Germany's Aareal Bank Group has agreed to buy property lender WestImmo from bad bank Erste Abwicklungsanstalt (EAA) for an all-equity amount of €350 mln.
Germany's Aareal Bank Group has agreed to buy property lender WestImmo from bad bank Erste Abwicklungsanstalt (EAA) for an all-equity amount of €350 mln.
‘We have exploited an attractive opportunity – in line with our strategic objectives – to execute a value-creating transaction,’ commented Wolf Schumacher, chairman of Aareal’s management board.
PropertyEU reported last week that the sale of WestImmo (Westdeutsche Immobilienbank), the real estate lending arm of failed lender WestLB, was 'already at an advanced stage', with mortgage bank Aareal believed to be the sole remaining contender.
Analysts expected the mortgage lender to sell at around €300 mln, representing a discount of roughly 50% to its equity book value, which stood at €575 mln in June 2014.
Mainz-based WestImmo will own total assets of €8.1 bn at end-March 2015, based on a pro-forma extrapolation. Its €4.3 bn commercial property portfolio is widely diversified - both geopraphically and in terms of the type of financed properties. Germany accounts for one-third of the assets, while Western Europe represents another 38% and North America takes a 9% share.
‘The advantage of buying WestImmo is that it is healthy with good assets left,' commented a Frankfurt-based analyst. WestImmo has been spinning off non-strategic assets to refocus on its core business for the past three years.
Corealcredit purchase
Aareal said the acquisition further strengthens its market position in commercial property financing following the €342 mln purchase of rival Corealcredit in 2013 from US private equity group Lone Star.
'The fact that we have made a second acquisition within a period of just over one year is renewed evidence of Aareal Bank's strength and its ability to take strategic action in a rapidly changing market and competitive environment,' said Schumacher.
The acquisition, which is expected to close in the first half of the year, will have a 'distinctly positive effect on earnings', thanks to negative goodwill of €150 mln. Aareal Bank said it will realise this negative goodwill as a one-off profit on the closing date.
Following the deal, WestImmo will repay funding liabilities to the current owner and return the financial guarantees covering parts of its portfolio while Aareal Bank will provide a new liquidity facility. Aareal said it aims to integrate WestImmo into the group as soon as possible.
In good shape
WestImmo – which is operating profitably with a gross profit of €40 mln in the first half of 2014 – is expected to provide a positive contribution to Aareal's consolidated operating profit, and is forecast to generate a contribution to earnings per share (EPS) of more than €3 over the next three years.
'The WestImmo sale is a milestone for EAA’s portfolio wind-down. I am particularly satisfied that we managed to sell WestImmo in its entirety as this provides a viable perspective for the institution’s employees,' added Matthias Wargers, CEO of EAA.
The sale will reduce the loans and securities in EAA's portfolio by €10 bn compared to year-end 2014, representing around 20% of EAA’s current banking book.
Commenting on the deal, Wargers also pointed out that EAA extracted over €800 mln from WestImmo since it took over the lender in 2012. 'This sum by far exceeds WestImmo's book value at the time EAA took over the bank,' he said.
The European Commission had originally asked for WestImmo to be sold by the end of 2011 as part of its conditions for parent company, WestLB's, bailout. The latest sale of WestImmo comes more than three years after exclusive talks with private equity investor Apollo failed. At the time the lender was being sold for less than €250 mln.
EAA relaunched the sale in May of last year.
Pbb also on the market
The sale of WestImmo comes just a week after Hypo Real Estate Holding (HRE) announced the launch of its two-track sale of German lender Deutsche Pfandbriefbank.
HRE said last week that it has hired Citigroup and Deutsche Bank as financial advisers for the sales process, adding that a potential IPO is also being prepared as an alternative option.
Pbb is 100% owned by HRE which, in turn, is fully owned by SoFFin, the Financial Market Stabilisation Fund set up by the German government following the collapse of Lehman Brothers in September 2008 to stabilise the German banking industry.
The German government nationalised Hypo Real Estate in the aftermath of Lehman Brothers' collapse and the real estate lender received a €10 bn capital injection as well as €145 bn in liquidity guarantees under the condition it would sell pbb at a future date.