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German real estate
There are significant deviations from the previous quarter in the spreads of unsecured bonds compared to government bonds: in this quarter, 40% of respondents expect spreads to widen further and the corresponding index has dropped by 40 points.
The Guernsey-headquartered, AIM-listed Summit Germany Ltd issued a bullish statement on the German real estate market when presenting its full year 2014 figures last week, but warned that the “growing appetite” for exposure to the sector would limit future yields.
In a joint statement accompanying the results, chairman Harry Hyman and managing director Zohar Levy commented, “With no forecast for change in the extremely low interest rates and with Germany being the strongest economy in Europe, we believe that the German market is the most attractive real estate market in Europe. We expect the ever growing appetite for German real estate to continue pushing prices up and limiting investment opportunities. Against this backdrop we will maintain a disciplined approach to acquisitions.”
The company posted pre-tax profit of €74.0m for 2014, up from €23.9m, supported by higher rental income and a reversal from the negative fair value adjustments of its investment properties in 2013. The company focuses on opportunistic investments in multi-let office, retail, and logistics properties in Germany’s key financial centres, and employs 50 people in its offices in Berlin and Frankfurt. It currently owns and manages 95 assets at an average yield of 8.1%.
It improved its overall cost of capital by refinancing a previous debt facility of €268m towards the end of the year with a new seven year arrangement of €240m at lower interest payments, improving cash flow. It said interest costs will be cut further due to the early repayment of a €50 million shareholders loan with an annual coupon of 9.5% due to parent company Summit Israel.
Last year Summit paid 2.85 cents as a dividend, for an annualised yield of 5.42% on the €0.63 pricing of its initial public offering in February 2014, and said it is now targeting a yield of 7% on that price. The share is currently trading at around €0.90. It raised €35m last year on its IPO and a subsequent further €120m in February this year, of which it still has about €90m liquid for acquisitions in the pipeline.
