Last checked at 30 Jul 2010 13:15
30 July 2010
Speymill Deutsche Immobilien Company plc
("SDIC" or "the Company")
Trading Update
Speymill Deutsche Immobilien Company plc (AIM: SDIC), the pan-German residential property investment company listed on AIM, announces the following update in relation to its results for the year ended 30 June 2010.
On 17 June 2010, the Company announced that, as a result of a loss on property sales, swap breakage costs, a temporary pause in the Company's disposal programme as well as the costs associated with restructuring, it expected an FFO (funds from operations) loss of approximately €5.5m for the financial year ended 30 June 2010.
As previously announced, the Company's investment adviser, GOAL services GmbH ("GOAL") has recently taken over the direct management of further property units resulting in an increase in directly managed property units from 41% of the property portfolio, as reported in SDIC's interim results for the six months ended 31 December 2009, to a current level of 76% of the property portfolio. This has been a significant exercise, representing a further 499 buildings coming under the direct management of GOAL spread across the whole of Germany. This also reduces the number of outsourced property management providers from five, as at 31 December 2009, to the current level of three. One of the purposes of having the direct management responsibility is to eliminate third party property manager fees and achieve future economies of scale. In addition, service levels have improved (resulting in a reduction in churn rates from a peak of 16.9% in October 2009 to 14.9% in May 2010) and this underpins operational improvements, most notably increased recovery levels for rental income and service charges.
However, full integration of these portfolios takes a number of months. In analysing the underlying data on the units most recently brought under direct management, GOAL has found that the bad debt profile of these units is significantly older than previously anticipated. The Company is entitled to legal remedy for underperformance by the sub-contracted property managers and is currently investigating the options available to it but recognises that such service providers may not be in a financial position for such action to provide a financial remedy. The Company's cash flow forecasts do not currently include any recovery of these bad debts and, therefore, should GOAL be able to recover some of these bad debts, it would have a positive impact on the cash position. However, at this stage, the Board feels it is necessary to make an additional substantial provision in relation to these bad debts but this will not effect the Company's current cash position.
Accounting for this provision, together with a further provision in relation to an element of rental guarantees that is now considered doubtful and additional fund level expenses in relation to the current restructuring process, the Company is now expected to make an FFO loss of approximately €12.5m for the financial year ended 30 June 2010.
Further, in accordance with IFRS, the Company is required to mark its interest rate swaps to market at each balance sheet date, irrespective of the intentions of the Company to hold the outstanding swaps to maturity or not (the maturity dates for the swaps being between September 2013 and December 2014). It is important to note that until such swaps crystallise as a result of early termination by the Company, for example, as a result of a sale of assets or through a reorganisation of financing arrangements, the income statement movements which result from the swap revaluations, will not have any cash effect on the Company.
The net present value of the swaps is calculated using the forward spot rate as at the date of maturity and the 3 to 4 year Euribor spot rates have declined significantly over the past 6 months. As a result, the accounting value of the swaps as at 30 June 2010 is expected to be negative, with the corresponding loss on the Company's income statement for the year, as a result of the change in value, expected to be approximately EUR40.6 million. Clearly, any further interest rate movements prior to the maturity of the swaps will result in further changes in value and the corresponding profits or losses will again be recognised in future income statements.
For more information, please visit http://www.speymilldeutsche.com or contact:
| SMP Partners 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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| Gillian McCarthy |
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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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Notes to Editors:
Speymill Deutsche Immobilien Company plc is a pan-German residential property investment company, which listed on the AIM market of the London Stock Exchange in March 2006, raising £170 million. In May 2007, SDIC raised a further €250 million through a C share placing. The Euro denominated fund aims to provide investors with an attractive level of income together with the prospect for long-term capital growth.
The German residential market is viewed as attractive to investors due to a number of factors including rising German economic activity and productivity, and the availability of assets at below replacement cost. Acquired properties should, through active management, also have the potential for increased rental rates and accordingly improved capital values and increased yield.