Westgrund triples its holdings with Berlin residential buy

We reported in the last issue of REFIRE (Issue 123) about the recent acquisition by listed German housing firm Westgrund, when it paid about €390m for nearly 13,300 apartments from Berlinovo, a company majority-held by the state of Berlin. The deal is likely to provide a strong boost to Westgrund’s full-year figures, as improved rental income works its way through to the company’s bottom line.

After the largest German residential deal for several months, Westgrund said that about 12,000 of the residential units and 63 commercial properties will be integrated into its existing holdings, with the rest (mainly in Neubrandenburg and Görlitz) would be disposed of quickly.

Most of the assets are in Lower Saxony (particularly the Volkswagen city of Wolfsburg), Brandenburg, Mecklenburg-Vorpommern and Saxony. The new acquisition brings Wertgrund’s holdings to about 20,000 units.

The new portfolio (after disposals) generates rental income of €37m and has an occupancy rate of 91%. The new revenue stream will boost Westgrund’s annual rental revenue by more than 150% to €61m.

The properties in the portfolio have a chequered history. They represent all the non-Berlin assets of the berlinovo group, the former BIH Berliner Immobilien Holding, which now finds itself left holding a remaining 14,000 units in Berlin for the long haul, as was its stated goal. Berlinovo inherited 24 property funds as a legacy of the near-insolvency of banking group Berliner Bankgesellschaft, whose total meltdown was only prevented by the injection of €22bn in equity by the city of Berlin, and the hiving-off of its non-core properties into BIH.

In a complicated agreement at the time, Berlin agreed to buy out all previous shareholders of the funds with a view to gaining full control and then dissolving the funds. It is now very close to reaching the desired 100% by buying up shareholders’ interests. Before this sale to Westgrund, Berlin held 526 separate assets with 41,000 rental units – nearly all of them now residential, throughout Germany with a few in neighbouring European countries.

According to Westgrund CEO Arndt Krienen, the newly-acquired residential assets in this latest deal are located outside the pricier neighbourhoods in their locations and were let to squarely middle-class tenants, which “ideally complements” the company’s existing holdings, he said. Funding for the acquisition would come from a rights issue, which has been guaranteed by a consortium of investors and German banks.

The up to €130m capital-raising exercise, being handled by Arbireo Capital as Sole Financial Adviser, is also expected to broaden Westgrund’s shareholder base and lead current acquisition being seen as merely the “ignition for a further growth path”, he said. Barclays bank provided financing for the deal, with the bank also taking on the role of M&A adviser for Westgrund.

The Berlin-based Westgrund was founded in 1990 and floated on the stock market in 1998. Its stated strategy is to invest only in assets with a positive cash flow at the point of purchase, and in German cities with 50,000+ inhabitants. Its controlling shareholder is Swiss family office Wecken with just under 50% of the shares, Quartenal Investments of Cyprus with 20-6%, Angela Lechner with 10.2%, with 19.49% in free float.