Annual Reports

Letter to shareholders

In the past fiscal year, we took advantage of the positive capital market environment and carried out two capital measures to finance our growth trajectory. After issuing the convertible bond in January 2015, we turned our attention to the value-enhancing acquisition of non-controlling interests held  in subsidiaries. The funds obtained from the capital increase carried out in May 2015 were invested in a newly acquired majority holding and in the  step-by-step direct acquisition of properties previously held indirectly via subsidiaries, increasing the Group’s equity ratio in the process.

At the end of July 2015, DEMIRE Deutsche Mittelstand Real Estate AG (DEMIRE) announced an exchange offer. The offer published in October 2015 to all the Company’s shareholders was welcomed by the Management Board and Supervisory Board of Fair Value REIT-AG who recommended acceptance. It was accepted by shareholders representing more than 77.70% of the voting rights in the Company. As a result, Fair Value REIT-AG has been included in the DEMIRE group as a subsidiary since 21 December 2015.

Delivering value

In the past fiscal year, we sold seven properties for a total sales price of €17.0 million. Three of  these properties in Ahaus, Cologne and Pinneberg were sold for a total sales price of around €13.2 million and notarised before the end of the previous year. The other four properties, which were  sold for a total sales price of €3.8 million, were smaller directly owned bank branch offices in  Ellerbek, Leezen, Norderstedt and Quickborn, towns in North German Schleswig-Holstein. Before  costs, these transactions generated weighted gains on disposal of around 6% of the IFRS carrying amount as of 31 December 2014.


The majority investment in the closed-end property fund BBV 08 in mid-2015 led to the consolidation of a further subsidiary. The company holds two commercial properties in Querfurt and Zittau as well  as a nursing home in Radevormwald. At the time of acquisition, its portfolio was valued at around €36 million in total. In the course of acquisition accounting, a difference of €2.3 million was identified between the purchase price of the investment and the pro rata assets acquired. In March 2016, the subsidiary BBV 08 sold the nursing home in Radevormwald for €11.1 million, that is additional  proceeds of €1.2 million or 12% compared to the carrying amount of €9.9 million at the acquisition  date of the investment. This development in value is contained in the 2015 measurement gains and losses.


With the direct acquisition of an inner-city property in Chemnitz to round off existing investments at that location, we generated a measurement gain of €0.6 million or some 54% of the purchase price of €1.1 million.


In 2015, we acquired five properties in Dresden, Cologne, Langenfeld, Neubrandenburg and  Potsdam from three subsidiaries and, in line with our strategic objective, transferred these to direct  ownership. Although this did not have an impact from a Group perspective, these transactions  meant that two subsidiaries will be dissolved in the fiscal year 2016, which will lead to cost savings.  After incidental acquisition costs, these transactions yielded a difference of around €1.4 million  without effect on profit and loss.


In the fiscal year 2015, we also acquired almost 400 non-controlling interests in six subsidiaries. As  of the reporting date, the resulting aggregated differences with effect on income came to €1.3  million.

Successful fiscal year 2015

The net growth in the portfolio during the year already had a positive effect. The rental income of the Group came to €24.3 million, exceeding the previous-year figure of €23.9 million by some 2%. At  €17.7 million, net rental income was up 1% on the previous-year figure of €17.6 million.


At €5.2 million, the general administrative expenses incurred by the Group about €2.3 million higher than the previous year. The increase mainly concerned legal and consulting fees, half of which were incurred in connection with the takeover bid by DEMIRE. The differences with effect on income from acquisitions of investments and the balance of other operating income and expenses almost entirely offset the measurement loss totalling around €2.8 million (previous-year measurement loss: €7.5 million).


At €12.3 million, EBIT was thus more than twice that of the previous-year figure of €5.9 million. At €4.2 million, net interest expenses were 16% below the previous-year figure of €5.0 million,  essentially due to repayments. After deducting the share of profit/loss attributable to  non-controlling interests, the group net profit came to €6.6 million, following a slight group net loss of €0.05 million in the previous year. This corresponds to a group net profit of €0.53 per average number of shares outstanding.

 

Group equity attributable to the shareholders of Fair Value REIT-AG as of 31 December 2015  increased to €117.3 million as a result of the capital increase and was thus 50% above the  previous-year figure of €78.3 million. This corresponds to a net asset value of €8.36 for each share currently outstanding, compared to €8.39 as of the end of the previous year. Taking into account the dividend of €0.25 per share paid out in 2015 for 2014, the dilutive effects resulting from the capital increase in the past fiscal year were thus more than compensated for.


As of the reporting date, the REIT equity ratio increased to 59.6% of property assets (previous year: 49.2%) and was therefore considerably above the legally prescribed 45% minimum.


At €6.4 million, group net profit adjusted for measurement effects and special effects (EPRA result or FFO = funds from operations) was €2.0 million or 45% higher than previous-year figure of €4.4  million. This corresponds to a group net profit of €0.52 per average number of shares outstanding.


The past fiscal year 2015 was thus highly satisfactory and for the most part met our expectations.  We will propose to the Annual General Meeting to distribute the planned dividend of €0.25 per  share for fiscal year 2015, that is around €3.5 million. This proposed dividend corresponds to a  distribution rate of 100% of the accumulated profit according to German GAAP and 55% of FFO of  €6.4 million.

Outlook for 2016

The favourable economic conditions in Germany should have a positive impact on the demand for space and therefore on the upcoming follow-up and new lets. At the beginning of the year, they represented around 37,000 m² or around 11% of potential rents. Since then, we have already re-let around 11,000 m². This is a good 30% of the vacancies both in terms of space and income and at  the same time provides proof of the quality of the properties and of our successful leasing and  portfolio management.


Based on the existing portfolio, we expect funds from operations (FFO) before non-controlling  interests of €10.5 million to €10.8 million for 2016. Without a further increase in the share of  properties directly held by the group and a concomitant decrease in the non-controlling interests in group earnings, we expect FFO after non-controlling interests to range between €6.2 million and  €6.5 million in 2016. This corresponds to FFO of €0.44 to €0.46 per share currently outstanding. The target dividend for 2016 is €0.25 per share currently outstanding. This is equivalent to a distribution ratio of 54% to 57% of FFO.


May we take this opportunity to thank your for the trust you have placed in us. We would be  delighted if would remain favourably disposed to us in the future.

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