Terra Firma Plans to List 25% of Deutsche Annington in IPO

Terra Firma Capital Partners Ltd., the private-equity firm run by Guy Hands, plans to list about 25 percent of Deutsche Annington Immobilien AG in an initial public offering that may value the company at as much as 4.6 billion euros ($6.1 billion.)

The IPO of Deutsche Annington, Germany’s largest residential landlord by number of properties, may raise about 1.2 billion euros, according to a person with knowledge of the deal who asked not to be identified because the information is private. That includes about 400 million euros from new shares sold by Deutsche Annington, which will use some of the proceeds to pay down debt, Chief Executive Officer Rolf Buch said today in a telephone interview.

Terra Firma, which founded Deutsche Annington in 2001, is seeking new investors at a time when demand for German real estate stocks is faltering. The FTSE EPRA/Nareit index of German property stocks has declined 4.1 percent this year, after climbing 33 percent in 2012. The benchmark DAX Index has gained 9.4 percent in 2013.

LEG Immobilien AG, a German competitor formerly owned by Goldman Sachs Group Inc., raised about 1.3 billion euros in a share sale earlier this year that was the largest in the country’s real estate industry. Since then, the shares have dropped 4.4 percent from the IPO price of 44 euros each.

Berlin, Cologne

Deutsche Annington plans to use part of the proceeds from the capital increase to reduce its loan-to-value ratio to about 50 percent from 54 percent, Buch said. The company owns 180,000 apartments in cities including Berlin and Cologne. Gagfah SA, Germany’s second-largest landlord, has 144,000 apartments.

Deutsche Annington joins forklift-maker Kion Group GmbH and academic publisher Springer Science & Business Media GmbH that also are attempting to list on the German market this quarter. The real estate company began making presentations to investors today and the process typically lasts for two weeks, after which investors have about two weeks to put in orders for shares in the IPO.

JPMorgan Chase & Co. and Morgan Stanley will lead the IPO. Other managers include Bank of America Corp., Deutsche Bank AG, Berenberg Bank, Commerzbank AG and Kempen & Co., Deutsche Annington said in a statement today.

Terra Firma owns about 85 percent of Deutsche Annington, according to the statement. Apollo Global Management LLC owns the rest.

Debt Refinancing

Annington said today it plans to fully pay back its German Residential Asset Note Distributor Plc by October after spending more than a year restructuring the commercial mortgage-backed security. GRAND was valued at 5.8 billion euros when it was issued in 2006, making it Europe’s biggest corporate CMBS. It was due to mature this year until a court in December gave Annington five more years to pay investors the remaining 3.8 billion euros.

Banks have agreed to lend about 940 million euros, which Annington expects to receive in October at the latest, the company said today. In addition, JPMorgan and Morgan Stanley have offered an unsecured loan of 2.5 billion euros, it said. In January, Annington said it had obtained a 785 million-euro loan from Berlin Hyp and another lender.

“We are well ahead of the repayment schedule on GRAND,” Buch said. “We’ve done our homework and are very well prepared for the IPO.”

Company Strategy

Annington will continue its strategy of boosting profit by selling apartments, he said. The company sold about 4,800 homes in 2012, according to today’s statement.

“Privatization is a long-term business model for us,” Chief Financial Officer Stefan Kirsten said by phone. “That’s how we’re different from our competitors. When we sell 2,000 apartments a year out of the 180,000 we have, it doesn’t substantially affect the base.”

Annington’s funds from operations including disposals, a measure of a property company’s ability to generate cash, rose 17 percent in the first quarter to 56 million euros, the company said today. Adjusted earnings before interest, taxes, depreciation and amortization rose 1.3 percent to 121 million euros.