Noratis AG. (DE:NUVG) is a hybrid between a property company that owns residential assets and a residential asset developer. Noratis has been operating in Germany’s non-core cities since 2011, and exploits the opportunities in this market segment while mitigating typical developer’s risks through targeting a constant cash inflow from rental income. Noratis acquires existing residential blocks, aims to modernise them with minimal disruption to the rental income stream and, within 12 to 36 months, aims to sell the building as a whole or unit-by-unit. Noratis has raised gross funds of €17.25m, which should enable it to boost its asset base, generate economies of scale and therefore mitigate risks for investors further, widening the gap between recurring rental yields and operating costs.
Differentiated offer generates safer income
Noratis appears to have a differentiated profile in the German market: combining the stability of rental income streams with the benefits of development gains. Noratis develops existing residential assets, leading to a re-positioning of the asset. Higher like-for-like rents are then targeted at more affluent tenants, hence improving the rental income level and stability, and boosting the asset’s rental multiples at point of sale, leading to potential exit gains.
Noratis mitigates typical asset holder risks
Noratis is neither a long-term residential asset holder, nor a pure new asset developer. Noratis selects rent yielding assets with improvement potential with the intention to sell the asset typically after a one- to three-year ‘optimisation’ programme, including tenant restructuring and vacancy reduction. Historically, funds from disposal have been partly distributed and partly re-invested. The IPO proceeds will be invested with the objective of achieving and sustaining a portfolio size to generate sufficient yields to cover operating and optimisation costs for ongoing projects. Cash returns from asset sales can then wholly benefit investors.
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