Sdic Power Discussion Threads

[scburbs] 01/7/2010 22:09

Evening Lagosboy,

The fall in the German unemployment rate from 8.7% in February 2010 to 7.5% in June 2010 is a very strong performance at a time when an increase in unemployment had been being forecast (see below from 30 March results release).

I am sure even we can agree that this is very positive for rental bad debts/arrears and vacancy rates and for the German residential market in general. Whether it is too little to late for SDIC is a rather different question that I do not have enough information to comment on.

With the Euro zone representing such a obvious two speed economy either Germany is going to boom (due to the weak Euro, a lesser requirement for austerity and too low interest rates) or Germany is going to massacre the rest of the Euro zone (France aside) by forcing interest rates up. It will be interesting to see which way that one goes, although either way the German economy should relatively outperform (collapse of global export markets aside).

"Despite the continuing recovery, Germany has not yet overcome the worst financial market and economic crisis in post-war history. Unemployment in Germany averaged 8.2% of the workforce during 2009, with a total of 3.42m people unemployed, according to the Federal Labour Agency. Despite economic growth forecasts for 2010, unemployment is expected to rise further, the Government having forecast approximately 3.7m people unemployed for 2010. Although unemployment has risen, Germany's job market has remained relatively robust. While jobless numbers rose during 2009, the increase was not as much as feared, Frank-Juergen Weise, Federal Labour Agency CEO, commented. The Federal Labour Agency announced that unemployment had increased less than expected to 8.7% in February 2010 from 8.6% in the previous month."

[lagosboy] 01/7/2010 19:23

shrurbs.....do you think that will help SDIC ?

[scburbs] 01/7/2010 17:43

"German unemployment fell in June, as its export industries continued to be helped by a healthier global economy.

The unemployment rate in Germany fell to 7.5% in June from 7.7% in May, the Federal Labour Office said.

The number of people registered as jobless was down 88,000 compared with last month, falling to 3.153 million."

[lagosboy] 29/6/2010 16:22

hosede

I hope you are right, but must be kept in mind that JM was buying big time up to and just after New Year at 30 cents plus, so clearly he was not so clued up at that point in time.His recent purchases by comparison have been modest in value terms.

I am not convinced yet about huge potential and how to extract value.

The huge debt burden is a real barrier and against this we have a substantial share price discount to NAV, albeit it is highly theoretical and has many implicit assumptions built in.

[hosede] 29/6/2010 10:44

So presumably his heavy buying indicates he thinks he can make it work - lets hope he's right. The potential long term uplift is huge, which is why I am prepared to risk the profit I've made (though I fully accept your comments lagosd boy)

[lagosboy] 29/6/2010 09:14

Exactly, to take this private JM would need to re-finance €1.2 billion, impossible in today's enviroment.

[davidosh] 28/6/2010 23:23

There is no way JM will be taking this private and certainly not at 10p. At least 80% of the shareholders here have holdings that have average cost of 40p and most much more than that. I cannot see them caving in just to get 10p and in any event it is the banks that need to be sorted first.

[lagosboy] 28/6/2010 22:21

hosede

Absolutely agree, I started buying again at 4.75 cents, having admitedly incorrectly called the bottom at 10 cents when others were saying I was mad.

Not sure about him taking it private, EV is over € 1.2 billion, thats a big chunk.

I don't think the banks will pull the plug as to do so they would have to take a major haircut themselves.

Never say you are in for free, you must always seek to make money and never give up what you have already banked.

It is one of the oldest and worst things I hear said over and over again. A £ lost of past profits is no different to £ lost on a new investment unless you equate investing to doubling up at roulette.

Good luck to you

[hosede] 28/6/2010 21:57

thanks Lagos Boy. But JM is busy buying more shares - I shall be reasonably happy if he wants to take it private around 10p - as I said I am effectively in for free

[lagosboy] 28/6/2010 16:09

hosede

Do you really believe that banks never make bad loans or buy into poor business models.

The banks also never planned to keep 100% of their exposure to SDIC, the plan was to syndicate/securitise/lay-off as is quite normal but the credit crunch killed that.


It's one thing covering your interest but at some point the capital needs to be repaid.

The expected increase in Estate Value from the refurb program has not happened.

ie. purchase price + refurb costs > new build value has not happened

[ydderf] 28/6/2010 16:00

fees my boy, fees is what went wrong!

[hosede] 28/6/2010 14:06

Lagos Boy
When the Co was set up, the expected yield from the properties must have covered the fixed interest charges by a substantial margin - or the banks would not have lent the money. I sam not aware of any significant fall in rents on German residential ptroperty so what has gone wrong? Apart of course from inept management which should be correctable.

[lagosboy] 24/6/2010 16:18

That's peanuts, debt is € 1,200,000,000

[nickcduk] 24/6/2010 15:16

SYG results out today. Property management reported a profit of 4m or so. Most of that will be from SDIC contract. Should save us more than that as duplicate roles are eliminated. If they can reduce vacancies by a couple of % then they should be in a position to generate circa 10m euros a year more than they currently are.

[lagosboy] 23/6/2010 20:03

Should be plain sailing then.

[hosede] 23/6/2010 13:55

But the properties are valued at €1.43 Bn and the income should be substantially higher thaan the interest on the loans which I seem to remember is fixed for several years. It's just at the moment voids and management costs are too high

[lagosboy] 23/6/2010 13:13

Try € 1.2 BILLION of debt.

[hosede] 23/6/2010 13:03

But is there any fundamental reason why with improved management it should not generate a postive cash flow in the future? (Having sold half my holding at double what I paid, I'm effectively in for free so I shall hang on to the (hopefully not) bitter end)

[lagosboy] 23/6/2010 12:15

There seems to be an assumption that banks would be happy to roll over their loans into a new company.

Enterprise value of SDIC is circa € 1.25 billion with zero EBITDA.

Don't loans have to be repaid at some point, currently SDIC generates zero positive cash flow.

[ydderf] 23/6/2010 11:25

scburb, i can't see any reason for DW to use their paper, to buy such a messy situation, they could more easily buy the underlyling portfolio at a discount because of size, or just buy more props in the open market at a dsîscount - they are freely available

[scburbs] 23/6/2010 10:32

Agreed, but that's still a good €100+m. This number is huge/unmanageable for SDIC and would still be sizeable for Deutsche Wohnen etc. who I suspect will not want their gearing to start creeping up again (having just got it down to 60%).

[nickcduk] 23/6/2010 09:38

SDIC doesn't need a huge amount of new equity putting in. If a bidder were to bring down the LTV to 70% or so I am sure the banks would be happy. In exchange they could get the banks to extend the loan out for a few years and drop the amortisation. They have spent a hell of a lot on the refurbishment so the properties themselves should be in good nick. Some of the other German portfolios you highlighted previously had similar issues with vacancies but managed to resolve them. Nothing to say it can't be done again here.

[scburbs] 23/6/2010 09:00

Nickcduk, If I were Deutsche Wohnen I might be quite interested in using my highly valued paper to take out SDIC's lowly valued paper (although it would be quite a mouthful and they might also need a rights issue to pay down some of SDIC's debt aka Segro takeover of Brixton). It is much more viable for Deutsche Wohnen to do a rights issue than for SDIC to do so in the same way that it was viable for Segro, but not for Brixton.

On the other hand, Deutsche Wohnen may not like the SDIC portfolio.

[nickcduk] 23/6/2010 08:57

Rise continues today and about 0.5m is on the book at 8 and 7.2c. Very little on the offer side at present. Thinking of who else might be buying. Could be shorts scrambling to close out or perhaps some corporate interest. Anyone looking to get exposure to German residential property could do worse than pick up SDIC. Would be cheaper than building a portfolio from scratch.

[nickcduk] 23/6/2010 07:51

Mellon in for another 0.5m at 7p yesterday. Interesting to see that he didn't mop up all the trades yesterday. Another large buyer also picking up stock.