Last checked at 30 Mar 2010 07:00
Speymill Deutsche Immobilien Company plc
("the Company")
Speymill Deutsche Immobilien Company plc (SDIC.L), the pan-German residential property investment company listed on AIM, is pleased to announce its interim results for the six months to 31 December 2009.
Highlights
·; SDIC property values remain relatively stable - slight decrease in portfolio value of 1.1% to €1,438m on a like-for-like basis, equating to a 6.64% valuation yield on contracted net rents as at 31 December 2009
·; EPRA NAV down 6% to €0.86 per share (IFRS NAV down 12% to €0.65 per share including interest rate swaps mark-down of €9.7m)
·; Interest rate swaps revaluation, if held until maturity, has no effect on the Company's debt covenants nor any cash impact
·; LTV ratio including cash of 79.0%, as at 31 December 2009
·; Total cash of €36.2m as at 31 December 2009, €25.6m of which is uncommitted
·; FFO loss of €1.1m due to lower deposit interest and increased loan interest payable following the introduction of €18m additional financing in March 2009
·; Expansion of dedicated property management function, by GOAL service GmbH, giving greater control and better results
·; Discussions with representatives of SDIC's financing banks are ongoing in order to review the banking facilities currently available to SDIC
For more information, please visit http://www.speymilldeutsche.com or contact:
| Speymill Property Group Limited | +44 1624 640 860 |
| (Manager) |
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| Nigel Caine |
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| Nick Harris |
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| SMP Fund Services Limited | +44 1624 682 216 |
| (Administrator) |
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| Vincent Campbell |
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| Smith & Williamson Corporate Finance Limited | +44 20 7131 4000 |
| (Nominated Adviser) |
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| Azhic Basirov |
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| Siobhan Sergeant |
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| Fairfax I.S. PLC | +44 20 7598 5368 |
| (Brokers) |
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| James King |
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| Andrew Cox |
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| Tavistock Communications Limited | +44 20 7920 3150 |
| (Media & Investor Relations) |
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| Jeremy Carey |
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| Simon Hudson |
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| Gemma Bradley |
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Chairman's statement
The six months to 31 December 2009 has again seen the value of the Company's property portfolio remain relatively stable in continuing tough market conditions. Vacancy has decreased slightly as the Company has made further progress with its structural refurbishment programme, which, aside from ongoing refurbishments as and when required, has been substantially completed. As mentioned in the Company's 2009 annual report, we have begun to optimise the property portfolio by making selective sales and I am pleased to report that overall sales have been achieved at a premium to the published valuation contained within the results for the year ended 30 June 2009.
Results
Asset values remain relatively stable
The total property portfolio was valued at €1,438m as at 31 December 2009 (30 June 2009: €1,455m) which reflects a slight decrease of 1.1% or €18.7m for the period, demonstrating that German residential property continues to show relative stability. This equates to a yield of 6.64% on contracted passing net rents as at 31 December 2009.
Vacancies decrease marginally
Vacancies decreased marginally during the period from 14.9% as at 30 June 2009 to 14.3% as at 31 December 2009, demonstrating that the structural refurbishment programme will provide long term economic benefits. The structural refurbishment programme was 93% complete as at 31 December 2009. The reduction of overall vacancy will continue to be a core focus.
IFRS NAV affected by interest rate swap revaluations
The value of interest rate swaps held by the Company has suffered a further mark-down in the period due to a further reduction in interest rates. Consequently, the net asset value (NAV) per share has fallen by 12% when calculated in accordance with IFRS. However, on an EPRA NAV* basis the decline in NAV per share was 6%. The Board believes that excluding the non-cash interest rate swaps revaluations more accurately reflects the true underlying value of the portfolio.
Funds from operations
During the period under review, the Company recorded a net operating profit of €8.8m (31 December 2008: €15.6m) on gross rents of €75.7m (31 December 2008: €76.0m). Direct costs decreased to €40.8m from €42.3m in the comparable period.
Net financing expenses were €38.7m (31 December 2008: €129.1m) including interest rate swaps mark-downs of €9.7m. Interest expense for the period was €28.7m (31 December 2008: €27.7m) reflecting a full period of debt outstanding. The loss before taxation was €29.9m (31 December 2008: €113.5m), again including interest rate swaps mark-downs which is a non-cash movement in addition to the €18.7m decrease in the portfolio valuation.
Funds from operations (FFO) stood at a loss of €1.1m for the period ended 31 December 2009 (31 December 2008: loss of €335,000). This is mainly due to a reduction in deposit interest, due to negligible interest rates received during the period, and increased loan interest payable following the introduction of €18m additional financing in March 2009. The structural refurbishment programme has taken longer than expected, partly due to the inclusion of further units, however FFO should improve as the structural refurbishment programme draws to a close and increases in occupancy rates reduce irrecoverable service charge costs. FFO has also been negatively affected by higher-than-normal bad debt provisions on rental arrears.
* European Public Real Estate Association - excludes provision for deferred taxes, derivative financial instruments and capitalised loan arrangement fees
Cash management
As I mentioned in my previous report, the Company has experienced higher-than-normal rental arrears due partially to the prevailing economic conditions that have had a short term and negative impact on some tenants' ability to pay. The Company also witnessed a rise in service charges in 2008 and 2009, mainly relating to increases in commodity prices, most notably energy prices. Due to the way German tenant law operates, the Company has to fund these increases until they can be reconciled and re-charged to tenants. This process has been completed for the calendar year 2008 and the amounts have been billed to tenants in Q1 2010. The bulk of these amounts are due for collection by the end of Q2 2010.
This shortfall continued throughout 2009 and will have to be borne by the Company until these amounts can be reconciled and billed in 2010. This process has commenced and it is a high priority of the Company to reclaim these amounts as soon as possible.
When the reconciliation process was carried out for 2008, the contractual service charge prepayments for tenants were set as close as possible to the underlying cost levels. This was achieved as far as possible, although in a number of cases this was not possible due to commercial or contractual restrictions. In these instances the Company will have to continue to bear the shortfall until the amounts can be reclaimed at a later date.
Reducing leverage
Interest bearing loans were €1,172.2m as at 31 December 2009 (€1,178.4m as at 30 June 2009). Loan-to-value (LTV), excluding cash, stood at 81.5% (81.0% as at 30 June 2009), and including cash, LTV was 79.0% as at 31 December 2009 (76.7% as at 30 June 2009).
As mentioned in my statement for the year ended 30 June 2009, we continue to seek ways of de-levering the portfolio whilst maintaining maximum shareholder value. The Company has continued to amortise a proportion of its debt in line with the original loan agreements and, in addition, has repaid further debt as a result of selective asset sales.
Given the current low interest environment the interest rate swaps currently have a negative carrying value. Any asset disposals would be made in light of the cost of unwinding the related interest rate swap. This would significantly reduce the amount of surplus cash generated from asset disposals.
Banking covenants
On 22 February 2010 the Company announced that whilst currently compliant with all existing terms and covenants of its banking facilities, in the absence of new measures and in light of a revision to the calculation methodology requested by the lending banks, one of the banking covenants in one of the Group's facilities would likely be breached in the near term. This breach relates solely to a debt service cover ratio ("DSCR") covenant on one of the Group's six facilities. This facility involves a loan of €353m out of Group loans totaling €1.18bn.
The environment remains difficult for highly leveraged borrowers such as SDIC. The properties and debt are held in special purpose vehicles ("SPVs"), all of which are Isle of Man limited companies, the vast majority of which are grouped into six financing packages. There is no cross collateralisation between the financing packages.
Following the initial issue of the "O" Share class and the subsequent issue of the "C" Share class, the vast majority of the properties were financed through the initial four financing packages. Following financing it was the intention of the lenders that these packages would be securitised, and providing the amortisation loan-to-value ("LTV") covenants were not breached, then amortisation would not be payable.
The unparalleled events in the global credit markets over the past two years meant that the lenders were only able to securitise one of the four financing packages, amounting to €192m out of the €1,168m total debt across the four packages. This has resulted in amortisation being payable on the remaining €976m of debt that was not originally anticipated at the inception of the Company.
Members of the Board, together with the Manager and the Investment Adviser, have been in regular discussions with representatives of SDIC's financing banks in order to discuss the banking facilities currently available to SDIC. This includes the measures which may be agreed in order to remedy the impending DSCR covenant breach and any other potential future covenant breaches, and to seek a wider solution to the amortisation requirement on the non-securitised financing packages. Those discussions remain ongoing at the time of writing this report, and it is the Board's intention to work with the Company's financing banks in order to find a long term solution. The Board continues to closely monitor the covenant levels across all of the financing packages. The Board will communicate any further developments to shareholders as and when they become available.
It is possible that the negotiations with the lenders are unsuccessful and that some of the silos may not survive within the overall ownership of the Company. In the event that a payment default or covenant breach occurs within one of the packages and no satisfactory waiver or renegotiation of terms is obtained, then the risk remains that the lender enforces its security on that particular package with a consequent loss of net equity.
Due to the "ring-fencing" of the debt facilities and the interest rate swaps, as well as the discussions that have taken place so far with the lenders, the Directors are of the opinion that it remains appropriate to prepare these interim reports on a "going concern" basis. Please also refer to note 2 of the consolidated interim financial statements for further details.
Share price
Since the announcement of the Company's annual results on 14 October 2009, the share price has decreased from €0.38 to €0.18 as at 26 March 2010. Whilst disappointing, the Board believes that this does not reflect the true underlying value of the Company. As is the case with most of its peers, the Company continues to trade at a substantial discount to its net asset value, largely caused by the general market sentiment regarding leveraged property companies.
The Board remains of the opinion that the Company will deliver value to shareholders in the medium to long term.
Dividend
Over the past 18 months the Board has felt it prudent to refrain from making dividend payments in favour of preserving cash and retaining some liquidity. As mentioned in my statement of the Company's December 2008 interim report, the Company began to amortise a proportion of its debt in January 2009 in line with the terms of the original loan agreements. The ability of the Company to pay dividends to its shareholders in the future has been significantly reduced by that amortisation requirement.
Due to the amortisation requirement, the Board has decided to suspend the payment of dividends until such time as the Company is able to generate sufficient distributable cash. The Company does, however, intend to maintain its policy to pay dividends to shareholders equivalent to substantially all of its surplus profits, though it is not possible at this time to indicate when the next dividend will be paid.
Optimisation
Since the Company became fully invested, with a pan German property residential portfolio consisting of 26,654 units as at 31 December 2009, the Manager and the Investment Adviser have been analysing ways of refining the Company's portfolio in order to achieve maximum value. Thus far, progress has predominantly been achieved through the structural refurbishment programme. However, following the publication of the 2009 annual results the Company has completed the sale of one property for €900,000, which was a premium to the carrying valuation of €751,365, and notarised approximately €21.6m of property sales which I am pleased to report were above the overall June 2009 valuation. This active asset management programme will continue as the Manager and the Investment Adviser seek to refine the portfolio and increase operational efficiencies.
The performance of external, subcontracted property managers has not been as expected and it is essential that greater control is brought to bear on these outsourced units. Over the period, GOAL service GmbH ("GOAL") has taken-over the property management of further units. Currently 41% of the units are under the direct property management of GOAL and it is anticipated that by June 2010 over 70% of the units will be directly managed. Due to the extensive handover process, the transition to a dedicated property management platform will be a substantial exercise. Despite this, the Board firmly believe, as a result of past experience, that tighter control of letting activities through a dedicated property manager will ultimately create increased efficiencies, improved rental income and enhanced debt collection.
Outlook
Following the substantial completion of the structural part of the refurbishment programme, the Board, the Manager and the Investment Adviser will be able to concentrate their focus on the core issues of enhancing operational efficiency. This will come through reducing vacancies, increasing rental levels and reducing operating costs, refining the portfolio through active asset management, and continuing to seek ways of de-levering the portfolio.
The Board is confident that in the medium to long term the move to a dedicated property management platform will produce better results than previously shown by fragmented managers as greater control can be applied. Vacancies are expected to decrease gradually over the medium term, as more units are successfully handed over to GOAL.
The immediate focus of the Board and the Manager is on discussions with the Company's financing banks. Although the Company is likely to be in breach on one of its DSCR loan covenants in the near-term, the objective surrounding those discussions will be to agree upon a long term remedy, and to reduce the potential risk of such breaches in the future. Amongst those discussions are potential options which may be available to SDIC, such as recapitalising the Company and/or internalising the management, investment advisory and property management functions. It is the intention of the Board and its advisers to discuss these possibilities with key shareholders once the discussions with the financing banks have been concluded.
The German residential property sector looks set to remain stable in the short to medium term and the Board remains of the belief that the Company would generate significant capital growth if German residential values converge with replacement cost. The Board, the Manager and the Investment Adviser will continue to position the Company in line with this strategy in order to deliver value to shareholders.
Raymond Apsey
Chairman
29 March 2010
Report of the Manager and Investment Adviser
German economic environment
During the first half of the financial year, Germany has continued its recovery from the recession that saw its economy shrink by 5% in 2009. This was the first time in six years that the economy had shrunk, and the largest contraction since World War II, according to the Federal Statistics Office. After a sharp contraction, the economy grew 0.7% in the third quarter of 2009; however, GDP remained unchanged for the fourth quarter of 2009 according to official data. Despite this, the Government has projected that the economy will grow by 1.4% in 2010, 0.2% above the previous forecast of 1.2%.
The International Monetary Fund (IMF) is also optimistic of growth, expecting the German economy to expand by 1.5% in 2010. The IMF believe Germany's exporters will drive economic activity in 2010. Exports increased by 3.4% to €69bn in December 2009 compared with the prior year month, according to the Federal Statistical Office. This official data signalled foreign trade will help underpin Germany's recovery from recession. This was the first time since October 2008 that exports rose year-on-year.
Business sentiment has risen in 2010 signalling confidence in Germany's recovery. The Ifo index measuring the German business climate has been steadily rising since April 2009. The index increased to 95.2 in February 2010 from a revised 94.6 in December 2009.
Despite the continuing recovery, Germany has not yet overcome the worst financial market and economic crisis in post-war history. Unemployment in Germany averaged 8.2% of the workforce during 2009, with a total of 3.42m people unemployed, according to the Federal Labour Agency. Despite economic growth forecasts for 2010, unemployment is expected to rise further, the Government having forecast approximately 3.7m people unemployed for 2010. Although unemployment has risen, Germany's job market has remained relatively robust. While jobless numbers rose during 2009, the increase was not as much as feared, Frank-Juergen Weise, Federal Labour Agency CEO, commented. The Federal Labour Agency announced that unemployment had increased less than expected to 8.7% in February 2010 from 8.6% in the previous month.
With exports on the increase and tax cuts still central to Government policy, economists are optimistic that Germany will continue its recovery over the coming year.
German property market
Residential real estate sustained its position as the most stable market segment. According to King Sturge, investors are seeking stability, and new funds in this market segment are likely to be launched in the short to medium term. Moreover, Savills have reported that German residential portfolio transactions picked up during 2009, and in particular during the second half of the year, with transactions in excess of €3bn over the year.
German property has again been voted one of best investments in the European real estate sector for 2010 by ULI & PWC LLP in the Emerging Trends in Real Estate Europe survey. Four German cities made the top ten investments for existing property, whilst three made the top ten investments for new property acquisition. Respondents of the survey saw Germany as being more stable than other European countries, both in terms of property markets and the broader economy.
Property valuations remain relatively stable
The Company's portfolio was valued at €1.438bn as at 31 December 2009, a slight decrease of 1.1% from the last valuation as at 30 June 2009, on a like-for-like basis.
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| Period ended 31 Dec 2009 | Full Year ended 30 Jun 2009 |
| Total number of buildings† | 1,134 | 1,133 |
| Total number of units† | 26,654 | 26,639 |
| Gross lettable area (m²) | 1,729,260 | 1,727,365 |
| Total purchase price# (€'000) | 1,422,330 | 1,423,230 |
| Average purchase price# (€/m²) | 823 | 824 |
| Valuation (€'000) | 1,438,126 | 1,455,440 |
| Average valuation (€/m²) | 832 | 843 |
| Uplift since purchase | 1.1% | 2.2% |
| Average valuation yield | 6.6% | 6.6% |
| Average residential net rent† (€/m²) | 5.1 | 5.1 |
| Average commercial net rent† (€/m²) | 7.4 | 7.5 |
† The number of buildings and units fluctuates between periods based on combining certain adjacent buildings, reclassifications and remeasurements
# Original purchase price, excluding disposals
The overall portfolio has experienced only a slight decline in value. The portfolio's relative stability has been assisted by the structural refurbishment programme.
Average valuation yield as of 31 December 2009 stood at 6.64%, a 9bps increase compared to the June 2009 figure.
Vacancy
A key strategy for SDIC is to drive down vacancies. As reported in the June 2009 report, the Company's vacancy rate had a short to medium term increase due to the ongoing structural refurbishment programme and the integration of GOAL service GmbH ("GOAL") property management across further units of the portfolio. As these two initiatives progress, vacancies will gradually stabilise. In line with this expectation, during the period ended 31 December 2009 vacancies have decreased slightly to 14.3% from 14.9% as at 30 June 2009. The Manager expects a further gradual drop in vacancies in the short to medium term as the structural refurbishment programme nears completion and GOAL takes over the property management of further units across the portfolio. Fluctuations have been higher than anticipated at 14.8% for the period ended 31 December 2009 compared to 13.7% as at 30 June 2009. On an available basis, the Company's vacancy rate was 5.6% as at 31 December 2009.
Structural refurbishment programme
| As of 31 December 2009 | Units completed | Completed units let |
| Programme to date* | 93% | 79% |
* More units may be added as and when works are identified. Includes some minor works in process where tenants have already moved in.
The Company's structural refurbishment programme continues to progress. As at 31 December 2009, 79% of the completed units had been successfully let.
In light of the success of the structural refurbishment programme, the Company has expanded it to 2,992 units, beyond the original plan of approximately 1,700 units. Further units may also be added as and when works are identified. A partial negative effect of increasing the programme, however, is an increase in tenant fluctuations.
We are pleased with the progress of the programme thus far. Whilst the programme has had a temporary negative effect on vacancy, the success seen in re-letting refurbished units is a positive step towards a stabilised portfolio.
On completion of the structural element of the refurbishment programme the Company will enter into a phase of ongoing, continuous operational refurbishments. This will involve units that become available following the expiry or termination of the lease. The work required varies from unit to unit, ranging from minor to more substantial works, but is necessary in order to maintain the quality of the units on offer and ensure their availability for future lettings.
Property management update
As reported in October 2009, a strategy of the Company is to transfer more units under the direct property management of GOAL, with the aim of GOAL eventually becoming the Company's dedicated property manager. As at 31 December 2009, 41% of units were directly managed by GOAL compared with 8% as at 31 December 2008. By the end of the financial year, it is anticipated that approximately over 70% of the property portfolio will be directly managed by GOAL.
Due to the extensive handover process, the transition to GOAL property management continues to have a temporary adverse effect on tenant fluctuations and the overall vacancy rate. Approximately 12 to 18 months is needed for the smooth take-over of the property management function. Vacancies are expected to decrease gradually over the medium term, as more units are successfully handed over to GOAL.
Although the transition has a temporary effect on vacancies, the Company is confident that in the medium to long term the move to a dedicated property management platform will produce better results than previously shown by fragmented managers as greater control can be applied.
Property disposals
The Company has commenced a selective disposal initiative to help optimise the property portfolio and to improve operational efficiency. Any disposals will result in the portfolio being de-leveraged further in accordance with the loan agreements.
As at 31 December 2009, the Company completed the sale of one property for €900,000, which was at a premium to the valuation of €751,365. The Company has also notarised approximately €21.6m of property sales which were above the overall June 2009 valuation.
Summary of property sales
| Status | SQM | Valuation (30 Jun 09) | Sale price | Net profit* |
| Sold | 910 | 751,365 | 900,000 | 137,925 |
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| Notarised | 10,098 | 20,287,000 | 21,560,000 | 1,206,210 |
| TOTAL | 11,008 | 21,038,365 | 22,460,000 | 1,344,135 |
* Net of sales costs
Banking facilities
As at 31 December 2009, through its special purpose vehicles ("SPVs") of Isle of Man limited companies, the Group had six financing packages, or "silos", totalling €1.18bn. Each of these silos has a loan to value ("LTV") covenant, an interest cover ratio ("ICR") and/or debt service cover ratio ("DSCR") covenant. On 22 February 2010, whilst in compliance with its banking covenants, the Company announced that it would be likely to breach one of its banking covenants in one of the silos in the near term. The likely breach relates solely to a DSCR on a loan facility of €353m.
When the Company issued its Admission Document prior to its listing on AIM in March 2006, it stated that a major element of the Company's intended strategy was the use of leverage to assist in the funding of its acquisitions. As part of this strategy, it was assumed that there would be no amortisation commitment during the life span of the loan on the basis that all of the debt would be securitised. However, partially due to financial market conditions over the past two years and the subsequent shut-down of the securitisation markets, the Company is committed to amortising a proportion of its debt on five out of its six financing packages.
The amortisation requirement places a significant strain on the Company's recurring cash flows that had not been envisaged at the outset of the Company. Current operational cash flows alone are not sufficient to service the scheduled amortisation and this is currently being met from a combination of cash reserves and asset disposals.
The payment of amortisation is not sustainable and the Board, together with the Manager and the Investment Adviser, is currently in discussions with its lenders with a view to providing a stable financing model for the Company. It is probable that this will involve the renegotiation of the majority of the silos to better reflect the transformed financial landscape in which the Company now operates.
The four largest silos total €1,158m of debt. On the one silo that was securitised there is an amortisation LTV covenant of 82.5% and a financial LTV covenant of 87.5%. As at 31 December 2009 the LTV on this silo was 80.6%. On the remaining non-securitised silos the amortisation LTV is not applicable at this time and they are only subject to a financial LTV. The financial LTVs on these silos range from 82.5% to 87.5% against the actual LTVs at 31 December 2009 that ranged from 80.3% to 84.9%. The LTV covenant ratios are tested annually and no silos are currently in breach of their LTV covenants.
On the four largest silos the ICRs and in one case, the DSCR, are tested on a backward-looking twelve month rolling basis. The ICRs on three of the silos are tested on a semi-annual basis and on the remaining silo the ICR and DSCR are tested quarterly. As at 31 December 2009 the ICRs were between 1.15 and 1.33 in the various silos. The Group's ICR financial covenants are between 1.10 and 1.20. The DSCR at 31 December 2009 was 1.15 against a financial covenant of 1.10.
The two smaller silos, amounting to €18m of debt, each have an LTV covenant and a DSCR covenant, both of which are tested annually. As at 31 December 2009, the LTVs were between 65.4% and 65.6% compared against financial covenants of 73.0% on both silos. The DSCR covenants are calculated on a forward-looking basis and were between 1.20 and 1.40 as at 31 December 2009. The financial covenants range from 1.14 and 1.22.
It is possible that the negotiations with the lenders are unsuccessful and that some of the silos may not survive within the overall ownership of the Company. In the event that a payment default or covenant breach occurs within one of the silos and no satisfactory waiver or renegotiation of terms is obtained, then the risk remains that the lender enforces its security on that particular silo with a consequent loss of net equity.
The Company's existing debt is fully hedged at an average fixed interest rate of 4.70% for the entire duration of the debt until maturity. Average debt maturity stands at 4.5 years as of 31 December 2009, with the earliest debt maturing in late 2013.
Cash management
Cash generation and liquidity management remain key priorities for the Company. The Company has made concerted efforts to maximise operational cash flows and closely monitor its cost base.
Over the past two years there have been additional non-recurring factors for the Company to negotiate including an increase in rental arrears and a service charge prepayment shortfall.
Rental arrears have increased due to the prevailing economic conditions putting short term pressure on some tenants' ability to pay, e.g. redundancies and reduced working patterns.
In March 2009, to ensure the swift and efficient collection of all debts the Company appointed a dedicated debt collection agency to manage the collection and recovery of overdue amounts. This service includes a full legal process where applicable, and is designed to help minimise the age profile of tenant debts and thus the associated risk of non-payment. This is beginning to show improved cash collection levels and will reduce the associated costs of protracted legal processes in pursuing aged debts.
The Company also witnessed a rise in service charge costs in 2008 and 2009, mainly relating to increases in commodity prices, most notably energy prices. Due to the way in which German tenant law operates, the Company has to fund these increases until they can be reconciled and re-charged to tenants. This process has been completed for the calendar year 2008 and the amounts were billed to tenants in Q4 2009. The bulk of these amounts are due for collection in Q1 and Q2 2010.
This shortfall continued throughout 2009 and will have to be borne by the Company until these amounts can be reconciled and billed in 2010. This process has commenced and it is a core objective of the Company to reclaim these amounts as soon as possible.
When the reconciliation process was carried out for 2008, the contractual service charge prepayments for tenants were set as close as possible to the underlying cost levels. This was achieved as far as possible, although in a number of cases this was not possible due to commercial or contractual restrictions. In these instances the Company will have to continue to bear the shortfall until the amounts can be reclaimed at a later date.
Interest rate swap revaluations
The sharp decrease in global interest rates over the past couple of years has continued to have an impact on the value of swaps held by the Company during the period. For the period ended 31 December 2009, the swaps were marked down by €9.7m. This revaluation loss, and the portfolio valuation reduction of €18.7m, have contributed to the net asset value (NAV) per share of the Company falling by 12% to €0.65 from €0.74 as at June 2009. Under IFRS, the swaps have to be marked to market but it should be noted that this loss is a non-cash accounting movement. Cash and cash equivalents as at 31 December 2009 amounted to €36.2m, of which €25.6m was operationally available to the Company.
Given the current low interest environment the interest rate swaps currently have a negative carrying value. Any asset disposals would be made in light of the cost of unwinding the related interest rate swap. This would significantly reduce the amount of surplus cash generated from asset disposals.
EPRA (European Public Real Estate Association) defines NAV differently from IFRS as can be seen in the financial statements. Movements in derivatives and deferred tax provisions are excluded from EPRA NAV calculations. Consequently, EPRA NAV considers only the underlying property values and cash of the Company, stripping away any financial accounting effects.
On an EPRA NAV basis, the Company experienced a 6% decrease to €0.86 per share as at 31 December 2009, compared to the June 2009 figure of €0.92. The Manager believes that the EPRA NAV more accurately reflects the underlying value of the portfolio.
Financial summary
| Financial position |
Period ended 31 Dec 2009 |
Year ended 30 June 2009 |
| Portfolio value# (€'000) | 1,438,126 | 1,455,440 |
| Borrowings (€'000) | (1,172,177) | (1,178,371) |
| Net assets (€'000) | 219,917 | 250,547 |
| EPRA NAV* (€'000) | 288,769 | 308,601 |
| Loan-to-value† (LTV) | 81.5% | 81.0% |
* European Public Real Estate Association - excludes provision for deferred taxes, derivative financial instruments and capitalised loan arrangement fees
† LTV indicated here does not include cash
# Includes assets held for sale
The portfolio valuation as at 31 December 2009 stood at €1.44bn representing an overall valuation loss of 1.1% from 30 June 2009, on a like-for-like basis.
LTV, excluding cash, stood at 81.5% as at 31 December 2009 (30 June 2009: 81.0%). Including cash, the Company's LTV was 79.0% (30 June 2009: 76.7%).
NAV for the period declined by 12%, mainly as a result of the swap mark-down of €9.7m, and the valuation decrease on the portfolio of €18.7m. It is important to note that the swap revaluation has no impact on the cash flows of the Company if held until maturity, nor does it in any way impact the Company's banking covenants.
| Financial performance | Period ended 31 Dec 2009 (€'000) | Period ended 31 Dec 2008 (€'000) |
| Gross rents received | 75,752 | 75,994 |
| Valuation losses on property portfolio# | (18,747) | (10,325) |
| Net operating profit | 8,783 | 15,597 |
| Loss before tax | (29,872) | (113,514) |
| Funds from operations† | (1,085) | (335) |
| Loss for the period | (30,630) | (114,376) |
† Funds from Operations (FFO) is a measure of the recurring operational earnings of the Company, as it is adjusted for unrealised/realised movements on hedging instruments, investment properties, deferred tax provisions and any non-recurring expenses.
# Includes impairment loss on assets held for sale
For the six months ended 31 December 2009, the Company made a net operating profit of €8.8m compared to a net operating profit of €15.6m for the six months ended 31 December 2008. The principal driver for the reduced net operating profit was the increased valuation losses on the property portfolio. Gross rent for the six months ended 31 December 2009 amounted to €75.8m, compared to €76.0m for the six months ended 31 December 2008, reflecting increased vacancy levels at the beginning of the period.
| FFO analysis | Period ended 31 Dec 2009 (€'000) | Period ended 31 Dec 2008 (€'000) |
| Net rents | 48,659 | 47,433 |
| Non-recoverable operating costs | (13,674) | (13,738) |
| Net operating income | 34,985 | 33,695 |
| Profit on disposal of investment property | 138 | - |
| Administrative expenses | (7,593) | (7,772) |
| EBITDA | 27,530 | 25,923 |
| Net interest expense | (28,609) | (26,635) |
| Tax | (6) | 377 |
| FFO | (1,085) | (335) |
The funds from operations (FFO) for the period to 31 December 2009 resulted in a loss of €1.1m compared to a loss of €335k for the comparable prior period. The main drivers for the increased loss were a reduction in deposit interest, due to negligible interest rates received during the period, and increased loan interest payable following the introduction of €18m of additional financing in March 2009. The Manager expects FFO to improve as the portfolio progresses towards a stabilised state, the structural refurbishment programme approaches completion, the transition to a dedicated property management platform progress, and vacancy rates continue to decline.
| Reconciliation of loss for the period to FFO | Period ended 31 Dec 2009 (€'000) | Period ended 31 Dec 2008 (€'000) |
| Loss for the period | (30,630) | (114,376) |
| Loss on revaluation of property portfolio | 18,639 | 10,325 |
| Impairment loss on assets held for sale | 108 | - |
| Realised/unrealised losses on hedging instruments | 9,668 | 102,477 |
| Loan arrangement fees amortised | 378 | - |
| Movement on deferred tax provision | 752 | 1,239 |
| FFO | (1,085) | (335) |
Strategic objectives
The key long term objective for the Company is to continue driving down its vacancy rate and reach a stabilised status in the medium to long term. Vacant units, which generate no rental income, are attributed a much reduced value on a yield based valuation. The core focus of the Manager and the Investment Adviser, therefore, is to reduce the vacancy rates in order to maximise rental income, decrease vacancy costs and enhance the value of the portfolio for the Company's shareholders. To achieve this, the Company will continue with the refurbishment programme and continue the transfer of further units under the direct property management of GOAL as the dedicated property management platform for the Company.
During the first six months of the year, the structural refurbishment programme has progressed significantly. As we enter the closing stages of this programme and the short term negative effects of this diminish, more units have become available which has had a steady positive effect on the vacancy rate. Vacancies have reduced by 0.6% from 30 June 2009. We expect this trend to continue thus reaching a stabilised basis in the medium term. Rental income and FFO should increase as a result of decreasing vacancies.
Over the period, GOAL has taken over the property management of further units. Currently 41% of the units are under the direct property management of GOAL. Due to the extensive handover process, the transition to a dedicated property management platform will be a substantial exercise. Despite this fact, the Manager and the Investment Adviser firmly believe, as a result of past experience, that tighter control of letting activities through a dedicated property manager will ultimately create increased efficiencies, improved rental income and enhanced debt collection.
As mentioned earlier in the report, the Company has commenced a selective asset disposal initiative to help optimise the Company's portfolio. The Manager and the Investment Adviser will continue to monitor market conditions and seek to exploit opportunities advantageous to the Company.
The immediate objective for the Board, the Manager and the Investment Adviser is to continue discussions with the Company's lending banks with a view to securing long term compliance with its loan covenants. The Board and the Manager are confident that a resolution with the Company's lending banks will be concluded in the near term. The Company will ensure that shareholders are updated as and when further information becomes available.
Outlook
The outlook for Germany and its property sector appears positive. Market conditions will remain difficult over the coming months; however there are signals to suggest that an improvement may be in sight. Despite Germany's stagnated GDP growth seen towards the end of 2009, the economy is expected to grow by 1.4% in 2010. Exports rose 3.4% in December 2009 as the global recovery bolstered demand for German goods. According to the ULI, investor interest in German property has increased due to its stability and development prospects. It is with these factors in mind that the Manager and the Investment Adviser continue to believe that Germany remains a unique market and that the German residential market will outperform in the medium to long term.
The discussions presently taking place with SDIC's financing banks will be critical to the future shape of the Company. The Board, the Manager and the Investment Adviser are discussing potential options which may be available to SDIC, such as recapitalising the Company and/or internalising the management, investment advisory and property management functions. It is the intention of the Company and its advisers to discuss these possibilities with key shareholders once the discussions with the financing banks have been concluded.
By following the core strategy, the Manager and the Investment Adviser are confident that the Company will place itself in the best possible position to realise its potential for growth. Through active asset management on multiple fronts, predominately by way of refurbishments and a dedicated property management platform, the Company should reach a stabilised position in the medium to long term. A reduced vacancy should increase FFO and maximise the value of the portfolio for the Company's shareholders.
| Nigel Caine For the Manager Speymill Property Group Limited | Andrew Wallis For the Investment Adviser GOAL service GmbH |
29 March 2010 Consolidated statement of comprehensive income
For the period ended 31 December 2009
|
| Note | (Unaudited) For the period 1 July 2009 to 31 December 2009 | (Unaudited) For the period 1 July 2008 to 31 December 2008 |
|
|
| €'000 | €'000 |
| Rent and related income |
| 75,752 | 75,994 |
| Direct costs |
| (40,767) | (42,300) |
| Gross profit |
| 34,985 | 33,694 |
|
|
|
|
|
| Change in fair value of investment property | 10 | (18,639) | (10,325) |
| Impairment on assets held for sale | 7 | (108) | - |
| Profit on disposal of investment property | 10 | 138 | - |
|
|
|
|
|
| Manager's fees | 19 | (4,747) | (5,410) |
| Professional fees |
| (1,732) | (1,562) |
| Audit fees |
| (105) | (42) |
| Other expenses |
| (1,009) | (758) |
| Administrative expenses |
| (7,593) | (7,772) |
| Results from operating activities |
| 8,783 | 15,597 |
|
|
|
|
|
| Finance income |
| 96 | 1,069 |
| Finance expenses |
| (38,751) | (130,180) |
| Net finance costs | 8 | (38,655) | (129,111) |
|
|
|
|
|
| Loss before taxation |
| (29,872) | (113,514) |
|
|
|
|
|
| Income tax expense: |
|
|
|
| Current |
| (6) | 377 |
| Deferred |
| (752) | (1,239) |
| Loss for the period |
| (30,630) | (114,376) |
| Other comprehensive income |
| - | - |
| Total comprehensive loss for the period |
| (30,630) | (114,376) |
|
|
|
|
|
| Loss attributable to owners of the company |
| (30,630) | (114,376) |
| Total comprehensive loss attributable to owners of the company |
| (30,630) | (114,376) |
| Basic and diluted loss per Ordinary Share (cents) | 14 | (9.09) | (33.93) |
The Directors consider that all results derive from continuing activities.
Consolidated balance sheet
|
| Note | (Unaudited) At 31 December 2009 | (Audited) At 30 June 2009 |
|
|
| €'000 | €'000 |
|
|
|
|
|
| Investment property | 10 | 1,417,898 | 1,455,440 |
| Total non-current assets |
| 1,417,898 | 1,455,440 |
| Trade and other receivables |
| 29,626 | 20,793 |
| Income tax recoverable |
| 112 | 113 |
| Cash and cash equivalents | 9 | 36,240 | 62,155 |
| Assets held for sale | 7 | 20,228 | - |
| Total current assets |
| 86,206 | 83,061 |
| Total assets |
| 1,504,104 | 1,538,501 |
| Equity |
|
|
|
| Issued share capital | 15.1 | 16,857 | 16,857 |
| Share premium |
| 184,992 | 184,992 |
| Distributable reserves |
| 15,117 | 45,747 |
| Other reserves | 15.2 | 2,951 | 2,951 |
| Total equity |
| 219,917 | 250,547 |
| Interest-bearing loans | 12 | 1,138,336 | 1,164,539 |
| Deferred tax liability |
| 752 | - |
| Derivative financial instruments | 11 | 71,501 | 61,833 |
| Total non-current liabilities |
| 1,210,589 | 1,226,372 |
| Trade and other payables |
| 27,102 | 24,401 |
| Provisions for refurbishments |
| 12,655 | 23,349 |
| Interest-bearing loans | 12 | 18,180 | 13,832 |
| Liabilities directly associated with assets classified as held for sale |
7 |
15,661 |
- |
| Total current liabilities |
| 73,598 | 61,582 |
| Total liabilities |
| 1,284,187 | 1,287,954 |
| Total equity and liabilities |
| 1,504,104 | 1,538,501 |
| Net asset value per Ordinary Share (cent) | 13 | 65.23 | 74.32 |
Consolidated statement of changes in equity
|
| Share capital | Share premium | Retained earnings | Other reserves | Total shareholders' funds |
|
| €'000 | €'000 | €'000 | €'000 | €'000 |
| Balance at 1 July 2009 (audited) | 16,857 | 184,992 | 45,747 | 2,951 | 250,547 |
| Total comprehensive income for the period |
|
|
|
|
|
| Loss for the period | - | - | (30,630) | - | (30,630) |
| Other comprehensive income | - | - | - | - | - |
| Balance at 31 December 2009 (unaudited) | 16,857 | 184,992 | 15,117 | 2,951 | 219,917 |
|
|
|
|
|
|
|
Consolidated statement of cash flows
|
| (Unaudited) For the period 1 July 2009 to 31 December 2009 |
| (Unaudited) For the period 1 July 2008 to 31 December 2008 |
|
| €'000 |
| €'000 |
| Operating activities |
|
|
|
| Loss before taxation | (29,872) |
| (113,514) |
| Adjustments for: |
|
|
|
| Profit on disposal of investment property | (138) |
| - |
| Finance income | (96) |
| (1,069) |
| Finance expenses | 38,751 |
| 130,180 |
| Change in fair value of investment property Impairment on assets held for sale | 18,639 108 |
| 10,325 - |
| Operating profit before changes in working capital and provisions | 27,392 |
| 25,922 |
| (Increase)/decrease in trade and other receivables | (7,944) |
| 13,583 |
| Increase/(decrease) in trade and other payables | 2,701 |
| (3,998) |
| Cash flows from operations | 22,149 |
| 35,507 |
| Interest paid | (28,705) |
| (27,704) |
| Interest received | 96 |
| 1,069 |
| Income tax paid | (5) |
| (35) |
| Net cash (used in)/generated from operating activities | (6,465) |
| 8,837 |
|
|
|
|
|
| Investing activities |
|
|
|
| Acquisition of investment property | (2,184) |
| (16,763) |
| Movement in refurbishment provision | (10,694) |
| (12,085) |
| Proceeds from disposal of derivative financial instruments | - |
| 401 |
| Net cash used in investing activities | (12,878) |
| (28,447) |
|
|
|
|
|
| Financing activities |
|
|
|
| Repayment of interest-bearing loans | (6,572) |
| (20,826) |
| Net cash used in financing activities | (6,572) |
| (20,826) |
| Net decrease in cash and cash equivalents | (25,915) |
| (40,436) |
| Cash and cash equivalents at beginning of period | 62,155 |
| 103,350 |
| Cash and cash equivalents at end of period | 36,240 |
| 62,914 |
Notes to the consolidated interim financial statements
1. The Company
Speymill Deutsche Immobilien Company plc (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man Companies Act 1931-2004 on 1 March 2006 as a public company with registered number 115746C.
The consolidated interim financial statements of the Company as at and for the six months ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as the "Group"). The consolidated interim financial statements are unaudited.
At the end of the period, the Company owns 100% of the shares in 100 Isle of Man incorporated property-owning companies and 1 Cayman incorporated intermediate holding company.
The consolidated financial statements of the Group as at and for the year ended 30 June 2009 are available upon request from the Company's registered office at Clinch's House, Lord Street, Douglas, Isle of Man, IM99 1RZ or at www.speymilldeutsche.com.
2. Basis of preparation
Statement of compliance
These consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 30 June 2009.
These consolidated interim financial statements were approved by the Board of Directors on 29 March 2010.
Basis of measurement
The consolidated interim financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position:
·; Derivative financial instruments are measured at fair value; and
·; Investment property is measured at fair value.
Going concern
These consolidated interim financial statements have been prepared on a going concern basis as it is the view of the Directors that this is the most appropriate basis of preparation to adopt having considered the material uncertainties identified below.
The Group's property portfolios are partly funded by debt facilities. Under the terms of the debt agreements each debt obligation is "ring-fenced" within a discrete group of companies. Further details of the loans are provided in note 12.
Because of the amortisation requirement (applicable to five of the six financing packages), there is a significant risk that the Group will be unable to comply with one of the Debt Service Cover Ratio ("DSCR") covenants set out in one of the Group's debt facilities in future periods. The DSCR covenant is calculated by comparing contractual net operating income against interest and amortisation payable. Increasing net operating income to a level that would satisfy the covenant would necessitate a substantial increase in occupancy or reduction in costs. There is no certainty that either of these improvements can be made in the near term.
There is also a significant risk that the Group will be unable to meet all of its future amortisation requirements out of operational cash flows alone. An element of the amortisation requirement is currently being met from cash reserves and asset disposals. The payment of amortisation is not sustainable and the Board, together with the Manager and the Investment Adviser, is currently in discussions with its lenders with a view to renegotiating the banking facilities and the amortisation burden.
NIBC Bank N.V. is the lead facility agent on the four largest silos totalling €1,158m of debt. On the one silo that was securitised there is an amortisation Loan to Value ("LTV") covenant of 82.5% and a financial LTV covenant of 87.5%. As at 31 December 2009 the LTV on this silo was 80.6%. On the remaining non-securitised silos the amortisation LTV is not applicable at this time and they are only subject to a financial LTV. The financial LTVs on these silos range from 82.5% to 87.5% against the actual LTVs at 31 December 2009 that ranged from 80.3% to 84.9%. The LTV covenant ratios are tested annually and no silos are currently in breach of their LTV covenants.
The Directors believe that the rate of decline in property values over the last eighteen months across Europe, and Germany in particular, is beginning to ease. Whilst property values may not increase immediately management believes that some stabilisation is beginning to occur in real estate markets. Were property values to continue to fall some LTVs could breach their covenants as a result.
On the four largest silos the Interest Cover Ratios ("ICRs") and in one case, the DSCR, are tested on a backward looking twelve month rolling basis. The ICRs on three of the silos are tested on a semi-annual basis and on the remaining silo the ICR and DSCR are tested quarterly. As at 31 December 2009 the ICRs were between 1.15 and 1.33 in the various silos. The Group's ICR financial covenants are between 1.10 and 1.20. The DSCR at 31 December 2009 was 1.15 against a financial covenant of 1.10.
The two smaller silos, amounting to €18m of debt, each have an LTV covenant and a DSCR covenant, both of which are tested annually. As at 31 December 2009, the LTVs were between 65.4% and 65.6% compared against financial covenants of 73.0% on both silos. The DSCR covenants are calculated on a forward looking basis and were between 1.20 and 1.40 as at 31 December 2009. The financial covenants range from 1.14 and 1.22.
ICR covenants are not in breach on any of the financing packages. If however, vacancy levels or costs were to increase there is a considerable risk that some of the ICRs could breach their covenant levels. Significant management time is expended ensuring that asset management activities maximise the interest cover and reduce operational inefficiencies.
In the event that a covenant breach or payment default occurs, resulting in an event of default, and the Group is unable to reach a resolution with the relevant lender, then the risk remains that the lender enforces its security with a consequent loss of net equity.
Due to the "ring-fencing" of the debt facilities and the interest rate swaps, as well as the discussions that have taken place so far with the lenders, the Directors are of the opinion that it remains appropriate to prepare these interim reports on a "going concern" basis.
In assessing the implications of potential covenant breaches, the Directors have also considered:
·; that the lenders to each financing package have the ability to waive any breaches of covenant in relation to their package where the lenders consider it to be in their best interests. The current economic environment has given rise to substantial operating difficulties across most global real estate markets. The packages are each made up of a substantial number of properties requiring active management. In addition, they each retain sufficient interest cover i.e. the ratio of contractual net operating income to interest payable. Typical ICRs (or, where relevant, DSCRs) are between 1.15 and 1.33 as at 31 December 2009, against financial covenants ranging from 1.10 to 1.20; and
·; that, in other cases where the amortisation requirement is not being met by operational cash flows, but where no actual payment default has occurred, discussions have been held with the lenders. In the event that a payment default occurs and no satisfactory waiver or renegotiation of terms is obtained, the risk remains that the lender enforces its security with a consequent loss of net equity.
3. Significant accounting policies
Except as described below, the accounting policies applied by the Group in these consolidated interim financial statements are the same as those applied by the Group in its consolidated financial statements as at and for the year ended 30 June 2009.
Accounting policy for new transaction and event
Non-current assets held for sale
Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.
4. Estimates
The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
In preparing these consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements as at and for the year ended 30 June 2009.
5. Financial risk management
The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 30 June 2009.
6. Operating segments
The Group has one segment focusing on achieving rental income and the potential for capital growth investing in the residential property market in Germany. No additional disclosure is included in relation to segment reporting, as the Group's activities are limited to one business and geographic segment.
7. Non-current assets held for sale
Six properties were presented as assets held for sale at 31 December 2009 following the decision of the Board in November 2009 to sell the assets. The transactions are expected to be completed by the end of March 2010 in accordance with the relevant individual sale and purchase agreements.
As at 31 December 2009, this category comprised assets of €20,228,000 less liabilities of €15,661,000 detailed as follows:
|
| Unaudited 31 December 2009 | Audited 30 June 2009 |
|
| €'000 | €'000 |
| Investment property* | 20,228 | - |
| Bank finance secured on the properties | (15,661) | - |
*Net of impairment loss
The bank finance secured on the properties is interest-bearing and due for settlement within twelve months. There is a first rank mortgage on the above properties securing the bank loan of €16,010,500 (30 June 2009: €16,097,597).
An impairment loss of €107,580 on the remeasurement of two of the properties to the lower of their carrying amounts and fair values less costs to sell has been recognised in the statement of comprehensive income.
8. Net finance costs
|
| Unaudited Period ended 31 December 2009 | Unaudited Period ended 31 December 2008 |
|
| €'000 | €'000 |
| Bank interest income | 96 | 1,069 |
| Finance income | 96 | 1,069 |
| Interest expense | (28,690) | (27,704) |
| Realised loss on derivative financial instruments | - | (869) |
| Unrealised loss on derivative financial instruments | (9,668) | (101,607) |
| Bank charges | (15) | - |
| Amortised financial charges | (378) | - |
| Finance expenses | (38,751) | (130,180) |
| Net finance costs | (38,655) | (129,111) |
9. Cash and cash equivalents
Cash and cash equivalents of €36,240,388 (30 June 2009: €62,155,000) include €8m held on deposit at NIBC Bank N.V. (30 June 2009: €22m), which, under the terms of the bank loans is required to be used solely for property refurbishments.
10. Investment property
|
|
| Unaudited 31 December 2009 | Audited 30 June 2009 |
|
|
| €'000 | €'000 |
| Balance at beginning of period |
| 1,455,440 | 1,475,693 |
| Additions |
| 2,184 | 24,396 |
| Disposal |
| (751) | (220) |
| Transfer to assets held for sale (note 7) |
| (20,336) | - |
| Revaluation loss in period |
| (18,639) | (44,429) |
| Balance at end of period |
| 1,417,898 | 1,455,440 |
The fair value of the Group's investment property at 31 December 2009 has been arrived at on the basis of a valuation carried out at that date by DTZ Zadelhoff Tie Leung GmbH ("DTZ"), independent valuers that are not related to the Group. DTZ have appropriate qualifications and recent experience in the valuation of properties in the relevant locations. The valuation, which conforms to International Valuation Standards, was arrived at by primarily applying a discounted cash-flow analysis to an assessment of the current rental income as well as an estimate of the future potential net income generated by use of the properties supported by comparable recent portfolio transactions on arm's length terms.
Property and property related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations may be subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the valuation date. The performance of the Group would be adversely affected by a downturn in the property market in terms of higher capitalisation rates/yields or a weakening of rent levels. Any future property market recession could materially adversely affect the value of properties.
During the period the Group sold one property resulting in a profit on disposal of €137,925 (period to 31 December 2008: €Nil), being the difference between the carrying value at the beginning of the period and its sales price less selling costs.
Security
At 31 December 2009, there was a first rank mortgage on the above properties securing the bank loan of €1,159,551,774 (30 June 2009: €1,166,036,114).
11. Derivative financial instruments
|
| Unaudited 31 December 2009 |
| Audited 30 June 2009 |
|
| €'000 |
| €'000 |
|
|
|
|
|
| Fair value of interest rate swaps contracts | 71,501 |
| 61,833 |
12. Interest-bearing loans
|
| Unaudited 31 December 2009 | Audited 30 June 2009 |
|
| €'000 | €'000 |
| The interest bearing loans are repayable as follows: |
|
|
| On demand or within one year |
|
|
| Secured bank loans on investment property | 18,180 | 13,832 |
| Secured bank loans on assets held for sale | 15,661 | - |
| In the second to fifth years inclusive | 19,407 | 19,080 |
| After five years | 1,118,929 | 1,145,459 |
|
| 1,172,177 | 1,178,371 |
| Less: Amount due for settlement within 12 months |
|
|
| Secured bank loans on investment property | 18,180 | 13,832 |
| Secured bank loans on assets held for sale | 15,661 | - |
| Amount due for settlement over the remaining period of the loans | 1,138,336 | 1,164,539 |
The Group's interest-bearing loans are carried at amortised cost. As at 31 December 2009, the Group had six secured bank loan facilities amounting to €1.17bn (30 June 2009: €1.18bn) and capitalised loan arrangement fees of €3,401,288 (30 June 2009: €3,779,079). The loan arrangement fees have been deferred over the term of the loans under the amortised cost principle. Each of the Group's interest-bearing debt facilities has been secured by charges on investment properties, rental income, bank accounts, other assets and undertakings within the related financing packages.
NIBC Bank N.V. ("NIBC")
NIBC is the lead facility agent on four of the Group's six financing packages or "silos". The individual silos are detailed below:
Package 1
This silo consists of 13 individual special purpose vehicles ("SPVs"), being Isle of Man limited companies. Each SPV has its own individual loan facility grouped and cross collateralised within this particular silo.
The balance outstanding under this facility at the period-end was €191,650,000 (30 June 2009: €191,650,000). The facility amount at original drawdown was €191,650,000. The interest rate on this loan is fixed at 4.6000% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is fully securitised and therefore not amortising, and is repayable on the repayment date of 30 September 2013.
Package 2
This silo consists of 27 individual special purpose vehicles ("SPVs"), being Isle of Man limited companies. Each SPV has its own individual loan facility grouped and cross collateralised within this particular silo.
The balance outstanding under this facility at the period-end was €400,874,003 (30 June 2009: €403,409,995). The facility amount at original drawdown was €405,745,585. The interest rate on this loan is fixed at 4.6125% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is currently amortising at 1.72% of the original loan amount per annum and is repayable on the repayment date of 15 April 2014.
Package 3
This silo consists of 13 individual special purpose vehicles ("SPVs"), being Isle of Man limited companies. Each SPV has its own individual loan facility grouped and cross collateralised within this particular silo.
The balance outstanding under this facility at the period-end was €212,026,320 (30 June 2009: €213,159,620). The facility amount at original drawdown was €214,292,920. The interest rate on this loan is fixed at 4.5825% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is currently amortising at 1.58% of the original loan amount per annum and is repayable on the repayment date of 15 October 2013.
Package 4
This silo consists of 35 individual special purpose vehicles ("SPVs"), being Isle of Man limited companies. Each SPV has its own individual loan facility grouped and cross collateralised within this particular silo.
The balance outstanding under this facility at the period-end was €353,149,886 (30 June 2009: €356,006,086). The facility amount at original drawdown was €356,006,086. The interest rate on this loan is fixed at 4.9963% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is currently amortising at 1.60% of the original loan amount per annum and is repayable on the repayment date of 31 December 2014.
Deutsche Genossenschafts-Hypothekenbank AG ("DG Hyp")
DG Hyp is the sole lender for two of the Group's six financing packages or "silos". The individual silos are detailed below:
Package 5
This silo consists of 1 individual special purpose vehicle ("SPV"), being an Isle of Man limited company.
The balance outstanding under this facility at the period-end was €9,732,101 (30 June 2009: €9,757,134). The facility amount at original drawdown was €9,807,200. The interest rate on this loan is fixed at 4.6150% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is currently amortising at 1.02% of the original loan amount per annum and is repayable on the repayment date of 31 December 2014.
Package 6
This silo consists of 1 individual special purpose vehicle ("SPV"), being an Isle of Man limited company.
The balance outstanding under this facility at the period-end was €8,129,964 (30 June 2009: €8,150,876). The facility amount at original drawdown was €8,192,700. The interest rate on this loan is fixed at 4.6150% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is currently amortising at 1.02% of the original loan amount per annum and is repayable on the repayment date of 31 December 2014.
13. Net asset value per share
|
| Unaudited 31 December 2009 |
| Audited 30 June 2009 |
| Net assets attributable to Ordinary Shareholders (€'000) | 219,917 |
| 250,547 |
| Ordinary Shares in issue (thousands) | 337,131 |
| 337,131 |
| Net asset value per Ordinary Share (in cents) | 65.23 |
| 74.32 |
14. Basic and diluted loss per Share
Basic and diluted loss per Ordinary Share is calculated by dividing the loss attributable to the Ordinary Shares by the number of Ordinary Shares in issue during the period.
| Basic and diluted loss per share | Unaudited 31 December 2009 |
| Unaudited 31 December 2008 |
| Loss attributable to Ordinary Shareholders (€'000) | (30,630) |
| (114,376) |
| Weighted average Ordinary Shares in issue for the period to 31 December (thousands) | 337,131 |
| 337,131 |
| Basic and fully diluted loss per Ordinary Share (cents per share) | (9.09) |
| (33.93) |
There is no difference between the basic and diluted loss per share for the current or preceding period as the exercise of options would be anti-dilutive.
15. Capital and reserves
15.1 Share capital
| Ordinary Shares of €0.05 each | Number |
| €'000 |
| In issue at the start of the period | 337,130,528 |
| 16,857 |
| In issue at 31 December 2009 | 337,130,528 |
| 16,857 |
|
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|
|
|
The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.
15.2 Other reserves
|
|
|
|
|
|
|
|
| Capital redemption reserve | Share option reserve | Total |
|
|
| €000 | €'000 | €'000 |
| Balance at 1 July 2009 |
| 1,925 | 1,026 | 2,951 |
| Balance at 31 December 2009 |
| 1,925 | 1,026 | 2,951 |
The capital redemption reserve was established on cancellation of shares purchased in the open market.
The share option reserve represents the fair value of options granted to the broker on admission to trading on AIM.
16. Dividends
No dividend was declared or paid during the period (31 December 2008: €Nil).
17. Contingent liabilities and commitments
No commitments had been entered into as of the reporting date.
In November 2009, the Group settled the case brought against GOAL service GmbH ("GOAL") by Marktblick for €10,000. The matter related to a claim for outstanding agents' commissions of up to €200,000 in respect of certain property transactions that were carried out subsequent to their initial introduction by Marktblick.
18. Post balance sheet events
Since period end, the Group has reclassified a further eight properties to assets held for sale with a carrying value of €8,046,000 at 31 December 2009. These sales are currently under negotiation with potential buyers.
19. Related party transactions
Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the other party in making financial or operational decisions.
The Manager is considered a related party. Management fees payable to the Manager during the period amounted to €3,983,995 (31 December 2008: €4,549,661).
GOAL service GmbH ("GOAL") (the Investment Adviser) is related to the Manager and performs property management services. Management fees payable to GOAL for the period amounted to €763,079 (31 December 2008: €860,691). In addition, property management fees payable to GOAL for the period amounted to €5,267,800 (31 December 2008: €4,994,100).
GOAL reporting service GmbH ("GRS") is also related to the Manager and performs bookkeeping services. Bookkeeping fees payable to GRS for the period amounted to €503,222 (31 December 2008: €498,000).
GOAL construction GmbH ("Goal construction") is also related to the Manager and performs project management services. Construction project management fees payable to Goal construction for the period amounted to €697,212 (31 December 2008: €947,899).
ZELOS Forderungsmanagement GmbH ("Zelos") is also related to the Manager and performs collection enforcement services. Fees payable to Zelos for the period amounted to €746,493 (31 December 2008: €Nil).
The Manager held 646,314 Ordinary Shares in the Company as at 31 December 2009 (30 June 2009: 646,314 Ordinary Shares). In addition, key employees of the Manager, or closely related parties of the Manager held or were interested in 38,483,017 Ordinary Shares in the Company as at 31 December 2009 (30 June 2009: 38,098,964 Ordinary Shares).