The following discusses agreements to which the Company or another company of our Group is a party and that are of material significance to our Group:
Financing Agreements
Loan agreement between Deutsche Wohnen AG (et al.) and Helaba
On September 9, 2009, Helaba, Deutsche Wohnen AG, Rhein-Main Wohnen GmbH, and Main-Taunus Wohnen GmbH & Co. KG combined and unified the two existing loan agreements with Landesbank Hessen-Thu¨ringen Girozentrale, Frankfurt an Main, Germany (“Helaba”) (the two existing loan agree- ments are hereinafter referred to as “Helaba I’’ and “Helaba II”) into a new loan agreement (“Helaba III”). The following has essentially been agreed to:
Deutsche Wohnen AG, Rhein-Main Wohnen GmbH, and Main-Taunus Wohnen GmbH & Co. KG, as borrowers, and Helaba, as lender, are entering into a loan agreement for altogether five loan facilities of a cumulative total of approximatelyS643 million (balance as of June 30, 2009: approximately S632 million). Under this loan agreement, the Helaba I and Helaba II loan agreements will be fully redeemed at their current principal balances of approximatelyS228 million (Helaba I) and approximately S404 million (Helaba II) (as of June 30, 2009). In this context, the parties have agreed that there are no outstanding claims from Helaba I and Helaba II.
The new loan agreement provides for Deutsche Wohnen AG as the borrower for loan facility A in an amount of approximatelyS48.6 million, loan facility B in an amount of approximately S68.2 million, and loan facility C in an amount of approximatelyS121.4 million. Rhein-Main Wohnen GmbH, as the borrower for loan facility D, is provided an amount of approximately S374.5 million, and Main-Taunus Wohnen GmbH & Co. KG, as the borrower for loan facility E, is provided an amount ofS30 million.
Loan facility A, the due date of which was extended through the conclusion of Helaba III, will now become due on October 31, 2010. Loan facilities B and C have terms ending May 6, 2014. Loan facilities D and E have terms ending December 31, 2017. The annual interest rate for loan facility A is EURIBOR (on a 3-month basis) plus a margin at prevailing market rates. The annual interest rates for loan facilities B and C are 5.74% and 5.79%, respectively. The annual interest rates for loan facilities D and E are EURIBOR (on a 3-month basis) plus a margin at prevailing market rates.
Deutsche Wohnen AG is jointly and severally liable for all facilities. Rhein-Main-Wohnen GmbH is jointly and severally liable for facilities A through D. Main-Taunus Wohnen GmbH & Co. KG is liable only for facility E. All credit facilities are secured through enforceable personal acknowledgements of debt by the borrowers, rent receivables assignments and pledges of accounts, as well as through a negative pledge, which is applicable to the entire Group. Under the negative pledge, the borrowers, with certain exceptions, are permitted, only with Helaba’s consent, to, among other things, take out a loan, individually guarantee financing to third parties or purchase real estate. Furthermore, the facilities are to be secured by way of mortgage over the portfolios of Rhein-Main Wohnen GmbH and Main-Taunus Wohnen GmbH & Co. KG as of September 30, 2009 and December 31, 2009.
Loan facility A is now due in a single sum by October 31, 2010. Annual amounts of approximately S3.6 million and approximately S6.4 million, respectively, are stipulated as scheduled redemption payments on loan facilities B and C, payable as of June 30 of each calendar year. Rhein-Main Wohnen GmbH is to make scheduled loan redemption payments of approximatelyS1.2 million each on loan facility D as of the end of each calendar year quarter, starting in 2015. Main-Taunus Wohnen GmbH & Co KG is to make scheduled loan redemption payments of approximatelyS93 thousand each on loan facility E as of the end of each calendar year quarter, starting in 2015. No scheduled loan redemption payments are to occur on loan facilities D and E prior to 2015.
The borrowers are also obligated to pay an amount ofS45 million by October 31, 2010, and S25 million by December 31, 2010, as special redemption payments. In the event of sales of units from the collateralized real estate portfolio, special redemption payments are to be made out of the generated sales proceeds first, in terms of priority, on loan facilities D and E, in an amount ofS200.00 per m2of the rental space sold up to December 31, 2014, andS600.00 per m2starting on January 1, 2015.
The financial covenants in the Helaba I and Helaba II loan agreements are combined in the new Helaba III loan agreement into two performance indicators, namely, the debt service cover ratio (relationship between net rental income and debt service) (“DSCR”) and the exit yield (relationship between net rental income and 133
the remaining amount of the loan at its respective level at the time of calculation). The DSCR must be at least 102.5% as of June 30, 2010, and will be increased in steps to 110% by 2017. The exit yield must be 7.00% as of June 30, 2010, and will be increased in steps to 8.50% by 2017. These performance indicators are to be reviewed semiannually, and for the first time as of June 30, 2010, at the level of the collateral portfolios of the borrowers and of our Group. The review at our Group level will be dispensed with as soon as the collateralization through mortgages has been ensured and the aforementioned repayments ofS48.6 million, S45 million and S25 million have been made.
Pursuant to an agreement with Helaba, amounts totaling S111.1 million, which are currently due by October 31, 2010, will become due for repayment five banking days after the issue proceeds from the capital increase have been credited to the Company’s bank account, but no earlier than December 31, 2009, if the capital increase described in this offering circular is successfully completed and gross issue proceeds of approximatelyS250 million are generated. These amounts currently due for repayment by October 31, 2010 relate to (i) loan facility A totalingS48.6 million, (ii) the extraordinary mandatory repayment in connection with the loan agreement with GEHAG 2. Beteiligungs GmbG totalingS17.5 million (see “—Additional loan
agreements of GEHAG and its subsidiaries”), and (iii) the extraordinary mandatory repayment of Helaba III
in the total amount ofS45 million. If the Company generates gross issue proceeds of less than S250 million from the capital increase described in this offering circular, the total amount to be paid by December 31, 2009 shall be reduced in total to 50% of the gross issue proceeds less a lump sum amount ofS12 million for costs related to the capital increase.
Loan agreement between GEHAG and HSH Nordbank AG
On June 13, 2008, a loan agreement was entered into by Deutsche Wohnen AG subsidiary GEHAG and HSH Nordbank AG for four tranches amounting to a total credit volume of approximately S458 million, primarily to refinance other loans. As of June 30, 2009, the credit that had been drawn upon under this agreement amounted to approximatelyS378 million. An amount of S50.0 million is available under this loan agreement as a revolving line of credit. The maturity-dependent EURIBOR (on a 3-month basis) plus a margin at prevailing market rates has been agreed on as the variable interest for the fixed-rate loan. GEHAG has finalized various interest rate hedges in an amount ofS365 million in total to hedge against the interest rate risks. Under the agreement, GEHAG must comply with certain financial covenants, amongst other things. These financial covenants include the relationship between debt and annual contractual net cold rent, the DSCR and the exit yield. As of the time of the next test, the DSCR was 108% and the exit yield was 9.43%. Collateral has been provided in the form of rent assignments, mortgages, pledges of accounts, and personally enforceable promises to pay.
Additional loan agreements of GEHAG and its subsidiaries
Further acquisitions in 2005 through 2007 were financed through additional separate loans. These include a loan from Deutsche Pfandbriefbank AG (formerly Hypo Real Estate Bank AG) from December 5, 2005, for S183 million (balance as of June 30, 2009: S166 million) to finance the acquisition of the Fortimo portfolio, a loan from Deutsche Pfandbriefbank AG (formerly Hypo Real Estate Bank AG) on December 16, 2005, for S45 million (principal balance as of June 30, 2009: S41 million) and two loans from Helaba on January 15, 2007, and February 20, 2007, respectively, for a total amount ofS26.2 million (balance as of June 30, 2009: S24.2 million) to finance the acquisition of additional nursing homes (Jakob and Friedrich projects). The maturity-dependent EURIBOR (on a 3-month basis) plus a mortgage-category dependent nominal spread was agreed on as the interest rate in each instance. GEHAG has finalized interest rate hedges in an amount of S435.1 million in total to hedge against the interest rate risks.
Furthermore, GEHAG 2. Beteiligungs GmbH and ESG have concluded two additional loans with Helaba on August 28, 2006 for part financing of the acquisition of ESG for a total ofS230 million (balance as of June 30, 2009:S207.3 million). The parties to the contract have agreed to make an extraordinary mandatory repayment ofS17.5 million, which is due by October 31, 2010 and which will become payable in full if the capital increase described in this offering circular is successfully completed, or payable in part if gross issue proceeds of less thanS250 million are generated (see “—Loan agreement between Deutsche Wohnen AG (et
al.) and Helaba”). In addition, the parties have agreed to amend the financial covenants.
Security for the loan agreements is particularly provided in each instance through mortgages and liens on the real properties of the acquisition objects that were financed, provided that, with regard to the financings where GEHAG is not the borrower, a joint liability of GEHAG was partially established through promises of liability by GEHAG as the parent company (unrestricted comfort letter). Some loan agreements include financial covenants that generally refer to the DSCR, the interest coverage ratio (relationship of EBIT to
interest expenses) (“ICR”), and the exit yield. These financial covenants have each been individually defined in the loan agreements. As part of the loan agreements for the acquisition of the Fortimo inventories and ESG, the DSCR for both was 110% and the exit yield was 8% (Fortimo) and 8.75% (ESG) as of the time of the next test. The ICR was 180% as of the time of the next test in connection with the loan for the acquisition of the Fortimo inventories. As to the loan agreement of December 16, 2005, between GEHAG and Deutsche Pfandbriefbank AG to finance the nursing homes, it was agreed that the profit and loss transfer agreement between GEHAG and the KATHARINENHOF operating company may only be terminated with the consent of Deutsche Pfandbriefbank AG. GEHAG is also obligated to maintain the investment interest in KATHARINENHOF during the term of the loan and to continue the nursing homes operated by KATHARINENHOF or, alternatively, to have changes concerning the operation of the properties approved by the lender in writing.
Deutsche Wohnen and GEHAG Group property financings
Aside from the aforementioned loans, our Group is currently drawing on property financing loans of a volume of approximatelyS699.9 million from various lenders. These obligations are secured in the long term through fixed-interest-rate agreements. Collateral is in place for the most part through mortgages and liens on the financed properties.
Material Agreements Related to the Acquisition of the GEHAG Group
With several agreements dated July 2, 2007, we acquired approximately 99.99% of the GEHAG Group. Gehag Acquisition Co. GmbH served as the transaction vehicle, which, as of July 2, 2007, held approxi- mately 99.99% of GEHAG or, alternatively, had entered into purchase and assignment agreements concerning the GEHAG shares. GEHAG was the parent company of the GEHAG Group, with approxi- mately 27,000 residential units in Berlin, several senior homes and nursing homes, as well as a telecommu- nication services provider. In turn, the Oaktree Companies held equity interests in Gehag Acquisition Co. GmbH, each with a share ofS12,500 at a total initial capital of S25,000.
The Oaktree Companies each placed Gehag Acquisition Co. GmbH shares of a nominal value ofS12,500 into Deutsche Wohnen AG or, alternatively, agreed to transfer them to an indirect wholly owned subsidiary of the Company (Deutsche Wohnen Direkt Immobilien GmbH). The following was agreed in exchange: (i) the issuance of 6,400,000 new ordinary bearer shares in Deutsche Wohnen AG, each such share representing a notional value ofS1.00, through a capital increase from authorized capital with the exclusion of shareholder subscription rights; (ii) the issuance of convertible bonds of a nominal value ofS25 million; (iii) payment of a cash amount of approximatelyS179 million, of which S25 million was retained to offset the potential additional cost to the GEHAG Group vis-à-vis the Deutsche Wohnen Group due to the possible EK02 taxation; and (iv) the assumption of receivables under shareholder loans of the Oaktree Company to GEHAG of a nominal amount ofS78 million in total, at an amount corresponding to the nominal amount. Also assumed were obligations of Gehag Acquisition Co. GmbH and its 99.99% subsidiary, GEHAG Erwerbs GmbH & Co. KG for the payment of purchase price debts related to the only partially completed acquisition of 40% of the shares in GEHAG from third parties at the amount ofS137.9 million.
The agreements underlying the GEHAG acquisition contain both guarantees by the Oaktree Companies to Deutsche Wohnen AG and Deutsche Wohnen Direkt Immobilien GmbH, as are customary in corporate acquisitions of this nature, as well as relatively low maximum limits of liability. In exchange, as is customary in corporate acquisitions, the statutory liability provisions were excluded to the extent permitted. Once all conditions precedent were met, the shares in Gehag Acquisition Co. GmbH were transferred to Deutsche Wohnen AG and Deutsche Wohnen Direkt Immobilien GmbH, respectively, on August 9, 2007, and all other transactions stipulated in the underlying agreements were carried out as well. In December 2007, the remaining shares in GEHAG were transferred to Gehag Acquisition Co. GmbH and GEHAG Erwerbs GmbH & Co. KG.
Thus, in addition to Deutsche Wohnen AG and Deutsche Wohnen Direkt Immobilien GmbH, only the Federal State of Berlin remained as a shareholder of GEHAG after the transaction was completed, holding a share of a nominal value ofS50.00. In connection with the GEHAG privatization, the Federal State of Berlin agreed not to dispose of that share until December 31, 2033.
A number of special rights are linked to the State of Berlin’s equity interest. For example, until the conclusion of the general shareholders’ meeting that decides on the annual financial statements for fiscal year 2032, the State of Berlin can nominate two delegates to GEHAG’s twelve-member supervisory board. Moreover, resolutions to modify the articles of association adopted for the period until November 17, 2018 as well as 135
sales of shares in GEHAG, require the unconditioned approval of the State of Berlin. Starting at that time and ending November 17, 2033 modifications to the articles of association will still require the approval of the State of Berlin in some areas. Additionally, the respective shareholders have a number of obligations to the State of Berlin under the privatization agreements. This includes, for example, the obligation to exercise voting rights such that neither the registered office nor the corporate headquarters of GEHAG is moved to another location outside the city limits of Berlin, to obtain the approval of the State of Berlin as a rule when entering into affiliate agreements and to invest DEM 50 million into the improvement of the residential surroundings of certain facilities in Berlin in the years following 1998. In today’s currency,S14.6 million of this investment obligation remains outstanding.
The convertible bonds of a total nominal value of S25 million issued as consideration in the GEHAG acquisition are divided into 500 ordinary bearer bonds, each having a nominal value ofS50,000. The term of the convertible bonds is three years through July 31, 2010, provided that they have not been previously repaid, converted, bought back, or canceled. They bear interest at an effective annual rate of 3%. No recurring interest payments are made on the bonds. The convertible bonds entitle holders to exchange them for ordinary bearer shares with a nominal value ofS1.00 during the period from July 31, 2008 to July 31, 2010. The conversion price per share isS45.00, subject to possible adjustments (for example, under this capital increase, or in case of a stock split or stock consolidation, reductions in share capital, mergers, or restructurings). The adjustment of the conversion price under this capital increase will be carried out by the principal conversion agent pursuant to the bond terms, taking the dilution effect and dividend disadvantage caused by the capital increase into account. The conversion price will not be adjusted if the adjusted conversion price were to be greater than the conversion price on the target date under the computational formula prescribed by the bond terms.
If the average volume-weighted XETRA price for the ordinary bearer shares of Deutsche Wohnen AG on at least 20 trading days within a period of 40 consecutive trading days at the Frankfurt Stock Exchange exceeds the conversion price in effect on those trading days by 130%, then Deutsche Wohnen AG has the right to call in the convertible bonds. The convertible bonds are represented in a global certificate without interest coupons and are generally governed by the general terms for convertible bonds. With the debt assumption agreement of December 22, 2008, Rhein-Main Wohnen GmbH has assumed the legal rights and obligations of Deutsche Wohnen AG under the global certificate and the bond terms as of December 31, 2008. In that debt assumption agreement, Deutsche Wohnen AG guarantees the fulfillment of the repayment obligation of Rhein-Main Wohnen GmbH.
Acquisition and Divestiture Agreements Hoechst acquisition agreement
Under a purchase and assignment agreement dated November 27, 1998, Deutsche Wohnen AG, together with GKT Mergers & Acquisitions Consult Fu¨nfte Beteiligungs- und Verwaltungs GmbH, Frankfurt am Main, acquired all shares in Hoechst Bauen und Wohnen GmbH, Frankfurt am Main (subsequently merged with the entity now known as Rhein-Main Wohnen GmbH) and in Wohnungsbau Hoechst GmbH, Frankfurt am Main (now Main-Taunus Wohnen GmbH & Co. KG) from Hoechst AG, Frankfurt am Main. The total purchase price was DM595,714,204.
Related to that, Deutsche Wohnen AG also acquired surcharge receivables (Aufgeldforderungen) totaling approximately DM264 million from InfraServ GmbH to which the latter was entitled from Hoechst Bauen und Wohnen GmbH and Wohnungsbau Hoechst GmbH, at a corresponding purchase price. These surcharge receivables were related to a real property swap agreement entered into in front of a notary by Hoechst AG, with the consent and for the account of InfraServ GmbH, on the one hand, and by Hoechst Bauen und Wohnen GmbH and Wohnungsbau Hoechst GmbH, on the other hand.
In the purchase and assignment agreement of November 27, 1998, Deutsche Wohnen agreed, amongst other things, to ensure that Hoechst Bauen und Wohnen GmbH and Wohnungsbau Hoechst GmbH and their assignees make written offers of purchase to the respective tenants at prevailing market conditions prior to a sale of residential units. in a five-year timeframe. Reservations of rights of consent for the transfer of individual or all rights under the agreement as well as shares purchased under the agreement, expired on January 1, 2009. Deutsche Wohnen AG assumed joint and several liability for all obligations of GKT Mergers & Acquisitions Consult Fu¨nfte Beteiligungs- und Verwaltungs GmbH under the purchase and assignment agreement.
Heimsta¨tte Rheinland-Pfalz GmbH acquisition agreement
Under a purchase and assignment agreement dated November 3, 1998, Deutsche Wohnen AG, together with GKT Mergers & Acquisitions Consult Fu¨nfte Beteiligungs- und Verwaltungs GmbH, Frankfurt am Main, acquired the majority of shares in Heimsta¨tte Rheinland-Pfalz GmbH, Mainz (now Rhein-Pfalz Wohnen GmbH), GESIWO Wohnungsgesellschaft mbH, Neustadt an der Weinstraße (now Rhein-Main Wohnen