€1.3bn German property portfolio for sale
It has been almost two years since listed Germany-based healthcare property specialist Vonovia acquired its former rival Deutsche Wohnen. We speak to three Germany-based experts to find about more about the ongoing sale of its £1.3bn property portfolio.
“It’s very poor timing; a high quality portfolio being sold at the wrong time – that’s the way I would sum it up,” one German-based market expert told HBI. “In today’s market there are so few buyers. The question is – how eager are they to sell? And if they do sell, will they do it at a discount?”
Click here to learn more about the German nursing home sector in HBI Intelligence.
A spokesperson for Deutsche Wohnen tells HBI: “Concerning the procedure, we are still in the review process regarding the strategic direction of the segment, and a sale could be a possible option. At the moment there is nothing more to report.”
HBI understands the portfolio – consisting exclusively of nursing homes and valued around €1.2bn-€1.4bn – is of high quality and under normal circumstances would be hugely attractive. But in this market, the sheer scale of it could prove to be a poisoned chalice.
In August last year, Vonovia confirmed it was considering a range of measures to secure access to capital as interest rates rose, including property sales and joint ventures, explaining it had earmarked billions of euros worth of properties for sale and it was looking into the possibility of new investors who could invest in its real estate portfolios. It added it was under no time pressure to agree joint venture partnerships with investors.
“In the current market environment we want to be particularly prudent and identify the right deals and the right timings,” it said in presentation slides at the time.
A source explains: “It’s a good portfolio, so in a normal market there would be strong investor demand but it’s also very large and there’s just no markets at the moment for over €1bn of real estate – you just can’t get funding for that kind of thing. Then you’ve got to match the buyers to different portfolios which becomes complicated.
“There is also one quirk; roughly 60% of the rental income comes from two nursing home operators which are owned and run by Deutsche Wohnen/Vonovia. It’s a bit strange that in essence they are their own tenants. If you were to buy the properties, it creates a lot of uncertainty and in this market that’s not what you want.”
Difficulties raising debt and market volatility mean that the average transaction has become much smaller. HBI sources agree that the portfolio will likely have to be split and sold to multiple buyers, most likely in sub-portfolios.
Another source explains: “Traditionally it’s been very easy to finance but everything was easy to finance a few years ago. Relatively speaking it has become much tougher today with base rates going from 0% to 3%. Then you add a 1-2% margin to this at least. You’re now borrowing at 5% when two years ago you were borrowing at 1%.”
HBI also hears that there have been exclusive negotiations with a consortium to buy both the propcos and the opcos, but the deal died in February. Additionally, a source adds: “There are rumours that French asset manager Primonial and US REIT Welltower were looking at the portfolio, as well as some private equity firms. Most buyers have tried to wait to see how desperate they are to sell.”
However we understand from another source that it’s not a question of pricing or buyers biding their time to strike a sweeter deal, it is simply that: “Initially it wanted to sell the whole thing as both real estate and operating company which complicates things for buyers. There is just instinct that a market for the portfolio of that scale just doesn’t exist because of the financing market we are in.”
Following its first failed offer in 2015, Vonovia finally completed its acquisition of Deutsche Wohnen in October 2021 in a deal valued at around €18bn with Deutsche Wohnen’s hefty portfolio estimated to be around €1.2-1.4bn. At the time, the deal was apparently met with some degree of skepticism from stakeholders.
Deutsche Wohnen also offered more detail on its portfolio: “In the nursing and assisted living business segment, there are 72 nursing homes with a total of around 9,540 beds, of which 71 are owned by Deutsche Wohnen. This makes us one of the largest proprietors of nursing homes in Germany.
“We operate the care business in two different models: 39 care facilities (approximately 5,240 beds) are managed by Deutsche Wohnen internal operators KATHARINENHOF Seniorenwohn- und Pflegeanlage Betriebs-GmbH together with subsidiaries, Hamburger Senioren Domizile GmbH (HSD) and PFLEGEN & WOHNEN HAMBURG GmbH. The remaining 33 facilities (approximately 4,300 beds) are managed by various external operators on a long-term basis.”
Aging demographics mean that demand for homes in Germany isn’t going away. According to the office of federal statistics, the proportion of Germans over the age of 80 is projected to double by the year 2040. Occupancy rates in nursing homes are also high, reaching an average of 94% in 2020.
But taking a five year average, Germany remains the second largest market in terms of annual investment volumes – falling only slightly beyond the UK according to an expert source: “You just need to look at it factually to see the levels of investment into healthcare real estate over the past decade. Annual investment volumes have only increased. There was a bit of a slowdown at the end of last year but in the very long run I expect it to increase.”
Since the start of February, Vonovia’s share price has dropped 44% to €15.66, and it has dropped 14.48% over the last 6 months. Deutsche Wohnen’s share price fell 28% between February 2 and March 28, to €18.59. It is up 1.25% on its price six months ago.
The data for the infographic above is courtesy of data from JLL.
We would welcome your thoughts on this story. Email your views to Michaila Byrne or call 0207 183 3779.
