Summit Germany cautions on future yield compression

The AIM-listed Summit Germany, which focuses on commercial properties in Germany's larger commercial centres, presented its full-year figures last week, which it said was in line with its expansion plans in the market for the year, but warned that expected future yield compression would mean it would have to tighten discipline when buying new assets.

The company reported higher profits of €82.6m for the full year, up from €60.5m a year earlier. This was due to higher rental income of €49.5m, up from the previous year's €43.3m, along with an 8.5% increase in the value of its portfolio.

Summit Germany raised €120m in February 2015 through a share issue, helping it to invest a further €95m in new properties through 2015, at a net initial yield of 10.5%. The assets included six commercial properties and a multi-let complex of office buildings in Stuttgart. After the year-end, the company also purchased an additional €40.5 million of offices.

Shareholders are being rewarded with a dividend of 3.39 cents per share for the year, up from the 2.85 cents paid out in 2014. The share price is currently trading at about €1.00, after a steady recovery over the past two years.

The company's mainly office, retail and logistics properties in Germany are managed by DRESTATE Services GmbH from offices in Berlin and Frankfurt. Preferred assets are those close to financial centres, with low capital value and stable incomes.

At the end of 2015, Summit Germany owned 103 assets with 860,000 sqm and net rent of €57m p.a., at an occupancy rate of 87%. At mid-2015 the company's assets were valued at €582.4m, reflecting a rental yield of 8%. Subsequent revaluations brought the portfolio value up to €718m.

The company had borrowings of €330m, reflecting an LTV of 46% at an average loan duration of 5.8 years and an average interest rate of 2.8%.

In a joint statement issued by chairman Harry Hyman and managing director and controlling shareholder Zohar Levy, the two top men said, "Within just a few months after the successful fund raising in February 2015, we brought our expansion plan to realisation and deployed most of the proceeds by acquiring great accretive properties in attractive locations. Following the additional acquisitions after the end of the reporting period, we are now fully invested."

"We are encouraged by the German market, which has been strongly driven by the 'interest free' environment, turning Germany into an ever-appealing investment market. Demand for the group's properties continue to be strong and we believe that an increase in rent levels in Germany could have a future boost effect on the value of our portfolio when yields may be tightening," Hyman and Zohar Levy said.

"Though the increasing demand for German real estate offers interesting acquisition opportunities, the expected future yield compression will force us to maintain a disciplined approach towards new acquisitions in an ever demanding market," Hyman and Levy said.