Last checked at 7 Jul 2008 07:00
7 July 2008
Speymill Deutsche Immobilien Company plc
("SDIC" or "the Company")
C SHARE PORTFOLIO
Investment Update and Conversion of the C Shares into Ordinary Shares
C Share Portfolio Investment Update
Speymill Deutsche Immobilien Company plc (AIM: SDIC; SDCC), the pan-German residential property investment company listed on AIM, announces an investment update for the second tranche of funds raised ("the C Share Portfolio").
Main highlights as at 30 June 2008 are:
Residential properties in and around various German cities and towns have been either notarised (i.e. committed to be purchased) or purchased for a cumulative cash consideration of approximately EUR569.5 million. In addition, refurbishment related costs of approximately EUR24 million are to be borne by the fund entities.
Certain properties totaling EUR20.1 million have been withdrawn since the Company's last update on 1 April 2008 as they either cannot proceed to completion or are unlikely to be registered in time to qualify for use by the existing banking facility by a deadline at the end of July.
Initial net rental income as at notarisation is expected to be approximately EUR39.57 million per annum. This amount will be temporarily augmented by initial rental guarantees for vacancies while certain refurbishments are being carried out.
Blended net initial property yield as at notarisation, based on purchase price and excluding rental guarantees but including refurbishment costs, is expected to be 6.7%. This yield is anticipated to rise to 7.1% at the end of the period commencing 12 months after completion of all acquisitions, full takeover of property management and completion of refurbishments ("stabilised yield").
Refurbishment costs of approximately EUR18.0 million relating to approximately EUR142.4 million of the current notarised properties are to be borne by the sellers. Rental guarantees are in place for one year following the completion of those refurbishments. Taking these rental guarantees into account, the adjusted net rental income at notarisation is approximately EUR41.8 million per annum.
The Company has notarised or purchased 10,473 apartment block units in aggregate at an overall average price of EUR827 per square metre.
At the point of notarisation there were approximately 976 vacant units (approximately 9.3% total vacancy). This figure includes units in buildings covered by the rental guarantees referred to above. The economic vacancy rate, adjusted for rental guarantees, is approximately 4.5%, although this may rise temporarily following notarisation and during the refurbishment period as detailed below.
After completion and when the properties have been refurbished and are fully under management for a suitable period, the Company will target a 95% overall occupancy rate (allowing for some natural vacancy and tenant fluctuation). It is envisaged that this target will be reached in the second year after takeover.
Additional Financing for the C Share Portfolio
It is intended that notarised properties totaling EUR28.5 million will be financed with debt provided by another bank and outside our existing facility. The key terms envisaged at present are a margin of 105 bps, that with hedging gives an effective rate of interest of 5.25%, a loan-to-value of 77.55%, and amortization of 1% commencing in the second year. We also anticipate a further EUR12 million of property being financed on similar terms.
Summary C Share Portfolio Information
| Total Number of Units | 10,473 |
| Total Purchase Price | EUR 569.5 million |
| Average Price per m2 | EUR 827 |
| Net Rental Income (excluding rental guarantees) | EUR 39.57 million |
| Net Initial Yield (excluding rental guarantees) | 6.7% |
| Stabilised Yield | 7.1% |
Conversion of the C Shares into Ordinary Shares
In accordance with the terms of the C Share admission document, the Board of SDIC are satisfied that, with lower levels of leverage now envisaged, 85% of the net proceeds of the C Share placing have been invested (notarised and completed) and has therefore moved to convert the existing C Shares of €0.25 each in the capital of the Company ("the C Shares") into Ordinary Shares of €0.05 each in the capital of the Company (" the Ordinary Shares").
The number of Ordinary Shares to be issued to the holders of C Shares will be based on the relative net asset values of the two classes of shares ("the Conversion Ratio") as at the Calculation Date ("the Calculation Date"), subject to any adjustments that may be advised by the Company's auditors, KPMG Audit LLP, in order to ensure fairness between the existing holders of C Shares and Ordinary Shares.
The Calculation Date that will be used to determine the Conversion Ratio will be 30 June 2008 and the date of conversion of the C Shares into Ordinary Shares will be the date of publication of the annual results for the year ended 30 June 2008, which is expected to be no later than 31 October 2008.
The Directors believe that the current market conditions make a conversion of the C Shares into Ordinary Shares desirable. The conversion should benefit the shareholders of the Company as follows:
Enhanced shareholder liquidity
Better strategic positioning for the Company
Reduced management fee on the combined portfolio
Larger resultant Ordinary Share Portfolio
As the Company has previously announced, it is adopting a prudent approach with regard to the overall size of the C Share Portfolio, and therefore the amount of associated leverage, and believes strongly that this strategy is appropriate in the current economic climate. A consequence of the conversion of the C Shares and reduced leverage, compared to that which was envisaged in the admission document for the C Shares, will be a lower dividend yield for the combined entity.
Rental restrictions
8.4% of the total units held by the combined Ordinary and C Share portfolios are subject to rental restrictions that typically occur where construction or modernisation subsidies have been received. These restrictions fall away over time and our local managers confirm that the majority of affected units have rents that are generally close to or equal to the market rates for their locations. The percentage of restricted units will decrease to 7.7% on 1 January 2009, to 5.6% on 1 January 2010 and to 2.6% by 1 January 2012.
The Manager does not regard the restrictions as material as they are taken into account in the calculation of the overall yield target on acquisition
Note:
The stabilised (normalised) rent represents a target income level based on a 95% occupancy. If not already achieved, it is envisaged that this will be reached in the second year after takeover.
In the few months to one year after assuming full ownership and management, the rental income level may temporarily fall from the level at notarisation for the following reasons:
For more information, please visit www.sdic.co.im or contact:
Speymill Property Group (UK)
Floris van Dijkum,
Global Chief Investment Officer
+44 20 7659 0763
Speymill Property Group
Paul Smith, CFO Funds
+44 1624 640864
Smith & Williamson Corporate Finance Limited (Nomad)
Azhic Basirov
Joanne du Plessis
+44 20 7131 4000
Fairfax I.S. PLC (Brokers)
James King
+44 20 7598 5368
Tavistock Communications
Jeremy Carey
Simon Hudson
Gemma Bradley
+44 20 7920 3150
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 (EPIC: SDIC.L). In May 2007, SDIC raised a further €250 million through a C share placing (EPIC: SDCC.L). 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 increasingly 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 to SDIC and, in conjunction with the Investment Advisor, Goal Service GmbH, it identifies acquisition opportunities for the Company, which fit within its investment criteria.