LEG Immobilien buys NRW ex-Vitus portfolio from Annington

Listed Düsseldorf-based LEG Immobilien AG took advantage of a timely deal with a compatible residential portfolio from fellow-listed Deutsche Annington, as it bought a further 9,600 residential units in its heartland of North Rhine-Westphalia. This brings to over 19,000 the amount of new units acquired by LEG since the beginning of last year, well exceeding its own growth target of 10,000 units by the end of 2014.

LEG Immobilien paid €484m for the portfolio, which consists of the North Rhine-Westphalian assets of the the Vitus portfolio which Annington had bought in October of last year. The deal includes LEG taking over part of the refinancing costs incurred by Annington when it bought the Vitus assets, as well as absorbing 55 ex-Vitus staff. Financing for the deal will come from a mixture of cash and proceeds from the convertible bond issue and new capital raising exercise of April this year.

For the MDAX-listed LEG the deal offers attractive assets in its home territory, with the benefits of scale and bundled asset management. The properties are located across the state, with many concentrated in Mönchengladbach, Wuppertal and Leverkusen, while 88% of the assets are close to the six biggest cities in the region. The annualised net 'cold' rent revenue (without utilities charges) is €35m, with the rent per sqm at €4.76 per month and a vacancy rate of 3.9%. These latter suggest there is decent upside potential to the already stabilised portfolio.

According to Thomas Hegel, LEG's very approachable CEO, "We were able to clearly demonstrate with this portfolio acquisition that we are committed to our value-generating acquisition strategy and to boosting the efficiency of our operations. We plan to expand our operating platform and avail of suitable opportunities to do deals where we can add value."

On the issue of the rental cap, or Mietpreisbremse, as it affects LEG's more than 100,000 residential units, Hegel commented in a separate media interview: "LEG would only be marginally affected by the Mietpreisbremse. About 35% of our total residential holdings are in receipt of public subsidies, so they would be unaffected. Secondly, our level of rents is not at the upper level of the spectrum. By our own calculations we would suffer at most ten basis points on our rental growth projections. But on principle we view the rental cap critically – it won't create any new apartments, but instead will create uncertainty surrounding rents and undermine the basis of trust between tenants and landlords."

Hegel used the occasion of the deal to raise full-year projections for FFO I funds from operations for 2015 to €188-193m, or an FFO per share of €3.29-3-39 per share, up from an earlier forecast of €172-177m. He also announced the public issue of 4.1m new shares "to continue the acquisition strategy", as well as a private placement of 2.36m new shares from its Perry Luxco RE Sarl holding in an accelerated bookbuilding process, being lead-managed by Deutsche Bank and Goldman Sachs.