Deutsche Annington boosts holdings by 41,000 units, raises fresh capital
German housing giant Deutsche Annington is wasting little time on delivering on its promise to beef up its housing stock following its stuttering stock market flotation last year, and to push through capital increases to finance its still-ambitious expansion plans. At the beginning of the month it confirmed the planned acquisition of a further 41,500 apartments worth more than €2.4bn to add to its already huge 176,000-unit porfolio which it owns directly, not including about 30,000 further units which it manages for third parties. Further acquisitions are also planned for later this year.
The Bochum-based Deutsche Annington remains the largest private landlord in Germany, ahead of Deutsche Wohnen/GSW and Gagfah, but these latest deals are sizeable by any measure. Annington is buying 30,000 apartments for €1.4bn in a long-flagged transaction from Vitus Group, which is majority-owned by the UK’s Round Hill Capital, and at the same time buying 11,500 units owned by the Stuttgart-based DeWAG, which itself after a sequence of ownership changes is now mainly owned by US REIT Archstone, for €970m.
Annington is partly financing the expansion by the placement of 16m shares in a capital increase for €304m, along with another private placement of 11m further shares, raising a total of €513m. The 16m ordinary shares were placed at €19.00 each, while majority shareholder Monterey, a part of UK private equity group Terra Firma, placed the 11m further shares with institutional investors in an accelerated book-building process, with JP Morgan and BofA Merrill Lynch acting as bookrunners for the placements. The current share price is about €20.45.
Monterey’s stake in the recently-floated Annington falls to 67.3% as part of the transaction, with the level of free float rising to 25.7% following last year’s partly-truncated stock market offering. The Monterey stake is set to be further diminished when a further 11.8m new shares are issued as part-payment for the Vitus portfolio when the deal finally closes, expected in the final quarter of this year. The company said it also plans to issue a hybrid bond to refinance existing liabilities, and make more use of its existing Euro Medium Term Notes (EMTN) programmes.
The Vitus portfolio value includes liabilities and repayment of third-party debt. Founded in 1869 and based in Moenchengladbach in the Ruhr region of northern Germany, the Vitus portfolio comprises former government-owned housing firms in Bremen, Kiel, Moenchengladbach, Leverkusen and Wuppertal. Blackstone bought the firm in 2004 for €1.4bn, and in 2007 sold a majority stake for €1.6bn to funds managed by Round Hill, Deutsche Bank and Aviva. The purchase agreement for the DeWAG units at €970m also includes outstanding liabilities.
The 41,500 new apartments have a floor area of over 2.6m sqm, and an overall vacancy rate of 4%. The assets will raise Annington’s presence in northern Germany with over 9,500 units in Bremen and 9,250 in the Schleswig-Holstein capital of Kiel, where the company has been previously underrepresented.
Annington separately released strong full-year figures showing funds from operations up 31.5% to €224m last year. Net asset value rose by 38.7% to €4.8bn, while the loan-to-value ratio fell to 50% from 59%. After issuing five bonds over a period of three months in 2013, the maturity of the financial liabilities rose to 8.4 years and refinancing costs fell to 3.3% from 4.4%. The vacancy rate in the firm’s pre-acquisitions portfolio fell by 40bp to 3.5%, and average rent rose by 1.9% to €5.40 per sqm/month. Annington invested €224m in its housing stock, including €71m for modernisation and senior-friendly living, and it has earmarked €800m for this through 2018, including €310m this year.