Final Results

14th Oct 2009 07:00



14 October 2009

Speymill Deutsche Immobilien Company plc

("SDIC" or "the Company")

Preliminary results for the year ended 30 June 2009

Speymill Deutsche Immobilien Company plc (AIM: SDIC), the pan-German residential property investment company listed on AIM, is pleased to announce its preliminary results for the year ended 30 June 2009.

Business highlights

For more information, please visit http://www.speymilldeutsche.com or contact:

Speymill Property Group Limited	+44 1624 640 860
(Manager)
Nigel Caine
Floris van Dijkum
Smith & Williamson Corporate Finance Limited	+44 20 7131 4000
(Nominated Adviser)
Azhic Basirov
Siobhan Sergeant
Fairfax I.S. PLC	+44 20 7598 5368
(Brokers)
James King
Andrew Cox
Tavistock Communications Limited	+44 20 7920 3150
(Media & Investor Relations)
Jeremy Carey
Simon Hudson
Gemma Bradley

 

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. 

Speymill Property Group Limited is the appointed Manager of SDIC and, in conjunction with the Investment Adviser, Goal service GmbH, it identifies acquisition opportunities for the Company, which fit within its investment criteria.

  

Chairman's statement 

I have pleasure in presenting the results of Speymill Deutsche Immobilien Company plc (the "Company") for the year-ended 30 June 2009. 

The Company has had an active year and has continued to make steady progress on all fronts. It has merged the Company's C Shares with the Ordinary Shares to create a unified (and simplified) structure - trading on AIM under SDIC. It has also recently expanded its refurbishment programme and extended the property management services of GOAL service GmbH ("GOAL") across further units of the Company's portfolio. These proactive measures will assist the Company in remaining stable during these difficult economic conditions. 

We have seen relative stability through a slight reduction in asset values together with steady rental income throughout the year.

Results

Asset values remain relatively stable

The total combined property portfolio was valued at €1.455bn as at 30 June 2009, which equates to a yield of 6.55% on contracted net rents as at 30 June 2009. The latest valuation reflects a slight decrease of 2.9% or €44.4m for the accounting year, demonstrating that the Company's portfolio valuation has shown relative stability in tough market conditions. This is a reflection of the resilience of German residential real estate when compared against other European countries. 

Expansion of the refurbishment programme

In response to the success experienced to date with the refurbishment programme, the Company recently approved an expansion of approximately 1,000 units over the original planned refurbishment of approximately 1,700 units.

As and when units become vacant the Company will move those units into the refurbishment programme, thus taking the opportunity to further improve its portfolio with the minimum of disruption. 

The expansion of the refurbishment programme has had an impact on tenant fluctuations which has temporarily pushed up overall vacancy from 12.1% as at June 2008 to 14.9% as at June 2009. On an available basis, vacancy was 7.7% as at 30 June 2009.

Although the refurbishment programme has a temporary negative effect on vacancy, we believe this long-term measure will create a higher quality portfolio whilst also preserving value through the current economic climate.

Expansion of GOAL property management across the Company's portfolio

Given the improved results seen to have been achieved by direct property management services by GOAL, the Company has recently increased the portion of the portfolio to which GOAL provides direct property management. Despite the temporary disruption caused by such transfer, better results can be expected in the long-term. The long-term objective will be to transfer further units under the direct property management of GOAL.

Cash management

During the financial year, 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 has also witnessed a rise in service charges, mainly relating to increases in commodity prices, most notably energy prices. Due to the way the German rental market operates, the Company has to fund these increases until they can be reconciled and re-charged to tenants. This process is already well underway and is expected to be completed before the end of 2009.

To ensure the swift and efficient collection of rent and service charge prepayments, the Company has appointed a dedicated debt collection agency to manage the collection and recovery of overdue amounts.

 

NAV affected by interest rate swaps revaluations

The value of interest rate swaps held by the Company has suffered a significant mark-down during the financial year due to the dramatic reduction in interest rates. For the year-ended 30 June 2009, the swaps were marked down by €121.8m.  Consequently, the net asset value (NAV) per share has fallen by 40% under IFRS. On an EPRA NAV* basis, the NAV per share decrease was 13%. 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 year-ended 30 June 2009 the Company recorded a net operating profit of €8.5m compared to a net operating loss of €26.2m for the year-ended 30 June 2008. Similarly, gross rent for the year-ended 30 June 2009 also increased, amounting to €150.0m, compared to €109.6m for the year-ended 30 June 2008. 

Funds from operations (FFO) stood at a loss of €0.7m for the year-ended 30 June 2009 which is a marked improvement over the FFO loss of €4.5m for the year-ended 30 June 2008. 

The Company's financial results reflect the progress of the investment programme towards the end of the 2008 financial year. The Board remains confident that the Company's FFO should improve as the portfolio progresses towards a stabilised basis, the short-term negative effects of the refurbishment programme diminish, and the transfer of further units under GOAL's property management come to fruition. 

No breach of covenants

Interest bearing loans were €1,178.4m as at 30 June 2009 (€1,183.4m as at 30 June 2008). Loan-to-value (LTV), excluding all cash, stood at 81.0%, and including cash, LTV was 76.7% as at 30 June 2009. 

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 5 years, with the earliest debt maturing in late 2013. The Board believes that this places SDIC in a relatively favourable position in these challenging times. 

Given the economic climate and the particularly adverse effect of this on the share price of leveraged property investment companies, we are continuing to review ways to de-lever the portfolio whilst maintaining maximum shareholder value. In line with the terms of the original loan agreements, the Company has begun to amortise a proportion of its debt. Long-term amortisation requirements may be fulfilled by selective asset disposals.

During the financial year, the Company has not breached any of its banking covenants; the Board and the Manager will nevertheless continue to monitor closely all covenant requirements. 

Optimisation

Through active asset management on multiple fronts, the Board and the Manager are currently working hard to refine the Company's portfolio to create high quality assets. This will be achieved, predominantly through the Company's refurbishment programme. According to a yield-based valuation methodology, vacant units are attributed a much reduced value as they produce no rental income. As further units are released from the refurbishment programme, this should increase the number of units contributing positively towards the valuation. Thus, the valuation has potential to increase above the current level in the medium to long-term, even if property values throughout Germany come under pressure. The Board considers this potential for growth to be part of the underlying value of the Company.

The Board is also considering selective asset disposals or privatisations in order to further streamline the portfolio and increase operational efficiencies. 

Share price

Since the Company's posting of the interim results on 23 March 2009, the share price has increased to €0.38 as at 12 October 2009 from €0.10 as at 23 March 2009. Despite this increase the share price continues to trade at a substantial discount to NAV, though the Board believes in the Company's ability to add further underlying value to shareholders through active asset management.

Dividend

The Board feels it is prudent to continue to refrain from making dividend payments in the short-term. In the current economic climate the Board feels that the Company should preserve cash and retain some liquidity. When economic conditions permit, it is the Board's intention, post optimisation of the portfolio, to pay dividends to shareholders equivalent to substantially all of its surplus profits. In the current environment it is not possible to indicate when the next dividend will be paid.

Outlook

The past 12 months have proved to be a challenging time for the Company and the real estate industry as a whole. The Board believes that the Company has the infrastructure and quality of management required to survive in tough market conditions, and continue to add value in the medium to long-term.

Having avoided the boom in residential real estate, as witnessed by its European peers, German residential is less exposed to falling property values. Furthermore, the Company's continued efforts with the refurbishment programme and the expansion of GOAL's direct property management will help refine the property portfolio and create high-quality assets. As a by-product of this, vacancies should reduce which will in turn benefit the Company's FFO and property valuation.

The Board commends the Manager and the Investment Adviser on their performance and guidance during the year and will continue to work closely with them in order to achieve the Company's investment objectives on behalf of shareholders.

 

Raymond Apsey

Chairman

13 October 2009

* "EPRA (European Public Real Estate Association) NAV is the balance sheet net assets including mark to market adjustments on the property portfolio, excluding fair value adjustments on the debt and related derivatives, deferred taxation on revaluations and capital allowances, capitalised loan arrangement fees and the effect of those shares potentially issuable under employee share schemes"

  Report of the Manager and the Investment Adviser

Resilient Germany

The financial market stress of the last 12 months continues to pose challenges to both global and to German economic growth. However, even though the global banking crisis is still a wide spread concern, the efforts of governments and central banks to support the financial systems appear to have recently begun to have some effect. In addition, the recent election victory by the CDU and FDP coalition should auger well for the German economy as it aims to deliver on pledges of tax cuts and, perhaps, further deregulation of the labour markets.

Germany has proved to be one of the more resilient economies of the current crisis, even though its gross domestic product (GDP) according to the Federal Statistics Office decreased by 3.8% in the first quarter of 2009 in comparison to the first quarter of 2008. The German unemployment rate according to the Federal Labour Agency increased to 8.1% in June 2009 from 7.5% in the previous year, although unemployment has since reduced slightly to 8.0% in August 2009. The continuing problems and complexities with Germany's fragmented banking sector could continue to be a drag on growth. Meanwhile investor sentiment, according to the ZEW institute, has recovered dramatically to its highest level over the last three years, though many economists expect the recovery will be gradual. 

German residential real estate market

German property has again been voted the best investment in the European real estate sector for 2009 by ULI & PWC LLP in the Emerging Trends in Real Estate Europe survey. With four cities making the top ten investments of 2009 and the top two spots occupied by Munich and Hamburg, respectively, Germany ranks best for Investments, Development and Risk. In addition, real estate in Germany did not see a period of speculative construction and high overleveraging, as was seen in Ireland, Spain and the UK. 

Moreover, German residential real estate has proved more stable during a turbulent 2008 and the first half of 2009 compared to German commercial space, according to property consultants King Sturge.

The supply of new residential property in the market has been steadily declining over the past decade. This is mainly due to the cost of construction being higher than that of existing property. Total new supply to the German market in 2008 stood at 54,615 units, which is 8.8% lower than 2007 and 81% lower than the 1994 figure. The shift in the development of household formation from multi-person to single-person residence is expected to create demand for two million additional homes by 2020, or 181,800 homes per year according to Empirica Research.

Business overview

SDIC valuations remain stable

The Company's portfolio was valued at €1.455bn as of 30 June 2009, a slight decrease of 2.9% or €44.4m for the financial year. German residential real estate has remained one of the most resilient amongst other European countries which experienced a property boom, unlike Germany. According to The Economist, German house prices have risen by the least among the major global economies since 2003.

  

	Year-ended  30 June 2009	Year-ended 30 June 2008*
Total number of buildings†	1,133	1,148
Total number of units†	26,639	26,634
Gross lettable area (m²)	1,727,365	1,732,571
Total purchase price (€'000)	1,423,610	1,423,610
Average purchase price (€/m²)#	824	822
Valuation (€'000)	1,455,440	1,500,089
Average valuation (€/m²)	843	866
Uplift since purchase	2.2%	5.3%
Average valuation yield	6.6%	6.4%
Average residential net rent (€/m²) †	5.1	5.1
Average commercial net rent (€/m²) †	7.5	7.5

* Figures include €24m of additional property purchases/disposals including acquisition costs processed post period-end 2008

† The number of buildings and units fluctuates between periods based on combining certain adjacent buildings, reclassifications and remeasurements

# Original acquisition cost

The overall portfolio has undergone only a slight decline in value. The portfolio's relative stability has been assisted by the refurbishment programme.

Average valuation yield as of 30 June 2009 stands at 6.55%, a 20 bps increase compared to the June 2008 figure.

Refurbishment programme

The Company's extensive refurbishment programme is well underway and will continue as and when units become available for refurbishment. Due to the prevailing economic climate and the ongoing refurbishment programme, the Company has experienced increased tenant fluctuations, which in turn has made more units available for refurbishment. In light of the success of the refurbishment programme to date, the Company will continue to further improve its portfolio. As a result the refurbishment programme has been expanded by approximately 1,000 units over the original plan of approximately 1,700 units. As of 30 June 2009, approximately 7.2% of residential units were unavailable for rent, due to the refurbishment programme.

The refurbishment programme to date has proved to be successful in terms of lettings and will continue on an ongoing basis as and when units become available.

Since acquisition, the Company has spent an average of €1,606 per unit on refurbishments. 

Whilst the refurbishment programme has had a temporary negative effect on vacancy, the Manager believes the refurbishment programme will ultimately create a higher quality portfolio whilst also preserving value through the current economic climate.

As at 30 June 2009	Units completed	Completed units let
Programme to date*	78.6%	83.7%

* More units may be added as and when works are identified

As at 30 June 2009, 83.7% of completed units have been successfully let, of which 31.7% were units with minor works done, with the remaining having undergone more significant refurbishment work.

Vacancy

The Company's overall vacancy has increased by 2.8% from 12.1% as of June 2008 to 14.9% as of June 2009, primarily due to the refurbishment programme. However, on an available basis, vacancy was 7.7% as at 30 June 2009.

GOAL is currently undertaking a major assignment of taking over the property management function for a significant portion of the portfolio. Dedicated management has invariably been shown to produce better results when compared with using fragmented managers. Unfortunately, a resultant downside of the management changes is a temporary increase in the vacancy levels of the properties being taken over due to the considerable handover process. However, a greater scrutiny of payment patterns of inherited tenants is also undertaken by GOAL during the handover and whilst the reassessment of tenants can produce a temporary rise in vacancies, it should ensure better quality tenants, as well as improving income streams for the future. A further effect of the handover process is an increase in tenant fluctuations. Fluctuations have been higher than anticipated at 13.7% in the year-ended June 2009 compared to the previously anticipated fluctuation rate of circa. 10% per annum. 

Experience has shown that 12 to 18 months is needed for the smooth take-over of properties, which in turn includes putting an optimised property management process in place. Building and maintaining close relationships with tenants and understanding their needs remains a key objective for the Company.

Successful examples of this handover process are shown in areas where GOAL has managed properties directly, such as the Berlin region with approximately 1,870 units (7% of total units) where vacancy has been reduced to 6.4% as at June 2009 from 8.9% as at July 2008, which demonstrates GOAL's ability to deliver results under direct management.

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.

In the current year 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. During the property management take-over period there is also a natural fluctuation in arrears as tenants do not have existing payment relationships with the new owner or in some cases payments continue to the previous owners.

To ensure the swift and efficient collection of all debts the Company has 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.

The service charge prepayment shortfalls experienced during the year relate to increases in commodity prices, most notably energy prices, subsequent to the current prepayment levels being set in 2008. The level of increase experienced in 2008 was neither possible to predict, nor possible to recharge tenants for until the following year. The Company has to fund these increases in the short-term; however this is being reconciled and billed to tenants at the moment. The ongoing prepayment level should then be reset to a more accurate estimation of current costs and relative parity between the service charge costs incurred and the amounts prepaid by tenants will be restored. All amounts are contractually recoverable from tenants.

Zero cash impact from interest rate swap revaluations

The economic climate over the past year has led to a sharp decrease in interest rates globally. In line with this, the value of swaps held by the Company has suffered a significant mark-down during the year. For the year-ended 30 June 2009, the swaps were marked-down by €121.8m. This, and the portfolio valuation reduction of €44.4m, have contributed to the net asset value per share (NAV per share) of the Company falling by 40% to €0.74 from €1.23 in June 2008. 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 at year-end amounted to €62.2m, of which €46.5m is operationally available to the Company. 

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. The EPRA NAV can thus be considered more reflective of the underlying real estate NAV.

On an EPRA NAV basis, the Company experienced a 13% decline, as of 30 June 2009, compared to the June 2008 figure. The Manager believes that the EPRA NAV more accurately reflects the underlying value of the portfolio. 

No debt refinancing due

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 5 years as of 30 June 2009, with the earliest debt maturing in late 2013. The Manager believes that this places the Company in a relatively favourable position in these challenging times. In line with the terms of the original agreements, the Company has begun to amortise a proportion of its debt. 

Financial summary

Financial position	Year-ended 30 June 2009	Year-ended 30 June 2008
Portfolio value	1,455,440,000	1,500,089,000*
Borrowings	(1,178,370,904)	(1,183,448,000)
Net assets	250,547,000	413,693,000
EPRA NAV**	308,601,000	358,615,000
Loan-to-value (LTV) †	81.0%	79.3%

*  Figures include €24m of additional property purchases/disposals including acquisition costs processed post period-end 2008

**  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

The portfolio valuation for the year-ended 30 June 2008 stood at €1.50bn. As of 30 June 2009, the valuation of the Company's portfolio had decreased to €1.46bn, representing an overall valuation loss of €44.4m. 

LTV, excluding all cash, stood at 81.0% as of 30 June 2009. Including cash, the Company's LTV was 76.7%. The Manager recognises current investor concern towards highly levered companies and is actively seeking ways to de-lever the portfolio whilst simultaneously maximising shareholder value.

NAV for the year declined by 40%, mainly as a result of the swap mark-down of €121.8m, and the valuation decrease on the portfolio of €44.4m. It is important to note that the swap mark-down has no impact on the cash flows of the Company nor does it in any way impact the Company's debt covenants.

Financial performance	Year-ended 30 June 2009 (€'000)	Year-ended 30 June 2008 (€'000)
Gross rents received	149,997	109,562
Valuation losses on property portfolio	(44,429)	(56,995)
Net operating profit/(loss)	8,505	(26,244)
Loss before tax	(169,513)	(62,343)
Funds from operations†	(709)	(4,518)
Loss after tax	(163,146)	(66,778)

† 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.

During the year-ended 30 June 2009, the Company made a net operating profit of €8.5m compared to a net operating loss of €26.2m for the year-ended 30 June 2008. Similarly, gross rent, for the year-ended 30 June 2009, amounted to €150.0m, compared to the figure of €109.6m for the year-ended 30 June 2008. This reflects the full impact of the completion of the investment and take-over programme towards the end of the last financial year. As the portfolio progresses towards a stabilised state, the funds from operation (FFO) should improve as the short-term negative effects of the ongoing refurbishment programme diminish. 

FFO analysis	Year-ended 30 June 2009 (€'000)	Year-ended 30 June 2008 (€'000)
Net rents	92,543	70,629
Non-recoverable operating costs	(24,255)	(25,595)
Net operating income	68,288	45,034
Administrative expenses	(15,354)	(14,283)
EBITDA	52,934	30,751
Net interest expense	(53,850)	(35,077)
Tax	207	(192)
FFO	(709)	(4,518)

The FFO as of 30 June 2009 was a loss of €0.7m. This is a marked improvement over the FFO loss of €4.5m for the year-ended 30 June 2008. EBITDA has improved to €52.9m as at June 2009 (June 2008: €30.8m) due to increased rental income of €92.5m as at June 2009 (June 2008: €70.6m). The Manager expects the FFO to improve as the refurbishment programme approaches completion and vacancy rates start to decline. 

Reconciliation of loss after tax to FFO	Full year-ended 30 June 2009 (€'000)	Full year-ended 30 June 2008 (€'000)
Loss after tax	(163,146)	(66,778)
Loss on revaluation of property portfolio	44,429	56,995
Realised/unrealised losses on hedging instruments	122,671	1,022
Loan arrangement fee amortised	1,497	-
Movement on deferred tax provision	(6,160)	4,243
FFO	(709)	(4,518)

No breach of covenants

The loan-to-value is determined by debt over the property valuation, rather than on the net asset value. Hence, movements in the value of the interest rate swaps do not affect the Company's LTV covenants. Similarly, as the unrealised gains or losses on swaps are non-cash movements, they have no bearing on the Company's ICR covenants.

The Company has not breached any of its banking covenants. The Company is continuing to deleverage through amortisation payments and closely monitors all covenant requirements. Long-term amortisation requirements may be fulfilled by selective asset disposals.

Optimisation

Through active asset management on multiple fronts, the Company is currently working to refine its portfolio to create high quality assets. As mentioned above, the primary means by which this is being achieved is through a significant refurbishment programme. The portfolio currently shows a vacancy rate of 14.9% overall. According to the valuation methodology, vacant units attribute a much reduced value as they produce no rental income. This means that as well as increasing rental levels, the refurbishment programme should also increase the number of units contributing towards the valuation, due to newly refurbished units coming back online. The valuation therefore has the potential to increase above the current level, in the medium to long-term. This potential for growth is part of the underlying value of the Company. 

Moving forward, the Company may consider selective sales or privatisations in order to further streamline the portfolio and increase operational efficiencies. Properties with the potential for disposal are those which are the least operationally efficient, such as geographic outliers. Any disposals would also enable the portfolio to be de-leveraged further through amortisation payments.

Strategic objectives

The Company's focus is on optimising the portfolio through active asset and property management services to constantly improve the overall quality of its invested properties.

Unlike many German property portfolios, the Company does not own large blocks of local authority council flats, focussing instead on smaller private buildings - the Company's portfolio of 1,133 buildings, has an average of 24 units per building. Although it is not in the Company's strategy to sell a large proportion of units, the Manager will continue to monitor market conditions and seek to exploit opportunities if advantageous to the Company.

The Company's portfolio valuation is undertaken by DTZ, an independent third-party valuer, on a semi-annual basis. The Manager feels that using a prudent approach to valuations is crucial. The Company is valued conservatively relative to most of its peers, many of whom carry out internal valuations. With an implied cap rate (or yield) on the Company portfolio of 6.55% as of 30 June 2009, the Company is currently valued at over 105bps higher than the average of its other European real estate peers who average an implied cap rate of 5.5%, according to calculations based on available market data.

Vacant units, which generate no rental income, are attributed a much reduced value in a yield based valuation. The core focus of the Manager, therefore, is to reduce the vacancy in order to maximise the value of the portfolio for the Company's shareholders.

Outlook

Despite the efforts of governments and central banks, the stress on financial markets continues to pose challenges to the real estate industry. Reduced consumer spending, increased unemployment and general risk aversion could continue to exert deflationary pressures in the short term, and hence impair valuations and rental growth. The Manager continues to believe that Germany remains a unique market and that the German residential market will outperform in the medium to long-term as it continues to hold its value amidst growing write-downs in the rest of the world.

Having avoided the boom in real estate witnessed by its European peers, German residential real estate is less exposed to the softening of property values across the world. Valued, on average, significantly below replacement cost, German residential should benefit from a lack of new supply that is unlikely to ease in the foreseeable future, helping to put upward pressure on future rent and property values.

In light of the vast monetary and fiscal measures that are currently underway across the world in an effort to kick-start growth and lending, an era of higher inflation could be expected in the future; a key positive driver to real estate rents and values.

Currently undervalued and undersupplied, German residential apartments, according to the ULI, look to offer a relatively secure option for many investors in 2009. With the potential upside in rental and capital growth in the medium to long-term, combined with increased investor interest, the potential for future returns remains compelling.

As the refurbishment programme progresses, the Company's portfolio will continue to move towards a stabilised basis as one-off costs and the short-term negative effects of the refurbishment programme diminish. Rental income and FFO should increase as a result of decreasing vacancies over the coming year whilst all efforts will be made to keep the portfolio value stable.

It is the opinion of both the Board of the Company and the Manager, that although the tough market conditions may continue in the short to medium-term, the Company has the infrastructure and quality of management required to weather current market conditions, and continue to add value in the long-term.

Nigel Caine For the Manager Speymill Property Group Limited

Andrew Wallis For the Investment Adviser GOAL service GmbH

13 October 2009

 

 Consolidated statement of comprehensive income

	Note	2009	2008
		€'000	€'000
Rent and related income		149,997	109,562
Direct costs		(81,709)	(64,528)
Gross profit		68,288	45,034
Change in fair value of investment property	4	(44,429)	(56,995)
Manager's fees		(10,221)	(11,014)
Professional fees		(3,595)	(1,850)
Audit fees		(215)	(262)
Other expenses		(1,323)	(1,157)
Administrative expenses		(15,354)	(14,283)
Results from operating activities		8,505	(26,244)
Financial income		2,075	17,706
Financial expenses		(180,093)	(53,805)
Net financing expense	3	(178,018)	(36,099)
Loss before taxation		(169,513)	(62,343)
Taxation		6,367	(4,435)
Loss after taxation		(163,146)	(66,778)
Other comprehensive income		-	-
Total comprehensive income for the year		(163,146)	(66,778)
Loss attributable to equity holders of the company		(163,146)	(66,778)
Total comprehensive income attributable to equity holders of the company		(163,146)	(66,778)
Earnings as per above
Basic loss per Ordinary Share (cents)	9	(48.39)	(19.13)
Diluted loss per Ordinary Share (cents per above)	9	(48.39)	(19.13)
Basic loss per C Share (cents per above)	9	-	(13.71)
Diluted loss per C Share (cents per above)	9	-	(13.71)

The Directors consider that all results derive from continuing activities.

Consolidated balance sheet

	Note	2009	2008
		€'000	€'000
Investment property	4	1,455,440	1,475,693
Total non-current assets		1,455,440	1,475,693
Derivative financial instruments	5	-	61,238
Trade and other receivables		20,793	36,136
Income tax recoverable		113	-
Cash and cash equivalents		62,155	103,350
Total current assets		83,061	200,724
Total assets		1,538,501	1,676,417
Issued share capital	10	16,857	69,075
Share premium		184,992	132,774
Distributable reserves		45,747	208,893
Other reserves	11	2,951	2,951
Total equity		250,547	413,693
Interest bearing loans	6	1,164,539	1,162,622
Deferred tax liability		-	6,160
Derivative financial instruments	5	61,833	-
Total non-current liabilities		1,226,372	1,168,782
Trade and other payables		24,401	37,701
Provisions for refurbishments	7	23,349	35,124
Interest bearing loans	6	13,832	20,826
Income tax payable		-	291
Total current liabilities		61,582	93,942
Total liabilities		1,287,954	1,262,724
Total equity and liabilities		1,538,501	1,676,417
Net asset value per Ordinary Share (cents)	8	74.32	122.01
Net asset value per C Share (cents)	8	-	85.14

   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 2007	203,774	54,248	224,683	1,026	483,731
Total comprehensive income for the year  Loss for the year	-	-	(66,778)	-	(66,778)
Other comprehensive income	-	-	-	-	-
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Shares issued in the year	71,000	(71,000)	-	-	-
Shares cancelled in year	(203,774)	203,774	-	-	-
Shares cancelled following market  purchases	(1,925)	-	(6,074)	1,925	(6,074)
Cancellation of share premium	-	(54,248)	54,248	-	-
Foreign exchange translation  differences	-	-	16,958	-	16,958
Dividend paid	-	-	(14,144)	-	(14,144)
Total contributions by and distributions to owners	(134,699)	78,526	50,988	1,925	(3,260)
Balance at 30 June 2008	69,075	132,774	208,893	2,951	413,693

 

	Share capital	Share premium	Retained earnings	Other reserves	Total Shareholders' funds
	€'000	€'000	€000	€'000	€'000
Balance at 1 July 2008	69,075	132,774	208,893	2,951	413,693
Total comprehensive income for the year  Loss for the year	-	-	(163,146)	-	(163,146)
Other comprehensive income	-	-	-	-	-
Transactions with owners recorded directly in equity
Contributions by and distributions to owners
Shares issued in the year	8,357	(8,357)	-	-	-
Shares cancelled in year	(60,575)	60,575	-	-	-
Total contributions by and distributions to owners	(52,218)	52,218	-	-	-
Balance at 30 June 2009	16,857	184,992	45,747	2,951	250,547

 

On 16 October 2008 the C Shares were converted into new Ordinary Shares on the basis of the conversion ratio set out in the C Share admission document which reflected the proportion of the Group's fully diluted net asset values attributable to each C Share compared with that attributable to each Ordinary Share at the calculation date.

 

Consolidated statement of cash flows

	Note	2009	2008
		€'000	€'000
Operating activities
Loss before taxation		(169,513)	(62,343)
Adjustments for:
Loss on disposal of investment property		30	-
Financial income	3	(2,075)	(17,706)
Financial expenses		179,849	53,805
Change in fair value of investment property	4	44,429	56,995
Operating profit before changes in working capital		52,720	30,751
Change in trade and other receivables		15,343	(20,938)
Change in trade and other payables		(13,300)	(4,284)
Cashflow from operations		54,763	5,529
Interest paid		(55,684)	(49,071)
Interest received		2,075	13,994
Derivative financial instruments sold		401	-
Income tax paid		(197)	(16)
Net cash generated from/(used in) operating activities		1,358	(29,564)
Investing activities
Acquisition of investment property	4	(24,396)	(578,323)
Effect of exchange rate fluctuations to date of redenomination		-	(33,569)
Refurbishment provision utilised		(11,775)	-
Disposals of investment property		190	1,518
Net cash used in investing activities		(35,981)	(610,374)
Financing activities
Purchase of C Shares		-	(6,074)
Dividends paid		-	(14,144)
Effect of exchange rate fluctuations to date of redenomination		-	24,763
Repayment of loans		(24,572)	-
New interest bearing loans		18,000	477,546
Net cash flow (used in)/generated from financing activities		(6,572)	482,091
Net decrease in cash and cash equivalents		(41,195)	(157,847)
Effect of exchange rate fluctuations to date of redenomination		-	16,958
Cash and cash equivalents at beginning of year		103,350	244,239
Cash and cash equivalents at end of year		62,155	103,350

  Notes to the consolidated 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 Acts 1931-2004 on 1 March 2006 as a public company with registered number 115746C.

Pursuant to an admission document dated 13 March 2006, there was a placing of up to 170 million Ordinary Shares. The Shares of the Company were admitted to trading on AIM following the close of the placing on 17 March 2006. In total, 170 million Shares were issued.

Pursuant to an admission document dated 17 April 2007, there was a placing of up to 250 million C Shares. The Shares of the Company were admitted to trading on the AIM following the close of the placing on 10 May 2007. In total, 250 million Shares were issued.

The Company was granted an Order from the High Court of Justice of the Isle of Man on 9 October 2007 confirming that it may cancel its entire share capital by extinguishing and cancelling all of the issued and unissued Ordinary Shares of 10 pence each and C Shares of 50 pence each in the Company for the purposes of redenominating the shares of the Company from Sterling into Euro. Following the granting of this Order, with effect from close of trading on Tuesday 16 October 2007, the Company cancelled all of the Ordinary Shares of 10 pence each and C Shares of 50 pence each and in the place of the Ordinary 10 pence shares so cancelled, allotted and issued new paid up Euro Ordinary Shares with a nominal value of 5 Euro cents each and in the place of the 50 pence C Shares so cancelled, allotted and issued new paid up Euro C Shares with a nominal value of 25 Euro cents each; the effective date of redenomination of all shares into Euros was 17 October 2007.

On 16 October 2008 the C Shares were converted into new Ordinary Shares on the basis of the conversion ratio set out in the C Share admission document which reflected the proportion of the Group's fully diluted net asset values attributable to each C Share compared with that attributable to each Ordinary Share at the calculation date.

The annual report of the Company as at and for the year ended 30 June 2009 comprises the Company and its subsidiaries (together referred to as the "Group"). 

The percentage of shares held in all these subsidiaries is 100%. 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.

2. Significant accounting policies

Please refer to the report and financial statements for the year ended 30 June 2009 for a summary of the Group's significant accounting policies.

3 Net financing expense

	2009	2008
	€'000	€'000
Interest income on bank balances	2,075	13,994
Change in fair value of derivative financial instruments	-	3,712
Financial income	2,075	17,706
Interest charges on bank balances	(55,684)	(49,062)
Realised loss on derivative financial instruments	(870)	(4,734)
Change in fair value of derivative financial instruments	(121,801)	-
Bank charges	(244)	(9)
Amortised financial charges	(1,494)	-
Financial expenses	(180,093)	(53,805)
Net financing expense	(178,018)	(36,099)

4 Investment property

	2009	2008
	€'000	€'000
Brought forward	1,475,693	861,805
Additions	24,396	670,883
Disposal	(220)	-
Net revaluation deficit	(44,429)	(56,995)
Value of investment property at end of year	1,455,440	1,475,693

The fair value of the Group's investment property at 30 June 2009 has been arrived at on the basis of a valuation carried out at that date by DTZ Zadelhoff Tie Leung GmbH, independent valuers that are not related to the Group. DTZ Zadelhoff Tie Leung GmbH 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.

Security

At 30 June 2009, there was a first ranking mortgage on the above properties securing the bank loan of €1,182,133,707 (2008:€1,183,448,000).

5 Derivative financial instruments

Group
	2009	2008
	€'000	€'000
Fair value of interest rate swap contracts	(61,833)	61,238

2009

The fair value of the interest rate swap contracts comprises 90 contracts as follows:-

Notional amount	Premium	Maturity	Fixed rate %	Variable rate	2009
€'000	€'000				€'000
356,772	6,715	31.12.2014	4.1963	Euribor	(23,990)
191,650	2,225	30.09.2013	3.7	Euribor	(8,598)
214,293	3,133	15.10.2013	3.7325	Euribor	(9,895)
405,746	6,603	15.04.2014	3.745	Euribor	(18,962)
20,550	-	31.12.2014	3.265	Euribor	(388)
					(61,833)

2008

The fair value of the interest rate swap contracts comprises 89 contracts as follows:-

Notional amount	Premium	Maturity	Fixed rate %	Variable rate	2008
€'000	€'000				€'000
390,000	7,250	31.12.2014	4.1963	Euribor	14,907
191,650	2,225	30.09.2013	3.7	Euribor	10,934
214,293	3,133	15.10.2013	3.7325	Euribor	11,967
405,746	6,603	15.04.2013	3.745	Euribor	23,430
					61,238

6 Interest-bearing loans

Group
	2009	2008
	€'000	€'000
The interest bearing loans are repayable as follows:
On demand or within one year	13,832	20,826
In the second year	19,080	14,372
In the third to fifth years inclusive	1,145,459	1,148,250
	1,178,371	1,183,448
Less: amount due for settlement within 12 months (shown under current liabilities)	(13,832)	(20,826)
Amount due for settlement over the remaining period of the loans	1,164,539	1,162,622

The Group has pledged properties and the rental income of the properties to secure related interest bearing facilities granted to the Group for the purchase of such properties. The average effective rate is 4.70%.

7 Provisions for refurbishments

	2009	2008
	€'000	€'000
Provisions for refurbishments	23,349	35,124
	23,349	35,124

The Group has provided for refurbishment capital expenditure which was underway at the balance sheet date and for which it is contractually obliged to pay.

8 Net asset value per share

	2009	2008
Ordinary Shares
Net assets attributable to Ordinary shareholders (€'000)	250,547	207,409
Ordinary Shares in issue (thousands)	337,131	170,000
Net asset value per Ordinary Share (in cents)	74.32	122.01
C Shares
Net assets attributable to C shareholders (€'000)	-	206,284
C Shares in issue (thousands)	-	242,299
Net asset value per C class (in cents)	-	85.14

The C Shares converted into new Ordinary Shares on 16 October 2008 on the basis of the Conversion Ratio set out in the C Share admission document, which reflected the proportion of the Group's fully diluted net asset values attributable to each C Share compared with that attributable to each Ordinary Share at the Calculation Date. 

9 Basic and diluted loss per share

Basic and diluted loss per Ordinary Share is calculated by dividing the loss attributable to the ordinary shareholders by the weighted-average number of Ordinary Shares in issue during the year.

Basic and diluted loss per share
	2009	2008
Ordinary Shares
Loss attributable to Ordinary shareholders (€'000)	(163,146)	(32,529)
Weighted-average Ordinary Shares in issue for the year ended 30 June (thousands)	337,131	170,000
Basic and fully diluted loss per Ordinary Share (cents per share)	(48.39)	(19.13)
C Shares
Loss attributable to C shareholders (€'000)	-	(34,249)
Weighted-average C Shares in issue for year-ended 30 June (thousands)	-	249,756
Basic and fully diluted loss per C Share (cents per share)	-	(13.71)

There is no difference in the current year between basic and diluted loss per share as the exercise of options would be anti dilutive. 

10 Share capital

Share capital
Ordinary Shares of €0.05 each	Number	€'000
In issue at the start of the year	170,000,000	8,500
Issued during the year	167,130,528	8,357
In issue at 30 June 2009	337,130,528	16,857

Share capital
C Shares of €0.25 each	Number	€'000
In issue at the start of the year	242,299,000	60,575
Cancelled during the year	(242,299,000)	(60,575)
In issue at 30 June 2009	Nil	Nil

The authorised share capital of the Company is €30,000,000 (thirty million Euros) divided into 600,000,000 Ordinary Shares of €0.05 each.

On 16 October 2008 the C Shares were converted into new Ordinary Shares on the basis of the conversion ratio set out in the C Share admission document which reflected the proportion of the Group's fully diluted net asset values attributable to each C Share compared with that attributable to each Ordinary Share at the calculation date.

11 Other reserves

Group and Company
		Capital redemption reserve	Share option reserve	Total
		€000	€'000	€'000
Balance at 1 July 2008		1,925	1,026	2,951
Balance at 30 June 2009		1,925	1,026	2,951

Capital redemption reserve was established on cancellation of shares purchased in the open market.

Share option reserve represents the fair value of options granted to the broker on admission to trading on AIM.

 

 

12 Contingent liabilities and commitments

As at 30 June 2009, property purchases of €nil (30 June 2008: €16.7m) were notarised (committed to be purchased).

GOAL service GmbH ("GOAL") was previously served with a claim for agents' commissions by Marktblick in respect of certain property transactions that were carried out as part of a larger portfolio transaction subsequent to their initial introduction by Marktblick. The claim was defended and the court ruled in GOAL's favour, and subsequent to that the other side has appealed. GOAL still believes the claim is without merit. In the event that Marktblick is successful, then commission of up to €200,000 could be payable by GOAL which would be rechargeable to the Company.

 

13 Post balance sheet events

There have been no material events since the balance sheet date that require disclosure in the financial statements.

 

14 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 to be a related party. Management fees paid to the Manager during the year amounted to €10,220,729 (2008: €11,014,288). This amount includes investment advisory fees paid to GOAL service GmbH ("GOAL"). GOAL (the Investment Adviser) is related to the Manager and performs property management and administration related services. Management and administration fees payable to GOAL for the year amounted to €7,038,858 (2008; €6,110,362). 

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 year amounted to €2,039,734 (30 June 2008: €857,012).

GOAL reporting service GmbH ("GRS") is also related to the Manager and performs bookkeeping services. Bookkeeping fees payable to GRS for the year amounted to €1,119,339 (2008: €214,473). 

ZELOS Forderungsmanagement GmbH ("Zelos") is also related to the Manager and performs collection enforcement services. Fees payable to Zelos for the year amounted to €300,000 (2008: €nil).

ENDFR FFFFWDSUSEES

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Sdic Power.