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Research: Real Estate
Consus has solidified its position as the largest residential property developer in Germany with the acquisition of SSN Group (SSN) financed through a combination of cash and equity. The transaction will increase the company’s portfolio to €9.6bn gross development value (GDV), 82% of which is expected to be forward sold. We believe that this transaction constitutes and important step in building a strong, well-diversified portfolio and should lead to favourable synergies given the high business profile overlap between Consus and SSN.
Consus Real Estate |
Largest development platform in Germany
Real estate |
Scale research report - Update
20 November 2018 |
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Consus has solidified its position as the largest residential property developer in Germany with the acquisition of SSN Group (SSN) financed through a combination of cash and equity. The transaction will increase the company’s portfolio to €9.6bn gross development value (GDV), 82% of which is expected to be forward sold. We believe that this transaction constitutes an important step in building a strong, well-diversified portfolio and should lead to favourable synergies given the high business profile overlap between Consus and SSN.
Portfolio extended to 65 projects with €9.6bn GDV
On 7 November 2018, Consus announced the acquisition of SSN Group, a residential real estate developer employing a forward sales model similar to Consus’s. As a result, the company’s combined portfolio will now exceed €9.6bn of GDV (vs €6.2bn previously), with 2.1m sqm of total developed area, and the total number of projects will reach 65 (compared to the current 53). The transaction will also provide further geographic diversification of the existing portfolio by enabling Consus to enter the Munich market, which was the last of Germany’s nine largest cities without its presence. The transaction is expected to be completed in Q418.
Financing through cash and equity combination
The price paid for the 93.4% stake in SSN Group of €470m will be funded by a €250m acquisition facility provided by J.P. Morgan. An additional €215m will be paid to Aggregate Group through the issue of 26.9m shares at €8.0 per share, in exchange for 38.9% shares of SG Development and a 43% stake in Project Wilhelm (both SSN subsidiaries). The transaction will put total group indebtedness at €2.2bn (incl. bridge financing) with an average interest rate of 8.1% pa, including SSN debt of €685m at 11.3% pa. Consus is targeting a reduction of debt costs by 2pp as it sees potential to refinance SSN projects at more attractive interest rates.
Upward revision of management guidance
As the company has more than doubled its investment portfolio so far in FY18, management has revised its guidance accordingly, increasing the 2020 EBIT pre-PPA target to €450m (from €300m) at a c 20% EBIT margin. The targeted net debt to EBIT pre-PPA ratio stays at 3.0x (vs 4.4x post-acquisition on Edison estimates), which requires a certain amount of deleveraging initiatives. Management expects no further platform purchases and will focus on acquiring single projects.
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Consensus estimates
Source: Consus accounts and Bloomberg consensus as at 9 November 2018 |
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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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