A three-way merger is on the horizon for Germany’s residential sector following Ado Properties’ announcement that it intends to merge with its major shareholder, Adler Real Estate, and then also incorporate project developer, Consus Real Estate, the three companies announced this month.
The merged company will operate under the name Adler Real Estate Group, creating Germany’s third largest listed residential group, with a combined portfolio of around €15.4bn, combining Ado’s Berlin-focused residential property with an Adler real estate portfolio that is more widely spread across Germany.
Ado Properties is offering 0.4164 Ado shares to each Adler share, representing a premium of 17.33% on Adler’s closing price prior to the announcement. Ado Properties has a market capitalization of around €1.5bn.
‘This is an exciting and transformational combination that will ultimately create one of the largest listed residential real estate groups in Europe,’ said Thierry Beaudemoulin, CEO of Ado. ‘The combination will have a high quality portfolio diversified across core German cities, with access to a market leading development platform and pipeline. We believe this combination will have a compelling growth profile, which will benefit all stakeholders and deliver value for shareholders in the short, medium and long-term.’
In addition, Consus Real Estate AG, a residential developer focused on the rental sector in the top nine cities in Germany, has signed a strategic co-operation agreement with Ado Properties. Under the terms of the deal, Ado will acquire a 22.18% strategic stake in Consus for €294m in cash, which together with shares already owned by Adler Real Estate, will take its holding to around 25%. Ado has also secured a call option to acquire an additional 51% controlling stake in Consus at an exchange ratio of 0.2390 Ado shares for each Consus share. Upon exercise of its option, Ado intends to make a voluntary offer to minorities at the same consideration as the call option.
Under the strategic co-operation agreement, Consus will work together with Ado on its residential development portfolio, and Consus has provided a right to Ado to allow it to match any offer from a third party on residential development projects worked on together.
‘We are excited to announce today’s strategic co-operation agreement with Ado,’ said Andreas Steyer, CEO of Consus. ‘We see the agreement as a significant endorsement of Consus’s strategy, as well as recognition of our strong in-house construction expertise and digitalisation of construction processes. The relationship will provide material benefits to Consus, including reduced financing costs. A strategic combination of Ado, Adler and Consus will create an integrated real estate group that will deliver residential properties that the top nine cities in Germany are calling for.’
Consus had around €10.3bn of projects in the pipeline as of end-Sept, with Ado and Adler’s combined 80,000 apartments valued at around €8.6bn, according to Ado.
Ado has also announced its intention to launch a rights issue of up to €500m once the deal has closed in the second or third quarter of 2020. The combined company will benefit from enhanced liquidity in its shares, with a free float market capitalisation of approximately €1.8 bn, and will be a likely MDAX candidate in the near-term.
Adler Real Estate announced on 10 December that it had successfully completed its acquisition of 100% shares in Ado Group for €708m, resulting in Adler holding a 33.25% stake in Ado Properties. The proposed merger was announced on 23 September 2019 followed by merger control clearance and approval for merger by Ado Group’s shareholders, which was voted at the EGM on 7 November 2019.
Intense competition for assets has seen an increase in consolidation in Germany’s real estate sector this year. Last month, Luxembourg-based Aroundtown agreed to acquire Berlin-based TLG Immobilien AG for €3.1bn in stock. The deal valued TLG shares at €27.66 each, 3.2% more than the closing price the day prior to the announcement. The merger will create a company with more than €25bn of assets.
‘After jointly announcing non-binding terms, we are pleased to be able to announce concrete plans to combine Aroundtown and TLG into a leading European commercial real estate player,’ said Shmuel Mayo, CEO of Aroundtown. His colleague, Gerhard Cromme, chairman of Aroundtown's advisory board added: ‘As previously stated, the strategic, operational and financial merits of merging the two companies are crystal clear to all of us. We have concluded our conversations and we are fully committed to continue working towards the consolidation of the leading European commercial property company in terms of scale, portfolio attributes, returns, risk, management and governance.’
The offer is subject to approval of the offer document by BaFin, to the offer terms set out in the offer, and to approval by relevant anti-trust authorities.
Also, in June, German real estate group DIC Asset agreed to buy German Estate Group for €225m in cash from real estate investor TTL and private equity firm KKR. GEG is an investment management platform specialized in commercial real estate properties that are placed with institutional investors. It has around €3.6bn of AUM and owns landmark properties such as the Sapporobogen in Munich and the Garden Tower and Villa Kennedy in Frankfurt.