Few companies have found themselves as much under the eye of public and investor scrutiny over the last 18 months as Berlin-headquartered Deutsche Wohnen AG, the largest residential landlord in the capital and the second largest housing company in Germany. In the run-up to the introduction of Berlin’s Mietendeckel, or rental cap, it was the whipping boy Nr. 1 in the glare of demonstrators keen to clip the wings of the big housing companies, and even gave its name to the movement to expropriate all landlords with more than 3,000 apartment units in the capital. Now it’s facing the full onslaught of the Coronavirus crisis, and is rapidly developing a new strategy to handle an increasingly complicated housing environment.
The company announced plans last week to greatly increase its project development activity outside Berlin, while at the same time trimming its dividend for shareholders in favour of creating a new reserve fund to provide coronavirus-related relief to its commercial and residential tenants. While it remains committed to completing 2500 new residential units it had decided to build before the imposition of the Mietendeckel, the move represents a decided step for the listed Deutsche Wohnen to reduce its dependency and focus on Berlin.
Last year the company sold a portfolio of 6.350 residential units to private group ZBI for €615m as part of this reduction. It currently owns and manages nearly 170,000 units, mainly in multi-family housing, of which nearly 116,000 units are located in greater Berlin.
Deutsche Wohnen agreed to buy most of the private equity-backed project developer Isaria Wohnbau AG for about €600m, along with several big real estate projects, totalling 2,700 residential and commercial units. It said it plans to invest more than €3bn in building new residential, nursing and commercial properties across major German urban regions, without specifying a time-frame. Existing projects are ongoing in Berlin, Potsdam, Dresden and Leipzig.
The Munich-headquartered Isaria, owned by Lone Star Funds and with a staff of 90 headed up by former TLG Immobilien co-CEO Peter Finkbeiner, has been successively expanding its development activity to Hamburg, Stuttgart and Frankfurt am Main in recent years. The company is particularly specialised in converting commercial space into residential property. It was bought by Lone Star in 2016 for a reported €107m in a de-listing, who then in 2019 started looking for a suitable buyer for the developer.
Michael Zahn, CEO of Deutsche Wohnen, said of the deal, "The lack of affordable housing in our cities is a major challenge for society. Up to 400,000 flats must be built every year in Germany's cities. Private and financially sound companies can help to tackle this housing shortage. With the help of this transaction, we now have access to attractive future projects, which we will realise systematically in line with our overall strategy."
Deutsche Wohnen’s chief development officer Henrik Thomsen added, "We want to build. Working together with local authorities, we acknowledge our responsibilities and want to act as a strong partner in developing sustainable city neighbourhoods that offer a high quality of life."
Zahn said that, in view of the coronavirus crisis, Deutsche Wohnen is creating a €30m relief fund to provide unbureaucratic help especially to commercial and residential tenants and to tradespeople and small service providers. "We want to help tenants and longstanding business partners in areas where state support isn’t available. We are firmly convinced that in times of crisis we have to show solidarity – and all the more so because Deutsche Wohnen is in very good financial shape," Zahn said. "This is our contribution to ensuring that economic crises don’t become social crises as well."
To finance the fund, the company plans to to propose a reduction of this year’s dividend to 90 cents per share (up from last year’s 87 cents, but less than originally envisaged. Deutsche Wohnen is expecting for the current year an operating profit (FFO1) of €540m, the same level as last year.
