KarstadtQuelle Completes Eur 4.5 Billion Sale Leaseback of 174 Properties

Reuters - March 27, 2006

KarstadtQuelle (KARG.DE), Europe's second largest mail order company and Germany's biggest department store operator, said on Monday it had sold its property portfolio for 4.5 billion euros ($5.4 billion), more than three times its book value, allowing it to become debt free and to focus on growing sales. Karstadt, which narrowly escaped bankruptcy in late 2004, said it had sold the properties to a joint venture, owned 49 percent by itself and 51 percent by Whitehall, a Goldman Sachs property fund.

"The deal is not very transparent," said one analyst, who asked not to be named. Others said the same. Karstadt, which narrowly escaped bankruptcy in 2004, had said it wanted to sell the portfolio by the third quarter. Chief Executive Thomas Middelhoff told Reuters that its advisor Rothschild had said the deal was fair. "The advantages of a quick deal were higher than the disadvantages," Middelhoff told Reuters in an interview.

The Essen-based retailer said its net debt stood at 3 billion euros ($3.6 billion) at the end of 2005. The figure includes the debt of Thomas Cook, Europe's second biggest tourism firm, of which Karstadt owns 50 percent.

Under the deal Karstadt gets 3.7 billion euros immediately in exchange for the property portfolio, which includes 174 properties, including department stores, parking lots and office buildings and has a book value of 1.3 billion euros. The company said Karstadt will continue to pay rent on the real estate, which will then be sold on by Whitehall to other interested parties over the next three to five years at which time the joint venture will come to an end.

The remaining 800 million euros of the sale price are expected to come from the appreciation in value of these properties over the time that Whitehall takes to sell them, Karstadt said, adding that it planned to sell on its own remaining real estate worth 600 million euros in the coming months. Sphere: Related Content