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Oaktree funds are expected to participate with at least a €65m investment in the new capital.
The newly-created Prime Office AG is starting out on its new life with a planned €130m capital increase with which to strengthen its capital structure, following final approval by Germany’s financial supervisor BaFin of any remaining outstanding hurdles. A supplement to its main offering prospective to investors was due to be submitted by January 28th.
The company, created out of the merger between listed Prime Office REIT AG and OCM Real Estate, a unit of US private equity firm Oaktree, expects to issue 50.2m new shares in a cash-raising exercise offering pre-emptive rights to existing shareholders, reducing the new group’s overall leverage to about 58%.
Oaktree funds are expected to participate with at least a €65m investment in the new capital, while a separate investor has also indicated his intention to invest up to €20m. The Oaktree funds will become the largest shareholder in the new entity with around 60% of the equity.
Prime Office REIT’s existing shareholders will enter into OCM’s share capital at an exchange rate of 1-to-1 for existing shares held.
The new business, operating without Prime Office’s previous REIT status, will have gross real estate assets of about €1.9bn, with 920,000 sqm of mainly high-quality offices in Germany’s bigger cities, with the goal of growing its assets to €3bn in the medium term.
To boost its equity ratio and lower its debt to comply with the merger agreement, Prime office REIT has been engaged in a selling spree of a number of its previous assets. Its most recent sale, to a foreign investment group and which raised €34m, was an office building in Fellbach near Stuttgart. The property with nearly 20,000 sqm of lettable space, is leased to the State of Baden-Württtemberg’s Office for Salaries and Benefits until the end of 2020.
According to Jürgen Overath, the CEO of OCM German Real Estate Holding and a future board member of Prime Office, “We are delighted that the merger of the two companies is now on the finishing straight and that we can in due course implement our joint plan of creating a leading, listed office property platform with a conservative financing structure.”
Alexander von Cramm, CEO of Prime Office REIT added, “With the planned capital increase, we will lay the foundation for attractive cash flows as well as a sustainable growth strategy that should translate into dividends of about 40 to 45% of our funds from operations for our shareholders.”