German residential giant Vonovia has sold a minority common equity participation in its Südewo portfolio to Apollo, on behalf of its affiliated and third-party insurance clients and other long-term investors, for €1 bn.
The investment represents an ownership of just under 30%, adjusted for minorities.
Vonovia will continue to control, operate and consolidate the portfolio, which comprises more than 21,000 residential units in locations across the southwestern state of Baden-Württemberg.
The transaction values the Südewo portfolio at €3.3 bn on a debt free and cash free basis, implying a discount below 5% to its fair value as of December 31, 2022, and below 6% to the fair value as of June 30, 2022.
Said CEO Rolf Buch: 'We are pleased to have these world-class, long-term insurance and institutional partners for our Südewo portfolio. The transaction demonstrates the attractiveness of German residential rental income in general and our portfolio in particular. It is also a significant step in reaching our full-year disposal targets.'
Vonovia retains a long-term call-option to repurchase the participation at an IRR of 6.95%-8.30% (including dividends received), and hence retains 100% of the upside of any outperformance of the portfolio.
There is no obligation for Vonovia to exercise the call-option. The minority participation includes a higher-than pro-rata share of the dividend distribution by Südewo, and will have customary minority investor protection rights.
Closing of the transaction is expected to occur around 31 May and is subject to further conditions such as the absence of material adverse changes and regulatory clearances.
Vonovia said that with the proceeds, the firm would generate around 50% of the targeted €2 bn free cash flow from asset disposals to which the company committed for 2023.
Vonovia intends to use the proceeds for liability management and to cover upcoming debt maturities, with the company’s LTV expected to be reduced by 1 percentage point to 44.1%.
Including this transaction, this year’s refinancing requirements are fully covered.
JP Morgan and Freshfields Bruckhaus Deringer acted as financial advisor and legal counsel to Vonovia, respectively.
Latham & Watkins and Paul, Weiss served as legal counsel to Apollo.
