVG Caverns.
All assets of the four groups are managed in-house.