UPDATE 2-TAG buys German state-owned residential flats
* Deal's value is 218 mln eur excl net debt of 253 mln
* Says rights issue is for 5 new shares for 17 old ones
* Rights issue subscription price to be set on Dec. 5
* Shares down 1.3 percent (Adds background, analyst comment)
FRANKFURT, Nov 19 (Reuters) - TAG Immobilien won a bid for the residential arm of state-owned real estate firm TLG, paying 471 million euros including debt as part of a deal that may be the German property sector's biggest this year.
The sale of the 11,350 flats, a legacy asset from former East Germany following reunification, is the latest in a slew of German real estate deals, as the German government taps a rising market in its second attempt to divest the assets since 2008.
Germany is selling TLG in two separate portfolios, a residential and a commercial arm.
The combined transaction will likely be the country's largest real estate deal this year, surpassing the 1.4 billion euro ($1.78 billion) acquisition of 22,000 flats that a group led by Patrizia Immobilien bought from public-sector bank LBBW in February.
While TAG was widely expected to win the bid for the flats due to certain tenant rights it committed to, private equity investor Lone Star is seen as the favourite to buy the commercial part, which will likely be agreed by year-end, according to two sources.
"Talks are on a good path," said one financial source.
Separately, the German finance ministry said the sale of the commercial properties was in its final phase and expected to be completed in the coming weeks.
International investors are vying for property in Germany, which has avoided the boom-and-bust prices of Spain or Ireland and instead seen stable increases in property values in the past couple of years.
TAG said on Monday it would issue up to 30 million new shares as part of a rights issue to refinance the equity purchase price of 218 million euros and for the financing of additional smaller acquisitions.
The net debt portion of the acquisition price was worth 253 million euros, TAG said.
Based on Friday's closing price of 8.39 euros, the newly issued shares would be worth around 250 million euros.
It said the rights issue would have a subscription ratio of five new shares for every 17 old shares, with the price to be determined on Dec. 3.
As of 1417 GMT, TAG shares were down 1.3 percent at 8.39 euros while the mid-cap index was up 1.4 percent.
Apart from the dilutive effect a capital increase tends to have on earnings per share, there was some scepticism about the pace of asset purchases at TAG, which more than doubled rental income last year. The latest deal brings the number of flats it owns to 69,000.
DZ Bank analyst Ulrich Greis said in a note to investors that TAG CEO Rolf Elgeti would "finally" have to prove he can generate synergies from the scale the company has gained recently.
($1 = 0.7871 euros) (Reporting by Ludwig Burger, Christoph Steitz and Marilyn Gerlach; Editing by Helen Massy-Beresford)
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