Apollo Global Management Inc. agreed to buy part of a portfolio of apartments from Vonovia SE for €1 billion ($1.1 billion), with the largest German residential deal in months suggesting confidence is returning to the under-pressure sector.
(Bloomberg) — Apollo Global Management Inc. agreed to buy part of a portfolio of apartments from Vonovia SE for €1 billion ($1.1 billion), with the largest German residential deal in months suggesting confidence is returning to the under-pressure sector.
The private equity firm will acquire a minority stake in 21,000 homes in the German state of Baden-Wuerttemberg at a discount of about 5% to the portfolio’s year-end valuation, according to a statement on Wednesday.
After a dearth of big transactions, the deal suggests real estate investors are again prepared to bet on residential property in Germany, easing pressure on debt-strapped landlords. Shares in Vonovia, which has lost more than half its value over the past 12 months, rose as much as 5.9%.
Europe’s real estate markets have been in turmoil after rising interest rates ended a decade-long boom in which landlords assembled huge portfolios with the help of extremely cheap debt. The sharp increase in borrowing costs has caused a collapse in share prices of many real estate companies over concerns of a drop in property values.
The lack of deals in recent months stoked uncertainty around efforts to sell assets to cut debt. The Vonovia deal indicates a floor is forming under valuations, and that could open the door to more sales.
What Our Analysts Say:
The 5% discount may have been inflated by Vonovia retaining a majority stake, but it’s half the landlord’s “worst-case” scenario for 2023 price declines, and provides one of the first pieces of transactional evidence to potentially unlock more sales.
— Iwona Hovenko and Susan Munden. Click here for the full report
Read more: German Housing Slump Is Already Over as Building Costs Soar
Vonovia, LEG Immobilien SE and TAG Immobilien AG have all been trading at deep discounts to their asset values but have so far reported only modest reductions in portfolio valuations. The companies have also flagged plans to dispose of vast swathes of assets to reduce relative indebtedness.
The deal values Vonovia’s Suedewo portfolio at €3.3 billion, and Germany’s largest landlord will retain a long-term option to buy back the stake. Apollo is buying the properties on behalf of insurance clients and other long-term investors, according to the statement.
The deal is expected to be completed by the end of next month and will see Vonovia achieve about half of its planned disposals for 2023.
In total, the landlord has earmarked as much as €13 billion of assets for possible sale. The latest transaction will reduce the company’s loan-to-value ratio by 1 percentage point to 44.1%.
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