WestImmo acquisition provides ‘perfect overlap’, says Aareal

German lender Aareal Bank’s acquisition of rival German lender WestImmo provides the ‘perfect overlap to our core business’, an Aareal Bank spokesman told PropertyEU.

‘The transaction represents an attractive opportunity for Aareal Bank to pursue inorganic growth as it is EpS (earnings per share, ed.) accretive and creates shareholder value from day one,’ he said.

Aareal Bank announced on Monday that it had agreed to buy rival real estate lender WestImmo from Germany’s ‘bad bank’ Erste Abwicklungsanstalt (EAA) for an all-equity amount of €350 mln. PropertyEU reported last week that the sale of WestImmo to Aareal was ‘imminent’, with the lender expected to sell for around €300 mln, representing a discount of roughly 50% to its equity book value, which stood at €575 mln in June 2014.

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’.

The attraction of the deal is clear: it gives Aareal even greater access to European markets in which it already has a strong presence. WestImmo will own total assets of €8.1 bn at end-March 2015, based on a pro-forma extrapolation. Germany accounts for one-third of the assets, with Western Europe representing another 38% and North America 9%. Aareal’s own loan book comprises 22% of German loans, with an additional 31% in Western Europe and 15% in North America, as of end-September 2014.

‘With the acquisition of WestImmo, we will obtain a high-quality, low-risk commercial property financing portfolio, which is broadly diversified – both geographically and in terms of the type of financed properties,’ an Aareal spokesman said. ‘It supplements our own activities in line with our strategy. We are therefore confident that with the acquisition we are able to strengthen our position as a specialised commercial real estate lender even further.'

Bumper year
It is gearing up to be a bumper year for Aareal. While the lender will not disclose preliminary full-year figures for 2014 until 25 February, it is anticipating doing up to €7 bn of new business this year, its spokesman told PropertyEU. ‘Germany, France - especially Paris – London and Poland remain core markets in Europe. The US remains a core market outside Europe and we continue to seize opportunities in Asia,’ he said.

The deal marks Aareal’s second acquisition of a rival in the past two years, following its acquisition in 2013 of Corealcredit from US private equity group Lone Star for €342 mln. 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 attempt to sell WestImmo comes more than three years after exclusive talks with private equity investor Apollo failed.

And despite WestImmo not being permitted to underwrite new business, according to EU regulations, it has retained its experienced staff and lending platform, which make it ‘highly attractive’ to Aareal, the spokesman said. WestImmo is also in good shape because it has been spinning off non-strategic assets to refocus on its core business for the past three years.

The acquisition is not expected to have an impact on Aareal’s lending strategy, the spokesman said. ‘Our strictly risk-return oriented and conservative lending strategy has proven successful in recent years. We therefore see no reason to change it, even more so as the high diversification of our CRE portfolio and our conservative risk profile remain unchanged by the transaction itself.’

The deal is expected to close by the end of the first half of 2015. The acquisition 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.

Neither is Aareal ruling out further acquisitions, its spokesman said. ‘We closely monitor all relevant developments in our markets. Due to our healthy and robust financial constitution in the current environment, we would always be able to seize opportunities and chances for consolidation if they were a good fit and reflected our strategy of sustainable profitable growth.’