All-new Prime Office AG starts life with refinancing, fresh capital

The newly-created Prime Office AG started life in February by an immediate raising of €130m in a cash capital increase designed to strengthen its capital position and to reduce leverage. The new office property platform, focused on the larger German cities, sold about 46.6m new shares in a private placement at €2.80 per share, enabling it to start its new life on a strong footing. The company immediately set about refinancing two of its biggest holdings, the Homer and the Hercules portfolios.

Prime Office AG is the newly-merged entity between Munich-based Prime Office REIT AG and OCM German Real Estate Holding AG, the German unit of US private equity firm Oaktree Capital Management, which took effect in January this year. The new firm has 60 office properties located throughout western Germany, valued at over €2bn. While a listed company, now without its REIT status, Oaktree has a 60% majority stake.

Prime Office AG originally listed in 2011 as a REIT at a price of €6.20 per share. Persistent problems with cluster risk and large vacancies in key property assets saw the share price slump by half before the merger with Oaktree. Meanwhile Oaktree itself had acquired 61 assets at peak prices for €1.7bn at the height of the recent boom six years ago from both the now-defunct Dresdner Bank (the Homer portfolio) and from the Sparkassen (savings bank) network (the Herkules portfolio). Overall borrowings on the two portfolios were north of €1.2bn – of which €1bn now needed to be refinanced as it was in breach of bank LTV covenants.

The company has now raised a credit line of €845m for both portfolios, with a repayment schedule of 2018 and 2020, which gives the company some breathing space. The €130m raised in the cash capital increase is designed to top up the difference.

The large-scale refinancing seems to have been highly complicated, from what REFIRE understands, given the granular nature of the part-portfolios which were acquired in 2006 and 2007. The deal required extending the original financing terms of €400m and €500m to synchronise their repayment schedules with a preference share capital increase at corporate level, and then co-ordinating two loans of €370m and €425m with two different syndicates.

For the “Homer” portfolio, pbb Deutsche Pfandbriefbank and Helaba are providing the €370m loans, both banks taking a 50% share. Both banks have a long-standing relationship with Oaktree and OCM, and know the portfolio well. The “Homer” portfolio comprises ten properties consisting predominantly of offices and totalling around 255,000 sqm. Rented by companies such as Allianz, Zurich Insurance, Daimler and Deutsche Telekom, the properties are located in major German cities including Berlin, Düsseldorf and Frankfurt/Main.

The “Herkules” portfolio was refinanced by a newly-arranged consortium consisting of pbb Deutsche Pfandbriefbank, Societe Generale Deutschland, Natixis Pfandbriefbank and AXA Group.

With both sides having resolved pressing problems by merging and disposing of non-core assets prior to the merger, the refinancing and parallel capital increase should position Prime Office AG as an attractive office property play for international investors looking for German exposure.