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There may yet be another sizeable residential real estate transaction before the end of the year in Germany, as the sector continues to consolidate and the capital markets continue to show appetite for further exposure to the sector.
Private equity investor Round Hill Capital is thought to have been considering exiting from German property group Vitus and sources close to the company suggest Round Hill may be keen to tap in to the current positive sentiment to bid the market adieu by selling its holdings to one of its listed rivals. The enterprise value of the company is put at about €1.2 – €1.4 billion. Round Hill and a number of co-investors including Deutsche Bank and insurer Aviva bought a majority holding in the group in 2007 from Blackstone for €1.6bn, so at current valuation would be taking a hit of 15-20% on the stated net asset value. Blackstone is still a minority partner.
Vitus owns and manages 30,000 residential units, mainly located in secondary cities such as Kiel and Bremen in northern Germany, and the industrial cities of Mönchengladbach and Wuppertal in North Rhine-Westphalia. This volume, the mediocre quality of the assets, and the geographic distances between its main locations makes the portfolio difficult to manage profitably, and an IPO of the spun-off holdings would be impractical.
Vitus is also thought to be labouring under unfavourable financing conditions, further increasing its incentive to exit the business. In September last year Vitus did issue a €754m CMBS managed by Deutsche Bank, and at the time stated its total debt stood at €887m.
The company and its advisers Deutsche Bank and Goldman Sachs are said to be in intensive talks with potential buyers, which would include peers such as Deutsche Annington, TAG Immobilien, LEG Immobilien and Gagfah.
It’s not immediately evident that any of these would prove a likely candidate for a takeover, given their existing obligations. Gagfah is currently undergoing major restructuring and refinancing, LEG is only buying small portfolios in its heartland of North Rhine-Westphalia, and Annington is undergoing a major programme of refurbishing its existing holdings.
Other options mooted for Vitus are a share deal, through which the company would merge with a bigger listed rival in return for shares, which they could later sell on the stock exchange. Alternatively, Vitus could bring in new partners, adding institutional investors to replace some of the existing owners, and try to hold on to the lucrative business of managing the properties.
Vitus was established in the late 1990’s by German investor WCM out of the merger of several formerly state-owned residential companies, while at the same time picking up mandates to handle property management for third party investors.