Following Berlin Senate approval of 20 March 2007, Berlin Parliament approved on 26 April 2007 the sale of GSG property in Berlin to JV formed by Orco
and Morgan Stanley
(MSREF). The transaction of about 800,000 sqm of commercial and light industrial space is worth EUR 400m. The deal is still subject to merger control clearance.
GSG has been a long pending deal, which finally seems to be nailed down in a favour of Orco
and MSREF JV. As we mentioned previously we see this deal as value creative based on current market conditions. Although Orco
won’t be able to sell the property for several years and will have to invest further EUR 10m together with MSREF to support companies located in these premises, we see the implied acquisition price of EUR 500/sqm for the property as a bargain. A conservative valuation assuming average monthly rent of EUR 7/sqm/month, versus the city band of EUR 7.0-12.5/sqm/month, yield of 8% versus the average band of 4.75% - 5.75% arrives at an estimated EUR 1,050/sqm, suggesting a potential gain EUR 19.3 per Orco
share. Note that GSG portfolio doesn’t require any substantial CAPEX as it has been recently refurbished and is in a good technical condition. We remind that Orco
is considering capital increase of EUR 100m on the occasion of its Warsaw and Budapest listing in May 2007, which could put a short time pressure on the stock price which we view as a good buying opportunity.