A unit of Oaktree Capital Group LLC (OAK), the world’s largest distressed-debt investor, is in talks to combine with Prime Office AG to expand its real estate assets in Germany. Prime Office’s shares gained the most since they first traded two years ago.
An agreement may be reached by the end of the year for a merged company that would be traded publicly, Munich-based Prime Office said in a statement today. The new company formed with Oaktree’s OCM German Real Estate Holding AG (REAEH) would have a gross asset value of about 2.3 billion euros ($3 billion), Prime Office Chief Executive Officer Claus Hermuth said in the statement.
“A merger of both companies offers the potential to create a leading German property company with a focus on high-quality office properties with an attractive and highly diversified tenant base across major German cities and metropolitan areas,” Hermuth said.
Oaktree is raising a fund to invest in Europe as banks in the region rein in property lending to help repair balance sheets hit by the financial crisis. The value of income-producing office buildings in Germany fell 3.1 percent last year compared with an 0.8 percent drop for all commercial property, Investment Property Databank Ltd. said March 20.
Talks began after Prime Office approached Oaktree’s Cologne, Germany-based unit following a strategic review of the company and the country’s “still challenging commercial property market,” according to the statement. Prime Office said it couldn’t provide specifics on the terms of a possible deal because talks are ongoing.
Under German law, real estate investment trusts like Prime Office must hold equity equal to at least 45 percent of their properties held as investments by the end of this year, Prime Office said. The company’s ratio was 43.7 percent at the end of March, up from 42.9 percent at the end of last year. The REIT plans to sell its 62,250 square-meter (670,000 square-foot) SZ-Tower office building in Munich to help meet the requirement, it said in the statement.
Revenue at Prime Office fell 20 percent to 14.5 million euros in the first quarter from a year earlier after it sold a property in Hamburg and a lease in Frankfurt expired. The amount of empty and not leased space in its portfolio rose to about 23 percent as of March 31 from 14 percent at the end of the previous quarter.
Prime Office was up 58 cents, or 18 percent, at 3.78 euros at the 4:30 p.m. close in Frankfurt, the biggest gain since the company’s initial public offering in July, 2011.
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