Immofinanz resi arm buys DGAG portfolio; confirms spin-off

Immofinanz's residential property arm Buwog has emerged as the buyer of the DGAG residential portfolio from Solaia RE, a joint venture between Italian listed group Prelios and an investment fund managed by Deutsche Asset & Wealth Management.

The package of 18,000 apartments, which provide a total of 1.09 million m2 of lettable space in Northern Germany with a vacancy rate of 2.3%, is being acquired for €917 mln, reflecting a value per m2 of €819 and a gross yield of 7.6%.

The transaction, which will be executed through several share deals, is expected to close in the second quarter of 2014. The purchase price consists of €162 mln of equity and €736 mln of debt.

As part of the deal, Buwog will also take over the residential asset and property management business of Prelios Deutschland with roughly 300 employees. In addition, all existing property management mandates representing a total of 33,000 third party-owned residential units will be transferred to Buwog.

The transaction will increase Buwog's portfolio to a total of 54,000 units with 3.72 million m2 of usable space and a gross asset value of €3.5 bn. The gross rental yield of the total portfolio will equal 5.5% based on a vacancy rate of 4.5%.

The purchase will help Immofinanz's residential arm realise its strategic goal of increasing the share of German assets to around half of its total portfolio, the company said in a statement.

Against this background, parent company Immofinanz has decided to go forward with plans to spin off the wholly-owned Buwog subsidiary and list the unit on the stock exchange. To approve the operation, the Austrian property group has invited shareholders to an extraordinary general meeting scheduled for 14 March.

Immofinanz said each shareholder will receive one Buwog share for every 20 Immofinanz shares, which will result in free-float investors gaining control of Buwog while Immofinanz will retain 49% of the unit. The company expects to reduce the shareholding even further over time.

The spin-off is conditional on shareholders approval by a three-fourths majority.

'This transaction paves the way for the spin-off of Buwog and the resulting separation of the residential properties in Germany and Austria from the commercial portfolio of Immofinanz,' commented CEO Eduard Zehetner. 'Today, Immofinanz still bundles these two different asset classes that cater to different types of investors. For that reason, our valuation in the public stock market does not reflect the quality of our portfolios.

'We will not only remain the largest private investor in the residential property sector in Austria, but in a single step become one of the major players on the German market,' added Buwog's CEO Daniel Riedl.

The DGAG portfolio is largely located in Schleswig-Holstein (990,000 m2) and Lower Saxony (85,000 m2) and generates an annual net rent of €68 mln.

The acquisition will be financed through a combination of €402 mln in already committed mortgage loans, €213 mln of debt that will remain in the acquired property companies and the proceeds from the issue of a five-year convertible bond by Buwog. Immofinanz will subscribe in full to the convertible bond thanks to a bridge loan of €260 mln from an investment bank.

Solaia Real Estate was set up in 2007 and is 60% owned by a fund managed by Deutsche Asset & Wealth Management Real Estate and 40% by Prelios.

Milan-listed Prelios said the deal is in line with its strategy to refocus on real estate services. Upon completion of the sale, the company will manage €2.4 bn of German commercial assets.