Eurocastle Interim Management Statement for the three months ended 31 March 2010
(Thomson Reuters ONE) -
Press Release
12 May 2010
During the first quarter of 2010, Eurocastle Investment Limited ("Eurocastle" or
the "Company") made progress on its two main objectives of continuing to reduce
the Company's short term and recourse debt, and to realise value from its
commercial real estate investment portfolio in Germany. This interim management
statement reports on the progress made on both of these fronts, as well as other
recent developments.
Highlights
* Since the end of 2009, Eurocastle has reduced short term recourse
obligations by half to ?16.4 million at the end of March 2010.
* During the quarter, the Group has signed 92 commercial leases for
approximately 32,000 square metres (sqm). This is comprised of 60 new leases
for approximately 11,000 sqm and 32 lease renewals for approximately 21,000
sqm.
* The Group sold seven properties during the quarter for total sales proceeds
of ?145.2 million, realising cash of ?8.1 million after repayment of asset
level financings. As at quarter end, the Group was under contract to sell a
further four properties for approximately ?35 million. Once completed these
sales are expected to generate up to ?13.4 million of cash, after repayment
of asset level financings.
Financing and Liquidity
* In February 2010, convertible securityholders presented ?1.5 million of
convertible securities for conversion. Eurocastle duly converted these
securities and issued 5,000,000 shares. No interest was payable on the
converted securities.
* The proceeds from the sale of assets during the quarter, together with cash
from operating activities, have been used to repay half of the Company's
original corporate loan facility; from a balance of ?12.8 million at the
beginning of the year to ?6.4 million at the end of March 2010. In
addition, the proceeds were also used to amortise Eurocastle's other
corporate obligation (originally a ?30 million guarantee of a subsidiary's
acquisition facility) from ?20 million to ?10 million.
* After the pay downs of the corporate obligations during the first quarter,
the Group had a corporate cash balance of ?13.9 million as at 30 April
2010.
* Following temporary waivers of covenant breaches in the Group's Mars Fixed
1 and Mars Fixed 2 facilities (as anticipated in the Company's 2009 Annual
Report), the Group is currently engaged in constructive discussions about
restructuring both these facilities.
Real Estate
Business Review
* The Group owns 546 investment properties (including the four properties
under contract to sell) across Germany valued at approximately ?3.5 billion
based on independent valuations carried out at the end of 2009, equivalent
to an NOI yield of 6.0% based on the 2010 first quarter's NOI. Adjusting for
the transfer of 50% interest in Mars, the portfolio valuation and NOI yield
were ?2.9 billion and 6.3%, respectively. These assets are held in 13
separate financing portfolios. They comprise a diversified mix of office and
retail properties concentrated in the five major German markets.
First Quarter 2010 Real Estate Portfolio Composition
NOI yield
Occupied Passing Annualised Property Average on
No. of space Occupancy rent NOI valuation* lease valuation
Asset properties (sqm) % ?m ?m ?m term %
-----------------------------------------------------------------------------------------
Core 495 1,184,569 90.6% 161.0 146.2 2,136 4.8 6.8%
Mars 51 539,098 75.0% 80.2 65.9 1,405 5.7 4.7%
-----------------------------------------------------------------------------------------
Grand
Total 546 1,723,667 85.1% 241.2 212.1 3,541 5.1 6.0%
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
Core plus
50% Mars
Adjustment N/A N/A 87.3% 204.3 181.8 2,888 5.0 6.3%
-----------------------------------------------------------------------------------------
*Property valuations based on semi annual third party independent valuations
undertaken in December 2009.
* The Group has continued to generate cash at the holding company level that
is available for repaying Eurocastle's two corporate loan obligations and
for other corporate purposes. However, excess cashflow from the Mars
portfolios is being retained within those portfolios to repay senior debt,
and so currently cannot be distributed to Eurocastle.
* Eurocastle continues to pursue a real estate divestment programme seeking to
dispose of assets that are believed to be stable or fully valued. In the
first quarter of 2010, seven properties have been sold for total sales
proceeds of ?145.2 million, realising cash of ?8.1 million after repayment
of asset level financings and costs.
* Good progress continues to be made on new leasing and on renewing existing
tenants. During the first quarter of 2010, the Group signed 92 leases for
approximately 32,000 square metres, including 60 new leases for
approximately 11,000 square metres and 32 lease renewals for approximately
21,000 square metres.
* The Group continues to seek to moderate capital expenditure committed on new
leasing, focusing it on those leases and portfolios achieving the greatest
economic benefit for the Group and thus maximising cashflow available to the
holding company.
* The quarter's leasing and sales activities have left total lettable space of
2.0 million square metres at 31 March 2010 with occupancy of 85.1% as
compared to occupancy of 85.9% at 31 December 2009 on a like-for-like basis.
Excluding the Mars portfolios, lettable space was 1.3 million square metres
at 31 March 2010 with occupancy of 90.6%, down from 91.6% at 31 December
2009. Mars portfolio lettable space had 718 thousand square metres at 31
March 2010 with occupancy of 75.0%, down from 76.1% at the previous
quarter.
Market Outlook*
* The positive trend in the investment markets seen in the second half of
2009 has continued in 2010. Investment volume in the first quarter reached
approximately ?5 billion, representing approximately 50% of the annual
volume for 2009. Foreign property investors have started to invest in
Germany again, accounting for approximately ?2 billion or 40% of the first
quarter activity by turnover compared to only 10% in 2009.
* The major five office markets accounted for 35% of the overall investment
activity with the highest volume in Berlin with ?590 million. Investment in
office assets accounted for 29% of the overall volume, or ?1.4 billion. The
investment focus on low risk property investment continues to be a trend and
has accounted for approximately 74% of first quarter 2010 activity.
* The major markets showed some evidence of increasing rental take-up figures
for the first time after six quarters of decline, with the exception of
Frankfurt. Given the volatile economic environment, businesses remain
cautious about relocation and lease extensions remain prevalent in the
market. Despite a large choice of attractive space for interested businesses
in the market, landlords appear to be becoming less willing to give tenant
incentives.
* Despite the positive trend, prime office vacancy rates in the five major
markets have increased from 10.3% in the fourth quarter of 2009 to 10.5% in
this quarter. However, prime rents remained unchanged in the first three
months of the year and are forecasted to hold during the remainder of 2010.
* Data and analysis for this section has been extracted from professional market
research sources.
Debt Investments
* There were six upgrades and 31 downgrades in the first quarter of 2010,
compared to five upgrades and 84 downgrades in the fourth quarter of 2009.
* The Group's three CDO financings have continued to not comply with triggers
requiring that net interest received in the quarter be used to pay down
senior debt. If these triggers continue not to be met in the future, then
future net interest receipts will also be used to repay CDO debt. As a
result, the Group's returns from these portfolios are likely to be driven
primarily from the return of capital once the debt has been repaid.
* At the quarter end, there was approximately ?4.2 million of cash in the
three CDO financings, which was required to be held within such financings.
During the quarter ?43.9 million of senior liabilities were repurchased for
approximately ?33.0 million.
* Buying debt back at a discount improves the coverage tests that are
currently not being met and increases the probability that the CDO's will be
able to distribute surplus cashflow in the future. The Group intends to
continue to use cash retained in the CDO's in similar ways going forward
until the end of the re-investment periods (June 2010 - CDO II, June 2012 -
CDO III and June 2013 - CDO V).
Forward-Looking Statements
This release contains statements that constitute forward-looking statements.
Such forward-looking statements relate to, among other things, future
commitments to sell real estate and achievement of disposal targets,
availability of investment and divestment opportunities, methods of funding
portfolios, timing of completion of acquisitions and disposals, the operating
performance of our investments and financing needs. Forward-looking statements
are generally identifiable by use of forward-looking terminology such as "may",
"will", "should", "potential", "intend", "expect", "endeavour", "seek",
"anticipate", "estimate", "overestimate", "underestimate", "believe", "could",
"project", "predict", "continue", "plan", "forecast" or other similar words or
expressions. Forward-looking statements are based on certain assumptions,
discuss future expectations, describe future plans and strategies, contain
projections of results of operations or of financial condition or state other
forward-looking information. The Group's ability to predict results or the
actual effect of future plans or strategies is limited. Although the Group
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, its actual results and performance may differ
materially from those set forth in the forward-looking statements. These
forward-looking statements are subject to risks, uncertainties and other factors
that may cause the Group's actual results in future periods to differ materially
from forecasted results or stated expectations, including the risks regarding
Eurocastle's ability to achieve its targets regarding asset disposals or
reduction in capital expenditure or that Eurocastle will be able to fund or
further pay down its direct recourse liabilities.
[HUG#1414997]
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Datum: 12.05.2010 - 08:01 Uhr
Sprache: Deutsch
News-ID 20765
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