REIT - May/June 2010

REIT Snapshot

The consolidated net loss
amounted to EUR 79. 7 million
(U.S. $108.1 million), attributable
primarily to a negative non-cash
devaluation of the real estate port-
folio and interest rate hedges.”
Despite the challenging envi-
ronment in 2009, alstria remained
active in the investment and
financing markets. The company
entered into EUR 241 million
($326.8 million) of new borrow-
ing at an average spread of 150
basis points over Euribor. Mean-
while, it disposed of around EUR
226 million (U.S. $306.5 million)
of assets at an average net yield
of 5 percent, above the latest ap-
praised value, Elamine notes.

“This success allowed us to
keep the loan-to-value ratio
(LTV) on our main loan facility
slightly below 60 percent, while
reducing the outstanding loan
amount from EUR 1. 1 billion
(U.S. $1.5 billion) to EUR 660
million (U.S. $895 million),” he
says. “We benefited from the
low interest rate environment,
which allowed us to maintain
our average cost of debt virtu-
ally unchanged. We did that
through a number of small asset
sales and refinancing and have
successfully resisted the pressure
to raise dilutive equity when our
share price was at the
bottom. Today, we have
more than EUR 50 million (U.S.
$67.8 million) of free cash that
we can deploy rapidly when we
see an attractive opportunity.”
In 2010, in addition to seek-
ing acquisition opportunities,
alstria is continuing its two-year
effort to reduce the company’s
overall refinancing risk and
is working to refinance the
remaining EUR 650 million
(U.S. $881.5 million) of its loans
maturing at the end of 2011. On
the operations side, the G-REIT
is focused on delivering its cur-
rent refurbishment projects.

G-REITs Growing

In February 2010, a third REIT entered the German market. Duisburg-based Hamborner REIT AG became the first German company to convert from a long-established, public company, despite the strict legislation facing a G-REIT.

CR Capital Real Estate, a Berlin-based listed property company founded in May 2008, is expected to become Germany’s fourth REIT at some point in 2011. The company’s investment focus is on commercial as well as new residential properties built after Jan. 1, 2007.

While other companies prepare to enter the G-REIT market, all face a plethora of legal challenges. One is the requirements for keeping G-REIT status, such as the legal group equity requirement, according to International Financial Reporting Standards, of 45 percent of immovable assets. The equity requirement is meant to be a cap on leverage. Since G-REITs must take the changes of market values of the buildings and derivative financial instruments into equity, the REIT equity ratio can vary dramatically.

Also, shareholders are limited to directly holding a maximum of only 10 percent in a German REIT—another of the many challenges hampering the segment.

“Without doubt, the first version of G-REIT legislation has several insufficiencies that
hinder a prosperous development of the concept,” states Hans Volkert Volckens, chair-
man of the German Property Federation. “Prohibition of residential real estate to form
part of a REIT portfolio as well as a number of drastic, impractical sanctions imposed
on G-REITs need to changed.”
Expectations arose for REIT legislation improvements last year when a new govern-
ment commenced, but Volckens says that, unfortunately, politicians in Berlin have
refrained from entering into in-depth discussions of the REIT Act.

“Therefore the REIT industry is pushing hard by providing to political decision makers a catalogue of necessary changes. The aim is to further position the German REIT in the international investment horizon and allow it to compete against other global REIT structures. It is time for Berlin to act,” Volckens says.

Fair Value REIT AG

Fair Value, based in Munich, concentrates on the retail and office sectors, which combined make up almost 90

percent of its portfolio. Its 80 properties feature a 95.5 percent occupancy rate with an average remaining lease term of more than six years. The 10 largest tenants make up 60 percent of the portfolio. Fair Value is internally managed, but the company outsources property management and bookkeeping services.