DGAP-News: Prime Office REIT-AG announces signing of the

DGAP-News: Prime Office REIT-AG / Key word(s): Half Year Results/Merger Prime Office REIT-AG announces signing of the business combination agreement and the merger agreement with OCM German Real Estate Holding AG (OCM) and presents results for the first half of 2013 08.08.2013 / 07:30 --------------------------------------------------------------------- Prime Office REIT-AG announces signing of the business combination agreement and the merger agreement with OCM German Real Estate Holding AG (OCM) and presents results for the first half of 2013 - Creation of a leading German office property company that is focused on continued internal and external portfolio growth - Exchange ratio of shares of Prime Office and OCM of 1:1 - Agreed relative values of 38.78 percent (Prime Office) and 61.22 percent (OCM) advantageous for the shareholders of Prime Office since the carried out company valuations resulted in a ratio of 37.99 percent to 62.01 percent - The merger is subject to the approval by the annual general meetings of Prime Office and OCM and antitrust clearance by the Bundeskartellamt - Annual general meeting of Prime Office in Munich postponed to 24 September 2013 - Funds from operations (FFO) in the first half of 2013 at -0.1 million Euro in line with expectations and affected by higher vacancies as well as one-time effects and special charges - Net asset value (NAV) of 406.3 million Euro or 7.83 Euro per share down year on year due to fair value adjustments; Net-NAV (NAV without adjustment for swap market values) per share with 6.62 Euro down year on year (H1/2012: 7.49 Euro) - Total liabilities decline substantially to 579 million Euro; LTV down to 59 percent - Executive board confirms revenue guidance of 51 to 53 million Euro for the full year 2013; slight adjustment of the FFO guidance to a range between -3 and 0 million Euro - Long-term lease concluded with Daimler AG at the end of July 2013: the rental of an overall of 11,300 square metres of office and storage space increases occupancy in the property from currently 39 percent to about 85 percent from 01 January 2014 Munich, 8 August 2013. Prime Office REIT-AG ('Prime Office'), a leading listed property company with REIT status focused on investments and management of prime office properties in Germany, has taken further steps required for the planned merger with OCM German Real Estate Holding AG ('OCM') and presents the results for the first half of 2013. On 07 August 2013, Prime Office and OCM entered into a business combination agreement. According to this agreement, Prime Office as the transferring entity is to be merged with OCM as the acquiring entity; the entity resulting from the merger will retain the name 'Prime Office'. On the same date, the aforementioned companies also entered into a merger agreement to implement the business combination agreement. Both companies' supervisory bodies have already approved both the business combination agreement and the merger agreement. By merging, Prime Office and OCM aim to create a leading German office property company that is focused on continued internal and external portfolio growth. The medium-term plan is for the merged company to become listed in the MDAX-Index of Deutsche Börse. Under the business combination agreement and the merger agreement, the shareholders of Prime Office will receive one share of OCM for each share of Prime Office as consideration for the transfer of the assets of Prime Office in connection with the merger. The parties have agreed that OCM will raise its share capital to 82,000,000 Euro from retained earnings before the merger takes effect. This corresponds to relative values of 38.78 percent (Prime Office) and 61.22 percent (OCM). The company valuations carried out by KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, Hamburg branch, at the behest of both parties resulted in a less favorable ratio for Prime Office shareholders of 37.99 percent (Prime Office) to 62.01 percent (OCM). Before the merger is recorded in the Commercial Register, OCM will apply for admission of its shares to trading on the Regulated Market of the Frankfurt Stock Exchange with additional obligations arising from admission. This will ensure that its shares are listed and tradable immediately after the merger has taken effect and a sufficient amount of free float has been achieved. There are no plans for OCM to obtain REIT status after the merger has taken effect. The Management Board of the merged entity will consist of the previous sole member of the Management Board of OCM, Mr. Jürgen Overath, and the current Chief Financial Officer of Prime Office, Mr. Alexander von Cramm. To take effect, the merger must be approved by the annual general meetings of Prime Office and OCM. The annual general meeting of Prime Office that had been convened for 21 August 2013 will be cancelled in order to avoid additional costs for holding two annual general meetings. Instead, Prime Office is expected to hold an annual general meeting on 24 September 2013, which, in addition to transacting all items provided for in the agenda for the annual general meeting on 21 August 2013, will be asked to approve the business combination agreement and the merger agreement. The merger is subject to additional conditions precedent and requires antitrust clearance by the Bundeskartellamt before it can take effect. Properties of Prime Office and OCM worth approx. 250 million Euro are to be sold under a special divestment program. This includes the sale of Prime Office's Süddeutsche Verlag and Hufelandstrasse properties in Munich. In addition, the Ludwig-Erhard-Anlage property of Prime Office in Frankfurt/Main is to be sold, in whole or in part and/or will be transferred into a different type of use in cooperation with a project developer, after the merger. In order to ensure that the entity resulting from the merger is adequately capitalized, a capital increase from authorized capital is to be carried out preserving the shareholders' subscription rights; the capital increase is expected to generate a cash inflow of EUR 125 to 175 million. The funds advised by Oaktree have declared their intention to participate with at least 65 million Euro in the capital increase. The lronsides Partners Opportunity Master Fund L.P. and the lronsides Partners Special Situations Master Fund L.P., which together are the largest shareholder in Prime Office, have declared their intention to support the transaction and to participate in the proposed capital increase. Berenberg acts as financial advisor to the overall transaction. 'We are very pleased that we have come to an agreement with OCM in the planned merger. We are convinced that the transaction is highly advantageous to all stakeholders of Prime Office. OCM's multi-tenant strategy ideally complements our previous focus on single-tenant properties; combined with the common active asset management it will extend the strategic options for action of our business model. The combined company will offer a high degree of stability and economies of scale on the cost side thanks to its large and highly diversified portfolio combined with an attractive and diversified tenant structure. It will serve as a foundation for growing cash flows, a strong overall profitability and, as a result, sustainable and attractive dividends for our shareholders,' says Alexander von Cramm, executive board member of Prime Office. 'In addition, the relative value agreed in the business combination agreement is advantageous to our investors compared to the relative value as determined in the due dilligences; it offers an attractive option to participate in the future growth of the merged company,' Alexander von Cramm continues. 'Combined there are sustainable growth opportunities which we could not realize by ourself', explains Alexander von Cramm. Prime Office is also presenting its results for the first half of 2013 today. Over the first six months of the fiscal year, the business development of the company was largely dominated by one-time and special effects. The adjustment of the property portfolio's fair value by -60.9 million Euro as at 30 June 2013 that resulted from the on-schedule property valuation proved a key influencing factor. The correction of the property portfolio's fair value by -6.7 percent to about 848 (31 December 2012: 909) million Euro is mainly a reflection of the changes in the market environment since subdued demand for office space in the locations with buildings that require re-letting (Frankfurt am Main, Dusseldorf and Stuttgart) has led to delays in re-letting. The market values were also affected by a slightly more cautious outlook for individual properties that resulted from a conservative forecast for the future development of the letting market. Other contributing factors were the due diligence processes related to the merger talks with OCM, which led to a significant increase of legal and advisory costs over the reporting period, and the provision made on account of the pending negotiations on terminating the employment contract of former CEO Claus Hermuth who had been discharged on 28 June 2013. Rental and lease revenues over the first six months of fiscal year 2013 declined year on year to 26.5 (H1/2012: 36.6) million Euro due to the expected increase of vacancies in the portfolio to 22 percent and the sale of the property in Hamburg as at year-end 2012. Rental and lease income over the reporting period decreased accordingly year on year to 22.7 (H1/2012: 30.8) million Euro. Operating income before valuation result amounted to an overall of 16.4 million Euro in the first half of 2013 due to the occupancy level and the planned merger with OCM. This compares with 27.7 million Euro in the first half of 2012. Similarly, the operating income before interest and taxes (EBIT) over the first half declined year on year to -45.1 (H1/2012: 18.6) million Euro as a result of the adjusted property values. The early repayment of loan liabilities in January 2013 after the sale of the property in Hamburg and special repayments of loans with interest rates in excess of 7 percent to further optimise the financing structure meant that the financial result of -14.7 million Euro in the first half of 2013 slightly below year on year (-16.2 million Euro) in spite of the aggregated special effects. In aggregate, the special and one-time effects in the first half of 2013 resulted in an income for the reporting period of -59.8 (H1/2012: 2.4) million Euro. The income per share over the reporting period declined accordingly year on year to -1.15 (H1/2012: 0.05) Euro per share. The 'EPRA earnings', which reflect the income over the period adjusted by one-time or special effects from the fair valuation of the property portfolio and the derivative financial instruments, illustrate the material impact valuation effects had over the first six months of this fiscal year. This metric amounted to 0.8 (H1/2012: 9.9) million Euro or 0.01 (H1/2012: 0.19) Euro per share in the first half of 2013. Prime Office generated funds from operations (FFO) in the amount of -0.1 million Euro over the reporting period, down from the first half of 2012 (H1/2012: 12.8 million Euro) due to the increase in vacancies and the above mentioned one-time effects and special charges. FFO per share declined accordingly to 0.00 (H1/2012: 0.25) Euro per share. The property company also reduced its total liabilities as at 30 June 2013 compared to 31 December 2012 (642.5 million Euro) by a significant 63.5 million Euro to 579.0 million Euro. The substantial decline is due to the early repayment of loans and special prepayments made as part of the optimisation of the financing structure. Accordingly and despite the adjustment in property value, the loan-to-value of Prime Office as at 30 June 2013 amounted to 59.2 percent, down from its 60.2 percent on 31 December 2012. The decline in leverage will also take sustainably pressure off the financial result going forward. The equity of the property company suffered from one-time effects that impacted income over the first six months of this fiscal year. Negative contributions also came as in the past from the financial and euro crisis and the consistently low interest rate environment that affected the valuation of the derivative financial instruments used to hedge the interest rates of the property financings over the long term (interest rate swaps). The REIT equity ratio as at 30 June 2013 declined accordingly from 42.9 percent on 31 December 2012 to 40.6 percent, thus remaining below the minimum equity ratio of 45 percent required under the REIT law. Prime Office needs to meet the statutory minimum ratio by the end of this year to avoid losing the REIT status. Increasing the REIT equity ratio at least to the required 45 percent remains a top priority for the executive board. With this in mind, the property company is also contemplating the sale of additional properties before year-end. The net asset value (NAV) of Prime Office amounted to 406.3 million Euro as at 30 June 2013, down compared to 31 December 2012 (468.4 million Euro) as a result of the fair value adjustments. The NAV per share as at 30 June 2013 declined accordingly to 7.83 (31 December 2012: 9.02) Euro per share. The Net-NAV (NAV without adjustment for swap market values) per share amounted to 6.62 Euro in the first half and was down year on year (H1/2012: 7.49 Euro). Subject to a continued stable development of the economic environment and the office property market in Germany, the executive board confirms its forecast for fiscal year 2013 and continues to anticipate revenues including operating cost prepayments of between 51 and 53 million Euro. At the same time, the executive board points out that the property company's operating business in the full year will be dominated by the fair value adjustments of the property portfolio as at 30 June 2013, temporary vacancies in the property in Stuttgart until January 2014 and particularly the reconstruction-driven vacancies and the planned refurbishment measures in the Frankfurt and Dusseldorf properties. The FFO guidance was therefore adjusted to between -3 and 0 million Euro. After the balance sheet date 30 June 2013 and therefore after the fair value adjustment of its property portfolio, Prime Office could significantly reduce the re-letting requirements for the property in Stuttgart/Moehringen on 30 July 2013. Prime Office concluded a long-term lease for about 11,300 square metres with Daimler AG, Stuttgart. This increases occupancy in the property from approximately 39 percent on 30 June 2013 to about 85 percent on 01 January 2014. Key financial ratios of Prime Office REIT-AG (in mm Euro) 01/01-30/06/2013 01/01-30/06/2012 Delta (in %) Rental and lease revenues 26.5 36.6 (27.6) Rental and lease income 22.7 30.8 (26.3) Operating income (EBIT) (45.1) 18.6 n.a. Financial result (14.7) (16.2) (1.9) Income for the reporting period (59.8) 2.4 n.a. Income per share (in Euro) (1.15) 0.05 n.a. Funds from operations (FFO) (0.1) 12.8 n.a. FFO per share (in Euro) (0.00) 0.25 n.a. â?? (in mm Euro) 30/06/2013 31/12/2012 Delta (in %) Total assets 923.1 1,031.6 (10.5) Equity 344.1 389.1 (11.6) REIT equity ratio (in percent) 40.6 42.9 (5.2) Leverage (in percent) 59.7 57.4 (3.9) Net asset value (NAV) 406.3 468.4 (13.3) NAV per share 7.83 9.02 (13.2) Contact details Prime Office REIT-AG Richard Berg Director Investor Relations / Corporate Communications Hopfenstrasse 4 80335 Munich Telephone +49. 89 710 40 90 40 Facsimile +49. 89 710 40 90 99 Email richard.berg@prime-office.de End of Corporate News --------------------------------------------------------------------- 08.08.2013 Dissemination of a Corporate News, transmitted by DGAP - a company of EQS Group AG. The issuer is solely responsible for the content of this announcement. DGAP's Distribution Services include Regulatory Announcements, Financial/Corporate News and Press Releases. Media archive at www.dgap-medientreff.de and www.dgap.de --------------------------------------------------------------------- Language: English Company: Prime Office REIT-AG HopfenstraÃ?e 4 80335 München Germany Phone: +49 (0)89 7104090 40 Fax: +49 (0)89 7104090 99 E-mail: richard.berg@prime-office.ag Internet: www.prime-office.ag ISIN: DE000PRME012 WKN: PRME01 Indices: SDAX Listed: Regulierter Markt in Frankfurt (Prime Standard), München, Stuttgart; Freiverkehr in Berlin, Düsseldorf End of News DGAP News-Service --------------------------------------------------------------------- 224794 08.08.2013