Deal amount:
100 million euros
ING's role:
Joint Global Coordinator &
Joint Bookrunner

Other managers have their say

Stefaan Gielens  

Stefaan Gielens

CEO of Aedifica

Do not underestimate the business and surround yourself with the right experts 

CEO Stefaan Gielens: "Strategic market insight is everything"

Aedifica is a young, fast-growing real estate investment fund. At the end of last year, the fund attracted attention by executing the largest public capital increase of the year. Thanks to the issuing of new shares the fund succeeded in collecting at least 100 million euros of fresh capital. Aedifica's choice of working with a system of preferential rights appeared to be a success.

Since its initial public offering in 2006, Aedifica real estate investment fund has grown incredibly: its portfolio increased from some 186 million euros to more than 600 million euros. Keeping in mind the projects now in the pipeline, another 150 million euros can be added onto that figure.

The fund invests predominantly in residential, collective accommodation such as care homes, rest homes and apartment buildings. The management, under CEO Stefaan Gielens, is led by 2 driving factors: increasing urbanisation and ageing. Stefaan Gielens: "We are seeing in cities that there is a huge demand for new housing units. Alongside that, increasing numbers of older people means a greater need for rest home beds or service flats." Stefaan Gielens is not worried about this: "We are looking at an enormous growing market. The number of over-80s in Belgium, for example, will rise from 5% in 2010 to 10% in 2050."

But in order to grow and keep investing, new capital is vital. In 2010 Aedifica made its first capital increase through which the fund collected 67 million euros. In 2012 the second capital increase followed which resulted in 100 million euros. With both transactions Aedifica opted for a capital increase with preferential rights for the current shareholders. In 2012 that certainly appeared to be a successful formula: during the subscription period with preferential rights the investors subscribed to 2,380,650 new shares. This came to 88.24% of the maximum number offered. After that, a successful private placement of scrips (non-exercised subscription rights) with institutional investors followed. The buyers of the scrips subscribed to 317,127 shares, which meant that all 2,697,777 shares went out the door. This way the real estate investment fund collected 99.8 million euros of fresh capital.

Need for fresh capital

The reasons a fund might need fresh capital can be both legal/technical and strategic in nature. The former has to do with the specific statute of a real estate fund. The fund enjoys a withholding tax of 15% on the condition that 80% of its portfolio is invested in residential real estate within Europe. Therefore, the debt ratio cannot be higher than 65%, from a legal perspective. Aedifica's management aims for a debt ratio of 50 to 55%. CEO Stefaan Gielens: "A lot lower than that is not good, because then there is the danger that the shares become diluted. In 2012 we did not have very much margin on our debt ratio, so in order to keep growing we needed fresh capital."

The second question the fund asked itself was: do we actually need to grow? The answer was a resounding "yes". Stefaan Gielens: "First of all we were still too young and too small to not need to grow. While in Belgium we are the fifth largest real estate investment fund, in Europe we are still a small player. You must realise that major investors, for instance the big pension funds, still look for a certain liquidity – let's say a market capitalisation of at least 500 million euros – before they are willing to invest substantial amounts. Secondly, you need to look at the market conditions. It makes little sense to collect fresh capital if you then cannot invest it. That would only lead to a dilution of the profit or the net result. The outlook in that area is however very promising: the 2 sectors we are aiming at – care homes and apartment buildings in major cities such as Brussels and Antwerp – are booming markets.”

Preferential rights

Aedifica consciously chose a capital increase with preferential rights. In 2010 that was still a fairly simple choice: due to the legal restrictions which applied at that time to real estate funds, there were no other options. By 2012 that law had been somewhat relaxed. Several options then became available. “As a real estate fund you can always acquire extra capital by trying to convince a real estate buyer or a real estate company to contribute their real estate to the fund and be compensated by the shares. The problem with that is that it mainly involves small amounts and it is hard to direct such a transaction: you take the opportunity whenever it presents itself," says Stefaan Gielens

What you increasingly see today is that some real estate funds carry out large transactions in that way. They transform real estate packages into shares. Then, those who have acquired the shares place them via private placement on the institutional investors' market. However, the success of a transaction like this depends on the extent to which your share is in demand from institutional investors, and therefore a certain amount of liquidity is necessary. Stefaan Gielens: "Aedifica was able to present a good track record, but was still too small a player for such a transaction. Furthermore, the choice of having a capital increase with preferential rights offered the major advantage that we could reward the efforts of our shareholders, who are incredibly important to Aedifica. If you opt for a transaction with institutional investors, you put your retail audience out of action to a certain extent. If you choose a system with preferential rights (where you offer the current shareholders the possibility of acquiring new shares with a discount), then you fully involve them in the growth of the company. That is appreciated."


As with most stock exchange transactions, the system Aedifica chose is not without its risks. Firstly, there is a cost price for such a transaction. It is a technically and legally complicated subject that requires input from a good number of experts. Secondly, the transaction requires a fairly long preparatory period, which also brings market risks along with it. Stefaan Gielens: "Our preparatory period easily took up around 3 months. The subscription period itself, for which a legal minimum is provided, can run to several weeks. If something happens between the disclosure of the issue price and the closure of the subscription period, which means the price of your share falls below the issue price, then the whole transaction is for nothing. Luckily that was not the case with us, on the contrary."

The Aedifica shareholders benefited twice from the transaction. In 2012, the non-exercised preferential rights offered to institutionals in the form of scrips had a higher listing even than the last listed price of the preferential right. After the transaction, the share price increased relatively quickly to the same level as the share price before the transaction. That was a stroke of luck. Stefaan Gielens: "It is connected with the discount that you assign to your share. If it is high, then you will sell the shares more easily. But if you sell too many shares, then that leads to dilution. As management, you must then make a bigger effort in order to achieve the same results with investments."

According to Stefaan Gielens it comes down to achieving the correct balance, keeping the shareholders and the market conditions in mind all the time. "We noticed that we could rely more on the goodwill of institutional investors in 2012 thanks to the success of our transaction in 2010. That was because investors know that we do things from a strategic growth perspective and not, for example, in order to restructure our debts. It is a positive story, and that is something the market gladly picks up on."


In order to preserve the confidence of investors in the future, Aedifica opted for a strategy of geographical diversification. Those who are active in the real estate sector, and more specifically with care homes, cannot escape this. Over the last few years a wave of consolidation has taken place in the rest home sector, where big and small players have taken over each other or merged. Stefaan Gielens: "We cannot allow our rest homes in Brussels to be closed from Paris tomorrow for reasons of efficiency, so to speak. In order to remain strong, we must join the wave of internationalisation." Aedifica put its money where its mouth is: this year it took over its first care home in Germany.

Along with geographical diversification, product diversification is also an option for Aedifica. The focus remains first and foremost on care homes and apartment buildings in cities. Hotels, among other things, have become less appealing to real estate funds due to the financial crisis. The funds are, however, looking out for other real estate products, such as the market for collective student housing. They are, however, employing necessary caution. After all, there are signs that this segment of the market will quickly become saturated. Stefaan Gielens strongly believes in the wider market of residential real estate with a care aspect. Service flats, for example. Or residential centres for mentally disabled people, for example. Aedifica already has one of these centres in its portfolio.


After the first capital increase in 2010, another quickly followed in 2012. Will a third come soon? Aedifica is still able to invest between 100 and 200 million euros. Stefaan Gielens: "We must see ourselves evolving towards an optimal debt ratio. After the transaction in 2012 our ratio has fallen to 36%, but ideally this would fluctuate between 50 and 55%. I absolutely think that we have the potential to grow in the medium to long term into a fund of 1 billion euros. Sooner or later we will need new capital. Market conditions will dictate when and how that moment presents itself."

Those market conditions have meanwhile changed for the young fund, as last March Aedifica was incorporated into the EPRA index. That is the most widely used European investment index for stock exchange listed real estate. The capital increase at the end of 2012 played a crucial role. That admission is important, because it evokes more confidence from both shareholders and investors. After the announcement, shares rose immediately. Stefaan Gielens: "We have noticed since then that major investors have been much more interested in our roadshows than before. Suddenly we are attracting the attention of certain banks and analysts that previously had been less interested in us or not interested at all. The opportunity therefore exists for us to collect larger amounts from investors, but, once again, on the condition that the market allows us to make the necessary investments. Otherwise the shareholders will simply see their dividend fall."


Does Stefaan Gielens have any other advice for someone considering this same transaction? "Two things. Firstly: do not underestimate things. Take sufficient time to prepare and surround yourself with the right experts. Secondly: ensure that your equity is in order. The most important thing is that you can convince the investors during the roadshows that the growth strategy works. And that has nothing to do with marketing, it is about market insights and knowing what you are working on. Whoever can convey that to investors will achieve a lot."

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