Final Results

RNS Number : 0737K

Treveria PLC

13 April 2010

 

13 April 2010

Treveria plc

("Treveria" or the "Company")

 

Full year results

 

Treveria plc (AIM: TRV), the German retail focused real estate investment company, today announces its results for the year ended 31 December 2009.

 

Financial Summary:

§ Property assets of €1.84 billion as at 31 December 2009 compared to €2.02 billion at the same time last year and flat against a valuation of €1.84 billion at 30 June 2009

§ Gross rental income for the year was €145.1 million (30 June 2009: €71.9 million; 31 December 2008: €155.1 million) while net rental income was €112.9 million (2008: €122.8 million)

§ Adjusted* profit before tax was €13.3 million (2008: €23.4 million)

§ Loss before tax for the year was €165.1 million (2008: €323.8 million)

§ Basic and adjusted** EPS were a loss of 27.5c and a profit of 1.4c, respectively (2008: loss of 51.0c and a profit of 3.4c, respectively)

§ The adjusted NAV*** per share of the Group was 34.6c compared to 61.8c at 31 December 2008

§ The average net yield of the portfolio as at 31 December 2009 was 7.2% (31 December 2008: 6.9%) rising to 7.8% (31 December 2008: 7.5%) on a fully let basis

§ Cash balances of €82.7 million (2008: €81.4 million) held by the parent company at 31 December 2009

§ Special dividend of 4c per share paid to shareholders on 19 February 2010 reducing the cash balance by €24.2 million

§ Net LTV ratio (net debt against property assets) was 85.4% (2008: 78.9%).

 

Operational Highlights:

§ €6.3 million of property sales were completed during 2009 (2008: €76.2million) giving rise to a gross profit before taxation of €1.2 million (2008: €3.9million) after allowing for sales costs

§ Internalisation of the asset and property management functions to give Treveria Asset Management GmbH ("TAM") first- hand responsibility for the letting of the Group's investment properties

§ 293 new leases and lease extensions secured during the year, of which 155 were agreed during the second half. In total these generated an annual rental income of €9.4 million.

 

*Adjusted profit before tax excludes the charge for real estate transfer tax in 2008, revaluation movement, profits on the disposal of investment properties and related costs, strategic review and management reorganisation costs and movements on the fair value of derivative financial instruments.

 

**Adjusted EPS excludes the charge for real estate transfer tax in 2008, revaluation movement, profits on the disposal of investment properties and related costs, strategic review and management reorganisation costs, movements on the fair value of derivative financial and deferred tax.

 

***Adjusted NAV per share excludes derivative financial instruments and deferred tax on revaluation surpluses.

 

Commenting on the results, Josef Raucher, chairman of Treveria PLC said: "2009 was a challenging year in the real estate market and we are encouraged by the fact that the stabilisation of asset values which started in the second half continued into the New Year. Our main objectives in 2010 are to enhance the quality and value of our property portfolio and improve the performance of our asset management activities, in order create value over the longer term as well as to restructure our debt arrangements and improve the Group's financing.

 

"We intend to continue to analyse the portfolio and decide how best to proceed once an assessment has been made on an individual property or properties. In the cases of any assets which are deemed to be ex-growth, this may result in either the sale of properties, or their redevelopment or refurbishment, allowing us to achieve higher rents and/or better sales prices in the future. At the same time we intend to leverage our portfolio of 440 retail assets to both improve and expand our network of relationships with large tenants and to improve performance by leveraging the economies of scale. This might include negotiating cost reductions by contracting with suppliers of services such as electricity, gas and insurance on a group basis.

 

"As a result of the improving sentiment in the market and the stabilization and, in some cases, improvement in values, combined with our planned asset management achievements, we hope to be able to move one silo out of cash trap in 2010 and to obtain extensions to of all of the loans in silos C,D and E which are due to mature in 2011.

 

"With all the measures we are taking, I am confident that we will stabilise Treveria´s position with the banks, secure in-depth relationships with our tenants and regain market recognition as a leading investor and manager of German retail real estate assets."

 

For further information:

Treveria plc Josef Raucher	+44 (0)20 7960 6525
Treveria Asset Management Michael Neubuerger	+44 (0)20 7960 6525
Numis Securities (NOMAD) Nick Westlake/Hugh Jonathan	+44 (0)20 7260 1000
Financial Dynamics Richard Sunderland / Laurence Jones	+44 (0)20 7831 3113

 

CHAIRMAN'S STATEMENT

This is the first Annual Report since I was invited to join the Board and became chairman in January this year. I would therefore like to take this opportunity to express my thanks to the directors, management and staff for their hard work over the last year.

 

2009 was a challenging year for the Group, as it was for the real estate industry as a whole. It was also the Group's first full year of business following the restructuring caused by the Dawnay Day collapse and, as a result, building a more stable and long term operational infrastructure was a clear priority. Amid this reorganization, the Group internalised the asset management function of its portfolio, part of which included taking over the responsibility for lettings from Cushman & Wakefield. Due to the general global economic climate, the market for retail property investment was weak. With only relatively few transactions being completed, it was therefore often difficult to assess the true inherent value of properties. However, against this difficult backdrop, we managed to stabilize Treveria's gross rent roll in the second half of 2009.

 

In 2010 we plan to continue to build the Treveria team into a more professional real estate organization and generally to enhance the quality and impact of the asset management team. Our clear focus is to both stabilize the relationship and improve the communication with all our stakeholders in the business, including our shareholders, lenders and tenants. At the same time, we intend to adopt a more proactive, 'back to basics' approach to asset management.

 

RESULTS

At this point I want to mention the situation regarding German Real Estate Transfer Tax ("RETT"). I will explain later in my statement how this situation arose and what we are doing about it but, as it was an event that arose as a result of a transaction in 2008, it has been necessary to restate the 2008 results. The following 2008 comparative figures have therefore been amended to reflect that fact.

 

At 31 December 2009 the parent company held cash balances of €82.7 million (2008: €81.4 million) before payment of a dividend of €24.2 million in February 2010. At the same time, the Group's net LTV ratio (net debt against property assets) was 85.4% (2008: 78.9%).

 

Gross rental income for the year was €145.1 million (2008: €155.1 million). Net rental income for the year was €112.9 million (2008: €122.8 million). Irrecoverable service charge expenditure represented 8.6% of gross rents against 4.8% for 2008.

 

Loss before tax for the year was €165.1 million (2008: €323.8 million). The adjusted profit before tax, which excludes the charge for real estate transfer tax in 2008, revaluation movement, profits on sales of properties, fair value movements on interest rate hedging and accelerated finance costs on the sale of properties, was €13.3 million (2008: €23.4 million).

 

Basic and adjusted EPS were a loss of 27.5c and a profit of 1.4c respectively (2008: loss of 51.0c and a profit of 3.4c, respectively). Adjusted EPS excludes the charge for real estate transfer tax, revaluation movement, profits on sales of properties, fair value movements on interest rate hedging and accelerated finance costs on the sale of properties and deferred tax.

 

€6.3 million of property sales were completed during 2009 (2008: €76.2million) giving rise to a gross profit before taxation of €1.2 million (2008: €3.9million) after allowing for sales costs.

 

REAL ESTATE TRANSFER TAX

In last year's Annual Report we explained how the Group had extracted itself from the arrangements previously existing with the Dawnay Day Group. This was finalised in December 2008 when a number of different agreements and transactions were completed.

 

We announced to shareholders in November 2009 and gave an update as part of the Trading Statement issued in February 2010 that, as a result of the restructuring, a potential tax liability had arisen in one of the Group's subsidiary companies, Treveria Holdings Sarl. The potential liability relates to German RETT. Any assessment to RETT as a result of this transaction will be payable by Treveria Holdings Sarl.

 

The amount of the assessment will be calculated by the German tax authorities (generally at the rate of 3.5%, except in Berlin and Hamburg where a rate of 4.5% applies) on a specially computed value of the properties at the time of the transaction. The basis for this computation is laid down by statute. While we have made a provision of €40.2 million in the consolidated financial statements (which we believe is sufficient to cover this liability of Treveria Holdings Sarl) our legal advisors inform us that, in the event that the tax was deemed to be payable, the likelihood of the authorities having any actual recourse to the assets of Treveria plc is remote.

 

The matter is not yet resolved and discussions continue with the German Tax authorities. The Group is investigating all methods of mitigating any RETT liability.

 

In addition, all avenues are being explored to examine, in the event any RETT is ultimately payable, whether recovery or compensation can be sought from any third parties.

 

DIVIDEND

It was announced in the Interim Statement that the Board intended to distribute surplus cash to shareholders and it was intended that this would amount to 10c per share.

 

Following the discovery of the RETT liability, the board decided to reassess the position and announced in January 2010 that the distribution would be limited, at that stage, to 4c per share. This was paid to shareholders as a special dividend on 19 February 2010. The total cost of the dividend amounted to €24.2 million. As part of our ongoing focus on maximising shareholder value, the Board will continue to assess Treveria's dividend policy going forward.

 

INVESTMENT MARKET

The turbulence in global financial markets gave rise to a very slow first half of 2009 for real estate investment activity in all markets, including Germany. However, clear signs of improvement were noted in the second half of the year and we believe that our year-end valuation, when compared to that of June 2009, supports this. In addition, the Group's valuers have noted a slight increase in liquidity in the market, which allows for more transaction-evidenced valuations to be made, as opposed to the more sentiment-based approach that had to be taken in late 2008 and early 2009.

 

This upturn in activity can be attributed to a number of factors including the increase in availability of financing in the market and the growing number of purchasers prepared to acquire properties under the improving market conditions. We believe that while there is still a degree of uncertainty in the market, particularly with respect to short term occupancy and consumer sentiment, investors are becoming increasingly comfortable with the longer term positive outlook for the German retail market.

 

REVALUATION AND NET ASSET VALUE

As at 31 December 2009, the Group's property portfolio was valued by DTZ Debenham Tie Leung Limited at €1.84 billion. This represents a net deficit of €174.5 million, as compared to the 31 December 2008 valuation. While there was an overall downward valuation movement of about 8.7% over the year, I am pleased to say we saw a small increase in the valuation of the portfolio in the second half, in line with my earlier comments.

 

The adjusted net asset value per share of the Group was 34.6c compared to 61.8c as at 31 December 2008. The average net yield of the portfolio as at 31 December 2009 was 7.2% (31 December 2008: 6.9%) rising to 7.8% (31 December 2008: 7.5%) on a fully let basis.

 

PROPERTY ACQUISITIONS AND DISPOSALS

The Group did not acquire or enter into any new contracts to acquire property during 2009. In a very challenging year for the Group, a small amount of disposals have been possible. Over 2009, the Group notarised contracts to sell three properties for a gross consideration of €6.3 million, equivalent to a small premium over the 31 December 2008 book value. These sales all completed during the period and gave rise to a profit of €1.2 million.

 

PORTFOLIO PERFORMANCE

For the first half of 2009 responsibility for all lettings within the portfolio lay with Cushman & Wakefield. However, on 1 July 2009 Treveria Asset Management took over this role in an effort to improve lease renewal and letting performance across the portfolio, for the overall benefit of the Group.

 

Over the year, the Group secured 293 new leases and lease extensions of which 155 were agreed during the second half. In total these generated an annual rental income of €9.4 million. Despite a period of low inflation, the Group was able to increase the rent in 127 leases due to indexation provisions resulting in additional rental income of €0.2 million per annum.

 

Portfolio rental income was affected during the year due to the reduction in rent receivable from tenants declaring insolvency. Of these, the four most high profile German retail casualties in our portfolio were Hertie, Sinn Liffers, Karstadt and Woolworths. We reported at the end of the first half year that, of the 16 stores those tenants accounted for within our portfolio, which produced €4.6 million of annualised rent, six were vacant. At the year end the annualised rent from these tenants had fallen to €2.6 million. On a more positive note, over the second half €1 million of annualised rent was contracted through leases with new tenants and the number of vacant units had fallen to five.

 

FINANCE AND BANKING

Financing for Treveria continues to be challenging. The vast majority of the Group's properties are owned in five sub-groups or 'silos', each with a Luxembourg parent company. The properties and debt are held in many subsidiary companies owned by the Luxembourg parents and there is no cross collateralization between the silos and no guarantees have been given by Treveria plc to the lenders.

 

The Group's loan-to-value ("LTV") ratio covenants have not been breached in relation to any of the Group's loans but could potentially be breached in certain cases were the lenders to request an external valuation. As at 31 December 2009, the gross LTV ratio (gross debt against property assets) was 92.3% and the net LTV ratio (net debt against property assets) was 85.4%.

 

The cash trap LTV ratios are set at between 76% and 85% and the hard breach LTV ratios between 76% and 95%. In accordance with IAS 1, where the theoretical LTV ratio exceeds the appropriate covenant level and where there is therefore no unconditional right to defer settlement of the liabilities, the amount of cash required to repay the loan to cure such a position has been treated as a current liability. In the case of four silos, the theoretical cure amount exceeds the total Group cash balance and it has been necessary to reclassify the entirety of the loan amount for those silos as a current liability. Due to the ring-fencing of the debt facilities and as it is not anticipated that these liabilities will be settled for cash within twelve months of the balance sheet date, it is considered by the Directors that it remains appropriate to prepare these financial statements on a 'going concern' basis.

 

The Group's interest cover has decreased since 2008. The interest cover ratios ("ICR") or, in one case, debt service cover ratio ("DSCR"), as tested on a forward-looking basis in our most recent quarterly reports to the banks, were between about 112% and 156% in the various silos. The Group's ICR/DSCR 'hard breach' covenants are between 105% and 120% though there are 'cash trap' covenants between 125% and 145%.

 

As at 31 December 2009, three out of the five silos were in cash trap. A waiver of the 'hard breach' LTV covenant until 30 April 2010 and the ICR covenant until 19 July 2010 was agreed with Deutsche Bank and Citibank in January 2010 in relation to their loan facility of silo C. As a consequence of this agreement the new property manager of this silo will, with effect from 1 May 2010, be Mayfield European Property Management Limited. In addition, CR Investment Management GmbH was appointed as the new asset manager with effect from 1 February 2010. Both these managers operate alongside TAM and, despite these appointments, no disposal of properties in this silo can take place without the Group's consent.

 

The current average blended interest rate under the facilities, inclusive of margin, has decreased slightly to approximately 4.8% (2008: 4.9%). This reduction is due mainly to a fall in rates in relation to the Group's floating rate loans. At 31 December 2009, about 5.5% (2008: 6.5%) of the Group's loans were at floating rates protected by interest rate caps.

 

The total cash held by the Group at 31 December 2009 was €128.3 million (2008: €145.9 million). Of that cash balance €34.5 million (2008: €33.4 million) was unavailable for general use and was designated for the payment of interest and other costs associated with the Group's funding arrangements. As has been reported previously, the Board is committed to preserving cash in the parent company and ensuring cash is not drawn down into the silos unless doing so will significantly enhance shareholder value. At 31 December 2009, cash in the parent stood at €82.7 million compared with €81.4 million at 31 December 2008 and €85.7 million at 30 June 2009. None of the cash held in the parent was held in blocked accounts.

 

BOARD AND MANAGEMENT

Ian Henderson resigned as chairman of the Company in April 2009 and was replaced by Nicholas Cournoyer, the Managing Director of Montpelier Investment Management, at the time, the largest shareholder in the Group.

 

Following a number of discussions between the Board and certain major shareholders concerning the composition of the board of directors during the latter stages of 2009, it was agreed that there should be some new appointments made. As a result, in January 2010 Jeffrey Strong, a senior investment professional with QVT, a substantial shareholder in the Group, was appointed to the Board and I was invited to become non-executive chairman. I am an investment professional with Weiss Asset Management which manages two funds that are both substantial shareholders with 17% and 8% of the Group respectively.

 

As part of the discussions described above, Michael Neubuerger, who had joined the board as a non-executive director in February 2009, was invited to become the chief executive officer of Treveria Asset Management ("TAM"), with overall responsibility for the management and operation of the Group. In order to take up that position, Michael resigned from his non-executive position as a director of the Company and was appointed as TAM's chief executive officer in January 2010.

 

As announced in the Interim Statement, Damian Wisniewski left us in January 2010. He made a considerable contribution during his time with the Group and we wish him every success in his new role. Dr Bernhard Fuhrmann, who started working with the Group in January, was appointed as the Chief Financial Officer of TAM in March.

 

After having worked with the Group since its inception, Chris Kingham, our property director, is leaving us at the end of this month. We thank him for all his hard work and wish him well in the future.

 

OUTLOOK AND STRATEGY

Our main objectives in 2010 are firstly to enhance the quality and value of our property portfolio and improve the performance of our asset management activities. This will facilitate our second major objective which is to restructure our debt arrangements and improve the Group's financing.

 

Portfolio restructuring and asset management

As mentioned previously in this statement, the second half of 2009 saw the overall values of our properties in Germany increase, for the first time since the end of the first half of 2007. This stabilization in the market has continued into 2010, although uncertainty on the occupational side remains which is likely to put short term pressure on rental levels and influence pricing.

 

Against this backdrop we believe there is much active asset management that can be carried out to improve the prospects of the portfolio and create value over the longer term. Treveria's new management team is working hard to achieve this. We continue to analyse the portfolio and, once an assessment has been made on an individual property or properties, a decision will be made as to how best to proceed. In the cases of any properties which are deemed to be ex-growth, this may result in either the sale of properties, their redevelopment or refurbishment.

 

We are keen to ensure that we constantly improve and enhance the quality and value of Treveria's portfolio. In line with this strategy, where we can identify an opportunity to create value through development, we will prepare plans for vacant properties in good locations. This will allow us to achieve higher rents or better sales prices in the future. Where appropriate, we will also implement comprehensive refurbishment activities, which will be funded from surplus cash arising from net rental income.

 

With a portfolio of 440 retail assets which includes many well located properties we believe we are well placed as partner for major retail chains such as C&A, Media Markt, Saturn and REWE, where we already have good relationships. A further aim is to improve and expand our network of relationships with such tenants and, in time, to become a "favoured partner".

 

The size of our portfolio also provides us with a great opportunity to improve performance by leveraging the economies of scale available and by adopting a 'back to basics' approach to asset management. By way of example, as a substantial purchaser of services, we intend to use our buying power to negotiate cost reductions by contracting on a group basis with suppliers of services such as electricity, gas and insurance.

 

Finally, we are in the process of consolidating our management activities in order to save costs and improve operational efficiency. The appointment of a chief executive officer of TAM was identified by the Board as a major step in this process and as mentioned earlier, Michael Neubuerger has already taken on this role. A further progression of this strategy will be to combine the asset management, property management and accounting functions in Germany. As a consequence, the London office will close and we expect this to be completed by the end of September 2010.

 

Improving Group financing

As a result of the improving sentiment in the market and the stabilization and, in some cases, improvement in values, combined with our planned asset management achievements we hope to be able to move one silo out of cash trap in 2010. We are actively working with our lenders in this respect and also with regard to obtaining extensions to all of the loans in silos C, D and E which are to mature in 2011.

 

With all the measures we are taking, I am confident that we will stabilise Treveria´s position with the banks, secure in-depth relationships with our tenants and regain market recognition as a leading investor and manager of German retail real estate assets.

 

Josef (Yossi) Raucher

Chairman

12 April 2010

Income statement

for the year ended 31 December 2009

		Group
		Year ended	Year ended
		31 December	31 December
		2009	2008 Restated
	Notes	€000	€000
Gross rental income	2	145,073	155,079
Direct costs	3	(32,157)	(32,264)
Net rental income		112,916	122,815
Profit from disposal of investment properties		1,233	3,906
Deficit on revaluation of investment properties	9	(174,464)	(282,934)
German Real Estate Transfer Tax	13	-	(40,200)
Strategic review and management restructuring costs	3	-	(4,418)
Administrative expenses	3	(12,530)	(6,571)
Operating loss		(72,845)	(207,402)
Finance revenue	5	1,583	5,043
Finance expense	5	(88,758)	(100,651)
Change in fair value of derivative financial instruments	15	(5,033)	(20,831)
Loss before tax		(165,053)	(323,841)
Income tax (charge)/credit	6	(1,424)	11,694
Loss for the year		(166,477)	(312,147)
Attributable to:
Equity holders of the parent		(165,675)	(309,277)
Non-controlling interests		(802)	(2,870)
Loss for the year		(166,477)	(312,147)
Loss per share
Basic, for loss for the year attributable to ordinary equity holders of the parent	7	(27.45)c	(50.99)c
Diluted, for loss for the year attributable to ordinary equity holders of the parent	7	(27.45)c	(50.99)c

Dividends of €nil (2008: €15,388,000) were paid during the year

There is no other Comprehensive Income in either year, consequently Total Comprehensive Income is represented by the Loss for the year

 

Balance sheet

as at 31 December 2009

			Group
		2009	2008 Restated
	Notes	€000	€000
Non-current assets
Investment properties	9	1,881,064	2,065,070
Fixed assets		242	59
Total non-current assets		1,881,306	2,065,129
Current assets
Trade and other receivables	10	20,551	18,157
Prepayments		4,487	7,019
Cash and short-term deposits	11	128,250	145,922
Total current assets		153,288	171,098
Total assets		2,034,594	2,236,227
Current liabilities
Trade and other payables	12	41,230	42,759
Provision for German Real Estate Transfer Tax	13	40,200	40,200
Interest-bearing loans and borrowings	14	1,442,957	100,279
Finance lease obligations		4,008	4,129
Current tax liabilities		7,947	1,729
Derivative financial instruments	15	24,413	-
Total current liabilities		1,560,755	189,096
Non-current liabilities
Interest-bearing loans and borrowings	14	247,673	1,624,777
Finance lease obligations		39,333	46,073
Deferred tax liabilities	6	7,174	10,714
Derivative financial instruments	15	2,973	22,404
Total non-current liabilities		297,153	1,703,968
Total liabilities		1,857,908	1,893,064
Net assets		176,686	343,163
Equity
Issued capital	16	6,035	6,035
Capital redemption reserve	17	1,088	1,088
Retained earnings and other distributable reserve	17	166,802	332,477
Total equity attributable to the equity holders of the parent		173,925	339,600
Non-controlling interests		2,761	3,563
Total equity		176,686	343,163

 

 

 

Statement of changes in equity

for the year ended 31 December 2009

								Retained	Total equity
								earnings	attributable
							Capital	and other	to the equity
					Issued		redemption	distributable	holders of	Non-controlling	Total
					capital		reserve	reserve	the parent	interests	Equity
Group	Notes				€000		€000	€000	€000	€000	€000
As at 31 December 2007						6,288	835	676,303	683,426	6,433	689,859
Loss for the year as restated					-		-	(309,277)	(309,277)	(2,870)	(312,147)
Other comprehensive income					-		-	-	-	-	-
Total comprehensive income as restated					-		-	(309,277)	(309,277)	(2,870)	(312,147)
Own shares acquired			16		(253)		253	(19,161)	(19,161)	-	(19,161)
Equity dividends					-		-	(15,388)	(15,388)	-	(15,388)
As at 31 December 2008						6,035	1,088	332,477	339,600	3,563	343,163
Loss for the year					-		-	(165,675)	(165,675)	(802)	(166,477)
Other comprehensive income					-		-	-	-	-	-
Total comprehensive income					-		-	(165,675)	(165,675)	(802)	(166,477)
As at 31 December 2009						6,035	1,088	166,802	173,925	2,761	176,686

 

 

 

Cash flow statement

for the year ended 31 December 2009

			Group
		2009		2008 Restated
	Notes	€000		€000
Operating activities
Loss before tax		(165,053)		(323,841)
Deficit on revaluation of investment properties	9	174,464		282,934
German Real Estate Transfer Tax		-		40,200
Profit on disposal of investment properties		(1,233)		(3,906)
Finance revenue	5	(1,583)		(5,043)
Finance expense	5	88,758		100,651
Change in fair value of derivative financial instruments	15	5,033		20,831
Cash flows from operations before changes in working capital		100,386		111,826
Changes in working capital
Decrease/(increase) in trade and other receivables		(1,968)		4,316
(Decrease)/increase in trade and other payables		937		36,286
Income tax paid		(197)		(1,568)
Cash flows from operating activities		99,158		150,860
Investing activities
Purchase of and additions to investment properties		(296)		(74,110)
Proceeds from disposal of investment properties		6,133		74,096
Finance income received		1,583		5,043
Cash flows used in investing activities		7,420		5,029
Financing activities
Dividends paid to equity holders of the parent company		-		(15,388)
Purchase of own share capital		-		(22,186)
Proceeds from loans		-		41,859
Repayment of loans		(38,226)		(93,212)
Finance costs paid		(85,723)		(92,804)
Settlement of derivative financial instruments		(36)		(1,739)
Finance charges paid		(265)		(3,512)
Cash flows from financing activities		(124,250)		(186,982)
(Decrease)/increase in cash and short-term deposits		(17,672)		(31,093)
Cash and short-term deposits as at 1 January		145,922		177,015
Cash and short-term deposits at 31 December	11	128,250		145,922

 

 

1. BASIS OF PREPARATION

 

 

The financial information is abridged and does not constitute the Group's full financial statements for the years ended 31 December 2009 and 2008, and has been prepared under International Financial Reporting Standards ("IFRS").

 

Prior year restatement

As notified to shareholders and the Stock Exchange in November 2009, a transaction in December 2008 relating to the purchase of certain group non-controlling interests, gave rise to an obligation for payment of German Real Estate Transfer Tax (RETT). In the financial statements for the year ended 31 December 2008, this obligation was not recognised. Under IAS 37, the obligation should have been provided for. This has given rise to a prior year restatement. A provision of €40,200,000 has now been made in the Group financial statements for 2008 and is still outstanding as of 31 December 2009. The financial impact on the Group's Income statement for 2008 has been to increase the loss for that year by €40,200,000. Apart from the provision which remains in the balance sheet as of 31 December 2009, there was no impact to the income statement for this year. There was no impact on the financial statements for the year to 31 December 2007. The Group is currently in discussions with the German tax authorities concerning the finalisation of the charge. The level of RETT is based on the valuations of the properties held by the companies whose effective shareholdings have been increased by this transaction. Therefore, the agreement of these valuations gives rise to some uncertainty relating to the value of the charge.

 

Financial statements for the year ended 31 December 2009 will be presented to the Members at the forthcoming Annual General Meeting. The auditors' report on the financial statement for the year ended 31 December 2009 is unqualified but contains an emphasis of matter relating to negotiations with lenders. The matters relating to negotiations with lenders are described below and indicate the existence of a material uncertainty.

 

The 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 issues identified below.

The Group's property portfolios are partly funded by external debt facilities. Under the terms of the debt agreements each debt obligation is "ring-fenced" within a sub-group of companies. Treveria plc, the ultimate parent company, is not itself a party to any of the finance documents (in any capacity including as borrower, guarantor or security provider). The finance providers would therefore not have any recourse to the ultimate parent under the finance documents. Further details of the loans and financial risks are provided in note 14.

 

Due to the falling property values in recent periods, there is a significant risk that the Group will be unable to comply with loan-to-value ratio covenants set out in the Group's debt facilities in the foreseeable future.

 

The 31 December 2009 portfolio valuation indicates the loan-to-value ratio on certain loans could, if tested by the finance providers as set out in the facilities agreement, be above the permitted ratio levels. Should the real estate market deteriorate and valuations fall, then other loan-to-value ratios could rise above permitted ratio levels. On 11 September 2009, Eurohypo AG agreed to extend the existing waiver on the loan-to-value covenant up to 30 April 2011. On 15 January 2010, Deutsche Bank AG agreed to waive on one of its facilities, the loan-to-value covenant up to 30 April 2010 and the interest rate cover up to 31 July 2010.

 

Excluding the Eurohypo facility, the permitted loan-to-value ratios in the debt arrangements as at 31 December 2009 were between 76% and 85% with a weighted average that was 84.7%. The "hard breach" loan-to-value ratio covenants were between 76% and 95% with a weighted average that was 90.8%. Were the lenders to adopt the valuations carried out for the purposes of these financial statements as at 31 December 2009, the weighted average loan-to-value ratio in respect of the property as security under the total debt arrangements would have been 91.1% after adjusting for cash held in bank accounts that have been restricted by lenders.

 

Where the loan-to-value ratio based on the 31 December 2009 valuation is above the covenant level, the amount that would be required to be repaid to cure a potential default has been reclassified as a current liability. Where that liability is in excess of the cash balance available, it has been necessary to reclassify the entire loan amount within current liabilities as there would be no unconditional right to defer settlement should a covenant be breached. The total amount reclassified as at 31 December 2009 was €1,439,465,000 (2008: €89,533,000). However, because of the ring-fencing of the debt facilities described above and the low likelihood, in the view of the Directors, that such a cure would be required by the funders, the Directors do not consider that the risk of breaching loan-to-value covenants will impact the ability of the Group to continue as a going concern.

 

Nevertheless, in the event that a breach of covenant occurs or a loan matures and no satisfactory waiver, refinancing or renegotiation of terms is obtained, a lender could enforce its security against the relevant sub-group, with a consequent loss of the assets in return for the extinguishment of the debt within that sub-group only. In one instance, such action could trigger a cross-default acceleration of debt repayment in another sub-group. Whilst this would not affect the ability of the group to continue as a going concern, it could have a significant potential impact on the classification and valuation of the relevant property assets included in the group balance sheet at 31 December 2009 and hence on the reported loss of the group for the year then ended. The impact on the net assets of group of the enforcement of security on individual sub-groups by lenders would depend on the respective carrying values of the assets and the debt in the sub-groups concerned. Although the Directors consider the prospect unlikely, it is uncertain whether any of the lenders will choose to enforce their security in future and, therefore, no adjustments have been made in the financial statements to reflect the possible impact of such action.

In assessing the implications of potential covenant breaches, the Directors have also considered:

§ the various cure rights that are available in relation to any breach. The principal cure rights are a potential repayment of part of the loan or the use of cash trapped within each ring-fenced sub-group of companies providing the security to that bank facility to amortise the loan balance;

§ that the lenders to each sub-group have the ability to waive any breaches of covenant in relation to their sub-group where the lenders consider it to be in their best interests. The current economic environment has given rise to substantial asset valuation reductions across most global real estate markets and many have seen declines in value much more substantial than those experienced in the German retail markets in which the Group operates. The sub-groups are each made up of numerous properties requiring active management. In addition, they each retain sufficient interest cover i.e. the ratio of net rental income to interest payable. Interest cover (or, where relevant, debt service cover) as reported to the banks in the last quarter of 2009 is between 116% and 149% against breach covenants ranging from 110% to 125%; and

§ that, in other cases where the 31 December 2009 portfolio valuation indicates the loan-to-value ratio could be close to, or above, the permitted ratio levels, but where no actual breach has occurred, constructive discussions have been held with the lenders. No firm agreements have been reached at this stage and discussions are continuing, though the Directors are of the view that a satisfactory outcome will be negotiated. In the event that a breach 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 within that sub- group only;

 

Nothing has come to the attention of the Directors to indicate that satisfactory arrangements will be not made with the lenders in respect of the loans which will fall due in the foreseeable future.

 

2. Revenue

		Group
	Year ended		Year ended
	31 December		31 December
	2009		2008
	€000		€000
Rental income from investment properties	145,073		155,079
Finance revenue (see note 5)	1,583		5,043
	146,656		160,122

 

 

3. Operating loss

The following items have been charged or (credited) in arriving at operating loss:

Direct costs

		Group
	Year ended		Year ended
	31 December		31 December
	2009		2008
	€000		€000
Service charge expenditure	34,071		33,502
Service charge income	(21,524)		(23,387)
Irrecoverable service charges	12,547		10,115
Property management fee	7,249		3,921
Asset management fee	-		8,348
Ground rent/lease charges	5,267		5,617
Other property costs	7,094		4,263
	32,157		32,264

 

Strategic review and management restructuring costs

		Group
	Year ended		Year ended
	31 December		31 December
	2009		2008
	€000		€000
Strategic review costs	-		1,750
Directors' fees related to strategic review and management restructuring	-		176
Management restructuring costs	-		2,492
	-		4,418

All costs relating to the strategic review and management restructure carried out in 2008 were expensed in that year.

 

Administrative expenses

	Group
	Year ended	Year ended
	31 December	31 December
	2009	2008
	€000	€000
Audit fee	439	798
Directors' fees	406	355
Directors' expenses	18	32
Net foreign exchange (gain)/loss	(22)	20
Bank fees	210	411
Staff costs (see note 4)	3,057	77
Consultants' fees and expenses - subsidiary companies	239	125
Legal and professional fees and other administrative costs	8,183	4,753
	12,530	6,571

Included in administrative expenses and strategic review costs is €223,000 (2008: €627,000) of fees receivable by the auditors and their associates in respect of other non-audit services.

The total Directors' fees were €406,000 (2008: €531,000 of which €176,000 related to strategic review costs and €355,000 contractual fees included within administrative expenses).

 

4. Employee costs and numbers

		Group
	Year ended		Year ended
	31 December		31 December
	2009		2008
	€000		€000
Wages and salaries	2,710		609
Social security costs	320		64
Other employment costs	27		9
Recharge of costs to DDTREAM	-		(605)
	3,057		77

The average number of persons employed by the Group during the year was 26 (2008: four).

 

5. Finance revenue and expense

	Group
	Year ended	Year ended
	31 December	31 December
	2009	2008
	€000	€000
Bank interest receivable	1,583	5,043
Finance revenue	1,583	5,043
Bank loan interest payable	(84,652)	(93,759)
Amortisation of capitalised finance charges	(4,050)	(4,163)
Accelerated amortisation due to loan prepayments on the sale of investment properties	(15)	(715)
Loss on termination of swap arrangements on sale of investment properties	(41)	(2,014)
Finance (expense)	(88,758)	(100,651)
Net finance (expense)/revenue	(87,175)	(95,608)

 

	Group
	Year ended	Year ended
	31 December	31 December
	2009	2008
	€000	€000
Current income tax
Current income tax charge	4,768	2,526
Tax charge relating to disposal of investment properties	196	499
	4,964	3,025
Deferred tax
Relating to origination and reversal of temporary differences	(3,540)	(14,719)
	(3,540)	(14,719)
Income tax charge/(credit) reported in the income statement	1,424	(11,694)

	Year ended	Year ended
	31 December	31 December
	2009	2008 Restated
	€000	€000
Loss before tax	(165,053)	(323,841)
Loss before tax multiplied by rate of corporation tax in Germany of 15.825% (2008: 15.825%)	(26,120)	(51,248)
Effects of:
Different rates of tax in other countries	347	-
Expenses deductible for tax purposes	(5,663)	(5,790)
Expenses not deductible for tax purposes	-	6,362
Utilisation of tax losses brought forward	-	(59)
Tax losses carried forward	7,994	5,690
Deferred tax assets on revaluation deficits not recognised	24,866	33,351
Total income tax charge/(credit) in the income statement (as above)	1,424	(11,694)

	2009	2008
	€000	€000
As at 1 January	10,714	25,433
Released in respect of property disposals	(13)	(175)
Revaluation of investment properties to fair value	(3,527)	(14,544)
Balance as at 31 December	7,174	10,714

	2009		2008 Restated
	€000		€000
Earnings
Earnings for the purpose of basic and diluted earnings per share Loss for the year attributable to the equity holders of the parent	(165,675)		(309,277)
Revaluation deficits, German Real Estate Transfer Tax, profits on disposals of investment properties and related costs, strategic review and management restructuring costs and movements on the fair value of derivative financial instruments, net of related tax (attributable to equity holders)	174,140		329,872
Adjusted earnings	8,465		20,595
Number of shares
Weighted average number of ordinary shares for the purpose of basic earnings per share		603,468,809	606,515,987
Weighted average effect of dilutive share options*	-		-
Weighted average number of ordinary shares for the purpose of diluted earnings per share		603,468,809	606,515,987
Basic earnings per share	(27.45)c		(50.99)c
Diluted earnings per share	(27.45)c		(50.99)c
Adjusted earnings per share	1.40c		3.40c

8. Net assets per share

	2009	2008 Restated
	€000	€000
Net assets
Net assets for the purpose of assets per share (assets attributable to the equity holders of the parent)	173,925	339,600
Deferred tax arising on revaluation surpluses	7,174	10,714
Derivative financial instruments	27,386	22,404
Adjusted net assets attributable to equity holders of the parent	208,485	372,718
Number of shares
Number of ordinary shares for the purposes of net assets per share	603,468,809	603,468,809
Net assets per share	28.82c	56.27c
Adjusted net assets per share	34.55c	61.76c

The effect of share options has no material impact on the net assets per share of the Group.

The Directors have chosen to disclose in note 8, in addition to net assets per share, also adjusted net assets per share in order to provide a better indication of the Group's underlying net asset value; accordingly it excludes the fair value of derivative financial instruments and deferred taxation as the Directors do not consider that these items will crystallise as actual liabilities of the Group in the foreseeable future.

 

 

9. Investment properties

A reconciliation of the valuation carried out by the external valuer to the carrying values shown in the balance sheet is as follows:

	2009	2008
	€000	€000
Investment properties at market value	1,840,615	2,018,730
Onerous leases	(786)	(2,140)
Total investment properties at market value per valuers' report	1,839,829	2,016,590
Adjustment in respect of minimum payments under head leases separately included as a liability in the balance sheet	43,341	50,202
Adjustment in respect of rent free periods	(2,106)	(1,722)
	1,881,064	2,065,070

 

All properties were valued as at 31 December 2009, by qualified professional valuers working for the company of DTZ Debenham Tie Leung, Chartered Surveyors, (DTZ), acting in the capacity of External Valuers.

All properties were valued on the basis of market value. DTZ's opinion of the market value of the properties was primarily derived using comparable recent market transactions on arm's length terms. The properties were valued individually. The aggregate portfolio value equates to an equivalent yield of 7.5% (2008: 6.9%).

As a result of the level of judgement used arriving at the market valuations, the amounts which may ultimately be realised in respect of any given property may differ from the valuations shown in the balance sheet.

All valuations were carried out in accordance with the RICS Valuation Standards. DTZ's valuation report is dated 6 April 2010 (the "Valuation Report"). Paul Wolfenden, a Director of DTZ, has been the signatory of valuation reports provided to Treveria plc for the same purpose as the Valuation Report for a continuous period since 2006.

In addition to the matters referred to above, DTZ provides the Group with valuations for acquisition and other purposes including secured lending.

DTZ Debenham Tie Leung is a wholly owned subsidiary of DTZ Holdings plc. In the financial year ended 30 April 2009, the proportion of total fees payable by the Group to the total fee income was less than 5%.

 

The movement on the valuation of the investment properties at market value per the valuers' report is as follows:

 

 

 

	2009	2008 Restated
	€000	€000
Total investment properties at market value per valuers' report as at 1 January	2,016,590	2,332,650
Additions and subsequent expenditure	2,603	37,064
Disposals	(4,900)	(70,190)
Deficit on revaluation of investment properties	(174,464)	(282,934)
Total investment properties at market value per valuers' report as at 31 December	1,839,829	2,016,590

 

10. Trade and other receivables

	Group
	2009	2008
	€000	€000
Trade receivables	13,082	14,910
Other receivables	7,469	3,247
	20,551	18,157

As at 31 December 2009, trade receivables at nominal value of €14,388,000 (2008: €9,350,000) were impaired and fully provided for.

.

11. Cash and short-term deposits

	Group
	2009	2008
	€000	€000
Cash at banks and in hand	128,250	115,922
Short-term deposits	-	30,000
	128,250	145,922

Cash at banks earns interest at floating rates based on daily bank deposit rates. Short-term deposits are made for varying periods of between one day and two months, depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of cash and short-term deposits is €128,250,000 (2008: €145,922,000).

As at 31 December 2009, €34,457,000 (2008: €33,415,000) of cash is held in blocked accounts of which €25,705,000 (2008: €15,167,000) is in cash trap. These balances are under the control of lenders who have made loans to the Group. The cash is specifically segregated so as to be able to pay financing costs including interest.

 

12. Trade and other payables

	Group
	2009	2008
	€000	€000
Trade payables	11,653	10,053
Accrued operating expenses	6,808	12,393
Accrued interest	16,056	17,127
Other payables	6,713	2,878
Capital payables	-	308
	41,230	42,759

Capital payables represent amounts due under contracts to purchase properties, which were unconditionally exchanged at the year end.

Terms and conditions of the above financial liabilities:

§ trade payables are non-interest-bearing and it is the Group's policy to pay within the stated terms which vary from 14-60 days; and

§ other payables are non-interest-bearing and as above are paid within stated terms.

 

13. Provision

	Group
	2009	2008 Restated
	€000	€000
German Real Estate Transfer Tax (see note 1)	40,200	40,200

 

 

14. Interest-bearing loans and borrowings

								Group
					Effective
					interest		2009		2008
					rate %	Maturity	€000		€000
Current
Deutsche Bank and Citigroup loan - first facility					4.58	20 January 2011	552,688		87,156
Deutsche Bank and Citigroup loan - second facility					4.79	20 July 2011	19,199		3,493
ABN Amro loan					4.76	15 July 2011	392,160		9,542
ABN Amro loan	Floating				- capped	15 July 2011	43,573		1,059
Eurohypo loan	Floating				- swapped	25 July 2012	391,507		-
Eurohypo loan	Floating				- capped	25 July 2012	50,348		2,595
Capitalised finance charges on all loans							(6,518)		(3,566)
							1,442,957		100,279
Non-current
Deutsche Bank and Citigroup Loan - first facility					4.58	20 January 2011	-		476,840
Deutsche Bank and Citigroup Loan - second facility					4.79	20 July 2011	202,628		221,827
ABN Amro loan					4.76	15 July 2011	-		385,218
ABN Amro loan	Floating				- capped	15 July 2011	-		42,803
Eurohypo loan	Floating				- swapped	25 July 2012	-		391,507
Eurohypo loan	Floating				- capped	25 July 2012	-		67,162
JPMorgan loan	Floating				- swapped	19 November 2012	46,972		48,099
Capitalised finance charges on all loans							(1,927)		(8,679)
							247,673		1,624,777
Total							1,690,630		1,725,056
The borrowings are repayable as follows:
On demand or within one year							1,442,957		100,279
In the second year							201,106		9,273
In the third to fifth years inclusive							46,567		1,615,504
Total							1,690,630		1,725,056

 

As required by IAS 1 €1,439,465,000 (2008; €89,533,000) of debt facilities have been reclassified as current liabilities though it is not anticipated that settlement of these liabilities is likely to occur within twelve months of the balance sheet date.

The Group has pledged investment properties to secure related interest-bearing debt facilities granted to the Group for the purchase of such investment properties.

 

Deutsche Bank AG and Citigroup Global Markets Limited

Under the first facility, during the year amounts of €11,308,000 (2008: €13,814,000) were repaid arising from proceeds of sale of investment property and other prepayments due under the loan agreement, resulting in a balance at the end of the year of €552,688,000 (2008: €563,996,000). The interest rate on this loan is fixed at 4.58% per annum payable quarterly in arrears. The loan is not amortising and is repayable on 20 January 2011. The facility has been in cash trap since October 2008. The loan is secured over the assets and the undertakings of companies within the relevant sub-group.

Under the second facility, during the year amounts of €3,493,000 (2008: €3,493,000) were repaid arising from amortisations due under the loan agreement, resulting in a balance at the end of the year of €221,827,000 (2008: €225,320,000). The interest rate on this loan is fixed at 4.79% per annum payable quarterly in arrears. The loan amortises by 1.5% per annum with a final repayment due on 20 July 2011. The facility has been in cash trap since July 2009. The loan is secured over the assets and the undertakings of companies within the relevant sub-group.

 

ABN Amro N.V.

During the year amounts of €2,889,000 (2008: €275,000) were repaid arising from proceeds of sale of investment property and other prepayments due under the loan agreement, resulting in a balance at the end of the year of €435,733,000 (2008: €438,622,000). Interest on 90% of the loan is fixed at a weighted average interest rate of 4.76% per annum, with interest on the remaining 10% floating at a rate based on EURIBOR, but capped at 5.35% per annum by means of an interest rate cap. Interest is payable quarterly in arrears. The loan amortises by increasing amounts up to 1% per annum with a final repayment due on 15 July 2011. The loan is secured over the assets and the undertakings of companies within the relevant sub-group.

 

Eurohypo AG

During the year amounts of €19,409,000 were repaid (2008: drawdown €38,468,000, prepayments €25,238,000, net increase €13,230,000) arising from proceeds of sale of investment property and other prepayments due under the loan agreement, resulting in a balance at the end of the year of €441,855,000 (2008: €461,264,000). Interest on approximately 89% of the loan is fixed at a weighted average interest rate of 5.75% per annum by means of interest rate swaps, with interest on the remaining approximately 11% floating at a rate based on EURIBOR, but capped at 6.25% per annum by means of an interest rate cap. Interest is payable quarterly in arrears. The loan amortises by increasing amounts up to 1.75% per annum with a final repayment due on 25 July 2012. The facility has been in cash trap since October 2008. The loan is secured over the assets and the undertakings of companies within the relevant sub-group.

 

JPMorgan plc

During the year amounts of €1,127,000 (2008:drawdown € 3,391,000, prepayments €50,392,000, net decrease €47,001,000) were repaid arising from proceeds of sale of investment property resulting in a balance at the end of the year of €46,972,000 (2008: €48,099,000). The interest rate on this loan is fixed at 5.46% per annum by means of an interest rate swap and is payable quarterly in arrears. The loan is not amortising and is repayable on 19 November 2012. The loan is secured over the assets and the undertakings of companies within the relevant sub-group.

 

15. Financial instruments

Fair values

Set out below is a comparison by category of carrying amounts and fair values of all of the Group's and the Company's financial instruments that are carried in the financial statements.

	Group
	2009
	Carrying amount	Fair value
	€000	€000
Financial assets
Cash and short term deposits	128,250	128,250
Trade and other receivables	20,551	20,551
Financial liabilities
Trade and other payables	41,230	41,230
Interest-bearing loans and borrowings:
- floating rate loans capped	93,921	93,921
- floating rate loans swapped into fixed rates	438,479	438,479
- fixed rate loans	1,166,675	1,203,784
Derivative financial instruments	27,386	27,386
Finance leases	43,341	43,341
	Group
	2008
	Carrying amount	Fair value
	€000	€000
Financial assets
Cash and short term deposits	145,922	145,922
Trade and other receivables	18,157	18,157
Financial liabilities
Trade and other payables	42,759	42,759
Interest-bearing loans and borrowings:
- floating rate loans capped	113,619	113,619
- floating rate loans swapped into fixed rates	439,606	439,606
- fixed rate loans	1,184,076	1,206,766
Derivative financial instruments	22,404	22,404
Finance Leases	50,202	50,202

 

The fair value of borrowings has been calculated by discounting the expected future cash flows at prevailing interest rates.

The fair value of derivative financial instruments has been calculated by JC Rathbone Associates Limited, financial risk consultants, based on market prices, estimated future cash flows and forward rates as appropriate.

 

Derivative financial instruments

		2009	2008
		€000	€000
As at 1 January		(22,404)	(1,314)
Acquisitions		-	118
Disposals		51	(377)
Change in fair value of derivative financial instruments		(5,033)	(20,831)
		(27,386)	(22,404)
Current liabilities		(24,413)	-
Non-current liabilities		(2,973)	(22,404)
		(27,386)	(22,404)

 

16. Issued capital

		Share
	Number	Capital
Authorised	of shares	€
Ordinary shares of €0.01 each
As at 31 December 2009 and 2008	1,500,000,000	15,000,000
		Share
	Number	Capital
Issued and fully paid	of shares	€
Ordinary shares of €0.01 each
As at 31 December 2007	628,844,061	6,288,440
Purchase of own shares	(25,375,252)	(253,752)
As at 31 December 2009 and 2008	603,468,809	6,034,688

Holders of the ordinary shares are entitled to receive dividends and other distributions and to attend and vote at any general meeting.

Purchase of own shares

No ordinary shares were bought back by the Company during the year to 31 December 2009. In 2008 the Company bought back 25,375,252 ordinary shares with a total nominal value of €253,752, at a weighted average price of €0.76 per share. These shares were then cancelled and the nominal value was transferred to the capital redemption reserve (see note 17).

 

17. Other reserves

Capital redemption reserve

The capital redemption reserve reflects the nominal value of shares purchased by the Group for cancellation and is €1,088,000 (2008: €1,088,000).

Retained earnings and other distributable reserve

The other distributable reserve was created for the payment of dividends and for the buyback of shares. The deficit on retained earnings has been deducted from this reserve. The resulting balance is €166,802,000 (2008: €332,477,000).

 

18. Capital commitments

As at 31 December 2009 the Group had no notarised transactions for completion after the year end for the acquisition of investment properties. As at 31 December 2008 the Group had notarised transactions of €25,050,000 exclusive of related acquisition costs for completion after the year end for acquisition of investment properties. Early in 2009, the obligation was extinguished at a further cost to the Group of €300,000 and these costs were set off against the profit on disposal of investment properties during 2008

 

19. Events after the balance sheet date

There were no material events which have occurred after year end and which would have a material impact on these financial statements.

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