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Research: Real Estate
On 15 December, Consus announced that Ado Properties had acquired a c 22% stake in the company for €294m in cash. The purchase price of €9.72 per share represents a c 58% premium to the closing price of €6.15 on 13 December. As a result, Ado’s current holding is c 25%, with a call option for a further 51% stake. On exercise of the option, Ado intends to make an exchange offer for the remaining shares. The announcement follows the agreed merger of Ado and Adler Real Estate and will make it the third-largest listed residential company in Germany. Moreover, Ado and Consus signed a strategic co-operation agreement on joint development projects.
Consus Real Estate |
Embracing the ‘build-to-hold’ business model
Real estate |
Scale research report - Update
7 January 2020 |
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On 15 December, Consus announced that Ado Properties had acquired a c 22% stake in the company for €294m in cash. The purchase price of €9.72 per share represents a c 58% premium to the closing price of €6.15 on 13 December. As a result, Ado’s current holding is c 25%, with a call option for a further 51% stake. On exercise of the option, Ado intends to make an exchange offer for the remaining shares. The announcement follows the agreed merger of Ado and Adler Real Estate and will make it the third-largest listed residential company in Germany. Moreover, Ado and Consus signed a strategic co-operation agreement on joint development projects.
Forming a Germany-wide player with c €12bn of GAV
Ado is a Berlin-focused residential real estate company looking to expand its housing stock, while Adler’s operations, centred on affordable housing, are more widely spread across Germany. Adding Consus’s pipeline of residential development projects across the top nine German cities to these complementary portfolios would fuel their expansion through acquisitions of new-build assets in inner-city locations. Combined gross asset value (GAV) would be c €12bn and the deal would allow for operating (€28–38m pa) and financial (€152–172m pa) synergies (per Ado figures).
Call option to acquire a further 51% stake in Consus
As part of the deal, Ado has received an option for the purchase of an additional 51% stake in Consus from Aggregate Holdings until mid-2021, which would be settled in new Ado shares (0.2390 per Consus share). The same parity would be offered to remaining minority shareholders in a voluntary exchange offer, which may follow the exercise of this option, potentially leading to a complete takeover of Consus. At the same time, Aggregate holds a put option for its 51% stake in Consus with a similar compensation in kind or a cash consideration of €8.35 per share, which could be exercised on change of control at Ado.
Ado eyes investment-grade rating of combined group
As the strategic co-operation agreement grants Ado the right to match third-party offers to purchase jointly developed assets, the business model of the combined group effectively transforms to ‘build-to-hold’, which enhances its risk profile. Consequently, S&P upgraded its Consus rating outlook from ‘stable’ to ‘positive’, and affirmed B and B- ratings for the company and its secured notes respectively. Since the deal announcement, Consus’s share price has increased by c 17%, implying a P/E ratio based on FY19e consensus estimates of 59.7x.
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Consensus estimates
Source: Consus accounts, Refinitiv consensus at 7 January 2020 |
Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.
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Research: Investment Companies
Worldwide Healthcare Trust (WWH) is managed by Sven Borho and Trevor Polischuk at OrbiMed. They remain very constructive on the prospects for the global healthcare sector – despite headline risk ahead of the 2020 US presidential election – citing industry innovation, which they suggest is at ‘unparalleled’ levels, and has historically been an important driver of the sector’s performance. Although investor concerns about drug pricing in the US remain, Borho and Polischuk say that pharma and biotech companies are ‘still getting paid and are generating attractive returns’. In addition to opportunities in developed markets, they are also finding interesting investment ideas in China, due to higher product approval standards and a relaxation of listing requirements for fledgling companies.