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Deutsche Wohnen eyes more nursing home deals after €680M expansion

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Deutsche Wohnen eyes more nursing home deals after €680M expansion

Deutsche Wohnen SE, Germany's second-largest listed residential landlord, will look to buy more nursing homes following its acquisition of 30 facilities across the country, CFO Philip Grosse said during a first-half earnings call.

The newly acquired nursing facilities, which were purchased for €680 million, will add about 4,700 beds to the more than 7,000 beds in the company's portfolio, according to its earnings presentation. Nearly 90% of the newly acquired facilities are in metropolitan areas. 13 facilities containing 2,700 beds are in Hamburg, and the remainder are in large cities around the country.

The new facilities will provide Deutsche Wohnen with an earnings before interest, taxation, depreciation and amortization yield of about 5%. The deal is expected to close in the final quarter of 2018.

Grosse said the acquisitions represent a "very big step forward" in the nursing home segment for Deutsche Wohnen. "Following the closing of these acquisitions, we will actually own more than 12,000 beds and thereby [be] one of the top three players in this very promising but also fragmented market," he said.

"We are and we expect to remain acquisitive," he added. "We have seen some nice growth in nursing and assisted living, and we continue to screen the market with a view to further grow that business towards our goal of 15% EBITDA contribution at a minimum."

Deutsche Wohnen will acquire the assets and operations of the 13 facilities in Hamburg, taking a minority stake in the facilities' "market leading operator," it said in the presentation. The company is acquiring only the assets of the 17 other facilities.

Further acquisitions in the company's core residential business, in which it owns and operates more than 160,000 housing units, are likely to prove difficult to secure, COO Lars Wittan said, who noted that Deutsche Wohnen has only acquired 3,000 housing units so far in 2018.

"The pace for growing in the residential business is declining over years," he said. "Our latest and biggest transaction was 2016, so the challenge is for everybody extremely high to find the right portfolio. There are no potential sellers in the market who want to sell a big portfolio, so therefore external growth is very limited."

Wittan said Deutsche Wohnen would consider entering new markets in Germany, but only if it could find opportunities with sufficient scale of at least 5,000 units. However, he ruled out expansion into markets beyond Germany. Vonovia, Germany's largest residential landlord, recently announced its entry into the Swedish market and plans to acquire assets in France when the right opportunity arises. Vonovia is already present in the Austrian market.

Deutsche Wohnen logged an 11.1% year-over-year increase in its funds from operations for the first half of 2018. First-half FFO I was 70 euro cents per share, compared to 63 cents per share in the year-earlier period. FFO I totaled €248.5 million for the first half, a gain of 12.5% from €220.8 million in the year-earlier period. The company reconfirmed its full-year 2018 FFO I

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