Berlin merger commission approved the sale of GSG Berlin portfolio, thus allowing Orco to finalize acquisition of GSG Berlin portfolio through joint venture with Morgan Stanley Real Estate Fund V (MSREF V). The acquisition of GSG and its 800,000m2 commercial and light industrial space amounts to some EUR 400m. The joint venture agreement between Orco and MSREF V foresees a ?35 million cash payment and the contribution of the acquired 50 % of GSG by MSREF V to the share capital of Orco Germany in exchange of 14.100.000 new shares. After completion, the total number of shares of Orco Germany, listed on XETRA in Frankfurt, will be 48.771.333. The effect of the combined transaction leaves Orco Germany shareholding structure with MSREF V holding 29 %, Orco 57 % and a free float of 14%.
Our view: As mentioned before, we see this acquisition of 800,000 sqm positively based on fact that the purchase price is some EUR 500/sqm, while the resulting market value based on average rent of EUR 7/sqm/month and yield of 8% could reach EUR 1,050/sqm. Note that average rent in Berlin is some EUR 10.5/sqm/month and current market yield band is 4.75% to 5.75%. Although Orco won’t be able to sell this property for couple years, we believe the acquisition to boost Orco’s NAV. Orco’s pre-acquisition share in Orco Germany was 80%, therefore we believe this transaction could add some EUR 16.5 to our fair value of EUR 140.9 per share should there be no CAPEX required as indicated before. We will contact the company to find out details about the transaction. We see the news as positive, however Orco’s price is currently driven by ongoing capital increase.