Germany's Alstria Office poised to take over €800m peer

German investor Alstria Office REIT is on the brink of taking control of a direct competitor, Deutsche Office, in a deal that values its target at €800 mln.

Alstria has offered 0.38 of a new bearer share for each Deutsche Office share, which is equal to €4.41 per share, representing a premium of 16.2% over Deutsche Office's closing share price on Monday.

New York-listed investor Oaktree Capital Group, which owns 60.54% of Deutsche Office, has agreed to commit its entire stake to the deal.

In a statement, Alstria said it intends to make a public exchange offer for all outstanding shares. The exchange offer is dependent upon a minimum acceptance rate of 69.6%. If successful, the takeover will result in the creation of Germany's largest listed office real estate company.

Two-in-one
The combined portfolio comprising 125 office buildings with 1.7 million m2 of lettable space will be valued at €3.5 bn. The combined net loan-to-value will amount to roughly 50%, which Alstria will seek to bring down to 40% in the mid-term.

'Through the combination of both portfolios, alstria expects to reinforce its presence in Hamburg and the Rhine-Ruhr area and to achieve a critical size in Berlin, Stuttgart and Frankfurt, giving it a critical mass in 6 of the top 7 German office markets,' Alstria Office said in a statement.

The combination will also provide Alstria's shareholders 'with access to a sizeable, profitable and well balanced office portfolio in Germany’s most dynamic growth regions while improving the group's capital market profile', it added.

Alstria expects the merger will generate cost synergies of €2.5 mln per annum through efficiency gains in the management and administration of properties as well as savings on the overhead functions. The cost synergies are expected to lead to an accretion of Alstria's FFO per share of more than 20%. On a pro-forma basis, this is forecast to increase from €0.62 to €0.75 per share.

CEO comment
'Over the past years we have prepared Alstria to take a significant step in order to become the benchmark in the listed office sector in Germany,' said Alstria CEO Olivier Elamine. 'There are numerous reasons why this transaction makes sense, however our main driver is that we are building up a stronger and better company for the benefit of all our stakeholders.'

Closing of the deal is expected for the second half of 2015. The integration is expected to be completed within 24 months after closing of the transaction.

UBS acted as financial advisor, Unicredit as a co-financial advisor and Allen & Overy as legal advisors to alstria on this transaction.