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alstria office REIT-AG: H1 2008 Financial Results
- Full year financial guidance confirmed
- Revenues increased by 27% to EUR 49.6 m
- Funds From Operations (FFO) increased by 60% to EUR 20.4 m
- Mark to Market of investment properties leads to a net loss for the period of EUR 10.4 m
- Sale of non-strategic assets at an average of 18% above IFRS book value
alstria office REIT-AG (symbol: AOX, ISIN:
DE000AOSDZU1), an internally managed Real Estate Investment Trust (REIT)
which is solely focused on acquiring, owning and managing office real estate in Germany, today reports its financial results for the first six months of 2008.
Key financials - strong cash generation
In the first half of 2008, the rental revenues increased by 27% from EUR 39.1 million to EUR 49.6 million. The corresponding Funds From Operations
(FFO) increased from EUR 12.8 million to EUR 20.4 million and the operating margin from 33% to 41.1%. Due to the non-cash valuation loss on investment properties of EUR 29.8 million, alstria reports a consolidated loss of EUR 10.4 million for the first six months of 2008. With the strong operating performance, however, alstria is well on track to achieve its financial targets for 2008 which were guided at EUR 101 million of revenues and EUR 40 million of Funds From Operations.
Successful asset management activities
The asset management activities in the first half of 2008 have been very successful with more than 7,000 sqm of new leases signed during that period (vs 7,000 sqm for the full year 2007). The agreement reached with the Ohnsorg Theater in Hamburg remains one of the most significant achievements for the company to date, as it will allow alstria to redevelop the office and retail part of the Grosse Bleichen asset, which is located in one of the most prestigious areas of Hamburg.
Overall, the vacancy rate of the portfolio has increased in the first half year from 6.4% to 7.6% following the end of a single tenant lease in Hamburg
(10,500 sqm), and the acquisition of a Hamburg vacant building (3,100 sqm).
The leasing market is still very dynamic in the regions where we are actively looking for tenants. The ongoing discussions we are having with potential tenants make us very confident that we will be able to benefit from the strong tenant demand in order to reduce our vacancy rate in the second half of the year.
Revaluation losses partly compensated by asset management activities
Given the significant changes in the global environment, alstria has decided to commission a full third party valuation of the portfolio for this half year report.
The result of this process is a downward adjustment of the overall value of our portfolio by EUR 29.8 million which negatively impacts the consolidated Net Profit for the period.
The overall yield expansion applied by Colliers CRE, alstria's valuer, was 32 bps across the portfolio. Based on Colliers assessment of the yield expansion the total value of the portfolio would have dropped by around EUR 70 million (or 3.7% of the total value). This low valuation result was partially offset by asset management results on the portfolio for around EUR 12.5 million and increases in rental income linked to the indexation of around 35% of the leases.
The valuation adjustment leads to an overall valuation yield of the portfolio of 5.6%, and a total value for investment properties of EUR 1.861 billion. After the revaluation alstria's G-REIT Equity Ratio is at 45.4% and the LTV Ratio at 58.5%
well within the legal and contractual requirements, respectively.
Selling assets above 12/07 and 06/08 book values
After the closing date for the H1 accounts alstria has entered into three sale and purchase agreements which are still subject to the market standard conditions precedent. The three assets are a plot of land in Hanover sold to a private investor, one asset in the outskirts of Hamburg, rented on a long term basis to the City of Hamburg, sold to a private investor, and an asset in the city centre of Hamburg sold to Norddeutsche Grundvermögen. Theses sales were realized at a profit to both 31/12/07, and 30/06/08 book values, and the aggregate sales price of EUR 17.2 million will generate a net gain of around EUR 2.7 million or 18% above the latest IFRS values. These transactions highlight the potential gap that can exist between market perception and actual business opportunities.
While it is expected that all real estate prices are going down in a uniform way, the market still differentiates between individual assets.
With those sales and taking into account the joint venture signed on the Alte- Post asset, alstria has agreed to dispose EUR 34.6 million worth of assets so far.
New long-term financial strategy - first steps successfully implemented
It is intended to switch over time (between now and 2011) from the existing syndicated loan of EUR 1.1 billion to other financing sources. These sources will be adjusted in terms of leverage and maturity to the specifics of the underlying assets' business plan. The implementation of this strategy has started with a new EUR 95 million, seven years non recourse loan on two long-term leased assets.
With this transaction total net debt of the company is kept constant and the marginal financing cost increases by 9 bps (the average cost of debt moving from 4.45% to 4.54%). A further key attraction of the new credit arrangement is that it provides alstria with greater flexibility in terms of contractual covenants.
Alexander Dexne, alstria's CFO, comments: "Our strong balance sheet and the long-term secured cash flows constitute the right ingredients to manage alstria successfully through the current market conditions. Although this specific financing is only the first step of a global plan to better align the maturity of our debt with the maturity of our assets between now and 2011, we believe it also helps to address some short term concerns with regards to the ability of alstria to raise or refinance debt in the current market. This financing clearly demonstrates that there is currently sufficient liquidity in the German debt market to finance high quality assets at attractive terms."
Olivier Elamine, alstria's CEO, highlights: "Although that the lower values of the whole German real estate have caused us to report a net loss for the period, this impact was limited by the effect of rent increases and other asset management activities. This, however, does not influence the cash generation capabilities of alstria, as this is not dependent on the state of the real estate investment market. We are therefore very pleased to be able to confirm today the EUR 101 million of revenues and EUR 40 million of FFO guidance for the full year 2008."
This release constitutes neither an offer to sell nor a solicitation of an offer to buy any securities. The securities have already been sold.
As far as this press release contains forward-looking statements with respect to the business, financial condition and results of operations of alstria office REIT-AG (alstria), these statements are based on current expectations or beliefs of alstria's management.
These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or performance of the Company to differ materially from those reflected in such forward-looking statements. Apart from other factors not mentioned here, differences could occur as a result of changes in the overall economic situation and the competitive environment - especially in the core business segments and markets of alstria. Also, the development of the financial markets and changes in national as well as international provisions particularly in the field of tax legislation and financial reporting standards could have an effect. Terrorist attacks and their consequences could increase the likelihood and the extent of differences.
alstria undertakes no obligation to publicly release any revisions or updates to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
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