- Adler portfolio with regional focus on Lower Saxony, Bremen and Schleswig-Holstein
- Annual rental income of around EUR 65.2 million at present
- Closing at the end of the year
- Focused on “affordable housing” segment with average rent of EUR 5.93 per square metre
- Rental agreements to continue unchanged
- Additional acquisition of 31 percent stake in residential company Brack Capital Properties N.V. (BCP) – option to purchase majority secured
- New guidance for 2022: FFO I EUR475m – EUR490m (previously EUR450m – EUR460m)
LEG Immobilien SE is acquiring around 15,400 apartments from Adler Group with a regional focus on Lower Saxony, Bremen and Schleswig-Holstein. This represents a continuation of its successful expansion strategy and significantly extends its market presence in Northern Germany. The average rent for the purchased properties is EUR 5.93 per square metre and clearly in LEG’s target segment of housing for people on low- and medium-income levels. Following the transfer of the portfolio, 20 percent of the entire properties held by the company will be outside its home market of North Rhine-Westphalia (NRW). With this transaction, LEG is underlining its ambition of providing affordable living in Germany – made in NRW.
In a second transaction LEG purchased a 31 percent stake in the residential company BCP, which runs a highly attractive German portfolio with more than 12,000 units, thereof 6.8 percent from majority shareholder Adler and another 24.1 percent from institutional minority investors, that were led by Brosh Capital Partners.
“With the acquisition of around 15,400 apartments mainly in Northern Germany, LEG has definitively established itself as one of the largest German property managers, with about 20 percent of our properties outside our home market of North Rhine-Westphalia. The transaction once again underlines LEG’s ability to make attractive, value-adding acquisitions even in the currently tight housing markets without compromising on our acquisition criteria,” says LEG CEO Lars von Lackum. “In the future, we will provide a home to half a million people in Germany with about 166,000 apartments. Our new customers can rely on us to provide good housing at fair prices and to fulfil our social responsibility as a major landlord,” von Lackum continues. He adds: “The additional acquisition of a 31 percent stake in BCP creates further attractive growth opportunities for LEG”.
The Adler portfolio in detail
15,362 residential and 185 commercial units will be purchased with total rental space of approximately 960,000 square meters. In 2020, the portfolio generated total rental income of around EUR 65.2 million (in-place rent). The five largest locations/location clusters (in descending order) are Wilhelmshaven, East Friesland, Wolfsburg, Göttingen and Brunswick. Overall, 90 percent of the apartments are located in or in close proximity to regions that are already part of LEG’s current holdings in Northern Germany.
The other parts of the portfolio are predominantly located in metropolitan areas in South-Eastern Germany and will be managed by an external management company. Within 12 months, LEG is planning to sell around 1,300 units, which lack major regional links to the rest of LEG’s portfolio.
With an average rent of below EUR 6, the acquired properties offer affordable housing in a range of different markets. As the rest of LEG’s portfolio, they are clustered into high growth, stable and higher yielding markets. According to this clustering, 30 percent of the new units are located in high growth markets, 20 percent in stable markets and about 50 percent in higher yielding markets. Stable and higher yielding markets have experienced a particularly dynamic performance in the last two years. In particular, LEG considerably reduced vacancy rates in higher yielding markets in NRW, partly through targeted neighbourhood development and is now almost fully let with an occupancy rate of 97.4 percent overall. LEG is now looking to increasingly prove its efficient management of units in all market clusters outside NRW. The current occupancy rate of the purchased portfolio is 94.1 percent.
The transfer of the new units is scheduled for 29 December 2021.
LEG takes social responsibility locally
Acting socially responsible is part of LEG’s DNA. Accordingly, it is important for LEG to emphasise that – as also required by law – the leases of all customers within the acquired portfolio will of course continue unchanged.
Local management teams and regional presence will remain in place for local operative support and direct customer contact. Furthermore, the customer advisory council – established by the LEG Management Board – will soon be expanded to include participants from the new units. If the Corona pandemic permits, info bus tours, on-site visits and discussions with LEG's CEO and COO for customers in the newly acquired units are planned. In short, new customers should feel welcome at LEG from the very beginning.
LEG also wants to quickly establish its thriving foundation work in the new locations. The “Your Home Helps” foundation, established by LEG in December 2019, is committed to providing a wide range of educational, advisory and meeting opportunities in the neighbourhoods to make them even more liveable. It has also organized unbureaucratic support for people in Corona pandemic times and for those affected by the flood disaster in North Rhine-Westphalia and Rhineland-Palatinate this summer. It has its own social manager team in place to help neighbourhood residents by identifying emergency situations and paving the way to existing local support networks. EUR 5 million will be endowed to the “Your Home Helps” foundation, increasing existing funds of EUR 16 million endowed by LEG in 2019. This allows social managers to be deployed in the new regions and to set-up necessary social points of contact in the new neighbourhoods.
LEG will continue the modernisation and new construction measures in Göttingen and Wolfsburg, which were initiated by Adler professionally, efficiently and with great care. Once all the work has been completed, more than 2,200 apartments will be highly energy-efficient and 475 new apartments will be created, thereof 80 subsidized units. The company is thus making a contribution to climate protection, increasing housing comfort and providing urgently required additional housing.
Other than this major construction project, LEG also plans to invest in the maintenance and modernisation of the purchased properties on a similar scale to its existing portfolio.
The transaction is designed in a way that all federal states involved benefit from the payment of real estate transfer tax.
Details on the BCP N.V.
The acquisition of 31 percent in BCP N.V makes LEG the second biggest shareholder of the company in a first step. Further stakes in BCP can be acquired via the exercise of a call option until 30 September 2022 from Adler S.A. at a price of 157 Euro per share. Therefore, LEG and Adler have, with the approval of the respective boards, entered into an agreement regarding an irrevocable undertaking to tender 63 percent of the shares in BCP into a public offer for BCP by LEG.
BCP is a Dutch residential housing company with an attractive portfolio of 12,100 units in Germany, mainly located in LEG’s target markets NRW, Lower Saxony and Schleswig Holstein and a sizeable portfolio in the city of Leipzig. The deal follows LEG’s strategy of investing at asset level and provides further significant growth potential for the company.
Transaction prices and purchase prices
The purchase from Adler Group takes the form of a share deal for 100 percent of the shares of a total of 13 Adler asset-holding companies. The purchase price is EUR 1.291 million and approximately EUR 1.345 per square metre. This equates to a multiplier of about 19.8x based on in-place rents. The transaction is still subject to approval by the responsible antitrust authorities.
The acquisition complements the current LEG portfolio both regionally and in terms of its “affordable housing” footprint, thus allowing for quick integration and efficient management. The transaction is NAV- as well as FFO I-accretive from the start.
The total acquisition price for the 31 percent stake in BCP amounts to EUR 328 million. The price represents a 4 percent discount to NAV (net asset value) as of 30 September 2021. As a financial investment, LEG will account for the stake under the at-equity method. The call option from Adler S.A. for another 63 percent in BCP is exercisable from 1 January to 30 September 2022.
To finance the portfolio acquisition LEG has secured a bridge financing. It currently intends to refinance the bridge financing through a combination of debt instruments and the disposal of non-core units. The acquisition of the 31 percent stake in BCP is funded from existing liquidity. The company remains committed to a conservative balance sheet structure and to its LTV target of max. 43 percent.
LEG is revising its FFO I outlook for 2022 to reflect the acquisitions, raising the range from between EUR 450 million and EUR 460 million previously to between EUR 475 million and EUR 490 million.
With around 145,000 rental properties and approximately 400,000 residents, LEG is one of Germany’s leading listed housing companies. The company has seven branch offices in its home state of North Rhine-Westphalia and is represented by personal local contacts at locations in other states in western Germany.
LEG generated income of around EUR 861 million from its core rental and lease business in the 2020 financial year. As part of the new construction campaign it launched in 2018, LEG wishes to make a social contribution towards creating both privately financed and publicly subsidised housing, and to build or acquire at least 500 new apartments per year from 2023 onwards. From 2026 onwards the number of newly build or acquired apartments will be increased to 1.000 units per year.
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