GSW further boosts residential holdings, raises fresh finance

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MDAX-listed Berlin housing company GSW Immobilien has been on a spending spree recently, and has fully invested the proceeds of its capital increase in May this year in new assets. It also raised fresh funds earlier this month by placing €183m in convertible bonds which were instantly allocated to its latest acquisition drive.

The latest deal involved paying €147m for a portfolio of 2,600 apartments from Zentral Boden Immobilien (ZBI), a German closed-end fund initiator. The apartments are located mainly in Berlin, with the rest in Dresden, Erfurt, Essen and Magdeburg. The average price paid worked out at €970 per sqm for the apartments, which yield an average monthly rent of €5.39 per sqm. According to board member Jörg Schwagenscheidt, GSW plans to resell the 470 residential units outside of Berlin in the medium term, as the company is solely focused on the Berlin market where it has its roots. The Berlin apartments produce a rent of €5.52 with further upward potential, average apartment size is 58 sqm, while the vacancy rate is only 1.6%.

This, and a recent deal in October to buy 4,400 apartments for €200m, has seen GSW expanding its portfolio by 7,000 units, more than 6,500 of which are in Berlin, and the bulk of which are located right beside most of GSW’s existing housing stock. GSW’s management team has often stressed in discussions with REFIRE how it shuns open bidding processes, preferring to use its extensive local experience in Berlin to identify and privately buy suitable apartment holdings in under-the-counter deals. This approach has brought its total holdings up to nearly 60,000 apartments – not far short of rival Deutsche Wohnen, which is likely to have just over 70,000 units by year-end.

With over €3bn of assets now under management, GSW raised €190m through a capital increase in May and recently placed €183m of convertible bonds. CEO Thomas Zinnöcker said the capital increase has now been fully allocated. Added CFO Andreas Segal: “GSW will finance the 2,600 apartments in this latest transaction through part of the net proceeds from the issue of convertible bonds, as the property portfolio is being acquired from the seller unencumbered.”

The assets in the latest deal were previously held by ZBI Professional 5, a fund launched by Erlangen-based Zentral Boden Immobilien in 2009 with €47m equity and which provided investors with an annual yield of 7.5%-8.5%, the firm said. “Almost half of ZBI investors are re-investing their money into ZBI products,” said ZBI board member Marcus Kraft. “Investors can currently take part in the ZBI Professional 7 (a fund also focused on Berlin) until the end of the year, which has already collected over €40m equity.”

The recent convertible bond issue was for €183m, specifically to fund new acquisitions. The convertible bonds were offered through a private placement with institutional investors and are convertible into 5.1 million new ordinary shares with a 7-year maturity(November 2019). The annual coupon rate was set at 2.0% and the initial conversion premium was fixed at 22.5% above the reference price of €29.5 by means of an accelerated book-building process, resulting in an initial conversion price of €36.20. The bond, which will now be listed on the Open Market segment of the Frankfurt Stock Exchange, was fully placed within a few hours.

Deutsche Bank and Société Générale Corporate & Investment Banking acted as joint book-runners and joint lead managers for the transaction.

GSW's CFO Andreas Segal commented: “Active financial management is becoming increasingly important in order to keep the borrowing costs to a minimum and at the same time to ensure a high level of flexibility for the financing of new investments. Alternative financing instruments such as convertible bonds therefore help GSW Immobilien AG to raise liquidity and optimise borrowing costs.” Compared to traditional bank financing, added Segal, GSW was saving between 140 and 150 basis points annually.