Pirelli RE has signed a binding agreement to acquire around 96.8% of Deutsche Grundvermögen (DGAG), one of Germany's leading property companies with headquarter in Hamburg and Kiel, based on a valuation of 100% of equity of approximately 440m (at 31 December 2005). In consideration of a preliminary price adjustment (which will be finalized on the pro-forma financial statements at the date of closing) , the provisional purchase price amounts to 462m for the 100% of DGAG.
In details, Pirelli RE will acquire 95.3% of B&L Immobilien, a company whose main shareholders are Albert Büll and Co rnelius Liedtke and which owns 62% of DGAG, and it will acquire from HSH N Real Estate controlled by the German bank HSH Nordbank) around 38% of the German property company.
DGAG's Enterprise Value estimated at the closing date, considering also disposals underway, amounts to approximately 1.5bn (1,660m at 31 December 2005), including its property assets and asset management and services businesses.
In details, around 88% of the Company's property portfolio, in terms of surface area, is represented by residential properties and around 12% by retail space and offices. The residential portfolio includes 21,403 units (a total surface area of over 1,262,890 square metres), primarily located in the areas of Hamburg, Lubeck and Kiel. The shopping/commercial portfolio consists of three shopping centres, with two situated in
Hamburg, (with a total surface area of 77,305 square metres), as well as of 17 retail and office properties in the cities of Frankfurt, Dresden, Berlin and Hamburg (with a total surface area of 90,803 square metres).
Pirelli RE will apply its business model to DGAG, with the purpose to create a platform for real estate investments, asset management and services which, thanks to the quality of its management who will be confirmed, will continue the expansion process in the German market, with new identified opportunities.
The reorganization process, which will be completed by the end of 2007, will involve the contribution of the company's residential properties, with a value of approximately 1,080m, to a joint venture between Pirelli RE (35%) and the real estate funds of RREEF (65%), Deutsche Bank's division in charge of real estate investments, which has already been established under a binding agreement. The commercial portfolio will be
contributed to a joint venture between Pirelli RE (30%) and the real estate funds of Morgan Stanley (MSREF) (70%) for a price of 330m (enterprise value) for 100% ownership of the commercial assets, which has also already been established under a binding agreement. Other assets and asset management and services businesses, which employ approximately 400 staff, will be owned 100% by Pirelli RE Deutschland (100% Pirelli RE).
The Enterprise Value will be covered for approximately 130m by equity, for approximately 310*m by the non-recourse bridge loan issued by Hypo Real Estate and for approximately 1,060m by underlying debt secured by the properties of the German company. Pirelli RE has already obtained a commitment for a non recourse refinancing of that debt, increasing leverage on the commercial and residential portfolios.
The impact on Pirelli RE net debt as a result of the transaction will total to approximately 1,500m, of which around 1,370m on a non-recourse basis for the Company. At the end of the restructuring, net debt will be approximately 80-90m; beside s that, there will be an additional commitment of around 40m of shareholders' loans to companies in which Pirelli RE has minority stakes.
Pirelli RE assets under management will thus increase from a book value of around 12bn (around 14bn market value) to approximately 13.5bn. This includes around 2bn in investments abroad, amounting to approximately 15% of total assets and speeding up the achievement of 20% target set out in the 2006-2008 three-year plan. With this transaction Pirelli RE consolidates its leadership position in the asset management business in the