KWG signs Term Sheet for acquisition of approx. 2,900 units (DE)
Friday 13 July 2012
KWG Kommunale Wohnen AG, long-term oriented holder and operator of German residential real estate, accelerates its profitable growth. KWG signed a Term Sheet concerning the financing of the acquisition of 2,910 units with a lettable space of approx. 203,000 m˛.
The Term Sheet addresses all material framework requirements of the long-term transaction’s financing and guarantees KWG exclusivity for the negotiation of the Sale and Purchase Agreement and Due Diligence. The signing of the final agreements is expected for Q3 2012.
The units are situated in attractive locations in Berlin (609 units) and North Rhine Westphalia (2,301 units), i.a. in Bochum, Duesseldorf and Wuppertal. Through the transaction KWG will expand its portfolio in line with its strategy in locations where it is already represented, thus raising significant synergies.
KWG expects an FFO-contribution from the consolidation of the portfolio to be acquired of €1.7 mln as early as 2013, which will increase to more than €3.0 mln in the following years through the reduction of vacancies, renovations and adoptions of rent to market rates. KWG expects to increase its NAV/share by approx. €1.00 at the initial consolidation of the portfolio.
The portfolio can be acquired at a purchase price of €93 mln. The purchase price implies only a 9.5x multiple on current annual Net Cold Rent. The purchase price per m˛ amounts to approx. €460.00 and thus lies significantly below market rates.
The portfolio consists of properties situated mostly in inner-city locations that have been built to traditional standards. Added potential can be derived from a reduction of the current vacancy amounting to 23%. KWG is convinced to be able to decrease vacancy levels over the years going forward by implementing quality improvements. There is also upside on the rent potential as currently units are let at prices approx. 10% below applicable market rates.
The financing of the purchase price and capex expenditures has already been structured. KWG will contribute the equity component from funds raised through the cash capital increase conducted earlier this year and the releveraging of a subsidiary. The debt component will be provided by a German Landesbank at attractive conditions. The financing bank has also committed to finance the required renovation and refurbishment measures.
Through the transaction KWG would grow into a new scale. The number of units in the group would rise to approx. 10,000, representing approximately twice the size of the portfolio as compared to 18 months ago. Annual Net Cold Rent grossed by KWG would amount to approx. €33 mln.
The highly profitable and attractively financed portfolio would contribute to KWG almost tripling its Funds From Operations (FFO) compared to KWG stand-alone with the FFO reaching more than €5 mln in 2013. Over the following years KWG expects the FFO to grow to more than €8 mln. Thus, the acquisition would support KWG’s ability to pay a sustainable dividend from its fiscal year 2013 onwards.