Prime Office REIT and Oaktree merger deal clears final hurdle

It now looks to be plain sailing for the proposed merger between Munich-based Prime Office REIT and OCM (German Acorn), the subsidiary of US private equity investor Oaktree, with both the recent Prime Office shareholder meeting and Germany’s cartel office giving their approval to the deal. The merger is now likely to go ahead before year-end.

The new company will continue to be called Prime Office, but will lose its REIT status. It will have about €2bn in assets, with Oaktree funds becoming the largest shareholder with a stake of about 60%. Both companies are selling off assets prior to the merger taking effect, at which time Oaktree is putting in at least a further €60m to a post-merger capital increase, which will cut the new group’s combined leverage to 60% loan-to-value overall. The new plan sees this then being lowered to 55%, with the group targeting new assets in a drive to build its assets under management to €3bn.

Oaktree is somewhat of a veteran in the German investing environment of the last ten years, having been involved on its own and with partners in several ground-breaking portfolio transactions over the years. Back in 2006 and 2007 it bought the bumper Homer and Herkules portfolios from then-high-flying German open-ended fund groups Degi and Deka, and has used its Acorn operating unit since then to slash vacancy rates across the holdings.

New CEO of Prime Office, Alexander von Cramm, said of the shareholder vote, “We view this (nearly 80% shareholder approval) as a strong vote of confidence in our strategy of building a leading, high earning and high dividend-paying German office real estate company together with OCM... We can now take the necessary next steps in the merger process that will enable us to follow through with the transaction, and as a consequence generate sustainable value for our shareholders.”