Bid battle heats up for German mortgage bank Westimmo

FRANKFURT, July 7 Mon Jul 7, 2014 11:04am EDT

FRANKFURT, July 7 (Reuters) - German property lenders Aareal and Berlin Hyp have joined a bidding battle for peer Westimmo in a deal potentially worth more than 300 million euros ($410 million), people familiar with the deal said.

Erste Abwicklungsanstalt (EAA), the 'bad bank' tasked with winding down assets of failed German lender WestLB, has chosen several bidders to submit offers for Westimmo by an August deadline, one of the sources said.

Investors have been attracted to Germany's real estate sector in recent months by the reliable income stream that property projects typically offer and by higher yields than those on German sovereign bonds. Investors are also betting on rising property prices in Europe's largest economy.

Private equity investors such as Blackstone, KKR and Apollo had also expressed their interest in the mortgage bank by late May, the sources added.

EAA, which aims to sell the lender by the end of the year, said it had received a dozen expressions of interest for Westimmo.

Berlin Hyp was not immediately available for comment while bidders declined to comment. JP Morgan, which is organising the sale, also declined to comment.

Some contenders are offering to pay more than 300 million euros or 'a bit more than half' of Westimmo's common equity of 575 million euros, another of the sources said.

The renewed attempt to sell Westimmo comes more than two years after exclusive talks with private equity investor Apollo failed in late 2011.

Mainz-based Westimmo posted a net profit of 50 million euros in 2013. Its asset sheet total stood at 13.8 billion euros as of December last year. The lender is due to publish its six-month figures by the end of August.

EAA took over billions in assets from public-sector lender WestLB, which was broken up in 2012 after trading scandals and losses led to repeated bailouts by its owners.

The European Commission, tasked with making sure that state aid does not hamper competition, had originally asked for Westimmo to be sold by the end of 2011 as part of its conditions for WestLB's latest bailout.

But after the deal with Apollo fell through, Westimmo was transferred to bad bank EAA. Westimmo has not underwritten any new business since, but is instead running down its existing portfolio.

Banks have also sought exposure to Germany's vibrant property market by buying real estate lenders.

Last year Aareal bought rival Corealcredit from U.S. investor Lone Star for 342 million euros to bolster its commercial real estate mortgage business in its home market.

($1 = 0.7331 Euros) (Additional reporting by Kathrin Jones; Editing by Thomas Atkins/Ruth Pitchford)

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