German merger companies sharing mixed fates

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Investment

Germany’s financial regulator BaFin gave its approval for the voluntary public takeover by small listed German property investor Adler Real Estate AG of the likewise-small listed Berlin-based Estavis AG. There is now an exchange period, which lasts until 23rd May, during which Estavis shareholders can accept Adler’s exchange offer to convert each 26 Estavis shares they own into 14 Adler shares. Adler shareholders had already approved a capital increase against contributions in kind in the form of Estavis shares.

In somewhat ambiguous statement, Axel Harloff, Adler Real Estate’s CEO, said: “We assume that it will be possible to achieve our objective of receiving more than 50% of Estavis in the course of the exchange, so that we can fully consolidate Estavis in the Adler Group.” The conversion ratio at share prices of €2.19 per Estavis share and €3.91 per Adler share is based on revenue-weighted share prices over the three months prior to the decision for the takeover on 9th February 2014 and offers Estavis shareholders a premium of 8.41%. When the deal goes through, Adler will hold more than 16,500 residential units right across Germany.

Meanwhile, another German company that has recently gone through its own metamorphosis, Prime Office, published its first results since merging with Oaktree subsidiary OCM Germany in January this year. The listed company, which will change its name to DO Deutsche Office AG in May, posted pro-forma rental income down from €159.9m to €135.1m in 2013, due to high vacancies and disposals, using a hybrid accounting system made up of OCM’s and Prime Office AG’s separate accounts. The pro-forma net loss for the year was €124m.

Prime Office ended 2013 with a balance sheet of €2.12bn, down from €2.57bn at the close of 2012, and equity of €712m, giving a loan to value ratio of just over 60%, down from 65%. At end-March, the group portfolio consisted of 57 properties with a market value of about €1.9bn, with vacancies at just under 20%.

Looking ahead to the full year, the firm said it expects to increase FFO this year to between €44m and €46m. The refinancing of its key Homer and Herkules portfolios and the cash capital increase implemented in February has brought a sustainable improvement of leverage and equity ratios since the pro-forma results statement, it added. Financial year 2013 was largely dominated by one-off valuation items, plus due diligence and other costs related to the coming merger. The firm, which no longer has the REIT status enjoyed by predecessor Prime Office REIT AG, made portfolio write-downs of €116m for 2013, after €52m write-downs the year before.