ANALYSIS: Patrizia seals mega resi sale as international expansion intensifies

German real estate group Patrizia Immobilien has sold the Südewo Group portfolio from a fund that it manages to Europe’s largest residential landlord, Deutsche Annington, for €1.9 bn as international expansion becomes the name of the game.

‘We’re very focused on expanding internationally, especially in markets such as the UK, France and Holland,’ Matthias Moser, head of alternative investments at Patrizia and who masterminded the deal, told PropertyEU. ‘We see a lot of opportunities there.’

Patrizia’s investment outside its home market almost quadrupled last year to €1.8 bn, compared to just €500 mln in deals a year earlier. Including deals in Germany, the group invested €3.4 bn last year.

However, Patrizia, which acquired the SÜDEWO portfolio from German lender LBBW for €1.44 bn in 2012, had initially intended to hold onto it for seven to 10 years, Moser said. Following Deustche Annington’s unsolicited offer just two months ago, Patrizia decided ‘it would be more profitable for our investors to sell it now’, Moser said.

Such an approach is unusual, according to Michael Seufert, an analyst at Nord LB in Hannover. ‘An unsolicited offer like this is not very typical – it shows that a portfolio like this is a rarity. I’m sure that the market will continue to be dynamic, given that big players, such as Deutsche Annington, are always on the hunt.’

The acquisition of the SÜDEWO portfolio of 19,800 residential units will strengthen Deutsche Annington’s presence in southern Germany, especially in Baden-Württemberg, where the company already holds around 15,000 homes. The newly acquired portfolio has a low vacancy rate of just 2.4% and is spread across cities such as Stuttgart and Ulm.

‘Deutsche Annington’s acquisition of a €1.9 bn portfolio from Patrizia is the largest resi deal in Germany since Deutsche Annington’s takeover of Gagfah,’ said Dr. Konstantin Kortmann, head of residential investment at JLL in Germany. ‘It’s a significant deal for the market and we expect to see further M&A activity in the sector, given how low refinancing costs are, which is resulting in larger players ‘hunting’ smaller rivals.’

Deutsche Annington will fund the purchase, which includes the assumption of €800 mln in debt, via a €2.25 bn capital increase, with closing expected to take place early next month (July).
In light of this deal, Patrizia Immobilien has raised its forecast for the current and next fiscal years and expects the cumulative operating profit for the next two years to be at least €200 mln, Patrizia said in a statement today.

Further sales could also be on the cards this year, Moser said, although any decision is not expected to be announced before September. For investors who cannot wait until then, there are already other portfolios up for grabs.

BGP portfolio
One big portfolio on the market is the BGP portfolio owned by BGP Investment.

BGP started out as a joint venture between Australian companies Babcock & Brown and the GPT Group before being restructured in 2009 as an independent company in Luxembourg.

‘We are pursuing a ‘dual-track’ process whereby we are considering a sale or an IPO,’ said Mark Dunstan, managing director of BGP Investment in Luxembourg. ‘We’re selling our German residential assets because we have shareholders who inherited them following our restructuring in 2009 and the plan was eventually to sell them. We have seen interest from a wide-range of investors, including private equity groups.’ Dunstan is hoping to offload the portfolio by the year-end.

According to Kortmann, ‘there has been a lot of interest from international investors’. The portfolio comprises around 16,000 units spread out across Germany, of which around 40% are located in Berlin, with the remaining properties mainly in the north of the country. ‘It has a reported property book value of €1.1 bn but I think it will sell for a premium due to the strong interest in Germany’s residential sector,’ Kortmann added. (JLL is not advising). BGP could not be reached for comment.

BGP Investment held a €3 bn pan-European real estate portfolio five years ago, according to Dunstan. The German residential portfolio marks the last real estate assets to be sold.

It has been a busy year for Deutsche Annington, following its announcement in February that its takeover of German rival Gagfah had got the green light. Combined, the two groups own around 350,000 residential units with a combined value of around €21 bn. The tie-up also created continental Europe’s second-largest listed real estate company after France’s Unibail-Rodamco. Major investors in Deutsche Annington include the Abu Dhabi Investment Authority (12%), Norges Bank, the central bank of Norway (8%) and US asset manager BlackRock (7%). Deutsche Annington could not be reached for comment.

German residential
Germany’s residential sector has become very popular because capital values for asset and portfolios in A and B locations are increasing by around 7% a year, according to JLL. ‘A few years ago, very few investors would consider properties in C and D locations but today there is a window of opportunity for selling properties in those locations, even in the former East Germany,’ Kortmann explained. There were just under €13 bn in residential deals in Germany last year and JLL is forecasting a similar deal volume this year.

Patrizia Immobilien currently manages around €15.5 bn of real estate assets, primarily as a co-investor and portfolio manager for institutional investors.