DGRE and Ahouvi Group lead the largest acquisition of a prime real estate portfolio in Switzerland for CHF 3.4bn

July 31, 2007 at 12:00 AM EDT

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DGRE, the AIM-listed real estate group, announces that it has entered through foreign subsidiaries into an Agreement, together with Delek Belron International (its parent company) and the Igal Ahouvi Group, to acquire a prime real estate portfolio from Jelmoli Holding AG at a cost of CHF 3.4bn. DGRE will acquire 33.33% of the portfolio, Delek Belron International 16.67% and Igal Ahouvi Group’s Blenheim Properties Group 50%.

TRANSACTION HIGHLIGHTS

  • The largest portfolio ever sold in Switzerland comprising of 88 investment properties tenanted by some of the best known retail brands in the Swiss market, including several landmark buildings in Zurich and Geneva (the Jelmoli Department Store, Zurich, Grand Passage in Rue Du Rhune, Geneva and Place Du Molard in Rue Du Molard, Geneva), together with 2 properties in the course of development in Geneva and in St. Gallen. The total portfolio has a lettable area of 530,543 m2.
  • One of the largest real estate platforms in Switzerland with over 100 experienced employees who together over recent years built, developed and maintained this first class portfolio let to high quality tenants in prime locations across Switzerland. This platform will facilitate further growth and optimization of the existing portfolio.
  • Approximately 60% of the portfolio comprises retail stores and shopping centres and 19% is comprised of office buildings.
  • The majority of properties in value is fully let on long-term leases for a period of 25 years including the world famous Jelmoli flagship department store in Zurich. The average lease period is 13.5 years.
  • The majority of the rental income of the retail portfolio is related to unlimited turnover-linked contracts with a fixed minimum rent. All rental increases are linked to the Swiss CPI.
  • The rent roll for 2007 is CHF 155m and is estimated to increase to approximately CHF 183m in 2009 when the developments in Geneva and St. Gallen are completed. The majority of the units in these developments have been pre-let.
  • There are significant opportunities to increase the value of the portfolio by efficient property management including lease reorganization and refurbishment.
  • Merrill Lynch International acted as an exclusive financial adviser as well as arranger and underwriter of the debt financing on the transaction. Panmure Gordon & Co acts as a nominated advisor (NOMAD) for the Company.

ACQUISITION RATIONALE

  • This transaction represents DGRE's continuous and ongoing strategy of purchasing good quality assets in prime locations, let to best in class tenants with strong credit ratings on long term leases.
  • The portfolio includes trophy assets in key Swiss city locations, and thus, further establishes DGRE's already existing strong foothold in prime Swiss property and creates an excellent platform for further expansion of Swiss real estate holdings in particular, and generally in continental Europe.
  • The acquisition of the corporate structure of Jelmoli’s real estate portfolio represents a major boost to DGRE’s management, providing it with the ability to actively manage the portfolio in Switzerland and the rest of Europe, benefiting from the skill and experience of the Jelmoli real estate team.

IMPACT OF ACQUISITION

Post-completion of the acquisition, DGRE’s property portfolio will alter as follows: The geographical split of the portfolio will be: 45% - UK; 28% - Switzerland; 10% - Canada; 10% - Germany; 7% - Scandinavia. The total value of the properties in the DGRE portfolio will increase by 33% to £5.6bn, and the attributable value (DGRE's share) in the DGRE portfolio will increase by 24% to £2.4bn. The total value of the rental income of the DGRE portfolio will increase by 34% to £240m.

Ilik Rosanski, Chief Executive of DGRE, comments: ”We are delighted to lead this important acquisition of a major prime real estate portfolio including a talented management team. This will be one of the largest property acquisitions in Europe this year. The acquisition gives us the prospect of significant further expansion in continental Europe enabling us to meet our ambitious objectives. DGRE intends to increase its exposure in what continues to be an attractive market.”

- Ends -

For further information, please contact:

DGRE
Yossi Friedman, chief financial officer + 44207 872 5892
Nadav Zohar, chief operating officer + 44207 872 5892
Panmure Gordon & Co
Grant Harrison
Jonathan Lack +44 20 7459 3600
Pelham PR
Kate Newton
Polly Fergusson +44 20 7743 6604
Email: delek@pelhampr.com

Notes to Editors

  1. Delek Global Real Estate: DGRE: AIM
    ‘DGRE’ is an International Real Estate Group listed on AIM with a high-quality portfolio of prime property assets, in mature economies in Western Europe and Canada. These assets primarily consist of hotels, retail complexes, car parks and office buildings let to blue-chip tenants.

    DGRE focuses on investing in properties with high residual values (the Company’s portfolio has returned an annual ROE of approximately 61% over the past 3 years), let to tenants with strong credit ratings on a long-term basis (approximately 30% of the portfolio has a lease profile of 25+ years) and with high occupancy rates.

    The Company generates shareholder returns through acquiring and developing assets (through physical improvement, re-branding, exploiting additional building rights or altering the use of a property), thereby maximising rental cash flows, targeting financial returns in excess of 15%.

    The portfolio includes (covering 1.5 million m²):

    • NCP car parks: 131 multi-storey, surface, underground and rooftop car parks located within or close to CBDs
    • Hilton Group plc: 17% share of a portfolio of 16 UK hotels managed by Hilton Group
    • Marriott Hotels: 17% share in a company which owns 47 Marriott hotels across the UK
    • Offices: High quality offices in CBDs with high quality tenants including, Adidas, McKinsey & Company, Merrill Lynch and Deloitte
  2. Jelmoli Holding
    Jelmoli Holding AG, headquartered in Zurich, Switzerland, is one of the leading real estate and retail companies in Switzerland. It is listed on the Zurich Stock Exchange. The Jelmoli and its affiliates’ real estate portfolio, which is entirely focused on Switzerland, includes such prime real estate as the Jelmoli flagship department store in Zurich and the Grand Passage in Geneva. Save for the two development properties, overall, the real estate portfolio includes 88 assets and comprises a total lettable area of 530,543 m2.

    In the acquisition of Jelmoli Holding, DGRE and Delek Belron International have joined forces with Blenheim Properties Group Limited of Igal Ahouvi's Group ('Blenheim'). Blenheim are an internationally well known real estate investor, having a long-term strategy with regard to investing in Switzerland. According to the information DGRE received, Blenheim has to date participated in transactions totalling approximately CHF 12 bn, of which CHF 1 bn was in Switzerland.

    For more information please refer to www.jelmoliholding.ch

    The Board of Delek Global Real Estate ('DGRE') announces that it has reached agreement to acquire, together with DGRE's parent company, Delek Belron International Limited ('DBI') and with Blenheim Properties Group Limited ('Blenheim'), the Jelmoli Swiss real estate portfolio, which includes a number of Switzerland’s prime retail property sites, for the cost of CHF 3.4bn.

    The assets are being acquired through a new company, Empario Holdings Sàrl ('Empario'), a Luxembourg entity, wholly owned by a Dutch entity. Empario has been set up in equal shares by DGRE and DBI on the one hand, and Blenheim on the other hand. Blenheim is a company controlled by the Igal Ahouvi Group.

    The CHF 3.4bn consideration will be satisfied in cash on completion of the acquisition. DGRE will finance its share in the new joint company through a combination of debt and cash, together with funding from parent company, DBI.

    Empario, the new joint company, will acquire shares in the various companies owned by Jelmoli and its affiliates that are owners of the different properties in the portfolio. As part of the transaction, an exclusive option is granted to DGRE and its partners until the end of 2007, to purchase: (i) all shares in Jelmoli AG, which operates the Jelmoli Department Store in Zurich (ii) 72.5% of the shares in Jelmoli Bonus AG, which operates the Jelmoli bonus card business and (iii) all shares in Jelmolio Service AG, which provides certain services to Jelmoli AG and Jelmoli Bonus AG.

    Jelmoli Holding AG is one of the leading real estate and retail companies in Switzerland and is listed on the Zurich Stock Exchange, with a market capitalisation of CHF 2.9bn (as of April 2007). The Group is the oldest operator of department stores in Switzerland and founded Zurich’s first department store in 1833. Today, Jelmoli owns and operates the leading department stories and has innovated the ‘stores within stores’ concept representing some of the world’s leading brands. Within Switzerland, the Jelmoli department stores are equivalent to London’s Harrods, Harvey Nichol’s and Selfridges.

    Empario, the joint company, is acquiring from Jelmoli Holding a total of 88 major property assets in Switzerland, comprising lettable areas of 530,543 m2. The real estate portfolio is clearly one of the highest quality portfolios in Switzerland. The portfolio focuses on attractive inner-City locations, mainly in Zurich and Geneva. The assets acquired include two of Switzerland’s most prestigious department stores: the Jelmoli flagship store in Zurich, and Geneva’s oldest department store, the Grand Passage.

    Of the 88 assets included in the acquisition, eight properties represent approximately 60% of the consideration. The joint company is also acquiring two development property assets, the St. Gallen and Thonex shopping centres, which are currently under development and are scheduled to open in 2008.

    The Jelmoli real estate portfolio comprises: 57% retail sites, 19% office space, 9% warehouse, 7% parking, with the remaining 8% in residential and other property classes. Excluding the two development properties referred to above, all of the properties being acquired are currently rented with 100% occupancy rates, and an average lease length of 13.5 years, with some asset lease terms of up to 25 years. Over 80% of the retail gross rental income is related to unlimited turnover-linked contacts, with a fixed minimum rent.

    DGRE listed on AIM in March, 2007 with a portfolio of 281 properties, with an attributable value of £1.6bn. The Group listed on AIM in order to develop its property portfolio through acquisition, enabling it to expand within key Central European and Canadian property markets.

    The broad development strategy of the business is to acquire a long-lease portfolio of assets in prime locations with development potential. The Group works to enhance the value of all of its properties and to generate further value through improvements and maximising rental cash flows by improving the terms of existing leases through financial and other tenant incentives.

    Since listing, the Group has acquired a number of properties in Europe for a total cost of £171.7m, which include:

    • A 17% interest in Marriot Group hotels, including 47 hotels across Great Britain;
    • two Deutsche Telekom tenanted sites in Germany
    • two buildings occupied by the University of Berlin
    • The World Trade Center in Lausanne, Switzerland
    • 17 retail assets across Finland

    The acquisition of the Jelmoli portfolio gives DGRE trophy assets in key Swiss City locations with major retail tenants and builds on DGRE’s existing Swiss property portfolio.

    DGRE’s existing assets in Switzerland include the five WTC office buildings in Lausanne; the University of Zurich (Oelikon) and the Credit Suisse Building (Duebendorf) in Zurich; the Swiss Confederation Building in Bern and the Matran Shopping Centre in Matran. These assets were valued at £267.2m prior to the transaction, and all have a 100% occupancy rate.

    Post-completion of the acquisition, DGRE’s property portfolio will alter as follows: The geographical split of the portfolio will be: 45% - UK; 28% - Switzerland; 10% - Canada; 10% - Germany; 7% - Scandinavia. The total value of the properties in the DGRE portfolio will increase by 33% to £5.6bn, and the attributable value (DGRE's share) in the DGRE portfolio will increase by 24% to £2.4bn. The total value of the rental income of the DGRE portfolio will increase by 34% to £240m.