May 3, 2018 / 5:34 AM / 21 days ago

Vonovia trumps Starwood with $1.1 billion offer for Sweden's Victoria Park

FRANKFURT/BERLIN (Reuters) - Germany’s Vonovia (VNAn.DE) made a $1.08 billion cash offer on Thursday for Swedish real estate company Victoria Park AB (VICPA.ST), outbidding Starwood Capital Group and stoking the scramble for assets in Europe’s hot property market.

FILE PHOTO - The new headquarters of German real estate company Vonovia SE, a member of the German DAX-30 stock market index, is pictured in Bochum, Germany, April 24, 2018, before Vonovia's annual shareholders meeting in Bochum, May 9, 2018. REUTERS/Wolfgang Rattay

Vonovia said it was offering 9.56 billion Swedish krona ($1.08 billion) for Victoria Park, which owns 14,000 units in Stockholm, Gothenburg and Malmo

Low interest rates have fueled interest in real estate among investors searching for higher returns and companies looking to bulk up.

Since going public in 2013 Vonovia has grown into Germany’s biggest residential property company by swallowing up smaller German rivals and has expanded outside its home market, snapping up Austria’s Conwert and more recently Buwog.

The German firm said it was attracted by Sweden’s regulated rental market and a fragmented housing sector ripe for consolidation.

“We are very excited about entering the Swedish market for the first time, and we are particularly happy that we identified Victoria Park as a company that follows the same business principles,” Vonovia CEO Rolf Buch said.

Despite increased competition for portfolios, Buch said he expected rising demand for apartments as people flock to big cities to support prices and rents, especially in Germany and Sweden where there remained a lot of catch-up potential.

Vonovia said its offer for Victoria Park represented an 11.8 percent premium to Starwood’s rival offer, which valued the company at roughly 8.68 billion krona.

Buch told journalists he was in “good talks” with Starwood and that it would not come to a bidding war. Victoria Park’s board had recommended shareholders reject Starwood’s approach, saying it did not reflect the company’s value. On Thursday, its bid committee voiced support for Vonovia’s offer.

Investors representing 37 percent of Victoria Park’s voting capital have agreed to accept Vonovia’s offer, it said. The offer runs until around June 18, and was contingent upon it securing more than 50 percent of the voting shares.

Vonovia, which is offering 38 krona in cash for Victoria Park’s common shares, said after the market close that it would place new shares to institutional investors via a private placement in an accelerated bookbuilding process to fund the deal, with a target to raise about 1 billion euros.

    Victoria Park closed up 9.7 percent at 38.50 krona while Vonovia’s stock closed down 2.6 percent at 40.81 euros.

    INFLUX CITIES

    Sweden has been an attractive property market for the past two decades, as property prices rose quickly, fuelling fears of a housing bubble. But prices have dipped in recent months on a surge in building and tougher mortgage repayment rules aimed at curbing high household debt.

    Vonovia’s latest foreign venture is part of a European expansion drive. In March, it completed a 5.2 billion euro deal to buy Austrian peer Buwog and has flagged interest in further cross-border acquisitions in Sweden or the Netherlands.

    Rules forbidding listed companies owning social housing remain an obstacle to its ambitions in France.

    Rival Starwood has also been seeking to expand, making offers for minority stakes in Austria’s CA Immo (CAIV.VI) and Immofinanz (IMFI.VI) as it seeks assets in central and eastern Europe. Immofinanz has rebuffed Starwood’s offer as too low.

    Vonovia’s Buch said he believed listed companies would have the upper hand over private equity because of their scale and lower cost of capital.

    Separately, Vonovia also reported financial results for the first quarter and raised its 2018 guidance for funds from operations (FFO 1), a measure of recurring free cash flow, to 1.03 billion to 1.05 billion euros from 960 to 980 million euros.

    It said it expected the Victoria Park deal to be accretive to core profit by 2019.

    ($1 = 8.8902 Swedish crowns)

    Additional reporting by Hans Seidenstuecker; Editing by Jon Boyle and Edmund Blair

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