UPDATE 1-Terra Firma buys Annington Homes for 3.2 bln stg

Mon Nov 19, 2012 12:51pm EST

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* Expects purchase from Nomura to be completed this year

* Guy Hands has managed Annington portfolio for 15 yrs

* Annington has 40,000 properties, govt main tenant

LONDON, Nov 19 (Reuters) - Dealmaker Guy Hands has rekindled his love affair with British real estate after his buyout group Terra Firma agreed to buy Annington Homes from Nomura in a deal worth 3.2 billion pounds.

Hands, best known for the high profile loss of music group EMI to Citigroup after the private equity investor defaulted on its loans, was behind Nomura's purchase of Annington in 1996 when he worked at the Japanese bank.

He has managed the investment on behalf of Nomura for the last 15 years, 10 of those while at Terra Firma.

"(Annington) is a pure play UK residential property company with a blue chip tenant on a lease of over 180 years and with the ability to benefit from the strength of the property market," Hands, chairman and chief investment officer of Terra Firma, said in a statement.

Annington Homes became one of the largest private owners of residential property in the UK when it purchased the Married Quarters Estate from the Ministry of Defence (MoD). It leases the majority of its 40,000 properties back to the MoD to provide accommodation for service families.

The deal will have an enterprise value of 3.2 billion pounds, made up of 1 billion pounds of new equity and debt financing, and assumed existing debt of 2.2 billion pounds, the company said.

The new debt financing will be in the form of a 500 million pound Payment-In-Kind (PIK) bond, market sources told IFR, a Thomson Reuters publication.

Terra Firma already owns Deutsche Annington, one of Germany's largest real estate companies, which it could float on the stock market late next year.

Deal-making in the private equity industry - once home to conspicuous multi-billion deals such as KKR's 11 billion pound acquisition of Alliance Boots and Terra Firma's 4 billion pound purchase of EMI - has been tepid since the onset of the financial crisis.

In the absence of new deals, as bank lending for debt-heavy leveraged buyouts has dried up, many firms have spent more of their time buying mid-sized companies from rivals.

Terra Firma, whose last significant investment was the 825 million pounds purchase of care homes operator Four Seasons in April, put plans to launch a buyout fund on ice earlier this year after scant interest from its private equity investors.

It is also planning a multi-billion dollar fund with a Chinese bank to invest in renewable energy.

That would focus its new investments on potentially safer deals, after the firm lost 1.7 billion pounds of its own and investors' money on EMI, which it bought in a highly-leveraged deal at the peak of the buyouts boom in 2007.

But it could also offer lower-return deals than the industry has targeted in the past.

Hands has been one a of a growing number of private equity executives to warn that annual returns from private equity will be lower than the 20 percent-plus which buyout houses promised before debt markets seized up.

Terra Firma, meaning 'solid ground', has invested over 14 billion euros in 31 businesses with a total enterprise value of over 45 billion euros since it was founded.

The acquisition of Annington, which Barclays is advising Terra Firma on, is expected to be completed by the end of the year.