Final Results

RNS Number : 5304F

Sirius Real Estate Limited

18 June 2012

 



Sirius Real Estate Limited

Final Results

For the year ended 31 March 2012

Sirius Real Estate Limited (the "Group", the "Company" or "Sirius"), the real estate company with a portfolio of 38 mixed-use business parks across Germany, providing modern, flexible workspace, today reports its final results for the year ended 31 March 2012.

Highlights

·      Current annualised rent roll increased to €45.3m (2011: €43.6m)

·      Adjusted earnings before tax of €2.9m (2011: loss of €1.0m)¹

·      Property portfolio revalued at €485.7m (31 March 2011: €505.5m)²

·      LTV across the portfolio as at 31 March 2012 61.1% (31 March 2011: 60.2%)

·      Successfully completed internalisation which is expected to generate annualised cost savings of €2.0m in the future

·      New lettings of 128,345 sqm at a higher average rental rate of €5.24 per sqm (2011: 159,292 sqm at €4.41 per sqm)

·      Higher tenant retention with 92,636 sqm of vacating tenants in the period (2011: 123,768 sqm)

·      Occupancy increased to 78% (31 March 2011: 76%) and average rate increased to €4.21 psm (2011 €4.13 psm)

·      Continuation of the successful cost reduction programme has saved a further €2.0m in the period through:

-     Optimising and improving the allocation and recovery of service charge costs

-     Effective metering of utilities across the property portfolio

-     Reduction in central overheads

·      Completed one and notarised two disposals which will generate €3.4m of proceeds and around €700,000 of profit

·      Notarised the sale of Munich Hoffmannstrasse on 1 June 2012 for €6.85m

·      Initial steps have been taken to refinance the ABN loan facility

·      Preliminary discussions with Berlin Hannoversche Hypothekenbank AG have started

·      Since the period end, trading has been in line with management's expectations.

¹ Excluding property revaluation, change in fair value of derivative instruments, gain on disposal of properties and non-recurring costs of internalisation. Current year adjusted earnings include non-recurring write-down of prior year rent and service charge balances of €1.8m. Adjusted earnings in 2011 included surrender premiums received of €1.9m and write-off of prior year rent and service charge balances of €3.0m

2 After taking account of investment properties held for sale and lease incentive adjustments the value is €476.7m

Robert Sinclair, Chairman of Sirius Real Estate Limited, said:

"During a period of change, these figures represent a solid performance for the Group, with increased rates being achieved on new lettings, higher tenant retention rates and further significant reductions in non-recovered costs. The internalisation has created a new, aligned structure that will further support the future growth of the business.  Since the period end, trading remains positive with demand for flexible workspace from German SME's still constant."

Enquiries:

Sirius                          

Andrew Coombs, CEO                                                                           [phone]                            

Alistair Marks, CFO

Peel Hunt

Capel Irwin                                                                                            [phone]

Alex Vaughan

Cardew Group                                    

Tim Robertson                                                                                       [phone] 

Georgina Hall                            

Chairman's statement

Introduction

I am pleased to announce the Group's full year results for the year to 31 March 2012. The Company has made good progress during the year, demonstrated through the internalisation of the asset manager, increases in rental income, reduction in the overall cost base and the commencement of a selective disposal programme.

The process of internalising the asset manager included a review of the Company's property portfolio and the implementation of the next stage of the Sirius business strategy. The primary objectives continue to be to improve profitability and strengthen the Company's financial base as well as optimising the portfolio through disposal of non-core and mature assets. The internalisation is expected to reduce the Group's costs by €2.0 million per annum going forward, which when combined with the cost reduction programme that commenced two years ago, will produce an overall €7.7m improvement in non-recoverable costs from the run rate in January 2010. In addition, management believe that there is still scope to reduce non-recoverable costs and overheads further. 

The debt facility with ABN Amro Bank N.V ("ABN") of €91.2m is due for repayment by October 2012 and the facility with Berlin Hannoversche Hypothekenbank AG ("BerlinHyp") matures in stages between March 2013 and December 2013. The management team are currently in discussions with a number of different financiers to refinance the core assets within the ABN portfolio, while the non-core assets are being marketed for sale.  The Company is also already in negotiations with BerlinHyp to refinance the BerlinHyp debt facilities for which good progress is being made.

The Company's overall objective is to reduce borrowings through a selective disposal programme of non-core and more mature assets whilst ensuring that the Company generates sufficient cash flow to support a programme of continued investment into the core portfolio.  Although operating cash flows have improved significantly and are forecast to continue improving, the Company's current annual cash flow from operating activities is not able to fully cover its debt amortisation obligations and further capex plans, so cash is key while capital is being recycled from mature and non-core sites.  To date, good progress has been made on this plan, with the sale of the Munich Hoffmanstrasse site notarised in May which is expected to reduce debt by €4m and generate €3m surplus cash, in addition to the sale of three land and building packages which are just about complete and will reduce debt by nearly €3m and provide €0.5m surplus cash.  As such, the Board is confident that the Company's management team will be successful with its disposal and refinancing strategies and looks forward to seeing further improvements in the Company's results. 

Financial

Total income for the year was €45.7m (2011: €45.6m). In the prior year we received €1.9m of surrender premiums paid by tenants vacating early which we did not have the benefit of in the year under review.  As at 31 March 2012, the annualised gross rent roll was €45.3m (2011: €43.6m), over a total lettable area of 1,151,167 sqm. The improvement in rental income has come primarily from higher rental rates on new sales where the average rates achieved in the period increased from €4.41 last year to €5.24 per sqm. In addition, the Company's focus on tenant retention has been successful as moveouts have reduced by 31,132 sqm compared to last year.

As at 31 March 2012 occupancy was 78% (31 March 2011: 76%), the improvement coming from another good year of 128,345 sqm of new lettings coupled with the improved tenant retention already mentioned. 

The Company's recurring EBITDA increased to €21.4m (2011: €20.7m excluding write-offs from prior periods). 

Whilst the loss for the year was €31.2m (2011: profit €2.5m), the recurring adjusted earnings before tax was €2.9m (2011: loss of €1.0m).  This has been achieved without the €1.9m of surrender premiums received last year plus the profit for the period under review was reduced by €1.8m of write-offs of old service charge and legal debtors (2011: €3.0m).  When these factors are considered, the recurring adjusted earnings increase achieved this year is a significant improvement on last year's.

The adjusted EPS excluding property revaluation, change in fair value of derivative financial instruments and non-recurring costs was 0.91c (2011: (0.61c)). 

The Company's cash reserves at the period end were €9.1m (2011: €23.6m).  As at 31 March 2012, the Company's borrowings, excluding capitalised loan costs, totalled €296.0m (2011: €304.3m), representing a LTV of 61.1% on DTZ's latest valuation at 31 March 2012 (2011: 60.2%). Both banking facilities are operating within covenants with the facility with ABN Amro Bank N.V ("ABN") maturing in October 2012.

As mentioned above, the facility provided by ABN with an outstanding balance of €91.2m expires on 15 October 2012 and is secured over 16 properties. The Group's management are in negotiations with ABN about a combination of disposing of and refinancing the properties secured under the facility, in order to repay the loan facility by maturity. The progress made on this plan to date is as follows:

·      Three pieces of property which form part of the properties financed by ABN have been sold or notarised at prices in excess of DTZ valuations generating close to €3.5m of which €3m will be repaid to ABN. 

·      The disposal of the property at Munich Hoffmanstrasse has been notarised for €7m of which €4m will be repaid to ABN and €3m will be released to the Group.

·      ABN has verbally agreed at this stage to release three properties from the facility for immediate refinancing.  Advanced discussions with several banks have taken place to finance these properties plus three unencumbered assets in order to repay €29m to ABN as well as generate free cash for the Group.

·      The Group's management has been active in marketing the remaining 12 properties within the ABN facility.  The initial interest for these assets is encouraging and the Board is confident that these assets will be sold or refinanced in the near future.

The Directors are of the view that should the Group fail to refinance or sell the properties secured over the ABN loan facility or should ABN enforce its security against the Group, the loss of income generated from these properties will reduce the overall level of profitability of the Group by approximately €1m per annum.

The loan facility with BerlinHyp matures in stages between March 2013 and December 2013. The Directors have commenced negotiations with BerlinHyp concerning refinancing of the loan facility on the basis that the business continues in its current form following the internalisation in January 2012.  At this stage there has been no indication from BerlinHyp that the refinancing of the existing loan facility will not be successful.

Based on its current strategy, following internalisation and the improvements in profit generated by the management team over the last two years, the directors anticipate that the Group will be able to generate sufficient cash from operations over the next 18 months to service its debts including amortisation assuming that the refinancing and disposal of properties occurs in the expected timeframe.

NAV

As at 31 March 2012, the portfolio was valued independently by DTZ Zadelhoff Tie Leung GmbH at €485.7m (31 March 2011: €505.5m). The reduction in valuation has come even though rental income and non-recoverable costs have significantly improved during the year.  It is believed that the main reason for the fall in valuation is therefore due to DTZ taking a more negative stance towards the German economy.  Of these assets, the €7m Munich Hoffmanstrasse asset has been reclassed to "assets for sale" in the accounts.  In addition, a further negative adjustment of €2m was processed to the portfolio valuation to reflect the IFRS accounting adjustment to recognise rent free discounts over the length of the lease.

The portfolio, including vacant space, is valued on an average net initial yield of 7.9% (2011: 7.0%) and an average capital value per sqm of €421 (2011: €438).

The adjusted net asset value per share, which excludes the provisions for deferred tax and derivative financial instruments, was 62.10c as at 31 March 2012 (31 March 2011: 72.9c). The Company issued 15 million new shares as part of the consideration for internalisation which reduced the Company's adjusted NAV per share by 3.2c.

Dividend

At this stage, the focus remains on increasing rental income and reducing the cost base of the business so that the Company can return to paying dividends in due course. We will continue to review this policy and expect to reinstate a progressive dividend once it is prudent to do so.

Asset management

The operating platform that has been created by the asset management team led by Andrew Coombs and Alistair Marks is really starting to create value for shareholders.  This is evidenced by the significant improvements in rental income and non-recoverable costs over the last two years despite the backdrop of challenging economic conditions.  We are pleased that the internalisation of this team is now complete and are confident that we will see further increases in rental income and profitability from the assets under management. In addition, the team is making good progress with the asset disposal programme and on refinancing some of the assets within the ABN financed portfolio which matures later this year.

As previously announced, the Company sold in the period a parcel of land at the Bremen Brinkmann site and part of one of the sites in Bonn which will generate close to €2.5m of proceeds and around €700,000 of profit. In addition, the sales of another building at the Bonn site and the Munich Hoffmanstrasse site have been notarised for €900,000 and €6,845,000 respectively.  The Hoffmanstrasse disposal has been achieved with the support of PCO Real Estate Asset Management Ltd in line with the Advisory Services Agreement that was one of the terms of internalisation.

The asset management report provides a more detailed analysis of the key achievements during the period under review.

Prospects and outlook

Whilst GDP figures in the first quarter of 2012 have shown steady growth in the Germany economy, the wider difficulties in the Eurozone make economic forecasting difficult. Our experiences indicate that the German SME market remains resilient with demand for flexible work space reasonably constant.

There is no doubt that the business is better positioned following the internalisation of the asset manager and we now have a clear plan for taking the business forward. Occupancy is moving up and we are confident of maintaining this trend.  The Group's cost base is now securely under control and we are successfully selling individual sites and land parcels to strengthen our financial position.  Working capital management is a key priority for the management team as the current level of operating cash flow, although improving, is insufficient to meet contractual debt amortisation obligations and fund capital expenditure necessary to continue improving the value of the estate. The approaching maturity of the ABN debt facility is receiving appropriate attention from the management team and the Board remains confident that the plan in place to deal with the loan maturity will be implemented successfully.

Trading since the period end is in line with management's expectations.

Asset Manager's report

Asset management

We have made good progress on all the main drivers to improving the Company's profitability.  Rental income has increased through the combination of another strong lettings year with a significant reduction in the levels of tenants vacating.  Ancillary income achieved from conferencing and catering continues to grow.  Recovery of costs has improved despite significant increases in utilities prices through the whole of Germany and the Company's overheads have further decreased through active management.  The improvement in profitability was held back by the non-collectability of some old service charge and legal debtors, resulting in a €1.8m write-off to the current year's income statement. 

The transformation of the asset management team to become a wholly owned part of Sirius has been a relatively seamless process and will bring further benefits to the Group over the next 12 months.

Marketing

We continue to generate a high level of monthly sales enquiries which now consistently run at over 1,000 per month.

We have worked hard to achieve this level of continued interest and it has been driven by the expansion of the sales and marketing team in 2010, the effectiveness of the Company's online marketing activities and web portals and the continued growth in the reputation and understanding of the Sirius brand and its offerings to SME customers.

Our ability to meet the needs of small and large tenants alike differentiates us from many of our competitors.  The long-term stable income we receive from our core larger tenants provides the platform and security to generate high yielding income from the short-term flexible space. The variety of small, flexible space available is proving attractive to the SME market which form the bulk of our tenant base.  Our current conversion rate shows that one in two enquiries result in a viewing and one in five viewings result in a sale. The high number of enquiries coupled with the current conversion rate has been the main driver of the occupancy improvements over the last two years. We continue to be one of the biggest established providers of mixed-use flexible space in Germany and our ability to let the more difficult spaces in the current market conditions is testament to the quality of the sales and marketing division that we have created.  

New lettings                              

Occupancy has increased to 78% in the year, up from 76% at the start of the financial year. This increase has been driven by the new sales of 128,345 sqm at €5.24 per sqm (2011: 159,292 sqm at €4.41 per sqm) and is also due to lower moveouts of 92,636 sqm in the period compared to 123,768 sqm in the previous year.  The driver of rental income growth this year has been the higher rate achieved on the new lettings and this is reflective of our shift in focus towards achieving higher yields.  Despite the economic conditions, we have achieved these higher rates and it stands to prove the success of the business model.  Increasing occupancy and rental rates will continue to be at the heart of the Company's strategic plans going forward.  Another year of more than 125,000 sqm of new sales is not only indicative of the Company's successful marketing activities but also the continued demand from the German SME sector for flexible workspace solutions. Demand has come from a broad mix of light industrial, logistics, office and storage users.  In addition, we have been able to maximise portfolio yields from Smartspace, a highly flexible solution generally for young businesses, Flexilager, a low cost storage solution, and the growing demand for conferencing facilities.  These products only represent a small part of the portfolio but the rates achieved are significantly higher than conventional lettings. 

Post the year end, during April and May, we achieved new lettings of 14,902 sqm with an average rate psm in excess of €5.95.

Early engagement levels with all tenants has been a key focus of the asset management team, with every tenant now allocated to a relationship manager and all renewal discussions commencing well in advance of the renewal date. This additional focus has been the catalyst of an increase in the number of tenants renewing (at higher rates) and the reduced level of moveouts in the period compared to the previous two years. Over the next twelve months to March 2013, €11.6m of the rent roll is due for renewal.

Portfolio analysis                      

The average monthly rental rate achieved across the portfolio now stands at €4.21 per sqm (2011: €4.13 per sqm). Our tenant base (excluding Smartspace tenants) consists of 1,327 tenants occupying 894,000 sqm with an average lease length to the first break option of three years. There is a broad mix of tenants within the portfolio but the core base of secure long-term income from our larger tenants remains.  Our top 10 tenants occupy 31.89% of the total space and produce 30.93% of total rental income.

There is further scope to improve the portfolio, however there are a number of assets which are either non-core or are mature enough to consider selling. The full value from investments of the past has not yet been fully realised mainly because of the difficult economy within which we have had to operate. However there is enough evidence from the results over the last two years to confirm that there is a healthy appetite for the Sirius products.

Looking ahead, the trends from 2011 have broadly continued. We are aware that four of our larger tenants who currently occupy circa 16,000 sqm are expected to move out before the end of the calendar year but we are hopeful that we can continue to push the level of occupancy and rental rate received from tenants even further.

Cost improvements and service charge recoveries

The programme which commenced in 2010 to reduce the cost base of the business with particular focus on the service charge area has produced excellent results for shareholders with further improvements expected in the next few years. Overall we have reduced the irrecoverable service charge costs from a run rate of more than €12.0m in January 2010 to under €8m now.  In addition, the Company's overheads (excluding bad debts) have reduced from €14.7m in the year to March 2010 to a current run rate of €11.0m.  As mentioned above, €2.0m of the savings has come from the internalisation but the rest has come from a conscious focus of the asset management team. 

The recovery of service charge has improved significantly over the last two years through cost optimisation and considerable improvements in the measuring and allocation techniques used.  The benefits have come despite large increases in utilities prices over the last 18 months which have delayed even further progress in this area.  Going forward, the team remain confident that further improvements are available and that this will remain one of the Company's highest priorities.

Consolidated statement of comprehensive income

for the year ended 31 March 2012

		Year	Year
		ended	ended
		31 March	31 March
		2012	2011
	Notes	€000	€000
Gross rental income	3	45,745	45,568
Direct costs	4	(20,153)	(22,922)
Net rental income		25,592	22,646
Deficit on revaluation of investment properties	11	(27,349)	(367)
Administrative expenses	4	(5,650)	(4,141)
Other expenses	4	(2,247)	(2,175)
Operating (loss)/profit		(9,654)	15,963
Finance income	7	135	126
Finance expense	7	(17,665)	(17,832)
Change in fair value of derivative financial instruments		(4,575)	5,184
Gain on disposal of properties		645	-
(Loss)/profit before taxation		(31,114)	3,441
Taxation	8	(611)	(711)
(Loss)/profit for the year		(31,725)	2,730
(Loss)/profit attributable to:
Owners of the Company		(31,248)	2,519
Non-controlling interests		(477)	211
(Loss)/profit for the year		(31,725)	2,730
Earnings per share
Basic and diluted, for (loss)/profit for the year attributable
to ordinary equity holders of the Parent Company	9	(10.25)c	0.83c

Consolidated statement of financial position

as at 31 March 2012

		2012	2011
	Notes	€000	€000
Non-current assets
Investment properties	11	476,780	505,500
Plant and equipment		3,438	4,679
Goodwill	14	3,738	-
Total non-current assets		483,956	510,179
Current assets
Trade and other receivables	15	9,704	7,272
Prepayments		339	233
Derivative financial instruments		4	165
Cash and cash equivalents	16	9,145	23,583
Investment property held for sale	12	9,340	-
Total current assets		28,532	31,253
Total assets		512,488	541,432
Current liabilities
Trade and other payables	17	(20,634)	(17,162)
Interest-bearing loans and borrowings	18	(189,333)	(7,669)
Current tax liabilities		(65)	(707)
Derivative financial instruments		(13,858)	(9,444)
Total current liabilities		(223,890)	(34,982)
Non-current liabilities
Interest-bearing loans and borrowings	18	(105,214)	(294,546)
Deferred tax liabilities	8	(2,115)	(1,924)
Total non-current liabilities		(107,329)	(296,470)
Total liabilities		(331,219)	(331,452)
Net assets		181,269	209,980
Equity
Issued share capital	19	-	-
Other distributable reserve		303,625	300,111
Retained earnings		(122,398)	(91,150)
Total equity attributable to the equity holders of the Parent Company		181,227	208,961
Non-controlling interests		42	1,019
Total equity		181,269	209,980

Consolidated statement of changes in equity

for the year ended 31 March 2012

				Total equity
				attributable
	Issued	Other		to holders of	Non-
	share	distributable	Retained	the Parent	controlling
	capital	reserve	earnings	Company	interests	Total equity
	€000	€000	€000	€000	€000	€000
As at 31 March 2010	-	300,111	(93,669)	206,442	808	207,250
Total comprehensive income for the year
Profit for the year	-	-	2,519	2,519	211	2,730
As at 31 March 2011	-	300,111	(91,150)	208,961	1,019	209,980
Total comprehensive income for the year
Loss for the year	-	-	(31,248)	(31,248)	(477)	(31,725)
Transactions with owners of the Company, recognised directly in equity
Treasury shares issued	-	3,187	-	3,187	-	3,187
Acquisition of non-controlling interest	-	263	-	263	(500)	(237)
Share-based payment transactions	-	64	-	64	-	64
As at 31 March 2012	-	303,625	(122,398)	181,227	42	181,269

Consolidated cash flow statement

for the year ended 31 March 2012

		Year	Year
		ended	ended
		31 March	31 March
		2012	2011
	Notes	€000	€000
Operating activities
(Loss)/profit before tax		(31,114)	3,441
Gain on sale of properties		(645)	-
Share-based payments		64	-
Deficit on revaluation of investment properties	11	27,349	367
Change in fair value of derivative financial instruments		4,575	(5,184)
Depreciation	4	853	881
Finance income	7	(135)	(126)
Finance expense	7	17,665	17,832
Cash flows from operations before changes in working capital		18,612	17,211
Changes in working capital
(Increase)/decrease in trade and other receivables		(1,971)	4,665
Increase in trade and other payables		2,556	3,080
Taxation paid		(833)	(121)
Cash flows from operating activities		18,364	24,835
Investing activities
Costs of internalisation of the Asset Management Agreement		(1,337)	-
Cash acquired in companies internalised		409	-
Development expenditure		(7,390)	(9,303)
Purchase of plant and equipment		(364)	(901)
Proceeds on disposal of properties		1,074	-
Proceeds on disposal of plant and equipment		-	56
Interest received		135	126
Cash flows used in investing activities		(7,473)	(10,022)
Financing activities
Proceeds from loans		-	2,490
Repayment of loans		(8,743)	(9,121)
Finance charges paid		(16,586)	(18,000)
Cash flows from financing activities		(25,329)	(24,631)
Decrease in cash and cash equivalents		(14,438)	(9,818)
Cash and cash equivalents at the beginning of the year		23,583	33,401
Cash and cash equivalents at the end of the year	16	9,145	23,583

Notes to the consolidated financial statements

for the year ended 31 March 2012

1. Basis of preparation

The financial information is abridged and does not constitute the Group's full Financial Statements for the year ended 31 March 2012, but has been prepared under International Financial Reporting Standards ("IFRSs") as adopted for use in the EU.

The Directors note the following in their deliberations on whether the going concern basis is appropriate for the financial statements.

Going concern                                          

As described in the Chairman's statement, the current economic environment is difficult and the Group has reported a loss before tax for the year of €31.1m and net current liabilities of €195.4m. The Group's property portfolios are mainly funded by external debt facilities. The loan facility with the ABN Amro Bank N.V. ("ABN") of €91.2m matures in October 2012 and the loan facility with Berlin Hannoversche Hypothekenbank AG of €204.4m matures in stages between March 2013 and December 2013.  The Directors consider that the outlook presents some challenges in terms of refinancing the Group's existing loan facilities and realising cash by disposing of non-core and mature assets and will therefore be regularly reviewing the strategy in place to achieve this. In particular, the Directors continue to discuss with the larger shareholders the challenges of achieving both the realisation of assets and the required loan refinancing. Whilst the Directors have instituted measures to preserve cash and secure additional finance, these circumstances create uncertainties over future cash flows.

Loan facility with Berlin Hannoversche Hypothekenbank AG

The loan facility with Berlin Hannoversche Hypothekenbank AG matures in stages between March 2013 and December 2013. The directors have commenced negotiations with Berlin Hannoversche Hypothekenbank AG concerning refinancing of the loan facility on the basis that the business continues in its current form following the internalisation in January 2012, with only limited property realisations.  At this stage there has been no indication from Berlin Hannoversche Hypothekenbank AG that the refinancing of the existing loan facility on this basis will not be successful. The cash balance at 31 March 2012 was €9.1m. Based on its current strategy, following internalisation and the improvements in profit generated by the management team over the last two years, the Directors anticipate that the Group will be able to generate sufficient operating profit over the next 18 months to service its debts including amortisation assuming the refinancing and disposal of properties occurs in the expected timeframe.

Loan facility with ABN

The facility provided by ABN with an outstanding balance of €91.2m expires on 15 October 2012.  This loan is secured over 16 properties which are ring-fenced from the other assets and liabilities within the Group.  Should the Group be unable to repay the outstanding balance by 15 October, the bank may enforce its security over those assets but this would have no impact on the remainder of the Group. 

The Group's management are in negotiations with ABN about a combination of disposing of and refinancing the properties secured under the facility, in order to repay the loan facility in full by the facility expiry date. The progress made on this plan to date is as follows:

·      three pieces of property which form part of the properties financed by ABN have been sold at prices in excess of DTZ valuations generating close to €3.5m of which €3m will be repaid to ABN;. 

·      the disposal of the property at Munich Hoffmanstrasse has been notarised for €7m of which €4m will be repaid to ABN and €3m will be released to the Group;

·      ABN has agreed at this stage to release three properties from the facility for immediate refinancing.  Advanced discussions with several banks have taken place to finance this portfolio plus three unencumbered assets in order to repay €29m to ABN as well as generate free cash of circa €7m for the Group;and

·      the Group's management has been active in marketing the remaining 12 properties within the ABN facility.  The initial interest for these assets is encouraging and the Board are confident that these assets will be adequately sold or refinanced before the facility expiry date.

The Directors are of the view that should the Group fail to refinance or sell the properties secured over the ABN loan facility or should ABN enforce its security against the Group, the loss of income generated from these properties will reduce the overall level of profitability of the Group by approximately €1m per annum.

The Directors have concluded that the combination of these circumstances represents a material uncertainty that casts some doubt upon the Group's ability to continue as a going concern and that, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.  Nevertheless, after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future.  For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.  

2. Operating segments

Segment information is presented in respect of the Group's operating segments. The operating segments are based on the Group's management and internal reporting structure. Segment results and assets include items directly attributable to a segment as well as those that can be allocated to a segment on a reasonable basis.

Management considers that there is only one geographical segment which is Germany and one reporting segment which is investment in commercial property.

3. Revenue

	Year	Year
	ended	ended
	31 March	31 March
	2012	2011
	€000	€000
Rental income from investment properties	45,745	45,568

4. Operating (loss)/profit

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

Direct costs

		Year	Year
		ended	ended
		31 March	31 March
		2012	2011
	Notes	€000	€000
Service charge income		(30,611)	(24,995)
Service charge expenditure and other property costs		46,854	43,292
Irrecoverable property costs		16,243	18,297
Property management fee including Bremen Holzhafen fee*		1,595	1,559
Asset management fee*		2,249	2,974
Development fee*		66	92
		20,153	22,922

*With the exception of a new property management fee at Bremen Holzhafen these costs are no longer incurred as a result of internalisation of the Asset Management Agreement..

Administrative expenses

	Year	Year
	ended	ended
	31 March	31 March
	2012	2011
	€000	€000
Audit fee	247	252
Legal and professional fees	1,827	2,598
Other administration costs	835	909
Non-recurring costs	2,741	382
	5,650	4,141

During the year fees of €414,906 (2011: €92,641) were incurred with the auditors and their associates in respect of other non-audit services.

Non-recurring costs relate primarily to professional fees incurred in the process of internalisation of the Asset Management Agreement.

4. Operating (loss)/profit continued

Other expenses

	Year	Year
	ended	ended
	31 March	31 March
	2012	2011
	€000	€000
Directors' fees	267	220
Depreciation	853	881
Bank fees	98	174
Marketing and other expenses	1,029	900
	2,247	2,175

5. Employee costs and numbers

	Year	Year
	ended	ended
	31 March	31 March
	2012	2011
	€000	€000
Wages and salaries	958	-
Social security costs	173	-
Other employment costs	87	-
	1,218	-

Since the internalisation of the Asset Management Agreement on 30 January 2012, all employees are now employed directly by the Group. The average number of persons employed by the Group since internalisation was 159. In addition the Board of Directors consists of nine Non-executive Directors.

6. Equity-settled share-based payments

During the year the Group established a Sirius long-term incentive scheme for the benefit of certain key management personnel. During this period 300,000 shares were granted but not allotted to the personnel involved in the scheme. As a result of the current period transaction, an expense of €63,750 has been recognised in the consolidated statement of comprehensive income.

7. Finance income and expense

	Year	Year
	ended	ended
	31 March	31 March
	2012	2011
	€000	€000
Bank interest income	135	126
Finance income	135	126
Bank interest expense	(16,590)	(16,760)
Amortisation of capitalised finance costs	(1,075)	(1,072)
Finance expense	(17,665)	(17,832)

8. Taxation

	Year	Year
	ended	ended
	31 March	31 March
	2012	2011
	€000	€000
Current income tax
Current income tax charge	(85)	(583)
Adjustment in respect of prior periods	(334)	167
	(419)	(416)
Deferred tax
Relating to origination and reversal of temporary differences	(192)	(295)
	(192)	(295)
Income tax expense reported in the statement of comprehensive income	(611)	(711)

The income tax rate applicable to the Company in Guernsey is nil. The current income tax charge of €419,000 represents tax charges on profit arising in Germany that is subject to corporate income tax of 15.83%. The effective income tax rate for the period differs from the standard rate of corporation tax in Germany. The differences are explained below:

	Year			Year
	ended			ended
	31 March			31 March
	2012			2011
	€000			€000
(Loss)/profit before tax	(31,114)			3,441
(Loss)/profit before tax multiplied by rate of corporation tax in Germany of 15.83% (2011: 15.83%)			(4,925)	545
Effects of:
Income exempt from tax	(2,546)			(3,911)
Tax allowable depreciation	(1,695)			(1,653)
Non-taxable items including revaluation movements	5,560			995
Tax losses utilised	(207)			(55)
Tax losses not utilised	4,004			4,755
Relating to origination and reversal of temporary differences	192			295
Adjustments in respect of prior periods	334			(167)
Other	(106)			(93)
Total income tax expense in the statement of comprehensive income (as above)		611		711

Deferred tax liability

	2012	2011
	€000	€000
Opening balance	1,924	1,629
Revaluation of investment properties and derivative financial instruments to fair value	191	295
Closing balance	2,115	1,924

8. Taxation continued

The Group has tax losses of €97,139,696 (2011: €75,344,507) that are available for offset against future profits of its subsidiaries in which the losses arose. Deferred tax assets have not been recognised in respect of the revaluation losses on investment properties and interest rate swaps as they may not be used to offset taxable profits elsewhere in the Group as realisation is not assured.

9. Earnings per share

The calculation of the basic, diluted and adjusted earnings per share is based on the following data:

	Year	Year
	ended	ended
	31 March	31 March
	2012	2011
	€000	€000
Earnings
(Loss)/profit for the year attributable to the equity holders of the parent	(31,248)	2,519
Earnings	(31,248)	2,519
Add back revaluation deficits	27,349	438
Add back change in fair value of derivative instruments	4,575	(5,184)
Add back non-recurring costs	2,741	382
Less gain on sale of properties	(645)	-
Adjusted earnings	2,772	(1,845)
Number of shares
Weighted average number of ordinary shares for the purpose of basic earnings per share	304,773,176	302,223,176
Weighted average of ordinary shares for the purpose of adjusted earnings per share	304,773,176	302,223,176
Basic and diluted earnings per share	(10.25)c	0.83c
Adjusted earnings per share	0.91c	(0.61)c

The number of shares has been reduced by 10,276,824 shares that are held by the Company as Treasury Shares at 31 March 2012, for the calculation of basic and adjusted earnings per share.

The Directors have chosen to disclose adjusted earnings per share in order to provide a better indication of the Group's underlying business performance; accordingly it excludes the effect of non-recurring costs, gains on sale of properties, deferred tax and the revaluation deficits on the investment properties and derivative instruments.

As there are no share options in issue, the diluted earnings per share is identical to the basic earnings per share.

10. Net assets per share

	2012	2011
	€000	€000
Net assets
Net assets for the purpose of assets per share (assets attributable to the equity
holders of the parent)	181,227	208,961
Deferred tax relating to investment properties	2,115	1,921
Derivative financial instruments	13,854	9,279
Adjusted net assets attributable to equity holders of the parent	197,196	220,161
Number of shares
Number of ordinary shares for the purpose of net assets per share	317,523,176	302,223,176
Net assets per share	57.08c	69.14c
Adjusted net assets per share	62.10c	72.85c

The number of shares has been reduced by 10,276,824 shares that are held by the Company as Treasury Shares at 31 March 2012, for the calculation of basic and adjusted earnings per share.

As there are no share options, the diluted net asset per share is identical to net assets per share.

11. Investment properties

A reconciliation of the valuation carried out by the external valuer to the carrying values shown in the statement of financial position is as follows:

	2012	2011
	€000	€000
Investment properties at market value	485,740	505,500
Adjustment in respect of lease incentives	(1,900)	-
Reclassified as investment properties held for sale	(7,060)	-
	476,780	505,500

The fair value of the Group's investment properties at 31 March 2012 has been arrived at on the basis of a valuation carried out by DTZ Zadelhoff Tie Leung GmbH, an independent valuer.

The value of each of the properties has been assessed in accordance with the RICS Valuation Standards on the basis of market value. Market value was primarily derived using a ten year discounted cash flow model supported by comparable evidence. The discounted cash flow calculation is a valuation of rental income considering non-recoverable costs and applying a discount rate for the current income risk over a ten year period. After ten years a determining residual value (exit scenario) is calculated. A cap rate is applied to the more uncertain future income, discounted to a present value.

The weighted average lease duration was three years.

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

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

	2012	2011
	€000	€000
Total investment properties at market value per valuers' report as at 1 April	505,500	500,010
Additions and subsequent expenditure	7,969	5,857
Adjustment in respect of lease incentives	1,900	-
Reclassified as investment properties held for sale not included in valuation	(2,280)	-
Deficit on revaluation	(27,349)	(367)
Total investment properties at market value per valuers' report as at 31 March	485,740	505,500

12. Investment properties held for sale

	2012	2011
	€000	€000
Property 1 at Konigswinter site	830	-
Property 2 at Konigswinter site	1,450	-
Investment properties held for sale not included in yearend valuation	2,280
Property at Munich Hoffmanstrasse site included in yearend valuation	7,060	-
	9,340	-

At 31 March 2012 an agreement was made to dispose of a building at the Konigswinter site for €900,000, with a book value of €830,000. The disposal has been notarised and subject to being included on the land register, it will be completed in the next period.

At 31 March 2012 an agreement was made to dispose of two buildings at the Konigswinter site for €1,450,000. Legal conditions are being finalised and then the disposal will complete in the next period.

At 1 June 2012 an agreement was made to dispose of the investment property at Munich Hoffmanstrasse for €6,850,000. The disposal is expected to complete within the next 3 months.

13. Business combinations

On 30 January 2012 a transaction was completed to internalise the Asset Management Agreement that was held with Principle Capital Sirius Real Estate Asset Management Limited (PCSREAM). As a result payments were made to cancel the agreement and acquire 100% of the share capital of four companies at their net asset value. The companies were Sirius Facilities GmbH, LB² GmbH, Principle Corporate Services B.V. and Marba Holland B.V. Control over the companies was achieved on completion of the consideration payments.

The goodwill is attributable to acquired knowledge of the employees and the systems, which are expected to create efficiencies in the operation and cost of running the Group's properties.

Details of net assets acquired and goodwill are as follows:

	2012	2011
Purchase consideration	€000	€000
Cash paid	791	-
Fair value of shares issued	3,188	-
Total purchase consideration	3,979	-

The assets and liabilities as of 30 January arising from acquisition are as follows

		Fair value
		€000
Property, plant and equipment Trade receivables Other receivables Cash and cash equivalents Trade payables Other payables		435 221 345 361 (429) (692)
Fair value of net assets		241
Goodwill		3,738
Total purchase consideration		3,979

14. Goodwill

	2012	2011
	€000	€000
Opening balance	-	-
Additions	3,738	-
Amortisation in year	-	-
Closing balance	3,738	-

On 30 January 2012 a transaction was completed to internalise the Asset Management Agreement and as a result of the consideration given exceeding the net assets acquired, goodwill has been recognised. Due to the transaction being completed close to the year end, the value recognised is considered a good indication of fair value less cost to sell.  As a result no impairment review was considered necessary for the carrying value of the goodwill at 31 March 2012.

15. Trade and other receivables

	2012	2011
	€000	€000
Trade receivables	4,771	5,577
Other receivables	4,923	1,695
Related party receivable	10	-
	9,704	7,272

16. Cash and cash equivalents

	2012	2011
	€000	€000
Cash at banks and in hand	9,145	23,583

Cash at banks earns interest at floating rates based on daily bank deposit rates. The fair value of cash is €9,144,770 (2011: €23,583,498).

As at 31 March 2012 €5,572,909 (2011: €6,717,701) of cash is held in blocked accounts. Of this balances relating to deposits received from tenants total €2,332,317 (2011: €1,941,435). An amount of €15,625 (2011: €15,546) relates to funds held on an escrow account for a supplier and €153,596 is held in a restricted account for office rent deposit. An amount of €3,071,371 (2011: €3,389,822) relates to amounts reserved for future interest payments on the bank loan facilities. No balances are now held which are under the control of lenders who have made loans to the Group to be used for capital expenditure on the properties (2011: €1,370,898).

17. Trade and other payables

	2012	2011
	€000	€000
Trade payables	6,080	5,665
Accrued expenses	6,840	3,991
Accrued interest	1,111	1,107
Other payables	6,603	6,283
Related party payables	-	116
	20,634	17,162

Terms and conditions of the above financial liabilities are as follows:

·      trade payables are non-interest bearing and it is the Group's policy to pay within the stated terms which vary from 14 to 60 days. The exceptions are certain development suppliers where payment plans have been agreed to extend the payment days to a longer period; and

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

18. Interest-bearing loans and borrowings

	Effective
	interest
	rate		2012	2011
	%	Maturity	€000	€000
Current
ABN Amro loan - fixed rate facility	5.85	15 October 2012	91,217	2,156
Berlin Hannoversche Hypothekenbank AG loan
- fixed rate facility	5.46	31 March 2013	49,661	1,290
Berlin Hannoversche Hypothekenbank AG loan
- hedged floating rate facility	Hedged floating*	31 March 2013-30 June 2013	47,937	4,012
Berlin Hannoversche Hypothekenbank AG loan
- capped floating rate facility	Capped floating**	31 December 2013	1,360	1,286
Capitalised finance charges on all loans			(842)	(1,075)
			189,333	7,669
Non-current
ABN Amro loan - fixed rate facility	5.85	15 October 2012	-	91,217
Berlin Hannoversche Hypothekenbank AG loan
- fixed rate facility	5.46	31 March 2013	-	49,661
Berlin Hannoversche Hypothekenbank AG loan
- hedged floating rate facility	Hedged floating*	31 March 2013-30 June 2013	65,172	113,108
Berlin Hannoversche Hypothekenbank AG loan
- capped floating rate facility	Capped floating**	31 December 2013	40,245	41,605
Capitalised finance charges on all loans			(203)	(1,045)
			105,214	294,546
Total			294,547	302,215

18. Interest-bearing loans and borrowings continued

The borrowings are repayable as follows:

	2012	2011
	€000	€000
On demand or within one year	190,175	8,744
In the second year	105,417	190,174
In the third to fifth years inclusive	-	105,417
Total	295,592	304,335

   *  The average fixed rate of the swap contracts is 4.74%, plus an average margin of 1.12% bringing the total cost to 5.86%. The swap contracts have various maturity dates with the latest being June 2018.

  **  This floating rate facility is capped at 5.98%. Due to the current low market interest rates, the interest at year end for this loan is 3.09%.

The Group has pledged 34 (2011: 34) properties to secure the interest-bearing debt facilities granted to the Group. The 34 properties had a combined valuation of €450,660,000 as at 31 March 2012 (2011: €465,310,000).

ABN Amro Bank N.V.

This facility had €100,951,940 drawn down, of which €9,734,821 (2011: €7,579,062) has been amortised, resulting in a net liability of €91,217,119 (2011: €93,372,878) at year end. The interest is fixed at a weighted average interest rate of 5.85% per annum. The final repayment date is 15 October 2012 and therefore the outstanding balance is shown as current. Negotiations are currently taking place with ABN about disposing of or refinancing the property assets that the loan is secured over. This is explained further in note 1 under basis of preparation. The loan is secured over 16 property assets and is subject to various covenants with which the Group has complied.

The original facility agreement was signed with ABN in 2006 and was transferred into SRE upon the IPO in April 2007. As part of the 2007 acquisition of ABN by the consortium led by The Royal Bank of Scotland (RBS) the facility was transferred to RBS and has remained there since.  As a result the negotiations on settling and refinancing the facility are taking place with RBS and Bank of America, the managing agent in charge of the facility.

Berlin Hannoversche Hypothekenbank AG

Facilities of €226,500,000 have been granted by Berlin-Hannoversche Hypothekenbank AG. To date €22,125,645 (2011: 15,538,184) has been amortised, resulting in a liability of €204,374,355 at 31 March 2012 (2011: 210,961,816).

The facility is split into three portfolios. Portfolio I is split with either an interest rate of 1.18 margin over three months EURIBOR fixed by a SWAP at 4.42%, or a fixed rate of 5.46%. The latest drawdown has a fixed rate of 2.81% for the loan facility. Portfolio II has an interest rate of 1.08 margin over three months EURIBOR fixed by a SWAP at 4.95% and Portfolio III is at a floating rate capped at 5.98%. This facility is secured over 18 property assets and is subject to various covenants with which the Group has complied.

A summary of the Group's debt covenants are set out below:

	Total		Value of					Interest cover/
	loan		secured					debt service
	outstanding		properties	Loan-to-value	Loan-to-value	Interest	Debt service	cover ratio
	at 31 March		at 31 March	ratio	covenant	cover ratio	cover ratio	covenant
	2012		2012	at 31 March	at 31 March	at 31 March	at 31 March	at 31 March
	€000		€000	2012	2012	2012	2012	2012
ABN Amro loan	91,217		126,030	72.4%	85%	1.45	n/a	1.25
Berlin-Hannoversche Hypothekenbank AG loan
- Portfolio I, II and III	204,374		324,630	63%	77%	n/a	1.46	1.10
Unencumbered properties	-		35,080	n/a
Total	295,591		485,740	60.9%

19. Issued share capital

		Share
	Number	capital
Authorised	of shares	€
Ordinary shares of no par value	Unlimited	-
As at 31 March 2012	Unlimited	-

		Share
	Number	capital
Issued and fully paid	of shares	€
Ordinary shares of no par value
Issued ordinary shares	327,800,000	-
Shares bought back and held in treasury	(25,576,824)	-
As at 31 March 2011	302,223,176	-
Issued Treasury Shares	15,300,000	-
As at 31 March 2012	317,523,176	-

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

The Company holds 10,276,824 of its own shares which are held as treasury. During the year 15,000,000 shares were issued as part of the internalisation of the Asset Management Agreement. A further 300,000 shares were issued to senior management as part of a long-term incentive scheme as explained in note 6.

No share buybacks were made in the year.

20. Dividends

In order to sustain investment in the Group's portfolio whilst also ensuring cash resources are preserved, the Board has proposed to not pay a dividend in the year ended 31 March 2012.

 

END

 

 

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