Letter to shareholders
We continued to optimise our portfolio during the financial year 2014 and sold properties which were not considered to be part of our core portfolio. As a result of these property sales, net rental income totalled €17.6 million in the financial year 2014, some €5.5 million down on the previous year figure but only slightly short of the forecast figure of €17.8 million. At the same time, we were able to increase the operating result by 18% to €5.9 million following €5.0 million in the previous year, as valuation losses on property fell by €7.6 million year-on-year and were therefore around 54% lower than in 2013.
The net valuation losses were concentrated on five properties (accounting for €7.4 million) and largely related to upcoming letting related costs at three properties and, to a lesser extent, a fall in contractual rents at two properties.
As expected, we were able to substantially reduce net interest expenses. This item was recorded at €5.0 million, some 61% down on the previous year figure. After deducting the proportion of earnings attributable to minority shareholders, this resulted in an almost balanced net result, following a consolidated net loss of €5.2 million in the previous year.
Group equity as of December 31, 2014 attributable to the shareholders of Fair Value REIT-AG fell to €78.3 million compared to €80.6 million in the previous year. This represents a net asset value per share currently in circulation of €8.39 compared to €8.65 at the end of the previous year. This decrease resulted from the dividend payment of €0.25 per share made in 2014.
On the balance sheet date, the REIT equity ratio rose to 49.2% of real estate assets (46.9% in the previous year), which is substantially higher than the legally required minimum level of 45%.
Adjusted consolidated net income (FFO = funds from operations) came in at €4.4 million, €2.0 million down on the previous year figure of €6.4 million. This change was mainly attributable to the reported sales of non-strategic real estate.
The past financial year 2014 developed highly positively overall and largely lived up to our expectations. We will therefore propose the distribution of the planned dividend of €0.25 per share for the financial year 2014 at the Annual General Meeting on May 19, 2015. The proposed dividend corresponds with a distribution ratio of 100% of retained earnings pursuant to HGB and 53% of FFO.
New shareholder structure boosts the share price
The new structure of our main shareholders which took place in December 2014 led to a substantial rise in the share price. Obotritia Capital KGaA bought blocks of shares via three subsidiaries and currently holds around 25.1% of the voting rights in Fair Value REIT-AG. In Obotritia Capital KGaA, we have gained an anchor investor which supports our strategic aims.
FFO and dividend forecast for 2015
At the start of 2015 we issued a convertible bond with a volume of around €8.5 million which is listed in free market trading (Quotation Board) on the Frankfurt Stock Exchange. This capital measure provides us with further financial scope for accelerated growth. We are already successfully using the net in-flow of funds to extend participations at subsidiaries. In addition, we are planning to take over previously indirectly-held properties and add them to the directly-held portfolio. This leads to NAV accretion and increases the FFO return per share due to savings in fund costs.
Taking into account the net in-flow from the convertible bond, we are anticipating operating profits (FFO) for 2015 of between €4.7 million and €5.1 million. In relation to shares currently in circulation, this corresponds with a spread of between €0.50 and €0.55 per share. This results in a forecast FFO return of roughly 6.0% and 6.6% of the balance sheet NAV per share of €8.39 as of December 31, 2014.
We plan to distribute at least 50% of these profits as a dividend. This corresponds with a dividend of between €0.25 and €0.27 per share currently in circulation for 2015.
In the current market environment, we have identified good opportunities for investments in German commercial real estate which promise sustainable success. We would like to thank you for your trust and would warmly welcome your continued support on our growth track.