Germany's Aareal closes €350m Westimmo acquisition

Aareal Bank has finalised the acquisition of fellow German property lender WestImmo for an all-equity amount of €350 mln.

Westimmo was the real estate lending arm of failed German bank WestLB. Aareal first announced the acquisition of Westimmo from bad bank Erste Abwicklungsanstalt (EAA) in February.

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.

'The acquisition of WestImmo is a targeted investment into Aareal Bank's core business segment of Structured Property Financing,' Aareal said. 'This transaction creates added value for Aareal Bank from the very beginning, partly with the negative goodwill of €150 mln recorded upon closing the deal; in addition to this one-off effect, the transaction will make a positive contribution to Aareal Bank Group's consolidated operating profit.'

Mainz-based WestImmo owns total assets of around €8.1 bn. 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.

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.

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 by the end of the year.

'Discussions will shortly take place with the competent bodies about the future strategic focus of the new subsidiary,' Aareal noted. These discussions will cover the settlement of existing overlaps in the location network while the bank is examining a number of options for the private customer business of WestImmo concentrated in Münster, which is not part of Aareal Bank's core business.

The sale of Westimmo 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.

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.