ADLER merges with ADO Group

ADLER has agreed to acquire all the shares of ADO Group, a Tel-Aviv listed holding company and shareholder in ADO Properties, a €4.4bn GAV German-listed, residential real estate company focused on Berlin.

ADLER is paying €708m for the shares in ADO Group, in a deal will create a large, pure-play German residential real estate group with a fully consolidated GAV of €9.4bn, net rental income of €366m and FFO I of between €130m and €140m. Following this acquisition ADLER will also hold a 33% stake in ADO Properties.

Initially, the transaction will be funded by acquisition finance which ADLER intends to repay through a combination of a rights issue fully-guaranteed and backstopped by ADLER anchor shareholders, cash from the disposals of non-yielding assets and financial debt. The BB stable outlook rating for ADLER is expected to be reaffirmed upon completion of the transaction.

‘This purchase has an attractive entry price below ADO Group’s EPRA NAV,’ said Tomas de Vargas Machuca, ADLER co-CEO and chairman of the executive committee. ’This represents a highly attractive transaction on value per square meter and a considerable discount to privately traded Berlin residential portfolios. The acquisition also provides longer term opportunities to generate sustainable shareholder value.’

The purchase price represents a 15% discount to ADO Properties 1H 2019 reported EPRA NAV, not including any expected premium to be realised in connection to the possible sale of a real estate portfolio announced by ADO Properties on 16 September 2019.

‘The 15% discount to NAV does not seem a great deal for the seller at first glance,’ Dr. Konstantin Kortmann, head of residential investment Germany at JLL, told REFIRE. ‘However, there is a mismatch between NAV and the stock price, given that listed resi companies have seen their stock price punished by Mietendeckel talks – especially those with a focus on stock in Berlin and the deal shows a premium of 31% on the stock price. This is the first deal post rent freeze and it shows that the rent freeze is not the only issue affecting the market.’

It has been a busy week for ADO Properties. On 26 September, German real estate group Gewobag announced that it had agreed to buy about 6,000 flats in Berlin from ADO Properties for €920m. The deal, which is expected to close in December, brings Gewobag closer to its goal of boosting its portfolio to around 80,000 resi units over the next 10 years. It has already acquired more than 1,000 units this year, taking its total to 68,000 units.