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08 October 2013

Terra Firma wins PEI Operational Excellence Award

Terra Firma is pleased to announce that it has won an Operational Excellence Award from Private Equity International (PEI) in the European Large-Cap category. This award recognises the value-creating operational initiatives that Terra Firma has implemented over an almost 12-year period in a highly regulated environment to create the largest residential housing company in Germany, Deutsche Annington. Terra Firma started to harvest this value for its investors this year through the IPO of this business on the Frankfurt Stock Exchange.

PEI cited Terra Firma’s efforts to professionalise what had previously been a state-run organisation, including integrating the company’s IT systems, establishing a centralised customer care centre and insourcing caretaker and facilities management. It also recognised the effects of Deutsche Annington’s acquisitions which transformed the company into Germany’s largest private residential landlord.

Judges for this year’s awards included David Currie, former chief executive officer of SL Capital Partners; Wai Kay Eik of PwC’s Private Equity Transaction Services group; the University of Chicago's Steve Kaplan; Tim Kelly of Adams Street Partners and Conor Kehoe of McKinsey’s European private equity practice.

In winning this category, Terra Firma competed against EQT and Permira, who were ‘Highly Commended’ for their work with Springer Science + Business Media and NDS Group, respectively.

For nearly twenty years, Terra Firma has followed a consistent strategy of acquiring asset-backed businesses in essential industries, and then transforming them strategically, from a management perspective and/or operationally to ensure they are leaders within their sectors. Terra Firma creates value in its businesses using five key drivers: changing strategy, strengthening management, developing through capital expenditure, expanding through M&A and lowering the cost of capital.

Guy Hands, Chairman and Chief Investment Officer of Terra Firma, said: “Terra Firma is extremely proud to receive this award, and we would like to thank Private Equity International and the judges for the recognition. At Terra Firma we have a longstanding commitment to operational excellence, having focused on this and seen its benefits since 1999, and we have spent many years building and developing our in-house operational capability. We are very pleased to win an award which recognises and celebrates this approach. We thank the company’s management over the years for their hard work and dedication in working with us to successfully implement this strategy.”

The full write-up of the award from PEI is below.


PEI Operational Excellence Awards 2013

WINNER –LARGE-CAP - Terra Firma Capital Partners: Deutsche Annington

Twelve years after its inception, Deutsche Annington sits on rocksolid foundations. With 179,000 units across the country, the company is now the largest privately owned residential landlord in Germany, housing around half a million customers.

Yet the company had to be built brick by brick. When Terra Firma Capital Partners started the project in 2001, DAIG was nothing more than a set of 10 German Federal Rail housing portfolios. Consolidating this disparate collection of real estate assets – comprising 64,000 units – was thus Terra Firma’s first achievement, says Robbie Barr, an operational managing director at Terra Firma. This involved integrating the companies’ IT systems, as well as creating a pan-German customer care centre.

“If you take an organisation like that, given its former ownership structure, the cultural change required around performance is dramatic,” judge Miles Graham said. “It would be easy to underestimate how fundamental some of the structural challenges could have been here.”

DAIG then sought to grow its asset base through acquisitions. In 2005, the company secured another 138,000 further properties by buying Viterra, and in 2009 it added another 4,500 through the acquisition of Prima. As Guy Hands, Terra Firma’s chairman and CIO told Private Equity International, both brought DAIG additional geographic diversity – helping de-risk the portfolio – plus significant cost synergies.

This scale allowed the firm to (for example) bring the caretaking and facilities management functions in-house, by hiring 370 facility managers across its sites, and setting up two joint ventures with local services provider B&O. In 2012, these conducted 200,000 small repairs and refurbished almost 4,500 vacant flats.

The firm also sought to be proactive in areas where the German government was keen to see change in housing. That included pursuing greater energy efficiency – via extra insulation, window replacement and new heating systems – which reduced the company’s carbon footprint and its tenants’ energy bills.

Much effort also went into making apartments more habitable for the elderly, through improvements to building infrastructure, such as adding elevators, as well as installing more accessible showers. Other initiatives were intended to make apartments more attractive to all tenants, like installing balconies to let in more light or partnering with Deutsche Telekom to equip flats with fibre optic technology.

Most remarkably, says Arjan Breure, a financial managing director at Terra Firma, DAIG helped to foster a sense of community. It even teamed up with the German Foreigner Association to offer free German language courses, designed to provide tenants and non-tenants with basic language skills. As a result, DAIG has become more than just bricks and mortar, he says. “Deutsche Annington is first and foremost a housing company. However, we have invested heavily in developing additional services to provide value to customers.”

“Terra Firma clearly did a lot of work here in professionalising what had previously been a quasi-state organization,” said judge David Currie. “They made some acquisitions along the way, but they also did quite a lot of work on improving management and the company’s service to clients.”

Investors seem to approve: the company made its public market debut on the Frankfurt stock exchange in July, floating 15.5 percent of its shares and raising €575 million in the process.

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