Prime Office REIT-AG shareholders approved a plan to combine with Oaktree Capital Group LLP’s German Real estate unit, creating a company with about 2.2 billion euros ($3 billion) of office properties.
At a meeting in Munich yesterday, 79.8 percent of the Prime Office investors present voted in favor of the deal, the company said in a statement after the market closed. Oaktree’s OCM German Real Estate Holdings AG will own 61 percent of the combined company, which will raise as much as 175 million euros by issuing new shares once the deal has closed.
The merger will help address Prime Office’s liquidity shortage and improve measures, including the vacancy rate, that have depressed its share price. OCM, widely known as German Acorn Real Estate GmbH, the name of its operating unit, has a vacancy rate of 13 percent compared with Prime Office’s 22 percent. That brings the average for the combined company to 16 percent, according to a presentation to shareholders published in September.
Prime Office’s shares have dropped about 51 percent since they were first listed in 2011. The stock rose 1.9 percent to 3.31 euros in Frankfurt trading yesterday.
OCM owns office buildings in cities including Dusseldorf and Hamburg valued at about 1.5 billion euros, according to its website. Prime Office owns buildings in Stuttgart and Frankfurt worth 700 million euros.
“A combination makes sense,” Kai Klose, an analyst at Berenberg Bank, said before the meeting. “Investors will have their stakes diluted, but the entity created as a result will be much more profitable.”
Prime Office didn’t raise sufficient cash in its 2011 initial public offering to “create a robust balance sheet” and keep its debt ratio high enough to comply with German real estate investment trust law, according to a company presentation published in September.