KEY POINTS:
Germany's largest publicly traded commercial property investor, IVG Immobilien, may spin off a €1 billion ($1.85 billion) unit that rents caverns to companies including BP.
IVG, better known for assets such as "the Gherkin" office tower in London, owns 40 caverns in Etzel, northern Germany. The caverns are used to store gas and oil.
The Bonn company rents out each hollowed-out salt dome for €2 million a year and plans to build as many as 65 in the next six to eight years.
The caverns unit might be worth between €500 million and €1.5 billion, analysts estimate.
"The second value is more correct than the first," said chief executive Wolfhard Leichnitz.
IVG might decide to spin off the caverns within a few years, Leichnitz said. IVG would prefer to secure renters and build the remaining caverns before spinning off the unit, but it might happen before the remaining caverns were built, he said.
IVG plans to publish the results of an external appraisal "to end speculation" about the value of the caverns when it reports its annual results today, Leichnitz said. The company's own appraisal valued them at about €1 billion.
"A cavern isn't real estate, but the development is the same," Leichnitz said last month. "You have to obtain the rights, search for renters and then find investors."
IVG is discussing the rental of at least 25 caverns, Leichnitz said. When the contracts are concluded, the company begins construction of the caverns in salt stone. They take about 2 1/2 years and cost about €15 million each.
"If we did the spinoff today, we'd forfeit the creation of value to others," Leichnitz said.
"When we've completed the development of the caverns, it will be time to think about such a thing."
- BLOOMBERG
