Deutsche Annington Immobilien SE (ANN) agreed to buy 41,500 apartments valued at about 2.4 billion euros ($3.3 billion) with debt from owners including Blackstone Group LP (BX:US) and Equity Residential. (EQR:US)
Deutsche Annington will acquire Vitus Immobilien Sarl and homes owned by DeWAG in separate deals that will increase its residential portfolio by 24 percent, the Bochum-based company said in a statement today. Deutsche Annington plans to finance the acquisitions by selling new shares and issuing bonds.
German publicly traded landlords are buying apartments to take advantage of favorable financing conditions. Investors bought 15.8 billion euros of homes in 2013, the most since 2005, according to data compiled by Chicago-based broker Jones Lang LaSalle Inc. Deutsche Annington’s deals will create “substantial cost advantages,” Chief Executive Officer Rolf Buch said.
“The portfolios are very complementary, so it seems credible that they will have cost savings,” said Peter Papadakos, an analyst at Green Street Advisors in London. “The real estate pricing seems fair.”
Vitus owns 30,000 German apartments and DeWAG has 11,500 homes.
Deutsche Annington fell as much as 2.5 percent to 19.5 euros in Frankfurt trading, the biggest drop in two months. The stock has gained about 12 percent since the company first sold shares to the public in July. That’s about the same as the EPRA/FTSE Nareit Index of German property stocks.
The acquisitions will add to Deutsche Annington’s funds from operations and net asset value, the company said. They will also increase its loan-to-value ratio to 51 percent from 50 percent in the “mid-term.”
FFO excluding profit from apartment sales, a measure of a property company’s ability to generate cash, climbed 32 percent to 223.5 million euros last year after borrowing costs fell, Deutsche Annington said in a separate statement. NAV rose 39 percent to 4.8 billion euros.
Vitus, founded in 1869, owns and manages homes in western German cities including Dusseldorf, Kiel and Bremen, according to its website. Blackstone bought the company in 2004 for 1.39 billion euros and later sold a majority stake to funds managed by Round Hill Capital, Deutsche Bank AG (DBK) and Aviva Plc. (AV/)
DeWAG is owned by Equity Residential and AvalonBay Communities Inc. (AVB:US) The U.S. companies acquired Stuttgart, Germany-based DeWAG as part of their purchase of Archstone Inc. from Lehman Brothers Holdings Inc. in 2012. DeWAG owns homes in German cities including Cologne, Munich and Frankfurt, according to its website.
Deutsche Annington will finance the acquisitions with about 1.3 billion euros in debt, according to data in a company presentation to analysts.
The debt will include taking on about 400 million euros of existing obligations from Vitus and DeWAG, about 500 million euros in new corporate bonds, and part of a new hybrid-bond issue of about 500 million euros. In addition, Annington will pay Vitus about 200 million euros in new shares and will sell another 250 million euros to 350 million euros in new stock to raise cash, Buch said on a conference call. About 500 million euros will be paid from the company’s cash reserves.
The acquisitions will increase funds from operations per share by about 8 percent starting in 2015, when both portfolios will have been absorbed, Buch said. The company will probably revise its 2014 earnings forecast when the impact of the acquisitions has been analysed, Buch said.
Deutsche Annington today said funds from operations in 2014 will be between 250 million euros and 265 million euros.
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