Last checked at 12 Jul 2010 07:00
Sirius Real Estate Limited
("Sirius" or "the Company")
Notice of Requisitioned EGM and EGM Circular
Summary
On 9 July 2010 the Company issued a circular to shareholders in relation to the requisitioned EGM announced on 21 June 2010 which sets out the proposed resolutions and explains why the Board strongly recommends that Shareholders vote against all of the requisitioned resolutions.
EGM requisition
The Company received a requisition notice on 18 June 2010 (the "Requisition") sent on behalf of Weiss Asset Management LP (the "Requisitioner"). The Requisition sets out ordinary resolutions 1-5 for the removal as Directors of the Company of Dick Kingston (Non-Executive Chairman) and Walter Hens (Non-executive Director), and for the appointment as Directors of Rolf Elgeti, Michael Neubürger and Eitan Milgram (the "Requisitioned Resolutions"). The Requisitioner is interested in 20.7 per cent. of the Company's issued share capital.
Board Recommendation
The Board unanimously recommends that Shareholders vote AGAINST all of the Requisitioned Resolutions. The Board considers the Requisitioned Resolutions to be directly against the best interests of the Company and its Shareholders as a whole.
·; The Board still expects to deliver continued improvement over 2010 and 2011 and is pleased to announce its June 2010 trading update. As announced at the full year results, during April and May the Company achieved new lettings of 20,556 sqm. In June, the Company continued this good progress with new lettings of 15,218 sqm taking total lettings for Q1 to 35,774 sqm (2009 Q1: 15,008 sqm), with net lettings of circa 15,000 sqm for Q1 2010. As a result, the sales performance in 2010 has created a good base towards achieving the Group's occupancy targets even after taking into account known moveouts. The improved momentum behind the business continues with both sales enquiry levels and website traffic remaining strong.
In light of the recent improvements in the trading performance of the Company under its current management, the Board believes that now is a highly inappropriate time to change the composition of the Board.
·; Neither the Requisitioner, nor the proposed new Directors, have properly communicated to the Company how the appointment of the proposed new Directors would result in a new strategy for the Company, with a clear plan for delivery, that would result in superior value for shareholders compared to the actions currently being undertaken by your existing Board.
·; Further, the Board believes that the Requisitioned Resolutions, if passed in full or in part, would have adverse consequences for Shareholders if the Takeover Code no longer applied to the Company and that there are potential negative tax implications in certain circumstances.
·; The Board also believes that the serving of the Requisition itself, through the uncertainty and distraction to the Board that it may cause, and on account of the cost involved, is an act which damages the interests of Shareholders.
For these reasons, the Board is proposing to hold the Requisitioned General Meeting as soon as reasonably practicable in order that, if the Requisitioned Resolutions are rejected, the Board may concentrate without distraction on delivering further value to Shareholders as soon as possible. The requisitioned EGM will be held at the offices of Intertrust Fund Services (Guernsey) Limited at Martello Court, Admiral Park, St Peter Port, Guernsey, GY1 3HB, Channel Islands on 30 July 2010 at 9 a.m.
Dick Kingston, Chairman of Sirius Real Estate, said: "It is clear to the Board that voting against these resolutions is in the best interests of all shareholders. The rationale for the requisition resolutions is not clear and they were made to the Company following the announcement of a positive trading performance on June 8 2010. Today, the Company has confirmed the continued positive lettings progress during Q1 of the current financial year, which I believe further underlines the importance of voting against these resolutions and allowing the management team to focus on exploiting the benefits of the structural and operational changes made at the end of 2009, which support the current lettings momentum, and will also deliver important efficiencies in the current and following financial years."
Enquiries:
Principle Capital Sirius Real Estate Asset Management Limited
Kevin Oppenheim, CEO 020 7632 4130
Alistair Marks, CFO
J.P. Morgan Cazenove
Robert Fowlds 020 7588 2828
Bronson Albery
Cardew Group
Tim Robertson 020 7930 0777
Catherine Maitland
The following is extracted from the Chairman's letter to shareholders in the Circular:
Recent trading performance of the Company
Full year results
Commenting on the full year results on 8 June 2010, Dick Kingston, Chairman of the Company said, inter alia, the following:
"The first nine months of the period under review were challenging for the business, however the last quarter saw a number of structural and operational changes, designed to improve performance, implemented across the business. The initial indications from these have been very positive, but it is anticipated that the full benefit will not be seen until the next financial year1. Sirius's improved penetration into the existing market is the key factor behind the improved sales performance during the last quarter. The management team remains focused on driving occupancy and efficiency through the existing portfolio, initially towards and past 80%, and looks forward to providing an update on its initiatives during the remainder of 2010."
1Refers to the financial year commencing 1 April 2010.
On 8 June 2010, the Company published its final results for the year ended 31 March 2010. Gross rental income for the year was EUR44.0m (2009: EUR43.7m). As at 31 March 2010, the annualised gross rent roll was EUR41.9m (2009: EUR42.0m), over a total lettable area of 1.15m sqm (2009: 1.1m sqm). As at 31 March 2010 occupancy was 71.4% (31 March 2009: 74.0%). This reflected an encouraging recovery from 1 January 2010, when occupancy stood at 68.5%.
The Company confirmed that with the initial development phase now complete it is focusing on increasing occupancy and driving cost efficiencies and recoverability in costs, under the direction of the recently appointed CEO of Sirius Facilities GmbH, Andrew Coombs. Total employee headcount was reduced from 182 to 152, whilst doubling the size of the lettings team; these actions are expected to lead to an annual cost saving of €1m in the year ending March 2011 and resulted in a strong increase in lettings during Q4. Sales enquiries have increased from 437 per month over Q1 to Q3 to 847 per month in Q4. Similarly, website traffic is averaging 8,000 hits per month in Q4 up from 6,000 per month in the previous periods. Further measures relating to improved tenant leases, more efficient metering of utilities and optimisation of facility management are all expected to flow through to an enhanced financial performance over the latter part of this financial year and into the next financial year.
As at 31 March 2010, the portfolio was valued independently by DTZ Zadelhoff Tie Leung GmbH at EUR500m (31 March 2009: EUR500.4m). The adjusted net asset value per share, which excludes the provisions for deferred tax and derivative financial instruments, was 73.6c as at 31 March 2010 (31 March 2009: 83.5c).
Background to Dick Kingston and Walter Hens
The Board believes Dick Kingston has been instrumental in guiding the business through a successful flotation and more recently steering the business during a very challenging period for all property companies. That the Company has now entered another period of renewed growth is certainly in large part due to his leadership as Chairman. His experience gained from 19 years at Slough Estates, latterly as Finance Director, a leading European property developer of business parks quoted on the main market of the London Stock Exchange, has meant he is ideally qualified for the role of Chairman of the Company.
In February 2010, Walter Hens was appointed as a Non-Executive Director of the Company. Walter's recent appointment added further significant experience of the German real estate market to the Group. He has over 37 years' experience in the European real estate sector, including 20 years with SEGRO Plc where he most recently held the positions of European Managing Director, and Group Executive Director. Walter was responsible for SEGRO's European operations from 2003 to 2007 during which time the company built up a major pan-European portfolio, including a number of major acquisitions in Germany. Walter has already proven to be a valuable addition to the Board, in the short time he has been with the Company.
Effect of the Requisitioned Resolutions on the application of the City Code on Takeovers and Mergers
As an AIM quoted company, which is incorporated in Guernsey, the City Code on Takeovers and Mergers (the "Code") only applies to the Company if the Panel on Takeovers and Mergers (the "Panel") determines that the place of central management and control of the Company is in Guernsey, Jersey, the Isle of Man or the UK. The Company has received confirmation from the Panel that the Code currently applies to the Company because the place of central management and control of the Company is in Guernsey. The Panel has indicated to the Company that an important factor in determining that the place of central management and control of the Company is in Guernsey, Jersey, the Isle of Man or the UK (and therefore that the Code applies) is whether a majority of the Directors of the Company are resident in the UK, Jersey, Isle of Man or Guernsey.
The Board currently comprises a majority of UK and Guernsey resident Directors, being Dick Kingston (UK), Chris Fish (Guernsey) and Robert Sinclair (Guernsey).
The Panel has further confirmed that, were all of the Requisitioned Resolutions to be passed, it is highly likely that the Code will no longer apply to the Company because with only two Guernsey resident Directors and no UK, Isle of Man or Jersey resident Directors on a board of six directors, the Panel is unlikely to view the place of central management and control of the Company as being in Guernsey, Jersey, Isle of Man or the UK.
In addition, the Panel has confirmed that if some but not all of the Requisitioned Resolutions are passed, and the result is that the Board comprises a minority of UK, Isle of Man, Jersey or Guernsey resident directors, it is highly likely the Panel will take the view that the Code will no longer apply to the Company. The Panel has further confirmed that if the result of the Requisitioned Resolutions is that the Board comprises an equal number of Guernsey and UK, Isle of Man, Jersey or Guernsey resident directors and an equal number of non-UK or Isle of Man, Jersey or Guernsey resident directors, it is also possible that the Panel will take the view that the Code will no longer apply to the Company.
The country of residence of the current Directors is as follows:
·; Dick Kingston (UK)
·; Christopher Fish (Guernsey)
·; Walter Hens (Belgium)
·; Brian Myerson (Switzerland)
·; Robert Sinclair (Guernsey)
The country of residence of the proposed Directors the subject of the Requisitioned Resolutions is as follows:
·; Rolf Elgeti (Germany)
·; Michael Neubürger (Germany)
·; Eitan Milgram (United States of America)
The Board believes that it would not be in the best interests of the Company or its Shareholders for the Code, which has been designed to ensure equivalent treatment of all Shareholders, to no longer apply to the Company.
If under the Code, all or some of the Requisitioned Resolutions are passed, the Board intends to seek confirmation from the Panel as to the application of the Code to the Company and will announce the Panel's decision following receipt of such confirmation.
In addition, if a single Shareholder acquires more than 25% of the issued share capital of the Company then this could, in certain circumstances, cause the underlying subsidiaries to lose a pro-rata proportion of their German tax losses. A shareholding of more than 50% could in certain circumstances result in a loss of all German tax losses. As at 31 March 2010 the Company and its subsidiaries had German tax losses of €53,995,447. The Board believes that a loss of tax losses could materially impact on returns to Shareholders and if the Code no longer applies to the Company this could increase the risk of Shareholders increasing their shareholdings in the Company which could in certain circumstances result in the loss of tax losses without that Shareholder being required to make a mandatory offer to other Shareholders under the Code.
Effect of the Requisitioned Resolutions on the tax position of the Company
In order to support its status as a Guernsey resident company, the Board currently has two Guernsey Directors and no more than one director in any other territory. Whilst the Board composition does not, of itself, determine tax residency it is, along with other factors such as the location of board meetings, one of the initial factors that tax authorities would consider when assessing tax residency. The replacement of existing UK and Belgian Directors with two German Directors could increase the chances that the German tax authorities may review the tax residency of the Company and its subsidiaries. A successful challenge by the German tax authorities would be expected to materially increase the overall effective tax rate of the Company and its subsidiaries.
Proposed terms of appointment of the proposed Directors
The Requisitioner has informed the Company that the proposed Directors should be remunerated no differently than the Company's other Non-Executive Directors.
Relationship of the proposed Directors with Weiss
Corporate governance guidance for AIM companies published by the Quoted Companies Alliance states that a company quoted on AIM should have at least two independent non-executive directors (one of whom may be the chairman) and that the board should not be dominated by one person or group of people. Furthermore, the "Note For Investing Companies" contained in the AIM Rules states that the London Stock Exchange expects the board of directors of investing companies as a whole to be independent of any substantial shareholders or investments (and any associated investment manager) comprising over 20% of the gross assets of the company.
In terms of the current composition of the Board, only Brian Myerson as Chairman of Principle Capital Sirius Real Estate Asset Management, the Company's investment manager, is deemed not to be an independent director.
The Board is of the view that Eitan Milgram would not be independent given his position as Executive Vice President of the Requisitioner (given that it is a substantial shareholder of the Company).
The following are the connections, known to the Board, between the other proposed Directors and the Requisitioner:
·; Rolf Elgeti is a Non-Executive Director of Treveria plc (which invests in German commercial real estate) of which the Requisitioner is a 25.8% shareholder (although the Board notes that his appointment as a Director preceded the Requisitioner being a substantial shareholder in Treveria plc).
·; Michael Neubürger is CEO of TAM GmbH, which is a 100%-owned subsidiary of Treveria plc (linked to the Requisitioner as described above).
The Requisitioner has confirmed to the Board in writing that it considers Rolf Elgeti and Michael Neubürger to be independent of the Requisitioner.
If the Requisitioned Resolutions were passed, the Board believes that it will be less independent than it currently is, with two non-independent Directors rather than one.
Conclusion
In light of the recent improvements in the trading performance of the Company under its current management, the Board believes that now is a highly inappropriate time to change the composition of the Board. Further, the Board believes that the Requisitioned Resolutions, if passed in full or in part, would have adverse consequences for Shareholders if the Code no longer applies to the Company and that there are potential negative tax implications in certain circumstances as outlined above. The Board also believes that the serving of the Requisition itself, through the uncertainty and distraction to the Board that it may cause, and on account of the cost involved, is an act which damages the interests of Shareholders.
For these reasons, the Board is proposing to hold the Requisitioned General Meeting as soon as reasonably practicable in order that, if the Requisitioned Resolutions are rejected, the Board may concentrate without distraction on delivering further value to Shareholders as soon as possible.
Neither the Requisitioner, nor the proposed new Directors, have properly communicated to the Company how the appointment of the proposed new Directors would result in a new strategy for the Company, with a clear plan for delivery, that would result in superior value compared to the actions currently being undertaken by your existing Board.
Summary
·; The Board unanimously believes it is acting in the best interests of ALL Shareholders. The Board made clear to the market on 8 June 2010 that it is expecting improved financial results over the course of the current financial year. The timing of the Requisition is therefore highly inappropriate. The Board has ensured that the Company's management team remains focussed on the running of the Company's business, however, the serving of the Requisition risks distracting the attention of the Board.
·; The Board further believes that if the Code ceased to apply to the Company this would result in a significant loss of protection for the Shareholders.
·; There is a lack of clarity as to the reasons for the Requisition and the intentions of the Requisitioner and/or the Requisitioner's proposed Directors.
·; All current Directors recommend that Shareholders vote AGAINST the Requisitioned Resolutions 1 to 5.