Sale of landmark Munich asset sees Prime Office on target for merger

Prime Office REIT AG, one of Germany’s handful of REITS which is in the process of merging with OCM German Real Estate Holding in a move which will see the company lose its REIT status, sold one of its major assets, the headquarters of the publishing company Süddeutscher Verlag in Munich for €164.1m. The buyer is a consortium of Paris-based AXA Real Estate Investment Management and Norwegian sovereign fund Norges Bank.

The sale of the 28-storey “SZ Tower” marks an important step in Prime Office meeting the necessary criterion for the merger with OCM, part of US private equity group Oaktree, which is scheduled to go through in the first quarter of 2014. The building is the HQ of the publisher of the prestigious daily newspaper Süddeutsche Zeitung. The tower has a lettable area of 62,200 sqm, and had a value in Prime Office’s books of €186.5m at end-2012, before a more recent valuation of €165m.

The sale of the SZ Tower helps Prime Office lift its equity ratio from 39.8% to nearly 50% in line with REIT requirements (which require a minimum of 45%). The deal is helped by a further strong lease covenant signed during the past four months with Daimler AG in a Prime Office-owned Stuttgart property, and the sale of the likewise company-owned BMW Design Centre in Munich.

Nonetheless, new CEO Alexander von Cramm said that Prime Office is still expecting a full-year FFO loss of €3m-€6m, following a net loss of €86m for the first nine months, compared with a €7m profit a year earlier. Von Cramm said at a recent press briefing that Prime Office will be focusing more on multi-tenant buildings in its future dealings, (a reference to the cluster risk that has plagued the company over the past few years, with a handful of its key assets remaining un-let and dragging the company down).

The €574bn Norwegian wealth fund has partnered up with AXA Real Estate on a number of deals recently, and has stated that its goal is to increase holdings in real estate to 5% of its total holdings, from its current less than 1%. A newly-founded venture with AXA also targets €600m of debt finance for the European commercial property sector.