FRANKFURT, Oct 8 (Reuters) - Private equity investor RoundHill Capital is weighing its options to exit property groupVitus in what could become one of the largest real estatetransactions in Germany this year, four people familiar with thematter said.
Vitus owns about 30,000 apartments and has an enterprisevalue of 1.2-1.4 billion euros ($1.6-1.9 billion), the sourcessaid. Round Hill and co-investors bought a majority in the groupin 2007 from Blackstone for 1.6 billion euros and havebeen looking for an exit for several years.
Round Hill is hoping to benefit from buoyant propertyvaluations in Germany that two real estate groups, LEG and Deutsche Annington, have used for stock marketflotations earlier this year.
Despite the high demand for German property groups ingeneral - the sector index has risen 20 percentover the last two years - the sources said that Round Hill willface an uphill struggle to achieve a high price.
"The sellers will likely have to face a discount of 15 to 20percent on the net asset value," one of the sources said, addingthat the quality of Vitus' properties and its current expensivefinancing would weigh on the price.
The bulk of Vitus' apartments are located in cities likeBremen, Kiel, Moenchengladbach and Wuppertal, which are not seenas top tier real estate areas.
"Vitus' financing is anything but ideal, and a buyer willtake that into account when considering what he is willing topay," one of the sources said, adding a transaction may includedeleveraging and a reorganisation of debt.
In September 2012, Vitus issued 754 million euros incommercial mortgage-backed securities and at the time said itstotal debt stands at 887 million euros.
The sources said that among the options under considerationis a so-called share deal through which Vitus would merge with alisted real estate group. Round Hill and the co-owners wouldreceive shares of that group which they could later sell on thestock exchange.
Deutsche Annington, Gagfah or TAGImmobilien have been approached over a share deal, thepeople said.
Deutsche Annington sold nearly 16 percent of its shares in alisting in July, the remainder is held by private equity groupTerra Firma. Deutsche Annington's shares traded at 19.23 euroslate on Tuesday, giving it a market capitalisation of 4.3billion euros.
An alternative exit route for Round Hill and the Vitusco-owners is also under discussion, a third source said, addingnew institutional investors could potentially replace some ofthe existing owners.
"Round Hill could sell some of its stake but would retainthe lucrative job of managing the properties," the source added.
While no formal auction has been launched, the Vitus ownersand their advisors - Deutsche Bank and Goldman Sachs - have beenin intensive talks with potential buyers.
"The hope is to get a deal sealed this year," one of thesources said, adding that an initial public offering of Vitus iscurrently not seen as a likely option.
Vitus was formed in the 1990s and early 2000s by Germaninvestor WCM, which merged several formerly government-ownedresidential companies. It also acquired mandates to manageadditional 20,000 flats for third-party investors.
The real estate groups declined to comment. Round Hill wasnot available for comment.
- Real Estate
- real estate