Deutsche Wohnen’s offered to buy rival residential landlord GSW Immobilien for €1.8 billion ($2.3 billion) to expand in Berlin’s booming rental market and tap nascent interest from international investors.
The all-share deal would push an enlarged Deutsche Wohnen closer to the top five European real estate firms by market value, such as British Land and domestic rival Land Securities, giving it easier access to funding from investors across the continent. Deutsche Wohnen said it plans to finance the bid for GSW by issuing as many as 135 million new shares, more than four-fifths of its existing share capital.
The acquisition would be Germany’s second-biggest residential real estate deal since Whitehall bought LEG Immobilien for €3.4 billion in 2008.
Deutsche Wohnen said it would offer 51 of its shares for every 20 shares in GSW, which would give GSW investors a stake of around 43 per cent in the enlarged company.
The offer represents a 15 per cent premium to GSW’s three-month volume-weighted average share price and the company’s net asset value (NAV), making it more expensive than other recent residential real estate deals. Patrizia Immobilien paid a 7 per cent discount to NAV when it bought most of GBW in April and property firms LEG Immobilien and Deutsche Annington both joined the stock market at a discount this year.
Still, analysts said GSW was worth the price for Deutsche Wohnen because 72 per cent of its portfolio would be in Berlin following the takeover, up from 54 per cent, bringing economies of scale.
Some 85 per cent of Berlin’s population rents rather than owns — compared with a nationwide ownership rate of 46 per cent — making it an attractive investment for landlords, Close Brothers Seydler analyst Manuel Martin said. GSW, whose chairman and chief executive were forced out by a shareholder rebellion last month, said it would study the offer before deciding how to proceed.
The ouster of the two executives followed a campaign led by Dutch pension fund PGGM, which said chief executive Bernd Kottmann lacked experience in managing residential real estate.
In a sign that European property is beginning to attract investors after a downturn that hammered property values, Blackstone — one of the world’s biggest private equity firms — is seeking to raise up to $5 billion for a new fund, a source familiar with the matter said.
Last week, data showed the euro zone was emerging from a one-and-a-hlf year recession, with the economies of both Germany and France expanding faster than expected. The GSW deal would increase Deutsche Wohnen’s portfolio of flats by around 63 per cent to more than 147,000 and give it a 6.5 per cent share of Berlin’s rental market. Rents in the capital surged 40 per cent between 2007 and 2012, according to research institute Empirica.
It would also push Deutsche Wohnen into the No.2 spot in Germany behind Deutsche Annington, the country’s largest real estate firm with 179,000 apartments.
Deutsche Wohnen, which has net debt of €3 billion, would take on 1.8 billion in debt from GSW. Deutsche Wohnen needs support for the deal from 75 per cent of GSW’s shareholders, which it expects to get because two-fifths of GSW shareholders also own shares in Deutsche Wohnen.
Deutsche Wohnen also has to get backing for the capital increase from its shareholders at an extraordinary general meeting on September 30.