Adler, Conwert resolve dispute, with both posting good figures
The dispute over board membership between listed residential real estate companies Adler Real Estate and Austria's conwert Immobilien (as reported in last month's REFIRE) was peacefully resolved at the last minute in mid-March, and so it's a return to daily business for both parties – at least for the moment.
The Hamburg-based Adler, the largest shareholder in conwert with 23.5%, had called an extraordinary general meeting of conwert shareholdings on March 17th to replace three board members, on the grounds that conwert needed more German expertise on its board as 80% of the company's 30,000 residential units are now in Germany. It also wanted to reduce the number of board members from five to four.
Conwert had countered that it viewed the move as a hostile action, designed to lead to either a full hostile takeover attempt or a push by Adler to get conwert to buy properties from it.
Adler's subsidiary Mountain Peak Trading surprisingly withdrew its agenda items on the day, but subsequently did manage to get their candidate Dirk Hoffmann elected as a fifth board member, to serve alongside Barry Gilbertson, Erich Kandler, activist investor Alexander Proschofsky, and Berlin property manager Peter Hohlbein. These last two were originally drafted onto the board last year in an attempt to limit the influence of previous conwert major shareholder Hans-Peter Haselsteiner. Haselsteiner's shareholding valued at €285m is now held – via a circuitous route – by Adler.
Adler board member (and soon-to-be board chairman) Arndt Krienen commented that Adler was merely trying to beef up the conwert board in its (conwert's) own interests. "We are not looking at trying to take over conwert through the back door. What we DO want is top management which does however deliver on its promises." He said the proposed cost cutting measures at conwert would not be sufficient to meet its goals, adding "Conwert has the potential to do much better than this".
Conwert CEO Wolfgang Beck refuted as "non-productive" the Adler approach, comparing Adler's key metrics as inferior to conwert's, while countering that conwert was on the right path to meet its goals.
Meanwhile, back in daily business, Adler is now beginning to reap the extra income it bought after a spate of takeovers in its rapid rise to becoming a major residential player in Germany. Last year it bought a further 25,000 residential units for its stable, including the holdings of listed Westgrund and a large portfolio in Wilhelmshaven, which helped it to double its size to 50,000 units, valued at more than €3bn.
Funds from operations (FFO I) were 15% higher than expected at €16.1m, compared with an operating loss the previous year. EBIT at €176.6m was €6m ahead of last yearIt is now the fifth largest residential landlord in Germany, with its housing mainly located in B-locations in the country's major cities.
Conwert, too, posted good full-year figures. EBIT rose nearly 50% to €181.3m, while turnover rose 33% to €506.3m, for a post-tax profit figure of €83.3m after making a loss of €8.9m the previous year.
Conwert attributed the good figures to, among others, disposals for €208m of residential properties in poorer-performing locations, amounting to nearly 10% of its stock. Despite this, rental income dropped by only 4.7% to €226.1m. The operating profit (FFO I) rose 54% to €53.4m. Shareholders are in line for a dividend payout of 61% of FFO I, or 35 cents per share.
CEO Beck commented, "By focusing on the three priorities – improving the operating profitability, optimising the financing structure and the strategic focus on residential property in Germany and Austria – we have implemented the right measures in order to prepare conwert for future developments."
Higher average rents per sqm and a significant decline in vacancy rates caused the net rental result (NRR) to fall by just 1.2% to €148.8m, despite the significantly reduced portfolio. By the end of the year the average vacancy rates for the entire portfolio were down sharply at 6.6% from 9% at end-2014. The vacancy rate for the core portfolio was just 3.1%.
This year conwert plans further disposals worth €300m to €350m of non-core and commercial property, while at the same time buying more quality housing stock in Germany. It has also launched a voluntary public tender offer to buy a 13.47% stake in Hamburg-based housing firm KWG Kommunale Wohnen, in which it is already the majority owner, with just under 80%.
It plans to delist KWG on 20th April, in line with its cost savings and strategic restructuring plan, and by owning at most 93% of the stock after the tender, to avail of the tax regulation that allows share deals to circumvent the burdensome property transfer tax (Grunderwerbsteuer).