German companies find warm welcome for bond issues on capital markets
Several listed German property investors have been taking advantage of the ongoing strength of the German economy and particularly its residential housing market to tap the capital markets for fresh financing. These are unlikely to be the last deals we'll see over the coming months, as investor enthusiasm for German-related projects continues unabated. Companies with project-development capabilities are enjoying particular success, as the market imputes high ratings to participants that show a clear plan as to how they can meet burgeoning housing and office demand – particularly in the bigger cities - without falling foul of constrictive rental regulation.
ADO Properties, focused exclusively on Berlin apartments and effectively a pure play on the capital's housing market with 19,000 housing units, tapped the bond market for the first time and raised €400m which it plans to use to fund €300m of new acquisitions and to pay down existing debt. The unsecured, fixed-rate bond is paying a coupon of 1.5%, and will mature on 26th July 20124.
ADO said the order book was 2.25 times oversubscribed by institutional investors following a several day-long road trip by the company. Rating agency Moody's gave the bond a Baa2 rating.
The bond issue brings the average maturity of ADO's total debt from about 5 years to 5.5 years and decreases the company's average interest rate by 10 basis points. About €80m of the bond proceeds will pay down existing debt with maturities up to 2019, which is incurring interest rates of 2.7%, underpinned by assets against this debt with a market value of €260m. Barclays, Morgan Stanley and SG CIB were the joint bookrunners on the placement, with Morgan Stanley as sole ratings advisor.
According to CFO Florian Goldgruber, "Following our successful equity raising we have undertaken the next important step to diversify our funding sources and make them more flexible. The successful bond placement together with our solid investment grade rating by Moody's is further expanding our access to capital to support our future growth strategy."
CEO Rabin Savion added, 'We see a continuous deal flow of new opportunities in line with our past experience and are confident we can deploy this additional capital over the next six to 12 months into new accretive acquisitions,' said Ado's CEO Rabin Savion.
Aroundtown Properties, the Cyprus-headquartered holding company which mainly invests in turnaround assets in Germany through stakes in listed companies such as Grand City Properties, placed a €500m bond to hep fund its growth strategy and, likewise, to pay down existing debt.
Issued together with its wholly-owned Dutch subsidiary ATF, the company placed its 1.875% fixed rate notes, which are due in 2026 under the company's €1.5bn Medium Term Note programme. The issue price equated to 97% of the principal amont of the notes. The notes will trade on the regulated market of the Irish Stock Exchange. Bookrunners were Goldman Sachs Internation, JP Morgan, Morgan Stanley and UBS.
Aroundtown is buying most of the German office portfolio of Apollo Global Management for €1.2bn, in a major off-market transaction. Apollo has been assembling the portfolio over the last few years, including several asset groupings with distressed debt structures.
Listed turnaround residential specialist Grand City Properties itself also placed €600m of notes with a 1.375% coupon, due in 2026, at a subsciption price of 96.82%, as part of the €1.5bn Euro Medium Term Note Programme. The notes will also be traded on the regulated market of the Irish Stock Exchange.
Also tapping the markets was Frankfurt-based commercial property investor DIC Asset, which has a long history of issuing bonds to finance expansion and improve its debt structure. Its latest bond had a volume of €130m, ahead of its original target of €100m. The coupon was fixed at 3.25%, priced at the lower end of its marketing range. Bankaus Lampe KG and Citi acted as joint lead managers.
DIC Asset said the net proceeds would be used to repay outstanding debt, in particular its outstanding 5.75% bond over €100m. CFO Sonja Wärntges said, “Following the successful refinancing of the Commercial Portfolio in late 2016, the refinancing of the 2018 bond marks the next step in our ongoing effort to optimise the capital structure of DIC." The company has about 200 real estate assets under management, valued at €3.6bn.
Meanwhile, one of Germany's biggest residential developers Instone Real Estate (known until recently as formart GmbH, merged with GRK-Holding GmbH) also made its debut by placing a Schuldschein loan (promissory note) with IKB Deutsche Industriebank AG as sole lead arranger and book runner, with Sparkasse Hannover acting as selling agent.
Instone's corporate unsecured Schuldschein loan has fixed and variable tranches with maturities of three and five years. The Schuldschein was in the "high double-digit million euro range" and was "considerably oversubscribed," mainly by investors from the project-financed savings bank, Volksbank instituions and commercial banks.
Instone's CFO Oliver Schmitt said the proceeds "will enable us to significantly reduce our previous interest expenses, to extend financing times, and to diversify our funding sources."
The Instone companies build over 1,000 residential units annually, draft construction legislation for complex lots, and refurbish existing properties, including repurposing industrial monuments into residential real estate. With 270 employess at nine locations around Germany, Instone is currently working on 60 projects with a project volume of €2.6bn.