Eurocastle Acquires EUR2 Billion German Real Estate Portfolio from Dresdner Bank - Transformational Acquisition Making Eurocastle the Largest Publicly Traded Company Focused on German Commercial Real Estate
LONDON, December 22, 2005/PRNewswire/ -- Eurocastle Investment Limited
(Euronext Amsterdam: ECT), which is managed by Fortress Investment Group LLC, today announced that it has signed a definitive agreement with Dresdner Bank AG to acquire 100% of an open-end fund which owns a portfolio of 303 commercial properties for approximately EUR 2 billion. The properties consist primarily of office buildings and are largely occupied by Dresdner. The bank will continue to occupy their current space which represents approximately
80% of rental income on the portfolio. Dresdner's average remaining lease term is 9 years, while the average remaining lease term of the entire portfolio is approximately 8 years. Approximately 15% of the portfolio is currently vacant.
The properties, totaling approximately 9 million square feet (845,516 square meters) of leasable space, are located throughout Germany, with concentrations in Frankfurt, Hamburg, Munich, Dusseldorf and Berlin. The assets are generally in major metropolitan areas and Eurocastle believes that the properties are among the best-located and highest quality assets in their respective markets. The purchase reflects an unleveraged initial yield of
approximately 5%.
"This transaction provided a unique opportunity for Eurocastle to acquire a large scale portfolio that combines prime assets with a high quality core tenant under long-term leases," commented Robert Kauffman, head of Fortress's
European investment operations. "We look forward to a strong partnership with Dresdner and the Allianz Group."
Eurocastle expects to fund the purchase with equity and debt financing.
The debt has been committed to by various banks and the equity will be raised through a public offering of common stock combined with an investment from a private equity fund managed by Fortress Investment Group. The closing of this
transaction is expected to occur in the beginning of 2006.
Today, Eurocastle's investment portfolio is made up of approximately 50% in credit leased real estate and 50% real estate debt and securities (based on invested equity). Upon the closing of this transaction, credit leased real estate will increase to at least 75% of Eurocastle's portfolio, and will include over 17 million square feet (1.6 million square meters) of leasable European commercial real estate, with German assets making up 93% of Eurocastle's direct real estate investments.
Following the acquisition, Eurocastle will own approximately EUR2.7 billion of commercial real estate assets, together with EUR1.6 billion of real estate securities and other real estate related loans.
With respect to the transaction, Eurocastle director, Wesley Edens said,
"The acquisition of the Dresdner portfolio provides Eurocastle with an attractive opportunity to accelerate our stated strategy and interest in Germany. This transaction will mark a significant transformation for Eurocastle, making us one of the largest owners of commercial real estate in Germany. We now own one of the best office portfolios in Germany and expect the Dresdner assets to provide a valuable new source of income growth and
platform for other strategic acquisitions."
The transaction, together with existing assets, gives Eurocastle a distinctive leadership position in the commercial property sector in Germany.
Attractive features of the investment include:
- High quality assets - The Dresdner portfolio is among the highest quality commercial portfolios in Germany, and provides a unique opportunity to increase Eurocastle's exposure to the recovering German commercial real
estate sector on a large scale. The portfolio consists of primarily Class A office space in the major metropolitan areas in Germany, as well as smaller assets spread throughout Germany but situated primarily in prime locations
within those jurisdictions.
- Stable cash flows - The leases with Dresdner, a AA3/AA- rated credit, represent 80% of current income on the portfolio with an average lease term of approximately 9 years. The portfolio provides a stable 5% initial yield
with upside potential as the properties are fully leased.
- Improving real estate fundamentals - Germany's commercial property markets, which have been severely affected by overbuilding and five years of sluggish economic growth, appear to have bottomed out. With little new construction taking place, the Dresdner portfolio is well positioned to benefit from positive net space absorption in its major markets.
We also believe that with this acquisition, the Company will be in a strong position to take advantage of growing investor demand for exposure to the sector. Pending adoption of REIT legislation in Germany, improving real estate fundamentals and distress among German open end funds are expected to provide strong growth prospects for Eurocastle.
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