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FRANKFURT (Reuters) - German property firm Deutsche Annington Immobilien SE ANNGn.DE will buy regional rival Suedewo for 1.9 billion euros ($2.13 billion) and launch a 2.25 billion euro capital increase to fund the acquisition, the company said in a statement late on Sunday.
Suedewo owns about 20,000 apartments, mainly in the state of Baden-Wuerttemberg in southwest Germany, where Annington already owns some 15,000 rental properties.
Record low interest rates and the search by investors for higher yields have heated up Germany's real estate market in 2015 after more than 50 billion euros ($59 billion) of property changed hands last year.
Annington will become Europe's second-largest real estate company after France's Unibail-Rodamco SE (UNBP.AS) and rename itself Vonovia as soon as it completes its 3.9 billion euro merger with peer Gagfah SA GFJG.DE.
"With the acquisition of the Suedewo Group, we are moving a step closer to our goal of having a balanced portfolio in all attractive regions of Germany," the statement said.
Annington will offer new shares at 20.90 euros each to existing shareholders in a ratio of 3 new shares for every 10 owned, compared with the closing price of 27.76 euros per share on Friday.
The acquisition comprises a purchase price of about 1.1 billion euros, with an additional assumption of financial liabilities totaling about 0.8 billion euros, the company said.
J.P. Morgan and other investment banks will underwrite the capital increase, the company said. The subscription period is expected to begin on June 17 and end on June 30, it added.
In April, the Abu Dhabi Investment Authority sold its remaining stake in Deutsche Annington for 30.85 euros per share, Reuters reported at the time.
Suedewo's properties are primarily managed by affiliates of Patrizia Immobilien AG (P1ZGn.DE), Deutsche Annington said.
Reporting by Thomas Atkins. Editing by Andre Grenon