Alberta pension manager, Toronto firm buy ING’s half of Summit partnership

Alberta Investment Management Corp., a provincial Crown corporation that manages pensions, endowments and other assets, and KingSett Capital, a private real estate manager based in Toronto, are the buyers.

“We’re selling it for less than we bought it for,” ING Group spokeswoman Victorina de Boer said Friday from the group’s Amsterdam headquarters.

“As a result of the economic crisis, it is fair to say that the portfolio was significantly impacted by negative fair value changes,” she said in an interview.

Since purchasing the fund in 2006, when the portfolio had a net book value of approximately $2 billion, ING has taken a $1.2-billion (euro900 million) writedown on Summit’s light industrial properties — warehouses, storage, shipping and call centres — in or near large cities in Canada.

That means the big European financial institution had to reduce the value of the portfolio on its books because it was overvalued compared with the value at the time of the writedown.

ING — which paid $3.3 billion including debt for the trust four years ago– said Friday that the transaction values 100% of Summit at C$2 billion, including debt, and that it will have no material impact on ING’s financial results.

“You can deduce from that that we’ve basically sold it for close to book value,” de Boer said.

The Amsterdam-based financial giant owns 50% of ING Summit Industrial Fund Ltd. Partnership outright and 7.8% via ING Industrial Fund (IIF), an ING-managed listed property fund in Australia.

The fund will also sell its half of the Summit partnership to the Canadian buyers as part of the transaction.

ING bought Summit, which had been a publicly traded real estate investment trust, in 2006 for $2.1 billion, and assumed $1.2 billion in debt — a premium to the public market price at the time.

But property values plummeted following the credit crisis in the fall of 2008, which required government bailouts of several major banks and insurance companies in the United States and Europe and shook confidence in real estate.

At the time of purchase, ING said it wanted to expand its investments in Canadian real estate and planned to diversify the portfolio away from industrial properties. But it said Friday that it was selling the Summit portfolio as part of a wider plan to divest non-core assets and refocus on banking and insurance.

“As part of our priority of managing risk, we want to reduce our exposure to real estate so that’s why we’re selling our stake in Canada,” de Boer said.

Like many of Europe’s banks, ING has had to divest assets and lean on emergency funds in recent months as anxiety over the Greek debt crisis took a toll on confidence in the continent’s financial institutions, which had already been battered by the recession.

However, Maarten Altena, an analyst at Netherlands-based SNS Securities, questioned the timing of ING’s decision to get rid of its real estate assets just as the sector is stabilizing.

“ING’s Canadian real estate was responsible for a substantial amount of negative revaluations in 2009, but … given the late cyclicality of the real estate market and the fact that management witnessed some stabilizing markets, we doubt whether the timing of the divestment is optimal,” she wrote in a research note.

ING paid a very high price for the assets when the real estate market was at its peak, said Michael Smith, an analyst at Macquarie Securities.

Then the recession struck and many hard-hit manufacturers struggled to pay rent or went out of business, dragging down the value of industrial real estate and forcing ING to write down its investment last year, he said.

Recent reports indicate that Canada’s commercial and industrial real estate sectors have rapidly rebounded from the depths of the recession, which could result in steady revenue growth for the fund’s new owners.

“Demand for all types of real estate has been improving since the credit crisis ended,” Smith said.

“Prices have been on an upward trend over the past year.”

The fund attracted multiple bidders because such a large portfolio of small properties across the country is difficult to assemble, he added.

“You’re getting a good foothold basically in all the major markets in Canada, plus an operating platform that would take a long time to duplicate,” Smith said. “And, they got a good price.”

Neither Canadian company, which have formed a joint venture to manage the portfolio, could be reached for comment Friday.

AIMCo is an Edmonton-based fund manager owned by the Alberta government that manages $69 billion in assets for pensions, endowments and government funds.

KingSett is a private Toronto-based fund manager focused on office, retail and industrial properties in Canada’s major markets.

ING also said it will sell ING Real Estate Canada — which had managed Summit — to KingSett and AIMCo for an undisclosed sum.

“We are pleased to have attracted such well established investors to acquire this unique real estate platform,” said Doug Auchterlonie, Summit’s chief executive officer, in a statement.

The deal is expected to close in the fourth quarter pending regulatory approval.