|By PR Newswire||
|August 22, 2013 09:15 AM EDT||
NEW YORK, Aug. 22, 2013 /PRNewswire/ --
Prof. Dr. H.c, Roland Berger
Chairman; Prime Office REIT Supervisory Board
Alexander Von Cramm
Chief Financial Officer; Prime Office REIT
Prime Office REIT – AG
80335 Munich Germany
Dear Messrs. Berger and Von Cramm,
Capstone Equities Capital Management ("CECM") is a shareholder of Prime Office REIT ("Prime"). By way of background, CECM was formed from Capstone Equities, a real estate private equity firm based in New York City. We have closed 18 transactions, which in aggregate exceeds $1 billion of real estate transactions and understand all aspects of commercial real estate from closing through to disposal. Our investment partners include some of the world's finest private equity firms, such as Carlyle Group and Angelo Gordon, and large family offices.
CECM is a public markets hedge fund that has made numerous successful investments in undervalued hard asset companies in Europe & US. We conducted a bottoms-up analysis of Prime's assets and concluded that they are deeply undervalued and believe the company to be worth in excess of €6.00 per share. Our due diligence included several trips to Germany and conversations with brokerage firms to understand lease rates, capitalization rates, vacant building values, as well as an extensive review of comparable sales.
To date, we have been deeply disappointed by the fiduciary conduct of the supervisory board and the management board of Prime. Prime IPO'd at the worst possible time in 2011, leaving the company undercapitalized. According to people in the industry, the IPO was handled in a way that left the company vulnerable to further discounts. Now, shareholders are asked to vote on a deal with OCM Acorn that even further dilutes shareholders. Since this deal was announced, there has been an 11.4% share price decline, showing the deal is unsupported.
The merger ratio is simply inadequate and further share capital increases at these price levels are highly dilutive. Given that the share price today is a 54.3% discount to the restated NAV, it would make more sense for the company to sell assets like SZ Tower even for a modest discount to book value rather than be forced into a dilutive merger ratio and then raise equity at such a steep discount.
CECM urges the supervisory board to hire an investment banker to conduct a thorough strategic alternatives process – 1) The Company could liquidate its assets 2) The Company could find a financial sponsor that would inject equity into the company, while leaving existing shareholders undiluted. We believe the company and its supervisory board did not adequately pursue all strategic alternatives as evidenced with our conversations with potential suitors and should delay its AGM until it has conducted a more thorough process.
There are numerous conflicts of interest inherent in the OCM Acorn/Prime deal. The conflicts of interest in this merger are staggering: 1) Both companies used CBRE to evaluate the real estate assets; 2) Both companies used Berenberg as financial advisor for the transaction; 3) While we respect Alexander Von Cramm and his abilities, we believe that there are inherent conflicts of interest with him being on the management board of the new entity.
Ultimately, we believe that Prime has high quality properties located in markets with significant barriers to entry. We firmly believe that Prime shareholders can do better than the current OCM Acorn offer, which significantly dilutes existing shareholders.
Adam M. Chud
Capstone Equities Capital Management
545 Fifth Avenue
New York, N.Y. 10017
Oaktree European Principal
Karoo Investment Fund
BNP Paribas Asset Management