SDCC Speymill Deut.C

    RNS Number : 4183Y
  Speymill Deutsche Immobilien Co PLC
  07 July 2008
   

    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    *     Certain properties totaling EUR20.1 million have been withdrawn since the Company's last update on 1 April 2008 as they either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      EUR 39.57 million
 (excluding rental
 guarantees)
 Net Initial Yield            6.7%
 (excluding rental
 guarantees)
 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 EUR0.25 each in the capital of the Company ("the C Shares") into Ordinary Shares of EUR0.05 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: 

    * the buildings may be subject to some refurbishment which can lead to increased tenant turnover;
    
    * during the handover period between notarisation and completion, the incumbent owner may be less active in managing the property and,
consequently, there may be additional vacancies that will need to be replaced through letting activity following completion; or    * the
building's operating/service charge costs may have to be subsidised out of rental income before a reconciliation with tenants occurs (this
typically occurs in the year following takeover).
    

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 EUR250 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.

This information is provided by RNS
The company news service from the London Stock Exchange
 
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