Final Results

29 November 2010

Speymill Deutsche Immobilien Company plc

("SDIC" or "the Company")

Preliminary results for the year ended 30 June 2010

Speymill Deutsche Immobilien Company plc (AIM: SDIC), the pan-German residential property investment company listed on AIM, announces its preliminary result for the year ended 30 June 2010.

Business summary

* Funds from operations (FFO) is equivalent to the recurring operational earnings of the Company, as it adjusts the profit and loss for unrealised/realised movements on hedging instruments, investment properties, deferred tax provisions and any non-recurring expenses

# European Public Real Estate Association - excludes provision for deferred taxes, derivative financial instruments and capitalised loan arrangement fees

± Before disposals of €27.9m made during the year ended 30 June 2010

Business summary

·; Property values remained relatively stable - a slight decrease in portfolio value of 4.9% to €1,364m on a like-for-like basis (excluding disposals and capital expenditure additions), equating to a 7.0% valuation yield on contracted passing net rents as at 30 June 2010

·; EPRA NAV down 30% year-on-year to €0.64 per share (IFRS NAV down 54% to €0.34 per share largely due to interest rate swaps mark-down of €41.7m and portfolio value reduction of €70.0m)

·; Interest rate swaps mark-down, if held to maturity, has no cash impact on the Company or effect on its debt covenants

·; Vacancies show further improvement, reducing by 1.4% in the year to 13.5% as at 30 June 2010

·; Deep recurring cost savings achieved with the termination of the Investment Management Agreement and acquisition of GOAL service GmbH

·; Negotiations with the Company's lead facility agent continue with a view to restructuring the debt facilities in order to ensure long term compliance with its loan covenants and repayment schedules, and secure sustainable banking arrangements

·; The Company received a number of approaches from third parties with a view to a recapitalisation of the Company, one of which may or may not result in a firm offer being made for the Company. The Board continues to hold discussions with interested parties

·; FFO loss of €12.4m due to higher non-recoverable operating costs and higher-than-expected bad debt provisions

·; Expansion of direct property management by GOAL service GmbH to 76% of the portfolio as of 30 June 2010

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

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.

Executive Director's report

Shareholders will be aware that on 23 July 2010, Ray Apsey retired from his role as Chairman, and from the Board of Directors. I would like to thank Mr Apsey for his valuable contribution and guidance since the Company's launch and wish him all the best in his retirement. With effect from 1 August 2010, I resigned as Chairman of the Audit Committee, and accepted the temporary position of Executive Director in order to oversee, amongst other things, the internalisation of the management and the acquisition of GOAL service GmbH. Leonard O'Brien took up the role as Chairman of the Audit Committee on the same date. I am pleased to present the Annual Report and Accounts of the Company for the year ended 30 June 2010.

The Company has been faced with many tough challenges during an extremely demanding year, and these issues are addressed in more detail throughout this report and the business review.

Results

Asset values decrease marginally

The total combined property portfolio was valued at €1,364m as at 30 June 2010, which equates to a yield of 7.0% on contracted passing net rents as at 30 June 2010. The latest valuation reflects a decrease of 4.9% or €70.0m for the year, on a like-for-like basis. Whilst it is disappointing that this downward trend has continued during the year, when compared against other European countries, Germany's residential real estate sector still shows signs of resilience and real growth prospects.

Vacancies continue to show improvement

Vacancies showed further improvement during the year from 14.9% as at 30 June 2009 to 13.5% as at 30 June 2010, reinforcing the long-term economic benefits derived from the structural refurbishment programme and the transition to a dedicated property management platform. This will continue to be an area of core focus for the Board going forward.

IFRS NAV affected by interest rate swaps revaluations and decrease in property values

The value of interest rate swaps held by the Company has suffered a significant mark-down during the year due to further reductions in forward EURIBOR swap rates. For the year ended 30 June 2010, the swaps were marked down by €41.7m. Consequently, this, combined with the decrease in property values and operating losses, saw the net asset value ("NAV") per share fall by 54% under IFRS. On an EPRA NAV* basis, the NAV per share decrease was 30%. 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 2010, the Company recorded a net operating loss of €35.0m compared to a net operating profit of €8.5m for the year ended 30 June 2009. This was mainly as a result of the decrease in the value of the property portfolio, and the cost of the termination of Investment Management Agreement with Speymill Property Group Limited.

Gross rent for the year ended 30 June 2010 decreased, amounting to €144.8m, compared to €150.0m for the year ended 30 June 2009, mainly as a result of a higher average vacancy rate throughout the year and the disposal of thirteen properties.

Funds from operations (FFO) stood at a loss of €12.4m for the year ended 30 June 2010 (2009: €709k) which was mainly attributable to higher non-recoverable operating costs, increased bad debt provisions against tenant debtors inherited from subcontracted property managers, and a loss on disposal of one of the Company's property owning subsidiaries.

* European Public Real Estate Association - excludes provision for deferred taxes, derivative financial instruments and capitalised loan arrangement fees

Cash management

As indicated in the announcement made on 4 June 2010, the Company was not in a position to meet its amortisation payments on three of the six financing packages for the quarter ended 15 July 2010, and on four of the six financing packages for the quarter ended 15 October 2010. Furthermore, the Company only paid part of the interest due on three of the financing packages for the quarter ended 15 October 2010. These non-payments/part-payments have resulted in events of default on the corresponding financing packages.

The Company has applied for a deferral of those payments with its lenders as negotiations on a revised, long-term funding solution are progressed. However, the Company intends to pay the balance of the outstanding interest relating to the quarter ended 15 October 2010 over the following quarter. 

Following discussions between the Board and the Investment Adviser, it was determined that the Company needed to retain some liquidity in order to facilitate a capital expenditure programme, the purpose of which is to bring further units online that are currently not in a condition suitable for immediate rental. This should reduce vacancy and therefore enhance operational performance.

A portion of the shortfall on the interest payments which fell due on 15 October 2010 was committed to this capital expenditure programme.The Company and its lenders believe that it is important to improve and/or maintain the overall quality of the property portfolios in order to ensure that the performance of the portfolios is improved in the medium term.

Shareholders will be aware that Mr Mellon, a director and substantial shareholder in SDIC, lent €630,000 to the Company in July 2010. That loan was used to assist the Company with its working capital requirements. As reported in the announcement made on 24 November 2010, the loan was due to mature on 15 November 2010, but Mr Mellon has agreed to extend the maturity date to 7 January 2011. All other terms of the loan agreement remain unchanged.

As part of the wider bank negotiations, the Board is examining ways in which the Company can address its immediate working capital needs. The first stage of this process has involved the elimination of all avoidable costs. Significant progress on this front has been made with the termination of the Investment Management Agreement and the internalisation of the property management function via the acquisition of GOAL service GmbH. The Board is also in discussions with interested parties who have indicated that they are willing to work with the Company in order to introduce further capital into the Company, and this is discussed in more detail below.

Banking covenants and going concern

On 22 February 2010, the Company announced that it would likely be in breach of one of its amortisation related debt service cover ratio ("DSCR") covenants. This DSCR was in breach of its covenant level on the quarterly testing date of 31 March 2010, resulting in an event of default, and has remained in breach since that point.

On 12 August 2010, the Company also announced that it had breached the interest cover ratio ("ICR") covenants on three of the financing packages resulting in further events of default.

All of the financing packages are also subject to loan to value ratio ("LTVs") covenants. Whilst none of the packages are in breach of their LTV financial covenants, the one securitised package has now surpassed its amortisation covenant level and is therefore now liable to amortisation payments along with the other packages.

Shareholders will be aware that the Company is in ongoing discussions with NIBC Bank N.V., the facility agent on the four remaining packages. Those discussions are being held with a view to restructuring some of the Company's debt such that the Company will be in compliance with its loan covenants, and will be able to maintain that position on an ongoing basis. The Company will provide updates to shareholders as and when further information becomes available.

Due to the recent cost savings and operational improvements that are leading to significantly improved operational cash flows, as well as the positive discussions that have taken place so far with the lenders and interested parties, the Directors are of the opinion that it remains appropriate to prepare these annual financial statements on a "going concern" basis. Please also refer to note 2.4 of the consolidated financial statements for further details.

Internalisation of management and acquisition of GOAL service GmbH

It was announced on 23 July 2010 that the Company had reached agreement with Speymill Property Group Limited ("SPG") to terminate the Investment Management Agreement ("IMA").

The effective date for the termination of the IMA was 1 June 2010 but, as part of the agreement with SPG, the Company entered into a continuing services agreement whereby SPG continued to provide investment management services up until 16 August 2010. Following the expiry of that agreement, the Company has recruited senior personnel, and those employees are located at the Company's registered office.

The consideration paid, in lieu of notice, for the termination of the IMA was €8.991m which was settled by the transfer to SPG of property assets owned by the Company, at the 31 December 2009 external valuation, along with a balancing amount of convertible loan notes. The consideration for the termination of the IMA was satisfied by the transfer to SPG of shares in two separate special purpose vehicles ("SPVs"), which included both the property assets and the associated bank loans. This will significantly reduce the cash drag previously suffered on the payment of monthly management fees and will significantly enhance working capital at Group level.

As reported in the announcement on 17 November 2010, the Company acquired 100% of the share capital of GOAL service GmbH from Speymill Property Group (UK) Limited ("SPGUK") on 18 November 2010. The total consideration paid was €1.03m comprising an amount in relation to the adjusted Net Asset Value of GOAL and the settlement of certain intercompany balances between GOAL and SPGUK. In addition, the Company agreed to settle an amount of €700,000 in relation to outstanding fees payable by SDIC in relation to GOAL services provided historically.

The consideration for the acquisition of GOAL and the settlement of the outstanding fees will be satisfied by the issue of a convertible loan note to SPGUK.

The internalisation of GOAL is an important step towards achieving an overall funding solution with GOAL continuing to manage the Company's property portfolio but reporting directly to the Board of SDIC. It is also anticipated that it will enable the Company to realise cost savings.

Approaches received

On 7 September 2010 the Company announced that it had received a number of approaches from third parties with a view to a refinancing of the Company. The Board, its advisers and the lenders facility agent have met with various interested parties in order to discuss and consider their proposals in detail.

At the time of writing, discussions are ongoing in relation to the interested parties, with the Board's preferred outcome being an injection of fresh capital, and possibly additional resources and expertise in property asset management. Those discussions are taking place in tandem with the bank negotiations in order for any potential new investor to be satisfied that any revised financing terms constitute a workable solution. Conversely, the Company's financing banks will need to be satisfied that any potential new investor has the right credentials and the financial capability of injecting the required level of fresh capital.

Share price

As at 25 November 2010, the Company's share price was €0.06. Whilst it is disappointing that the Company continues to trade at a substantial discount to NAV, the Board is of the view that a contributing factor is undoubtedly the pending resolutions to the ongoing bank negotiations, and recent breaches of banking covenants. A successful resolution to these issues should help to strengthen the share price.

Dividend

The Board does not propose to make a dividend payment for the financial year. Given the Company's current situation the Board feels that the Company should preserve cash in order to enhance the operational performance of the property portfolio through capital expenditure. It is not possible at the current time to indicate when the next dividend will be paid.

Optimisation

One of the key strategies of the Company is to increase occupancy levels, thus increasing rental income whilst decreasing the proportion of service charges suffered on vacant area. To this end, the Company has allocated cash within its budgets for capital expenditure across the property portfolio. This will be carefully assessed and directed towards those areas which will provide the maximum return on capital employed to the Company.

GOAL service GmbH ("GOAL") now has direct property management responsibility for 76% of the Company's portfolio, further enhancing the control that is achieved with a dedicated property management platform. Churn rates reduced from a peak of 16.9% in October 2009 to 15.0% in September 2010, indicating that service levels have improved. Tenant retention is a core focus of management as, apart from increased contractual net rentals, reletting commissions and void costs are avoided. The transfer of property management to GOAL should mean that more transparent data and shorter reporting lines will lead to greater operational efficiencies, improved rental income and enhanced debt collection.

GOAL is also continuing to explore selective asset disposals in order to further streamline the portfolio and increase operational efficiencies. Given the current low interest environment the interest rate swaps currently have a negative carrying value. Any asset disposals would be made in light of the cost of unwinding the related interest rate swap. This would significantly reduce the amount of surplus cash generated from asset disposals.

I am pleased to report that property sales of €24.2m were completed during the year above the overall June 2009 valuation. One property holding subsidiary was disposed of during the year at a loss of €2.2m due to operational reasons in order to further refine the property portfolio. The Board remains committed to exploring opportunities which may be advantageous.

Outlook

As noted in the interim report, the Board is confident that in the medium to long-term the move to a dedicated property management platform will produce better results than previously shown by fragmented managers as greater control can be applied. Vacancies are expected to decrease gradually over the medium-term, as more units are successfully handed over to GOAL.

Now that the internalisation of the property management function has been completed, the Company will have a more focused, cost effective and efficient platform with which to actively manage its assets. This dedicated resource should enable the Company to eliminate unnecessary costs and vertically integrate all of the property management functions to ensure its objectives are met.

The immediate focus of the Board is on the ongoing discussions with the Company's financing banks and the recapitalisation process. This process has progressed significantly over the last few months and we believe that we will be in a position to update Shareholders in more detail in the near future.

The German residential property sector looks set to remain relatively stable in the short to medium-term and the Board remains of the belief that the Company would generate significant capital growth if German residential values converge with replacement cost. The Board will continue to position the Company in line with this strategy in order to deliver value to shareholders.

David Humbles

Executive Director

25 November 2010

Business review

German economic prospects

As reported by the Federal Statistics Office (Destatis), the German economy is recovering rapidly with gross domestic product (GDP) rising by 2.2% in the second quarter of 2010. Such a quarter-on-quarter growth has never been recorded before in reunified Germany. At the same time, the result for the first quarter of 2010 was revised substantially upwards, showing a 0.5% increase. This reinforces the view that the recovery of the German economy, which lost momentum at the turn of 2009/2010, is well and truly back on track.

Germany's labour market continued to strengthen in September 2010, with the seasonally-adjusted number of unemployed workers declining by a steeper-than-expected 40,000, according to the Federal Labour Office. That brought the seasonally-adjusted unemployment rate down to 7.5%. The resilience of Germany's labour market has been tied in part to the government's short-working-hours programme, which provided subsidies aimed at encouraging employers to keep workers on the payroll at reduced hours rather than to lay them off.

The German Ifo business climate index improved slightly in September 2010 to 106.8 from 106.7 in August 2010. Economists had expected a fall in sentiment to 106.4 on the index. As noted above, the German economy reported stellar growth in the second quarter of 2010, but is widely expected to grow at a slower pace in the coming quarters. The Ifo report said that German companies still see good prospects for exports, but no longer expected the fast expansion of previous months.

The economic growth witnessed in 2010 supports the course set by the Federal Government in 2009 with the introduction of the economic stimulus package of €50 billion, spread over a period of two years, which included investment in infrastructure, social benefits, tax concessions and soft loans. Germany's Economics Minister, Rainer Brüderle, stated that the strong growth performance confirmed that the German government had put the right economic measures in place. He also noted that whilst the results could not be classed as an economic miracle, Germany was now experiencing a significant upswing.

German residential real estate market

Germany is currently the most attractive real estate investment location in Europe, according to the latest findings of the European DTZ Fair Value Index. The index attempts to offer investors insight into the relative attractiveness of individual markets by ranking them according to their expected returns against risk-adjusted returns required.

Interest in the German residential property sector also continues to show signs of improvement, according to King Sturge. In August 2010, the King Sturge Real Estate Climate Index for the German residential market reached 120.2 index points, the highest level since the survey began in January 2008. The German economy has quickly returned to job-creating growth, supported by fiscal and monetary impetus and a strong export boom. This is encouraging news when incomes are the most significant determining factor in the demand for property.

The demand for residential accommodation throughout Germany is expected to grow over the next ten years, in spite of a declining population. The key reason for this is the growth in the number of single-person households, reducing the average size of households. According to DTZ, by 2020 it is expected that the number of households will rise by 1.1m to 40.5m. In particular there is a shortage of good value accommodation for families and low-income households. As it stands, the current volume of new builds does not meet demand which indicates that there is still potential upside in rental and capital growth in the medium to long-term.

Property valuations remain resilient

The Company's portfolio was valued at €1,364m as of 30 June 2010, a decrease of 4.9% or €70.0m on a like-for-like basis for the year. As German property did not experience a period of speculative construction and high overleveraging in the years leading up to the global credit crisis, there has been little need for any subsequent adjustment.

The Company's property portfolio has remained relatively stable despite this slight decrease in value. In arriving at their valuation the Company's property valuers, DTZ Zadelhoff Tie Leung GmbH, partially revised their assumed market rents in order to reflect a different re-letting potential for some of the properties. In addition, there was the effect of re-categorising space within properties and a corresponding reduction in total lettable area of approximately 5,500m².

* Figures were adjusted to compare the portfolio as at 30 June 2010 with those of June 2009 on a like-for-like basis, excluding disposals and capital expenditure additions within the financial year

** Thirteen buildings were divested during the financial year

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

# Original acquisition cost

Vacancies steadily decreasing

Vacancy has fallen steadily from 14.9% in June 2009 to 13.5% in June 2010. This encouraging progress is in line with expectations and has been aided by the progress of the structural refurbishment programme, and further units having been transferred under the direct property management of GOAL service GmbH ("GOAL"). Vacant units remain a key part of the Company's objective to maximise rental income and decrease non-recoverable costs. On an available basis, vacancy has decreased from 7.7%, as at 30 June 2009, to 4.7% as at 30 June 2010.

As at August 2010, over a third of vacant units required little or no works in order for them to be re-let, and efforts are being made to achieve occupancy of these units. The Company has committed to a capital expenditure programme in order to bring the remaining units online. This capital expenditure requirement is anticipated to be funded from operational cash flows, and is designed to improve the operational performance of the portfolio by further reducing vacancy.

Tenant churn has decreased from a peak of 16.9% in October 2009, to 15.0% in September 2010. As the Company moves onto a recurring capital improvements programme, this is expected to decrease further as works become more targeted at a unit level in the future. Churn rates should also benefit from having a dedicated property management platform, improving tenant satisfaction and retention levels. This is discussed in more detail below.

Property management update

As at 31 December 2008, GOAL was directly undertaking the property management of 8% of the portfolio, and by 31 December 2009, this figure had increased to 41%. By 30 June 2010, Goal had taken over property management activities for 76% of the portfolio. It is the intention that by the end of December 2011, GOAL will directly manage 92% of the portfolio. The remaining 8% are subcontracted longer term.

This more direct control has begun to facilitate improvements at an operational level. Lettings are increasing due to the closer cooperation between GOAL and local lettings agents. Vacancy was 14.9% as at 30 June 2009, and has reduced to 13.5% as at 30 June 2010. Collection activities have also benefited. Between January and August 2010 the average rental collection rate has improved to around 98%, and this is in spite of higher service charge prepayments becoming payable by tenants.

Property disposals

The Company has made selective disposals during the year in order to help optimise the property portfolio and to improve operational efficiency. The asset disposals were considered in light of the cost of unwinding the related interest rate swap. Given the continued low interest environment, this significantly reduces the amount of surplus cash generated by such disposals and is likely to temporarily reduce the number of transactions taking place in the near term.

Property sales of €24.2m were completed during the year above the overall June 2009 valuation. One property holding subsidiary was disposed of during the year at a loss of €2.2m due to operational reasons in order to further refine the property portfolio.

Summary of property sales

* Net of sales costs

Structural refurbishment programme

The Company's structural refurbishment programme is now complete and substantially all of the refurbished units have been successfully let.

Whilst the programme has had a temporary negative effect on vacancy as noted earlier, the success seen in re-letting refurbished units is a positive step towards a stabilised portfolio.

Following completion of the structural element of the refurbishment programme the Company now enters into a phase of ongoing, continuous operational refurbishments. This will involve units that become available following the expiry or termination of the lease. The work required varies from unit to unit, ranging from minor to more substantial works, but is necessary in order to maintain the quality of the units on offer and ensure their availability for future lettings.

Cash management

Concerted efforts have been made to monitor the Company's cost base, most notably the cancellation of the Investment Management Agreement with Speymill Property Group Limited. This should result in considerable cost savings to the Company going forward. Following the internalisation of the management, it is expected that further cost savings can be identified and implemented in the short to medium-term.

As stated in the announcement on 4 June 2010, the Company made an application to the facility agent for a deferral of amortisation payments which fell due on 15 July 2010 and 15 October 2010. In addition, the Company only paid part of the full amount of interest due on three of the financing packages for the quarter ended 15 October 2010. These non-payments/part-payments resulted in events of default which will now form part of the ongoing negotiations with the bank. It is, however, expected that any unpaid interest as at 15 October 2010 will be fully settled from operational cash flows by the end of December 2010.

Collection of rents and rental arrears remains a high priority for SDIC. The Company continues to implement measures to increase recovery levels for rent and service charge collection and to focus on the continued improvement in its overall occupancy levels. The appointment of a dedicated debt collection agency, which is designed to help minimise the age profile of tenant debts and thus the associated risk of non-payment, continues to show improved cash collection levels whilst reducing associated costs of protracted legal processes in pursuing aged debts.

As stated in the last interim report, the Company witnessed a rise in service charge costs in 2008 and 2009, mainly as a result of increased commodity prices, most notably energy prices. This led to a shortfall on service charge costs, which, due to the way German tenant law operates, the Company had to bear until the amounts could be reconciled and recharged to tenants. Towards the end of 2009, the Company completed the reconciliation exercise of the 2008 service charge costs, and the shortfall was billed during Q4 2009. These amounts were substantially collected during Q1 & Q2 2010 and the tenant service charge prepayment amounts reset and brought further in line with the actual run rate of service charge costs.

This shortfall continued throughout 2009 and will have to be borne by the Company until these amounts have been reconciled and billed in 2010. This process has commenced and the reconciliation process is expected to be completed and billed by the end of 2010. It is a core objective of the Company to reclaim these amounts as soon as possible. The majority of these amounts are scheduled to be collected in Q1 & Q2 2011.

When the reconciliation process is carried out, the contractual service charge prepayments for tenants are set as close as possible to the underlying cost levels. This is achieved as far as possible, although in a number of cases it is not possible due to commercial or contractual restrictions. In these instances, the Company will have to continue to bear the shortfall until the amounts can be reclaimed at a later date.

Rental arrears have shown signs of stabilisation following the property management take-over by GOAL from subcontracted property managers. This is despite operating against continuing harsh economic conditions.

As noted earlier, an ongoing capital improvements programme will be funded from operational cash flows. Sufficient working capital will be set aside in order to bring further units to a marketable condition, thus reducing vacancy and improving operational performance.

Banking facilities and going concern

As at 30 June 2010, through its special purpose vehicles ("SPVs") of Isle of Man limited companies, the Group had six financing packages, or "silos", totalling €1.15bn. Each of these silos has a loan to value ("LTV") covenant, four silos have an interest cover ratio ("ICR") covenant and three silos have a debt service cover ratio ("DSCR") covenant. Further details of the loans are provided in note 14 of the consolidated financial statements.

Deutsche Genossenschafts-Hypothekenbank AG was the lender on the two smaller silos totalling €18m of debt. These two smaller silos were disposed of post period end through the transfer of the property owning subsidiaries holding these loans as part of the consideration for the termination of the Investment Management Agreement (see note 26 of the consolidated financial statements for further details).

NIBC Bank N.V. is the lead facility agent on the four remaining silos totalling €1,129m of debt. On the one silo that was securitised there is an amortisation Loan to Value ("LTV") covenant of 82.5% and a financial LTV covenant of 87.5%. As at 30 June 2010, the LTV on this silo was 84.0% and therefore amortisation is now also due on this silo.

On the remaining non-securitised silos, the amortisation LTV is not applicable at this time and they are only subject to a financial LTV. The financial LTVs on these silos range from 82.5% to 87.5% against the actual LTVs at 30 June 2010 that ranged from 81.7% to 86.7%. The LTV covenant ratios are tested annually and no silos are currently in breach of their financial LTV covenants.

On the four largest silos, the Interest Cover Ratios ("ICRs") and in one case, the DSCR, are tested on a backward looking twelve month rolling basis. The ICRs on three of the silos are tested on a semi-annual basis and on the remaining silo the ICR and DSCR are tested quarterly.

On 12 August 2010, the Company announced that it had breached the ICR covenants on three of the four silos resulting in events of default. As at 30 June 2010, the ICRs were between 1.03 and 1.08 in the various silos. The Group's ICR financial covenants are between 1.10 and 1.20. The remaining silo's ICR was 1.15 against a covenant of 1.15.

On 22 February 2010, the Company also announced that it would likely be in breach of one of its amortisation related banking covenants. This related to the DSCR covenant on the fourth financing package which totalled €349m, as at 30 June 2010. This DSCR was in breach of its covenant level on the quarterly testing date of 31 March 2010, resulting in an event of default, and has remained in breach since that point. The DSCR, as at 30 June 2010, was 0.93 against a covenant of 1.10.

The ICR covenant is calculated by comparing contractual net operating income against interest payable, and in the case of the DSCR covenant, against interest and amortisation payable.

On 4 June 2010, the Company also announced that its current cash forecasts indicated that it would not be in a position to meet its amortisation payments on three of the five silos for which amortisation was payable. The amortisation due was not paid for the quarter ended 15 July 2010 nor the quarter ended 15 October 2010, resulting in further events of default. As noted earlier, the securitised silo has surpassed its amortisation limit and was also liable to amortisation from the quarter ended 15 October 2010, although none was paid. The Company also only paid part of the full amount of interest due on three of the silos for the quarter ended 15 October 2010, resulting in further events of default.

The Company has applied for a deferral of these payments with its lenders as negotiations on a revised, long-term funding solution are progressed, although the Company intends to pay the balance of the outstanding interest relating to the quarter ended 15 October 2010 over the following quarter. As indicated in the Executive Director's report, a long-term solution is anticipated to include a recapitalisation of the Company through an equity fundraising and the internalisation of the management, investment advisory and property management functions. 

Shareholders will be aware that the Company is in ongoing discussions with NIBC Bank N.V., the facility agent on the four remaining silos. Those discussions are being held with a view to restructuring some of the Company's debt such that the Company will be in compliance with its loan covenants, and will be able to maintain that position on an ongoing basis. The Company will provide updates to shareholders as and when further information becomes available.

It is possible that the negotiations with the lenders are unsuccessful and that some of the silos may not survive within the overall ownership of the Company. In the event that no satisfactory waiver or renegotiation of terms is obtained following the payment defaults and covenant breaches, then the risk remains that the lender enforces its security with a consequent loss of net equity.

The Company's existing debt is fully hedged at an average fixed interest rate of 4.76% for the entire duration of the debt until maturity. Average debt maturity stands at 4 years as of 30 June 2010, with the earliest debt maturing in late 2013.

Termination of the Investment Management Agreement and acquisition of GOAL service GmbH

On 17 June 2010, the Company announced that it had terminated the Investment Management Agreement ("IMA") with Speymill Property Group Limited ("SPG") with effect from 1 June 2010.

The consideration paid, in lieu of notice, for the termination of the IMA was €8.991m which was settled by the transfer to SPG of property assets owned by the Company, at the 31 December 2009 external valuation.

The consideration for the termination of the IMA was satisfied by the transfer to SPG of shares in two separate special purpose vehicles ("SPVs"), which included both the property assets and the associated bank loans.

Under the terms of the agreement 94.9% of the issued shares of the two SPVs were transferred to SPG, being Wyatt Limited on 28 July 2010, and Horsfield Limited on 16 August 2010. The related parent company loans due from these SPVs were also assigned to SPG as part of the consideration. The shortfall between the contractual consideration of €8.991m and the aggregated net assets assigned was settled by the issue of 362 €1,000 convertible loan notes as set out in note 26 of the consolidated financial statements.

As reported in the announcement on 17 November 2010, the Company acquired 100% of the share capital of GOAL service GmbH from Speymill Property Group (UK) Limited ("SPGUK") on 18 November 2010. The total consideration paid was €1.03m comprising an amount in relation to the adjusted Net Asset Value of GOAL and the settlement of certain intercompany balances between GOAL and SPGUK. In addition, the Company agreed to settle an amount of €700,000 in relation to outstanding fees payable by SDIC in relation to GOAL services provided historically.

The consideration for the acquisition of GOAL and the settlement of the outstanding fees will be satisfied by the issue of a convertible loan note to SPGUK.

The internalisation of GOAL is an important step towards achieving an overall funding solution with GOAL continuing to manage the Company's property portfolio but reporting directly to the Board of SDIC. It is also anticipated that it will enable the Company to realise cost savings.

Interest rate swap revaluations

The further decline in the forward EURIBOR spot rates during the year has continued to have an impact on the value of the swaps held by the Company. For the year ended 30 June 2010, the swaps were marked down by €41.7m. As seen during the previous year, this, and the portfolio value reduction of €70.0m, have been the main contributing factors in the net asset value per share (NAV per share) of the Company falling by 54% to €0.34 from €0.74 in June 2009. Under IFRS, the swaps have to be marked to market but it should be noted that this loss is a non-cash accounting movement unless such swaps crystallise as a result of early termination by the Company, for example, as a result of a sale of assets or through a reorganisation of financing arrangements.

EPRA (European Public Real Estate Association) defines NAV differently from IFRS as can be seen in the financial statements. Movements in derivatives, deferred tax provisions and capitalised loan arrangement fees 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 30% decline to €0.64 per share, as of 30 June 2010, compared to the June 2009 figure of €0.92. The Company believes that the EPRA NAV more accurately reflects the underlying value of the portfolio. The only significant EPRA NAV reduction is attributable to the fall in the property portfolio valuation.

Financial summary

* 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 2009 stood at €1,455m. As of 30 June 2010, the valuation of the Company's portfolio had decreased to €1,364m, representing an overall valuation loss of €70.0m when taking into account asset disposals and capital expenditure additions during the year. LTV, excluding all cash, stood at 83.8% as of 30 June 2010. Including cash, the Company's LTV was 82.5%.

NAV for the year declined by 54%, mainly as a result of the swap mark-down of €41.7m, and the valuation decrease on the portfolio of €70.0m. It is important to note that the swap mark-down has no impact on the cash flows of the Company unless such swaps crystallise as a result of early termination, nor does it in any way impact the Company's debt covenants.

† 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 2010, the Company made a net operating loss of €35.0m compared to a net operating profit of €8.5m for the year ended 30 June 2009, the main contributing factor being the non-cash movement of the valuation losses on the Company's property portfolio. Compared with the prior year, gross rents fell by €5.2m to €144.8m, mainly as a result of a higher average vacancy rate throughout the year and the disposal of thirteen properties. Net operating profit was also impacted by higher non-recoverable operating costs, increased bad debt provisions against tenant debtors inherited from subcontracted property managers, and a loss on disposal of one of the Company's property owning subsidiaries.

The FFO for the year ended 30 June 2010 showed a loss of €12.4m (30 June 2009: loss of €0.7m). As stated in the announcement on 30 July 2010, following the transfer of certain units from third party property managers to GOAL, and subsequent analysis, it became apparent that the bad debt profile was significantly older than previously anticipated. The Company's cash flow forecasts do not currently include any recovery of these bad debts and, therefore, should GOAL be able to recover some of these bad debts, it would have a positive impact on the cash position. EBITDA has decreased to €43.9m for the year ended June 2010 (June 2009: €52.9m) due to lower net rental income of €90.8m (June 2009: €92.5m), a loss on disposal of subsidiary of €2.2m (June 2009: €nil), and higher non-recoverable operating costs of €31.2m (June 2009: €24.3m) which include the bad debt provisions noted previously.

Strategic objectives

As noted in the Interim Report, the key long-term objective for the Company is to continue driving down its vacancy rate and reach a stabilised status in the medium to long-term. Vacant units, which generate no rental income, are attributed a much reduced value on a yield based valuation. The core focus of the Company, therefore, is to reduce the vacancy rates in order to maximise rental income, decrease vacancy costs and enhance the value of the portfolio for the Company's shareholders. To achieve this, the Company is committed to an ongoing capital improvements programme and will continue the transfer of further units under the direct property management of GOAL as the dedicated property management platform for the Company.

During the year, the structural refurbishment programme was completed. As a result, more units have become available which has had a steady positive effect on the vacancy rate. Vacancies have reduced by 1.4% from 30 June 2009. We expect this trend to continue thus reaching a stabilised basis in the medium-term. As detailed earlier, an ongoing capital improvements programme will continue in order to bring further units to a marketable condition. Rental income and FFO should increase as a result of decreasing vacancies.

Over the period, GOAL has taken over the property management of further units. Currently 76% of the units are under the direct property management of GOAL. Due to the extensive handover process, the transition to a dedicated property management platform will be a substantial exercise. Despite this fact, the Board firmly believes, as a result of past experience, that tighter control of letting activities through a dedicated property manager will ultimately create increased efficiencies, improved rental income and enhanced debt collection.

The Board continues to examine ways in which the Company can address its immediate working capital needs. The first stage of this process has involved the elimination of all avoidable costs. This process has begun in earnest with the termination of the Investment Management Agreement and the internalisation of the property management function via the acquisition of GOAL service GmbH. The Board is also in conversation with a number of interested parties with a view to recapitalising the Company in order to ensure that it has sufficient liquidity to meet its short to medium-term commitments.

The immediate objective for the Board is to continue discussions with the Company's lending banks with a view to securing long-term compliance with its loan covenants and sustainable banking facilities. The Board is confident that a resolution with the Company's lending banks will be concluded in the near term. The Company will ensure that shareholders are updated as and when further information becomes available.

Outlook

The German economy has recovered strongly from the deep recession suffered in 2008 and 2009. DZ Bank reported that in the first half of 2010 strong export demand provided extra impetus to the economy and they are now predicting GDP growth of 3.3% for 2010. This had a positive impact on the German labour market and unemployment fell to the relatively low seasonally-adjusted rate of 7.5% in September 2010, against higher levels shown by its European peers.

The number of new dwellings constructed over the past five years has lagged well behind the growth in the number of private households over the same period. This has led to supply shortages, especially in sought after locations. German residential should benefit from this continuing lack of supply that is unlikely to ease in the immediate future, helping to put upward pressure on future rent and property values.

Operational results should see the benefits of the vertical integration of the property management function giving tighter control of letting activities, leading to increased efficiencies, improved rental income and enhanced debt collection.

The discussions currently taking place with SDIC's financing banks are now nearing completion and the Board is confident that having renegotiated more sustainable financing facilities, and having addressed its working capital requirements through the recapitalisation process, the Company will have a more secure base from which to realise the potential for growth in German residential real estate.

Consolidated statement of comprehensive income

For the year ended 30 June 2010

Consolidated balance sheet

As at 30 June 2010

Consolidated statement of changes in equity

For the year ended 30 June 2010

Consolidated statement of cash flows

For the year ended 30 June 2010

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 Act 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 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 2010 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 year the Company owned 100% of the shares in 99 (2009:100) Isle of Man incorporated property owning companies and 1 Cayman incorporated intermediate holding company.

2. Basis of preparation

2.1 Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).

The consolidated financial statements were authorised for issue by the Board of Directors on 25 November 2010.

2.2 Basis of measurement

These consolidated financial statements have been prepared on the historical cost basis except for derivative financial instruments and investment properties, which are stated at fair value.

2.3 Functional and presentation currency

These consolidated financial statements are presented in Euro, which is the Company's functional currency.

2.4 Going concern

The Group's property portfolios are largely funded by debt facilities. Under the terms of the debt agreements each debt obligation is "ring-fenced" within a discrete group of companies. Further details of the loans are provided in note 14 of the consolidated financial statements.

At 30 June 2010, the Group's borrowings totalled €1.14 billion. At that date, the Group had an investment property portfolio which was valued at €1.36 billion, together with cash and cash equivalents of €18.7m. The Group incurred a loss for the year of €134.1m and shareholders' funds were €116.5 million at the year-end. At 30 June 2010, all of the Group's bank loans of €1.14 billion have been classified as current liabilities, due to certain covenant breaches and non-payment of interest and amortisation as detailed below, which results in the bank loans technically being repayable on demand. Together with the reclassification of the interest rate swap liability as a current liability this has resulted in net current liabilities of €1.25 billion. As further detailed below negotiations are ongoing with the Group's lenders regarding a long-term funding solution. The Directors consider that any long-term funding solution will include a recapitalisation of the Company, which will need to be approved by shareholders. Negotiations with a number of interested parties are ongoing with respect to a recapitalisation and initial discussions have been held between such parties and the banks.

The Group's future operating performance will be affected by general economic, financial and business conditions, many of which remain beyond the Group's control. NIBC Bank N.V. is the lead facility agent on the four largest silos totalling €1,129m of debt. On the one silo that was securitised, package one, there is an amortisation Loan to Value ("LTV") covenant of 82.5% and a financial LTV covenant of 87.5%. As at 30 June 2010, the LTV on this silo was 84.0% and therefore amortisation is now also due on this silo.

On the remaining non-securitised silos, the amortisation LTV is not applicable at this time as they are already liable to amortisation, and as such they are only subject to a financial LTV. The financial LTVs on these silos range from 82.5% to 87.5% against the actual LTVs at 30 June 2010 that ranged from 81.7% to 86.7%. The LTV covenant ratios are tested annually and no silos are currently in breach of their financial LTV covenants.

The Directors believe that the rate of decline in property values over the last two years across Europe, and Germany in particular, is beginning to ease. Whilst property values may not increase immediately management believes that some stabilisation is beginning to occur in real estate markets. Were property values to continue to fall some LTVs could breach their financial covenants as a result.

On the four largest silos, the Interest Cover Ratios ("ICRs") and in one case, the Debt-Service Coverage Ratio ("DSCR"), are tested on a backward looking twelve month rolling basis. The ICRs on three of the silos are tested on a semi-annual basis and on the remaining silo the ICR and DSCR are tested quarterly.

On the 12 August 2010, the Company announced that it had breached the ICR covenants on three of the four silos, being packages two to four, resulting in events of default. As at 30 June 2010 the ICRs were between 1.03 and 1.08 in the various silos. The Group's ICR financial covenants are between 1.10 and 1.20. The remaining silo's ICR was 1.15 against a covenant of 1.15. The Company continues in discussions with the relevant banks to remedy these ICR breaches.

On 22 February 2010, the Company also announced that it would likely be in breach of one of its amortisation related banking covenants. This related to the DSCR covenant on the fourth financing package which totalled €349.0m as at 30 June 2010. This DSCR was in breach of its covenant level on the quarterly testing date of 31 March 2010, resulting in an event of default, and has remained in breach since that point. The DSCR, as at 30 June 2010, was 0.93 against a covenant of 1.10. The Company continues in discussions with the relevant banks to remedy this DSCR breach.

The ICR covenant is calculated by comparing contractual net operating income against interest payable, and in the case of the DSCR covenant, against interest and amortisation payable. Increasing net operating income to a level that would satisfy these covenants would necessitate a substantial increase in occupancy or reduction in costs. There is no certainty that either of these improvements can be made in the near term.

On 4 June 2010, the Company also announced that its current cash forecasts indicated that it would not be in a position to meet its amortisation payments on three of the five financing packages for which amortisation was payable. The amortisation due on packages two to four was not paid for the quarter ended 15 July 2010 nor the quarter ended 15 October 2010, resulting in further events of default. As noted earlier, package one has surpassed its amortisation limit and was also liable to amortisation from the quarter ended 15 October 2010. No amortisation payment was made on 15 October 2010 for this package. The Company was also not in a position to pay the full amount of interest due on packages two to four for the quarter ended 15 October 2010, resulting in further events of default.

The Company has applied for a deferral of these payments with its lenders as negotiations on a revised, long term funding solution are progressed. The application has not been granted, although negotiations continue with the lenders. It is also probable that the Company will not be in a position to meet its next interest and amortisation payments in full in January 2011. The Company has already implemented deep, recurring costs savings through the internalisation of the management, investment advisory and property management functions and operational improvements are beginning to be achieved. As indicated in the "Outlook" section of the Executive Director's report, a long-term solution is anticipated to include a recapitalisation of the Company through an equity fundraising and a renegotiation of the lending facilities.

In the event that the Group is unable to reach a resolution with the relevant lenders regarding the covenant breaches or payment defaults that have occurred, resulting in events of default, then the risk remains that the lenders enforce their security with a consequent loss of net equity.

In assessing the implications of the covenant breaches and non-payment of interest and amortisation, the Directors have also considered:

·; that positive discussions have taken place with interested parties with a view to a recapitalisation of the Company that would allow it to settle or renegotiate any outstanding interest and amortisation arrears in the near term;

·; that recent, significant cost savings and operational improvements will improve covenant ratios and reduce further potential arrears on interest and amortisation;

·; that the lenders to each financing package have the ability to waive any breaches of covenant, or non-payments of interest and amortisation, in relation to their package where the lenders consider it to be in their best interests. The current economic environment has given rise to substantial operating difficulties across most global real estate markets. The packages are each made up of a substantial number of properties requiring active management; and

·; that, in other cases where the interest or amortisation requirement is not being met by operational cash flows, discussions have been held with the lenders. In the event that 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.

Due to the recent cost savings and operational improvements that have significantly improved operational cash flows, as well as the positive discussions that have taken place so far with the lenders and interested parties, the Directors are of the opinion that it remains appropriate to prepare these annual financial statements on a "going concern" basis.

The Group's plans rest on a successful renegotiation of bank loan facilities and a recapitalisation of the Company. These factors represent material uncertainties. No adjustment which would result from a change in the going concern basis of preparation has been included in the financial statements.

3. Charges and fees

3.1 Nominated adviser

As nominated adviser to the Company for the purposes of the AIM rules, the Nominated Adviser is entitled to receive an annual fee of £40,000 (2009: £40,000) payable quarterly in advance.

Advisory fees paid to the Nominated Adviser for the year ended 30 June 2010 amounted to €374,813 (2009: €42,168).

3.2 Placing agent and broker fees

Broker fees payable for the year ended 30 June 2010 amounted to €167,105 (2009: €100,693).

3.3 Manager's fees

Annual fees

The former Manager was entitled to receive an annual management fee of 0.65% of the Gross Assets of the Company, based on the latest available valuation payable monthly in arrears, up until the effective termination of the investment management agreement ("IMA"). The IMA was terminated, with effect from 1 June 2010, on 23 July 2010 for a total consideration of €8,991,000 (see note 26 of the consolidated financial statements for further details).

Annual management fees paid during the year ended 30 June 2010 amounted to €8,616,920 (2009: €10,220,729), excluding the termination consideration.

Performance fees

The former Manager was entitled to a performance fee calculated as 20% of the excess of the net asset value per share (after adding back dividends and other distributions and ignoring any accrued performance fee) as at the end of each performance fee period of the Company over the benchmark (total return of 10% per annum) multiplied by the average number of shares in issue.

The first performance period commenced on the date that the Company became fully invested (the "Effective Date") and terminated on 30 June 2009. The subsequent performance fee period commenced on 1 July 2009 and expired upon the termination of the management agreement.

Performance fees payable during the year ended 30 June 2010 amounted to €nil (2009: €nil).

3.4 Custodian fees

The Custodian was entitled to receive fees calculated as 3 basis points per annum of the value of the non-real estate assets held on behalf of the Company, subject to a minimum monthly fee of £nil (2009:£1,500), payable quarterly in arrears together with other agreed transaction settlement charges.

Custodian fees paid for the year ended 30 June 2010 amounted to €nil (2009: €21,805).

The Custodian retired on 30 June 2009 and was not replaced.

3.5 Administrator and Registrar fees

The Administrator was entitled to receive an annual fixed fee of £175,000 up until 31 March 2010. From 1 April 2010 this has been increased to £300,000 plus all reasonable out-of-pocket expenses incurred in carrying out its duties. The Administrator may utilise the services of a CREST accredited registrar for the purposes of settling share transactions through CREST. The cost of this service is subject to the number of CREST settled transactions undertaken and is reimbursed by the Group.

Administration fees paid for the year ended 30 June 2010 amounted to €258,615 (2009: €473,764), secretarial fees were €1,569 (2009: €9,538), financial statement preparation fees were €4,469 (2009: €26,094) and CREST fees were €nil (2009: €586).

3.6 Other operating expenses

It is anticipated that the costs of managing any properties in the Company's investment portfolio will be satisfied out of residential sales or rental income. However, to the extent that this is not the case, all such costs, to include the costs of all other third party service providers, shall be chargeable to and payable by the Company.

The costs associated with maintaining the Company's subsidiaries, including the costs of incorporation and third party service providers shall be chargeable to each subsidiary and payable by the Company.

3.7 Audit fees

Audit fees payable for the year ended 30 June 2010 amounted to €243,524 (2009: €215,046).

4 Net financing costs

5 Investment property

The fair value of the Group's investment property at 30 June 2010, excluding the properties in the subsidiaries disposed of post period-end (see note 26 of the consolidated financial statements), 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 has 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.

The fair value of the properties in the subsidiaries disposed of post period-end, namely Horsfield Limited and Wyatt Limited (see note 26 of the consolidated financial statements), was measured at the valuation used in determining the net asset value of these companies in relation to the termination of the Investment Management Agreement. The Directors consider that this is the most appropriate measurement to apply as it reflects their true market price as applied in the transaction shortly after the period-end.

During the year, the Group sold eight properties resulting in a profit on disposal of €200,985 (2009: one property sold at a loss of €30,000), being the difference between the carrying value at the beginning of the year and its sales price less selling costs.

Security

At 30 June 2010, there was a first ranking mortgage on the above properties securing bank loans of €1,146,863,238 (2009: €1,182,133,707).

6 Derivative financial instruments

30 June 2010

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

30 June 2009

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

As required by IAS 1, as at 30 June 2010, the total derivative financial instruments balance of €102,453,565 has been classified under current liabilities as the Group will not be entitled to defer settlement if the lenders were to demand immediate repayment due to the events of default as detailed in note 2.4 of the consolidated financial statements. However, it is not anticipated that full settlement of these liabilities is likely to occur within twelve months of the year-end date.

7 Cash and cash equivalents

Cash and cash equivalents include €5.5m held on deposit at NIBC Bank N.V. (2009: €22.0m), which, under the terms of the bank loans is required to be used solely for property refurbishments.

8 Interest-bearing loans

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 4.76%.

As required by IAS 1, as at 30 June 2010, the total loan balances of €1,143,873,587 have been classified as current liabilities as the Group will not be entitled to defer settlement if the lenders were to demand immediate repayment due to the events of default as detailed in note 2.4 of the consolidated financial statements. However, it is not anticipated that full settlement of these liabilities is likely to occur within twelve months of the year-end date.

The Group's interest-bearing loans are carried at amortised cost. As at 30 June 2010, the Group had six secured bank loan facilities amounting to €1.14bn (30 June 2009: €1.18bn) and capitalised loan arrangement fees of €2,993,401 (30 June 2009: €3,779,079). The loan arrangement fees have been deferred over the term of the loans under the amortised cost principle. Each of the Group's interest-bearing debt facilities has been secured by charges on investment properties, rental income, bank accounts, other assets and undertakings within the related financing packages.

NIBC Bank N.V. ("NIBC")

NIBC is the lead facility agent on four of the Group's six financing packages or "silos". The individual silos are detailed below:

Package 1

This silo consists of 13 individual special purpose vehicles ("SPVs"), being Isle of Man limited companies. Each SPV has its own individual loan facility grouped and cross collateralised within this particular silo.

The balance outstanding under this facility at the year end was €188,107,034 (30 June 2009: €191,650,000). The facility amount at original drawdown was €191,650,000. The interest rate on this loan is fixed at 4.6000% per annum inclusive of margin. Interest is payable quarterly in arrears. Whilst the loan is fully securitised, the amortisation covenant was surpassed on 30 June 2010 and amortisation is therefore now due at 1.78% per annum. The loan is repayable on the repayment date of 30 September 2013.

Package 2

This silo consists of 27 individual special purpose vehicles ("SPVs"), being Isle of Man limited companies. Each SPV has its own individual loan facility grouped and cross collateralised within this particular silo.

The balance outstanding under this facility at the year end was €386,379,063 (30 June 2009: €403,410,999). The facility amount at original drawdown was €405,745,585. The interest rate on this loan is fixed at 4.6125% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is subject to amortisation at 1.73% of the original loan amount per annum and is repayable on the repayment date of 15 April 2014.

Package 3

This silo consists of 13 individual special purpose vehicles, being Isle of Man limited companies. Each SPV has its own individual loan facility grouped and cross collateralised within this particular silo.

The balance outstanding under this facility at the year end was €205,625,166 (30 June 2009: €213,159,620). The facility amount at original drawdown was €214,292,920. The interest rate on this loan is fixed at 4.5825% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is subject to amortisation at 1.72% of the original loan amount per annum and is repayable on the repayment date of 15 October 2013.

Package 4

This silo consists of 35 individual special purpose vehicles, being Isle of Man limited companies. Each SPV has its own individual loan facility grouped and cross collateralised within this particular silo.

The balance outstanding under this facility at the year end was €349,017,686 (30 June 2009: €356,006,086). The facility amount at original drawdown was €356,006,086. The interest rate on this loan is fixed at 4.9963% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is subject to amortisation at 2.51% of the original loan amount per annum and is repayable on the repayment date of 31 December 2014.

Deutsche Genossenschafts-Hypothekenbank AG ("DG Hyp")

DG Hyp is the sole lender for two of the Group's six financing packages or "silos". The individual silos are detailed below:

Package 5 

This silo consists of 1 individual special purpose vehicle ("SPV"), being an Isle of Man limited company.

The balance outstanding under this facility at the year end was €9,654,164 (30 June 2009: €9,757,134). The facility amount at original drawdown was €9,807,200. The interest rate on this loan is fixed at 4.6150% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is currently amortising at 1.11% of the original loan amount per annum and is repayable on the repayment date of 31 December 2014.

As part of the consideration for the termination of the Investment Manager Agreement this SPV was disposed of on 16 August 2010 (see note 26 of the consolidated financial statements for further details).

Package 6

This silo consists of 1 individual special purpose vehicle ("SPV"), being an Isle of Man limited company.

The balance outstanding under this facility at the year end was €8,064,858 (30 June 2009: €8,150,876). The facility amount at original drawdown was €8,192,700. The interest rate on this loan is fixed at 4.6150% per annum inclusive of margin. Interest is payable quarterly in arrears. The loan is currently amortising at 1.11% of the original loan amount per annum and is repayable on the repayment date of 31 December 2014.

As part of the consideration for the termination of the Investment Manager Agreement this SPV was disposed of on 28 July 2010 (see note 26 of the consolidated financial statements for further details).

9 Provisions for refurbishments

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.

10 Net asset value per share

11 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.

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

12 Share capital

Group and Company

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.

The holders of Ordinary Shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company.

13 Other reserves

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

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

14 Financial instruments

The Group's activities expose it to a variety of financial risks: market price risk, foreign exchange risks, credit risk, liquidity risk and cash flow interest rate risk. This note presents basic information regarding the Group's exposure to these risks and the Group's objectives, strategy and processes for measuring and managing exposure to those risks. No changes were made in the objectives, policies or processes during the year ended 30 June 2010.

Market price risk

The Group is exposed to market price risk with respect to its interest rate swap contracts, which are stated at fair value as derivative financial instruments - see note 10 of the consolidated financial statements. Such contracts have been entered into in order to fix the Group's interest rate payments on the Group's variable rate bank loans. The fair value of these contracts changes in response to movements in market interest rates.

Foreign exchange risk

The Group's operations are conducted in Euros and practically all of the Group's assets and liabilities are held in Euros. Hence there is no significant foreign exchange risk to the Group.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group.

The carrying amounts of financial assets best represent the maximum credit risk exposure at the balance sheet date. At the reporting date, the Group's financial assets exposed to credit risk amounts to the following:

The Company provides provisions against rental debtors based on the ageing profile of tenant arrears and, where individual cases suggest recovery of the debt is improbable, specific provisions are set against the receivable amount. Management does not expect any other counterparty to fail to meet its obligation.

Liquidity risk

The Group manages its liquidity risk by maintaining sufficient cash to meet budgeted commitments and obtaining secured bank loans to fund purchases of investment property. The Group's liquidity position is monitored by the Board of Directors.

As highlighted earlier in note 2.4 of the consolidated financial statementsthe amortisation due for the quarters ended 15 July 2010 and 15 October 2010 was not paid, resulting in events of default. The Company was also not in a position to pay the full amount of interest due for the quarter ended 15 October 2010, resulting in further events of default.

The Company has applied for a deferral of these payments with its lenders as negotiations on a revised, long term funding solution are progressed. It is also probable that the Company will not be in a position to meet its next interest and amortisation payments in full in January 2011. The Company has already implemented deep, recurring costs savings through the internalisation of the management, investment advisory and property management functions and operational improvements are beginning to be achieved. As indicated in the "Outlook" section of the Executive Director's report, a long term solution is anticipated to include a recapitalisation of the Company through an equity fundraising and a renegotiation of the lending facilities.

In the event that the Group is unable to reach a resolution with the relevant lender regarding the covenant breaches or payment defaults that have occurred, resulting in events of default, then the risk remains that the lender enforces its security with a consequent loss of net equity.

Residual undiscounted contractual maturities of financial liabilities:

As detailed in note 14 of the consolidated financial statements, as at 30 June 2010, the total loan balances of €1,143,873,587 and derivative financial instruments of €102,453,565 have been classified as current liabilities as the Group will not be entitled to defer settlement if the lenders were to demand immediate repayment due to the events of default as detailed in note 2.4 of the consolidated financial statements. However, it is not anticipated that full settlement of these liabilities is likely to occur within twelve months of the year-end date.

Interest rate risk

The Group is exposed to risks associated with the effects of fluctuations in prevailing market interest rates on its cash balances, which are invested at short-term market interest rates.

The Group has bank borrowings to finance the acquisition of property. These borrowings are subject to variable interest rates linked to Euribor. The Group has entered into interest rate swap transactions to pay fixed rates on these borrowings for periods up to 30 September 2013, 15 October 2013, 15 April 2014 and 31 December 2014 (see note 10 of the consolidated financial statements). The Group is therefore exposed to changes in the fair value of the interest rate swap contracts - see market price risk earlier.

The table below summarises the Group's exposure to interest rate risks. It includes the Groups' financial assets and liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying values of the assets and liabilities.

* Interest bearing loans are at variable interest rates linked to Euribor. Please see liquidity risk earlier for further information on the classification of interest bearing loans. Interest rate swaps have been entered into to pay fixed rates on these borrowings. The notional value of swaps is €1,166,792,768 as at 30 June 2010 (2009: €1,188,906,062).

Fair Values

All financial assets and liabilities at 30 June 2010 and 30 June 2009 are considered to

be stated at their fair value.

Fair value hierarchy

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

·; Level 1: quoted prices (adjusted) in active markets for identical assets or liabilities.

·; Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

·; Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

15 Directors' remuneration

The maximum amount of remuneration payable to the Directors permitted under the Articles of Association is £400,000 per annum (2009: £400,000). The Directors are entitled to receive reimbursement of any expenses in relation to their appointment. Total fees and expenses paid to the Directors for the year ended 30 June 2010 amounted to €243,716 (2009: €257,465).

16 Disposal of subsidiary

On 31 March 2010 the Group disposed of its 100% equity interest in its subsidiary, Penny Limited. The net cash received as €2,794,000 less cash disposed of, retentions and legal fees. The carrying amount of the assets and liabilities of Penny Limited recognised at the date of disposal (1 April 2010) were as follows:

17 Contingent liabilities and commitments

No commitments had been entered into as of the reporting date (30 June 2009: €nil).

In November 2009, the Group settled the case brought against GOAL service GmbH ("GOAL") by Marktblick for €10,000. The matter related to a claim for outstanding agents' commissions of up to €200,000 in respect of certain property transactions that were carried out subsequent to their introduction by Marktblick.

18 Post balance sheet events

Termination of Investment Management Agreement ("IMA")

SDIC entered into an agreement on 22 July 2010 to terminate the IMA with effect from 1 June 2010. Under the IMA, Speymill Property Group Limited ("SPG") was entitled to 12 months' notice.

The consideration paid, in lieu of notice, for the termination of the IMA was €8.99 million which was settled by the transfer to SPG of property assets owned by the Company, at the 31 December 2009 DTZ valuation.

The consideration for the termination of the IMA was satisfied by the transfer to SPG of shares in two separate special purpose vehicles ("SPVs"), which included both the property assets and the associated bank loans.

Under the terms of the agreement 94.9% of the issued shares of the two SPVs were transferred to SPG, being Wyatt Limited on 28 July 2010, and Horsfield Limited on 16 August 2010. The related parent company loans due from these SPVs were also assigned to SPG as part of the consideration. The shortfall between the contractual consideration of €8.99m and the aggregated net assets assigned was settled by the issue of convertible loan notes as set out below:

Issue of convertible loan notes

As part of the consideration for the termination of the IMA the Company issued 362 convertible loan notes with a nominal value of €1,000 each on 16 November 2010. These loan notes bear interest at 2% per annum and are repayable at any time up until the final redemption date of 31 May 2011 at the discretion of the Company.

The Company has the right at any time up to, and including the final redemption date to convert all or some of the notes then outstanding into fully paid Ordinary Shares by serving written notice on the noteholders on a date specified in such notice, being not sooner than the last day of the conversion pricing period.

The conversion pricing period is a period of ninety days, the first day of which being when the Company makes a public announcement to the effect that the general banking facilities of the Group have been extended by all material creditors on revised conditions for at least the following twelve months.

The conversion price is the mean average of the prices at which the Shares trade at the close of business on each business day falling during the conversion pricing period.

Secured convertible loan agreement with Director

On 14 July 2010 the Company drew down an amount of €630,000 under a loan agreement dated 13 July 2010 with one of its Directors, Jim Mellon.

The loan bears interest of 7% per annum and a facility fee of 2.5% is payable on the earlier of the repayment date and the conversion date. As reported in the announcement made on 24 November 2010, the loan was due to mature on 15 November 2010, but Mr Mellon has agreed to extend the maturity date to 7 January 2011. All other terms of the loan agreement remain unchanged.

The lender may convert the loan, in full or part, on any business day falling on or after the date on which any corporate transaction occurs by which the borrower raises equity funding from an issue of Shares or securities to any person (other than pursuant to the exercise of any option granted to any employee or director of the borrower). The conversion price being equivalent to the price paid by investors under the corporate transaction noted earlier.

The loan is secured by way of a first ranking mortgage on three unfinanced properties with a carrying value of €950,000 as at 30 June 2010.

Internalisation of Investment Adviser & Property Manager ("Internalisation")

On 18 November 2010, the Company acquired 100% of the share capital of GOAL service GmbH ("GOAL") from Speymill Property Group (UK) Limited ("SPGUK"). The total consideration paid was €1.03m comprising an amount in relation to the adjusted Net Asset Value of GOAL and the settlement of certain intercompany balances between GOAL and SPGUK.

The consideration for the acquisition of GOAL and the settlement of the outstanding fees will be satisfied by the issue of a convertible loan note to SPGUK.

Effect of acquisition

The acquisition had the following effect on the Group's assets and liabilities.

Trade and other receivables include an amount of €1,435,000 due from the Company for asset management services carried out by GOAL asset management GmbH since the termination of the Investment Management Agreement up until the date of acquisition.

As previously announced, the terms of the convertible loan note were as follows:

- Repayable or convertible at the Company's option;

- Conversion at the average closing price of the Company's shares over a 90 day period following the completion of the debt restructuring;

- Interest equal to the gross yield on the 2 year German Government bond plus margin of 1.5%; and

- Maturity on 31 May 2011

19 Related party transactions

Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over the other party in making financial or operational decisions.

The former Manager is considered to be a related party. Management and termination fees paid to the former Manager during the year amounted to €17,607,920 (2009: €10,220,729). This amount includes investment advisory fees paid to GOAL service GmbH ("GOAL"). GOAL (the Investment Adviser) is related to the former Manager and performs property management and administration related services. Management and administration fees payable to GOAL for the year amounted to €10,999,988 (2009; €7,038,858).

Goal reporting services GmbH ("GRS") is also related to the former Manager and performs bookkeeping services. Bookkeeping fees payable to GRS for the year amounted to €1,066,428 (2009: €1,119,339).

GOAL construction GmbH ("GOAL construction") is also related to the former Manager and performs project management services. Construction project management fees payable to GOAL construction for the year amounted to €1,324,587 (30 June 2009: €2,039,734).

ZELOS Forderungsmanagement GmbH ("Zelos") is also related to the former Manager and performs collection enforcement services. Fees payable to Zelos for the year amounted to €940,546