Sdic Power Discussion Threads

[lagosboy] 07/6/2010 09:31

ydderf

The NAV ( in which like you I have no confidence in) is however calculated on the basis of the last professional valuation of the Estate and not the acquisition price that sdic paid.

If you feel the Estate's true valauation is somewhere near the acquisition prices paid and we are not back to that yet it seems likely that not only is there zero NAV but that the banks will likely need to take a haircut.

Scburbs believes that a € 1.2 billion indebted property company conducting an oederly wind up during one of the weakest economic enviroments for 50 years will still potentially be able to produce a final distribution for shareholders.

I feel such an approach will destroy the Estate Valuation as any potential bidders will only do so on a distressed basis.

The more I look at this I just see a company crushed by debt, poor management and a second tier Estate with no shareholder value unless we get a huge boom in German Real Estate which seems a very remote posssibility.

[scburbs] 07/6/2010 07:00

Any orderly wind down is likely to take a couple of years so would go into 2012.

They should first sell the low yielding stuff that can be sold at a premium. They would continue to work on the vacancy rates for the remaining portfolio. They should keep a mixture of high yields and overvalued properties and sell them towards the end of the process.

Some highyielders are retained with the overvalued properties so that they can continue to meet the ongoing interest charges.

This stuff should be targetted for sale in 2012 as at this point a significant amount of the associated swap liability will have reversed. This means that at this point they do not need to sell at book to recover an amount equal to the current NAV.

Of course there is no knowing what proportions of the portfolio are saleable at above book and what proportion below book, although the current market trend of rising rents and valuations should help. If they can't realise value using an orderly disposal over two years then it is fairly clear that the estate valuation is not correct and they should be wound up anyway, after all why should anyone contribute equity to property company without an orderly wind up value?

[ydderf] 06/6/2010 21:07

the market dipped and has now recovered, so prices have been rising yes, but not to levels they were when sdic bought....

[investor_tp] 06/6/2010 20:37

ydderF: just as a counterpoint, the German press (SZ, FAZ, ftd, Handelsblatt, Spiegel) has been full of articles reporting renewed investor interest (and rising prices) in residential property in the last six months (on the back of German inflation angst). Words like 'boom' and 'run on' were used in that context (don't laugh). Price and rent uplift were strongest in (slash limited to) the cities SDIC happens to have invested in and the type of property SDIC has invested in.

Not that any of this matters much if the properties are vacant, in a bad state or have below-average yield of course, but as far as I can tell we simply don't have enough information to judge if that's just due to extraordinarily bad management or not.

[ydderf] 06/6/2010 18:22

if i were sdic, i would also only sell the properties which could be sold above valuation and then publicise that fact - imagine what it would do for their credibility if they sold at below.....of course if they could sell all their properties at or about valuation, they would, wouldn't they, as this would solve their problems

let's not be naive, the residential property investment market in germany is dead to stagnant, depending upon where....I would eat my computer if sdic could get anything like the valuation prices for their whole portfolio

[davidosh] 06/6/2010 17:35

ydderf....just out of interest. What is the price you are selling your block at and what is the yield ? How were your annual maintenance expenses for example ? If borrowings are at low cost what is the return achieved ?

SDIC have achieved sales at 2% above valuations recently so no obvious reason why they cannot continue.

[lagosboy] 06/6/2010 13:56

ydderf

The naivity of your comments demonstrates precisely why so many shareholders have lost money on this. They simply viewed it as one big vanilla buy to let.

Most people buying their own homes do not employ a manager and they don't usually offer a price based upon executing a refurbishment program that will uplift the value of their home to comparable new build properties.

Not sure too many complex SWAP arrangements and emply agents for all the constituent parts of their home.

I could go on....


You are correct about valuation & best of luck with your sale.

[ydderf] 06/6/2010 13:42

all this talk about 'business models' really cracks me up!

you might as well call the 'business' of buying your own house on a mortgage a 'business model'.

borrowing huge sums of money to buy stagnent residential investment property in germany is barely a business, let alone one with a 'model'

its really very simple surely, the banks are owed 1.2 billion and the props are 'valued' (not the same as 'worth')at 1.4 billion. After (heavy) selling expenses, or liquidation expenses (heavy fees for fee takers)there will be nothing left as equity

btw, i have had a perfectly ordinary block of apartments on the market in germany for 5% less than I paid for it in 2006, and ten per cent less than it was valued at six months ago, for six months now and no interest or offers - it is different there my friends!

[lagosboy] 06/6/2010 12:16

Extract from Chairmans statement signed off 25 March



Members of the Board, together with the Manager and
the Investment Adviser, have been in regular discussions
with representatives of SDIC's financing banks in order to
discuss the banking facilities currently available to SDIC.
This includes the measures which may be agreed in order
to remedy the impending DSCR covenant breach and
any other potential future covenant breaches, and to
seek a wider solution to the amortisation requirement
on the non-securitised financing packages. Those
discussions remain ongoing at the time of writing this
report, and it is the Board's intention to work with the
Company's financing banks in order to find a long term
solution. The Board continues to closely monitor the
covenant levels across all of the financing packages. The
Board will communicate any further developments to
shareholders as and when they become available.
It is possible that the negotiations with the lenders are
unsuccessful andthat someof thefinancingpackagesmay
not survive within the overall ownership of the Company.
In the event that a payment default or covenant breach
occurs within one of the packages and no satisfactory
waiver or renegotiation of terms is obtained, then the risk
remains that the lender enforces its security on that
particular package with a consequent loss of net equity.
Due to the "ring-fencing" of the debt facilities and the
interest rate swaps, as well as the discussions that have
taken place so far with the lenders, the Directors are of
the opinion that it remains appropriate to prepare these
interim reports on a "going concern" basis. Please also
refer to note 2 of the consolidated interim financial
statements for further details.
Share price
Since the announcement of the Company's annual
results on 14 October 2009, the share price has
decreased from €0.38 to €0.18 as at 26 March 2010.
Whilst disappointing, the Board believes that this does
not reflect the true underlying value of the Company.
As is the case with most of its peers, the Company
continues to trade at a substantial discount to its net
asset value, largely caused by the general market
sentiment regarding leveraged property companies.
The Board remains of the opinion that the Company will
deliver value to shareholders in the medium to long term

[lagosboy] 06/6/2010 12:03

Look scburbs, we all know the Board is hopeless, the management hopeless.

Let me try and make this simple

They have to raise equity or the the company is insolvent, it will be unable to meet its liabilities as a when they fall due.

Therefore it does not have sufficient cash to conduct a voluntary winding up. up.

They have to raise equity or the bank will call in its loans, wind up the company and shareholders will get zero.

It is not a question of choice.

If you think investors will contribute cash to fund a winding up I think you are living on a different planet to me. I guess that cash would come with a guarantee that they will get 40 cents a share !

I think the problem is that you are hanging on to a fictitous NAV which can be magically realised via a winding up. In my view it is likely that the banks will take a haircut from that process so shareholders will see no final distribution.


It is a bad investment plain and simple, shareholders should focus on whether or not they have been knowingly misled as to the true health of the company.

It is clear to me that the company was already very sick at the last balance sheet date and on life support when the auditors gave it a bill of health of an Olympic Athlete in October 09 just a few months ago.

[scburbs] 06/6/2010 11:59

If you own a fish and chip chain that is underperforming and is clearly not as well run as the competition do you give the same team money to have another go (and they will certainly be strong on the refurb side!) or do you sell up and move on?

[scburbs] 06/6/2010 11:33

Lagosboy,

So it is pointless me saying what should have happened in the past, but it is fine for you to say well they should have raised equity in the past when I said they should!!

The management agreement has been on 1 years notice for sometime. A contract that is not performing and is on 1 years notice is an invitation to renegotiate (or terminate). I can give you many examples of where just that happened.

I agree it is rather redundant now. However, the fact that they haven't renegotiated the contract sooner (despite facing potential ICR covenant breaches!) does reflect directly on the competence of the board and all goes towards the argument that they should do an orderly wind up now. Why give more equity when so many failures can be pointed to with examples of others who have not made the same mistakes. They are not worthy of more equity, they have failed and the company should be wound up. If they need a minimal equity issue to faciliate a wind up strategy then so be it, but equity for any other purpose makes no sense.

[lagosboy] 06/6/2010 11:23

scburbs

Of course they are relevant, they are in force and legally binding, you even acknowledge that yourself when you say 'Lots of people invested based on those fee terms.'

You are confusing fee termms with the objectives of a Porspectus and a Buisness Plan. The fees are not linked to the payment of dividends they are only linked to the Estate Valuation which as you say everyone was happy to accept when they invesred on those terms.

NO Prospectus is a guarantee it is forward looking document based upon many assumptions, the critical of which is managements ability to execute. It is up to investors to evalute the Prospectus and later the annual accounts and other information before making their decisions.


SDIC has never had money to pay dividends, it is clear to me that it has a sub standard Estate, is grossly over leveraged and poorly managed.

My issue is that the contents and picture painted by the last set of accounts do not seem to match reality and that is where shareholder concern should be directed.

Somebody needs to go thru those accounts with a fine toothcomb and examine every statement made and every number presented. It is absolutely pointless saying what should have happened 2 years ago or whenever. Gagfah it is just another company in the same sector, its like running a fish and chip shop and saying I should make as much money as every other fish and chip shop because we are all in the same business. Some are run better than others.

[w1ndjammer] 06/6/2010 11:13

well i seem to remember, that the concept
was based on, SYG benefiting from the rental / management
and SDIC being purley an investment which relied on property prices
in germany increasing, due to the fact they had beeen stagnent over the
last 20 years. when they then doubled or trippled because of rebuilding costs generally, SDIC would then be sold.
the problem is due to the German culture prices will remain stagnent
even though the uk is now up 15% off lows
SYG was allways the rout to take.

WJ.

lagosboy
EML has just paid a very nice special divi another Jim Mellon company.

[scburbs] 06/6/2010 10:34

Lagosboy, Not sure why you consider that the initial terms of the SYG agreement are relevant. Lots of people invested based on those fee terms. However, you seem to be forgetting that they were promised (effectively by SYG as promoter) a high yield dividend play even after those fees were paid. This is the promoter, SYG, saying that if you pay us this amount annually then we will deliver you a dividend yield of x%. They didn't deliver the dividend yield and, therefore, the fee should have been renegotiated a couple of years ago (in line with other funds who didn't do what was on the tin). However, the SDIC board continued to snooze whilst other property companies didn't.

SYG do not even have market conditions to blame for not delivering on what they initially promised as the German residential market has hardly moved and others (e.g. Gagfah) have continued on merrily paying out dividends quarter after quarter. The below is a link to Gagfah's dividend payout.

[lagosboy] 06/6/2010 10:25

Windjammer

I have a small holding in SYG but have already faced up to the reality that it may well become worthless.

STG is linked to the hip with SDIC, it has not ripped off SDIC, the agreement was in place, terms and conditions for all to see.

It seems only reasonable to me that a company that has managed another company to the brink of insolvency and has destroyed millions of Euro's of shareholder value in that company can hardly expect to profit further from the demise of that company whatever the terms of the Agreement in place.

May get some shares in SDIC, but a special dividend, a very apt name in this case as it truly would be special, I feel is most unlikely.

[scburbs] 06/6/2010 10:25

If they had been selling properties and acting promptly to renegotiate the management contract (as lots of other "funds" have done) then they would not be in this situation. However, they haven't done this and they haven't raised equity (you seem to be saying that you were correct, however, they haven't done what I was recommending either). They have done nothing!

I agree that the bank will want them to raise equity. The banks are in a very powerful position, but they do not have control and SDIC should know that it will take them €50+m to get control. Therefore, they need to negotiate hard in the interests of shareholders and agree an orderly wind up with no equity raise or a minimal equity raise to buy out SYG if needed (but this really should be paid in shares).

Do I have confidence in their ability to do this? No is the polite answer to this.

[lagosboy] 06/6/2010 10:19

schrubs

Thye banks have control as the company is in breach. That control does not have to exclsuively manifest itself in a wind up. Be in no doubt the banks loans are at serious risk both to default and to the quality and true value of the asset backing.

I believe the fund raising is an example of the banks taking control, they will have made any loan restructuring conditional upon an equity injection. That is why I believe the major shareholders have already been sounded out and will subscribe in the hope that they will derive some future value rather than losing all their investment now.

The banks realsie the model is broken , they realise a fire sale will leave their loans even more exposed.

As I said many months ago, equity would need to be raised before an orderly disposal of assets could occur. We debated the point at length. It is a pity that this was not confronted months ago.

It really is a very depressing situation.

[scburbs] 06/6/2010 10:17

WJ, Jo Bloggs would not touch Goal with a barge pole! The market price for a company whose main client is in massive financial difficulty in not high. They would not get 1*earnings in the open market.

I was never suggesting that SDIC should get a discount compared to the market value, the market value just isn't high given SDIC's financial distress.

[w1ndjammer] 06/6/2010 10:12

scburbs

we shall waite and see
but i know the way Jim works
and there will be a special divi involved

all i am saying is GOAL makes a profit
if SDIC wan`t that profit they will have to pay

its SDIC that will be making the investment

same as if SYG decided to sell GOAL to jo`bloggs

WJ.

[scburbs] 06/6/2010 09:59

WJ, LOL! Another cracker, 10*earnings! I don't believe you mean/believe it. I wonder if you are desperate to stop SYG crashing so you can exit? I am certain that you will not be buying SYG on Monday morning.

"we would be looking for a 10% return on our investment" (What investment? There has been no capital investment in Goal other than buying 49% for €1m)

[scburbs] 06/6/2010 09:56

Lagosboy,

In relation to your comment about banks taking control, it is critical that in a wind up scenario that SDIC remains in control (on the presumption they can actually find someone to act in shareholders interests).

The banks will only take control as a last resort and they would much rather an orderly wind up by SDIC in my view (perhaps with board representation if they don't trust the board either).

Why?

Well amongst other costs there will be a 3.5% transfer tax (4.5% Berlin) and it is likely to cost the banks over €50m to take control (whilst this would come out of the SDIC equity it would significantly increase the liquidation risk to the bank). These costs would not be payable in an orderly wind up run by SDIC.

[w1ndjammer] 06/6/2010 09:56

scburbs

ok lets forget the past valuations

concentrate on earnings for GOAL

just x the profit by 10 the same as if you or i were buying any co.

we would be looking for a 10% return on our investment

all these posters have been banging on about how SDIC have

been ripped off by SYG you can`t have it both ways.

as an investor i am now looking for a special divi say 15p

and the rest of SYG to be morphed into some other co.

WJ.