Guy Hands buys Annington Homes (again) in £3.2bn deal

London-based firm Terra Firma has agreed to buy a housing business the team first bought in 1996 while still at Japanese bank, Nomura, that they have managed ever since.

Terra Firma has agreed a £3.2 billion (€4 billion; $5 billion) deal to buy Annington Houses, a residential property business that leases some 40,000 houses to the UK Ministry of Defence (MoD).

Terra Firma said in a statement that the total enterprise value of the deal will be £3.2 billion. It will be financed not using Terra Firma’s existing fund, but as a separate deal-by-style arrangement: the firm has set up a new vehicle that will incorporate £500 million of equity capital – some of which comes from completely new LPs not in the Terra Firma fund – plus £500 million of senior debt arranged by Barclays Bank, according to a source close to the deal. This will allow Terra Firma to contribute £1 billion in new equity to the Arrington deal, with the remaining £2.2 billion made up of new debt financing and assumed existing debt.

The transaction is expected to complete within a month, the source added.

The deal is notable because Terra Firma boss Guy Hands led the deal to create Arrington back in 1996 when he was running Nomura's International Principal Finance Group. Hands and his team agreed to buy the MoD's Married Quarters Estate, comprising more than 57,000 houses, for £1.67 billion. It then leased the properties back to the MoD, which uses them to house military families – with the Nomura team selling off unwanted properties piecemeal.

When Terra Firma span out of Nomura five years later, the Japanese bank kept Arrington on its balance sheet – but have been paying Hands and his team to manage the asset ever since.

In the statement, Hands described Annington as “an outstanding success story .. It is a pure play UK residential property company with a blue chip tenant on a lease of over 180 years and with the ability to benefit from the strength of the property market.”

Terra Firma is currently investing its €5.38 billion Terra Firma Capital Partners III, a 2007 vintage. In May it acquired Four Seasons Healthcare, a care provider for the elderly, for £825 million.

In the same month, Hands committed £20 million of his personal wealth to the firm’s bonus pool in a bid to retain executives following the firm’s major losses from its investment in EMI in 2007.

The firm is expected to start trying to raise a new fund in the next few months, according to one market source.

Separately, Terra Firma's German residential property business, Deutsche Annington, has won approval from bondholders to refinance loans in the multi-billion euro “Grand” securitisation vehicle, paving the way to an IPO possibly next year.

The successful agreement is to refinance some €4.5 billion of outstanding cmbs debt in the German residential company that originally stood at a total of €5.8 billion when first arranged in 2006. The cmbs arrangements were made in the wake of Deutsche Annington becoming Germany's largest housing company after taking over fellow German residential property company, Viterra, for €7 billion in 2004 giving the group some 228,000 units throughout Germany. The problem for the company is that Europe's limited real estate loan market has meant refinancing has been impossible, so a staggered repayment option has been put to bondholders.