Deutsche Wohnen AG, the residential-property investor that’s buying 23,500 German apartments from Barclays Plc, plans to sell almost a fifth of the homes to focus on cities including Berlin and Frankfurt.
Deutsche Wohnen will divest 4,339 properties in Bremen, Luebeck and other medium-sized cities, Chief Executive Officer Michael Zahn said on a call with analysts and reporters today. The company agreed to purchase Baubecon Group, Barclays’ German housing unit, two days ago in a transaction valued at about 1.25 billion euros ($1.6 billion) including debt.
Baubecon is a legacy of the buyout boom in German multifamily housing before the credit crisis that started in 2008. Barclays took over the company when borrowers Prelios SpA and Deutsche Bank AG’s RREEF Real Estate refused to provide the company with more money. Prelios and RREEF bought Baubecon for 1.67 billion euros in a 2007 deal financed by a 1.3 billion-euro loan from Barclays.
Deutsche Wohnen will increase its portfolio to 73,260 homes as a result of the transaction, the Frankfurt-based company said in a May 27 statement. The additional properties will generate 95 million euros of gross rental income a year, Zahn said. That will allow Deutsche Wohnen to raise its annual funds from operations, a measure of a company’s ability to generate cash, by about 10 million euros, he said.
Boost to Profit
“We’ve built the foundation to significantly boost our earnings in the next two to three years,” the CEO said.
Deutsche Wohnen climbed 45 cents, or 4 percent, to 11.85 euros at the 5:30 p.m. close in Frankfurt. The shares have risen about 13 percent in the past 12 months, while the German DAX Mid-Cap Index on which the stock trades has dropped almost 3 percent. Barclays was unchanged at 181 pence in London.
Baubecon’s homes have an average vacancy rate of 3.3 percent. During the first quarter, Deutsche Wohnen’s properties had an average rate of 2.3 percent, according to the company’s latest results.
The acquisition may be completed as early as July 31, Zahn said. The transaction will be financed with a loan of as much as 750 million euros from unidentified German banks and 180 million euros in cash raised in a capital increase in November.
Deutsche Wohnen may sell additional shares to pay off a bridging loan from Credit Suisse Group AG and UBS AG that was also used to finance the deal, Zahn said.
Deutsche Wohnen is in talks to buy three smaller groups of apartments, he said, without naming the sellers. The company’s goal is to own about 75,000 properties.