Germany’s Housing Crunch Sparks ADO Push to Create Top Landlord

(Bloomberg) -- Germany’s housing crunch is causing a shakeup in the country’s real-estate market.

ADO Properties SA is bidding to create one of the nation’s top-three residential property firms with a pair of acquisitions that will position the company to challenge Vonovia SE and Deutsche Wohnen SE. It’s the latest sign of consolidation in Germany’s real-estate market amid surging rents in major cities.

Berlin-based ADO is buying Adler Real Estate AG -- owner of 58,000 German apartments -- for 1 billion euros ($1.1 billion) and acquiring 22% of Consus Real Estate AG, which has more than 15,000 residential units in development in the country’s nine biggest cities.

ADO is betting that the transactions will help it grow even as Berlin’s city government finalizes legislation to freeze rents for five years, one of the most radical reactions to public outrage over spiraling housing costs. The capital’s plans have sparked interest from other cities, despite criticism that freezing rents would deter much-needed housing development.

“This is not a reaction, but an ambition to go beyond this debate,” Thierry Beaudemoulin, chief executive officer of ADO, said in a telephone interview. “We are securing growth in the top-line cities of Germany,” while diversifying the pipeline amid changes to the regulatory environment, he said.

The combination -- to be called Adler Real Estate Group after its expected closing next year -- will create a company with 8.6 billion euros in assets, marrying ADO’s Berlin-centered portfolio with Adler’s more national coverage. ADO also has options to buy another 51% of Consus.

Purchase Premium

Despite the political backlash, ADO offered a 17% premium for Adler, based on share trading prior to the announcement. The all-stock deal is “not a good” one for ADO because it turns the company into a broader residential player, undermining its more attractive focus on Berlin, Jefferies analyst Thomas Rothaeusler said in an emailed note.

ADO fell as much as 15%, the company’s steepest intraday drop since it went public four years ago. Adler gained as much as 10.5% before paring gains to 4% at 10:41 a.m. in Frankfurt. Consus jumped as much as 19%.

Consus’s 450 million euros of bonds due in May 2024 surged 10 cents on the euro to about 108 cents in early trading on Monday, the most since they were issued in May, according to data compiled by Bloomberg. Adler’s 300 million euros of notes due in April 2026 were up 1 cent on the euro to 105 cents, the biggest jump since January.

ADO’s moves are the latest in Germany’s real-estate sector. The country is set to surpass the U.K. as Europe’s most active property market, as investors bet the region’s traditional growth engine will bounce back from its current economic malaise. Last month, Aroundtown SA agreed to buy TLG Immobilien AG for 3.1 billion euros in stock to create Germany’s biggest commercial landlord.

Shares of all three companies have suffered this year amid pressure on property owners following Berlin’s rent-freeze efforts. The bigger portfolio should help cut costs and give the combined entity a higher profile for investors, according to Maximilian Rienecker, co-CEO of Adler, who will take on the same role in the combined group alongside Beaudemoulin.

“Going forward, there is all the upside from the synergies and the valuation of the new stock,” said Rienecker, adding that the combined company aims to be added to Germany’s MDAX mid-cap index by the second half of 2020.

--With assistance from Steven Arons, Nathan Crooks, David Verbeek and Irene García Pérez.

To contact the reporters on this story: Aaron Kirchfeld in London at akirchfeld@bloomberg.net;Stefan Nicola in Berlin at snicola2@bloomberg.net

To contact the editors responsible for this story: James Ludden at jludden@bloomberg.net, Chris Reiter

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