Adler Real Estate buys majority stake in Brack Capital for €540m

German listed residential firm Adler Real Estate is paying €540m for a stake of up to 70% in the €1.6bn Tel Aviv-listed German-focused Brack Capital Properties (BCP).

Adler has struck a deal with Brack's major shareholder Redzone Empire Holding for the acquisition of a 41.04% stake in BCP. Redzone is majority-controlled by Israeli businessman Teddy Sagi.

In addition, senior management members of BCP including co-CEOs Ofer Rahamin and Gal Tenenbaum have agreed to tender their shareholdings representing a combined 5.62% in the company in the special tender offer to be launched by Adler on a further 25.8% of BPC.

Adler is offering 440 Israeli New Shekel (€100) per share to all shareholders, in a deal worth a total of €540m at the current exchange rate.

The Amsterdam-headquartered Brack Capital l holds, develops, and manages real estate properties in Germany, with about two thirds of its property portfolio made up of residential properties in the bigger cities, including Leipzig, Bremen, Dortmund, Hannover and Kiel. The remaining properties include 330,000 square meters of commercial real estate.

The supply of housing units includes over 11,000 rental apartments in growing markets, with an estimated €45 million in annual rent. Brack Capital also engages in residential real estate development in Dusseldorf and Aachen for currently about 2,000 residential units; overally it has sold, built, and designed over 13,000 housing units. In some cities there is a strong overlap with existing Adler properties.

'With the acquisition we have not only significantly grown our portfolio, but have also initiated a profound quality transformation,' said Tomas de Vargas Machuca, Co-CEO of Adler Real Estate. 'The overlap and the new scale allow us to generate operational synergies of around €3m annually, as we can integrate the property and facility management into our already existing operational structures."

The BCP portfolio has a higher average rent and a higher occupancy rate than Adler's current portfolio. It also includes development projects in central Düsseldorf and Aachen for nearly 2,000 residential units.

The acquisition will have a positive impact on nearly all financial metrics, according to Adler. It will contribute an annual rental income of €45m, while adding €20m in funds from operation per annum, added De Vargas Machuca. "We will boost our earnings by around 50%," he noted.

Adler said that it would finance the deal from its cash on hand and revenue from the sale of its share of its stake in Accentro Real Estate, along with the sale of non-core residential asset, for a total of €350m. The rest is being financed with an existing bridge loan financing agreement.

It indicated that it was not ruling out acquiring all of the public's holdings in Brack Capital in the medium-to-long term. According to Adler co-CEO Maximilian Rienecker, "This is a major step for Adler to grow further and at the same time improve both its earnings and financial standing. It will thus be greatly benefitting to the interests of our shareholders,"

Brack Capital co-CEO Tenenbaum said to the Israeli business press, "The fruitful cooperation with Teddy Sagi, who has widespread business connections and great financial capabilities, generated large added value for all of Brack Capital's shareholders. The deal with Adler is great for all the shareholders, who will receive a large premium on the equity and share price amounting to an effective control premium."