Aberdeen shows £5bn confidence in property sector

ABERDEEN Asset Management has splashed out almost £80 million in a major deal with Dresdner Bank, boosting AAM's property management business by around 50 per cent at a time when many of its peers are baling out of the sector.

The Aberdeen-based fund manager, which has more than £100 billion of assets under its control, said it had agreed to buy DEGI from the German bank for £79.2m.

DEGI, which boasts £4.7bn of assets under management, will be integrated into AAM subsidiary, Aberdeen Property Investors Holding. The deal will increase the size of Aberdeen's property investment business to about £14.1bn. Aberdeen said the acquisition would increase its exposure to the German market both for its property team and the group as a whole.

Finance director Bill Rattray said the deal would allow the firm to "develop a bigger profile faster" in the German market, which was a key area of focus.

It already has a small investment management team in Germany and said it was acquiring a highly rated investment team through DEGI. AAM also claimed the deal would be earnings enhancing by the time it is completed. In 2006, DEGI made a pre-tax profit of 8.5m (£6.2m).

Yesterday's announcement comes at a time when many investors are shying away from the commercial property sector.

The credit crunch has sent ripples through the market, particularly in the UK, where average yields have fallen below the London inter-bank offer rate (LIBOR).

Some property funds have warned investors they will need to wait months longer than usual to redeem their funds.

AAM admitted the deal was anti-cyclical. Rattray said it came amid a weakening commercial property market in the UK, but he believed long-term prospects were robust.

"It (the acquisition] may not, with the benefit of hindsight, be the perfect timing, but we think it will be a good investment," he said. "All we hear from our property team is that Germany is a very big market that is going to be good in the long term."

He added that the dynamics in Germany were quite different to those in the UK.

AAM chief executive Martin Gilbert said the company often chose to invest against the cycle. "We've always been pretty contra-cyclical – it's the time to buy when others are selling. Clearly we may have been a bit early but I think long-term it will a very good acquisition."

In the last full day of trading, the market did not take fright, with AAM's shares nudging up 3p to 165p.

Joanna Parsons, an analyst at ABN Amro bank, said the latest deal, part of the Scots' firm's strategy to add businesses which strengthen its product range, "should prove relatively robust".

Since October 2006, AAM's assets under management have risen by more than a third, breaching the £100bn mark when it bought mutual funds from US firm Nationwide Financial Services in October this year.