DIC gets hefty discount for stake in Morgan Stanley portfolio

Frankfurt-based property group DIC Asset has acquired the remaining 50% stake in three joint ventures in the segments core-plus and value added that were formerly held together with Morgan Stanley funds. However, while the stake has a market value of EUR 95 mln, according to DIC, the group is believed to have paid just EUR 10 mln to EUR 20 mln for it, excluding debt, according to those who track the market.

DIC is now the sole owner of the overall portfolio with a market value of around EUR 190 mln, a DIC spokesman told PropertyEU. He also confirmed that the group had acquired around 20 properties comprising office and retail space from Morgan Stanley Real Estate Investing for a ‘good discount’ but declined to provide further details regarding the purchase price.

The buildings comprise about 90,000 m² of lettable space in Berlin and Frankfurt, including the ‘Bienenkorbhaus’ on the Zeil shopping street in Frankfurt, as well as office buildings in Berlin leased to Ebay. Of this, 72% is office space, with retail accounting for the remaining space.

‘We knew this portfolio well and knew how it worked. It had a long-lease maturity of 5.6 years and an occupancy rate of around 90%, so it seemed like a good investment opportunity,’ the DIC spokesman said.

The portfolio will provide an average initial rental yield of 7.7%, according to DIC. The acquisition has been carried out via a share deal involving low transaction costs, DIC said. It is believed that a sizeable discount, likely around 30%, was also agreed on the portfolio’s existing net asset value, according to those who track the market. DIC Asset will assume the long-term financing of the previous joint ventures with an average loan-to-value of around 70% and an average interest rate of 3.2%, and will continue it on an unchanged basis.

Morgan Stanley Real Estate Fund and DIC Asset set up their joint venture in December 2004 with the acquisition of EUR 150 mln worth of 57 properties from Frankfurter Sparkasse. Following DIC’s buyout of the remaining 50% stake, the joint ventures have been dissolved for the segments core-plus and value added in order to simplify the operational structure of DIC Asset, the spokesman said. The existing joint ventures in the co-investment segment with funds advised by Morgan Stanley Real Estate Investing are not affected by this transaction.

As a result of the current takeover, DIC Asset has already grown its portfolio by EUR 280 mln this year, hitting its target of between EUR 200 mln and EUR 300 mln. Nevertheless, the investor is not excluding further deals this year. ‘We’ve reached our annual target so we don’t have to acquire additional properties, but if interesting opportunities like this came up we would look at them,’ a spokesman said.

Some of DIC Asset’s acquisitions this year include the purchase in September of two offices in Karlsruhe and Leipzig and one retail property in Duisburg for EUR 78 mln combined. Also, in March, DIC Asset acquired two retail properties in Bremen and Chemnitz, let to department store chain Galeria Kaufhof, for EUR 108 mln.