Adler takes 25% strategic stake in Austria's conwert

Austrian listed residential property investor has scarcely been out of the headlines these past six months, featuring regularly in these pages as both a takeover candidate and (most recently) as a suitor itself, weighing up and then rejecting tabling a bid for Australian group BGP's German property portfolio.

Each various interruptive event lead to further ructions within conwert after announcing its own plans in March to cut financing costs, reduce vacancies and narrow its investment focus. After shareholders rejected a takeover offer from listed German residential giant Deutsche Wohnen AG in April, management heads rolled – including that of CEO Clemens Schneider, and the shareholder roster got shaken up. Israeli billionaire investor Teddy Sagi became the company's biggest shareholder in May.

Now fast-growing listed German property investor Adler Real Estate has entered the fray, buying the 24.79% of conwert owned by MountainPeak Trading Ltd, the holding company vehicle for Teddy Sagi's stake, for €285m. Adler is now the largest shareholder in conwert.

Adler CEO Axel Harloff said in a statement, "Our purchase is clearly a strategic participation, and in this context we do not want to exclude the possibility of further deepening our cooperation on our path to becoming a leading residential real estate company."

Conwert owns a portfolio of 30,200 assets in Germany and Austria, currently valued at €2.8bn. In Germany alone the conwert portfolio consists of 25,150 residential and commercial units with a current value of about €1.77bn. The residential property portfolios in Germany are located in strong urban markets such as Berlin with more than 5,000 residential units representing an allocated value of about €400m (c.28%), Potsdam with 1,670 units, with a value of €190m, (13%), Leipzig 4,570 units with an value of €245m, (17%), Dresden 580, valued at €37m (3%) as well as in North Rhine-Westphalia with an allocated value of €145m, (10%).

The value of conwert's Austrian portfolio of €4,220 units is about €635m, with more than three-quarters of the assets in Vienna. The goal is to raise the residential quotient to more than 80%, as the mixed nature of residential/commercial has seen investors imputing a discount to the group's NAV.

Over the last three years, the Hamburg-based Adler has grown from almost nothing to becomin an important residential real estate company with more than 50,000 residential units. Adler's portfolios are predominantly located in Lower Saxony, North Rhine-Westphalia and Saxony.

Since June, Adler's shares have been listed in the SDAX, the German share index for small caps. At the end of June 2015, Adler also completed its purchase of fellow-listed residential property company Westgrund AG of Berlin. Conwert's traditional focus on A-locations and Adler's focus on B-locations and privatisations in Berlin via its subsidiary Accentro are given as reasons for the strategic stake.

Adler said it was planning to sell €175m of mandatory convertible bonds to conwert to fund its acquisition of the MountainPeak stake. The bond has a coupon of 0.5% and a conversion price of €16.50 for one Adler share after three years. (The current share price is about €12.70).

Conwert, despite the turbulence of the past months, posted strong first-half figures based on disposals of non-core assets (mainly commercial properties) and improved FFO, leading to EBIT up 30% to €61.5m. Financing costs fell by 14.5%, helping pre-tax profits to jump 12% to €29.2m.