Pirelli RE and the real estate investment funds of RREEF (Deutsche Bank Group) have signed a binding agreement with the American private equity fund Cerberus, to purchase 100% of BauBeCon, an important German real estate group active primarily in the residential segment. The purchase price, subject to a price adjustment based on the financial statements at June 30th, 2007, was set at circa €350 million.
BauBeCon's Enterprise Value, including the real estate portfolio and the asset management and services activities, amounts to circa €1,690 million (figure estimated at December 31st, 2006), excluding closing costs of €30 million. This amount will be financed for some €350 million with equity, of which €264 million at closing and €85 million in five years, and for some €1,370 million by debt, of which circa €360 million from a non recourse bridge loan and for some €1,010 million from collateralized real estate loans.
Based on the agreement signed Pirelli RE (40%) and RREEF (60%) will acquire a €1,647-million real estate portfolio comprised of more than 27,000 primarily residential units (1,711,000 m²), located largely in the cities of Berlin, Hanover and Magdeburg, with an average value of €960/m² and with an average entry yield of circa 6.1%; the overall annual passing rents total circa €101 million, with an average vacancy rate of 8%. The business plan forecasts that prices will increase by circa 3% per year, including inflation, over the next five years and that the vacancy rate will drop to circa 5%.
According to the agreement Pirelli RE will also acquire 100% of the platform that manages circa 52,000 real estate units (including those that will then belong to Pirelli RERREEF) and that has approx. 260 employees; the Enterprise Value totals circa €43 million.
Pirelli RE's and RREEF's joint strategy on the acquired portfolio, is to enhance value in the medium-long term, also through the integration of other residential portfolios.
Pirelli RE's strategy calls also for the creation of an asset management company and several service companies exploiting efficiencies resulting from the integration of BauBeCon's and DGAG's activities, with the purpose to improve and enhance asset management.
Pirelli RE's assets under management in Germany rise to more than €3 billion (book value), equal to circa 25% of the total real estate assets under management, ahead of the year end 2008 target.
The transaction, which has already been approved by the Antitrust authorities, is expected to close by the end of July.
"The acquisition of BauBeCon, whose real estate portfolio is complementary to DGAG's (purchased just a few months ago) represents another step towards the creation of a vast residential platform which we believe will create value in the medium-long term," stated Pirelli RE's CEO Carlo A. Puri Negri. "This transaction will also help to accelerate development of Pirelli RE's asset management activities and specialized services in Germany."
Deutsche Bank served as the joint venture's financial advisor while Freshfields Bruckhaus Deringer and Hengeler Muller acted as legal and tax advisors. REAG acted as real estate appraiser.
Source: Pirelli RE