Six German Retail Properties - the Louis Group International ...
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The purchase of<br />
<strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
Private Placement Memorandum<br />
properties germany
table of contents<br />
properties germany<br />
Preamble...........................................................................................1<br />
Key Features......................................................................................2<br />
The <strong>German</strong> Property Market ...............................................................3<br />
The <strong>German</strong> <strong>Retail</strong> Property Market......................................................4<br />
Covenant Details ................................................................................5<br />
Berlin................................................................................................7<br />
Braunfels...........................................................................................8<br />
Ellwangen..........................................................................................9<br />
Lorrach ...........................................................................................10<br />
Radolfzel .........................................................................................11<br />
Stockach .........................................................................................12<br />
Rental Schedule...............................................................................13<br />
Finances .........................................................................................14<br />
Bank Finance...................................................................................15<br />
Taxation Issues.................................................................................16<br />
Investment Projections......................................................................17<br />
Investment Advantages .....................................................................18<br />
Investment Risks..............................................................................19<br />
Investment Structure ........................................................................20<br />
Administrative Issues........................................................................21<br />
Disclaimer .......................................................................................22<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong>
preamble<br />
properties germany<br />
<strong>Louis</strong> <strong>Group</strong> Property Associations (LGPA) commenced in South Africa in 1968 and is today South Africa's largest<br />
and longest serving private property syndication enterprise. LGPA currently operates in England, <strong>German</strong>y, Isle of Man,<br />
Namibia, South Africa, Zimbabwe and Switzerland and can expose clients to properties in multiple currencies.<br />
LGPA is delighted to release this diversified investment opportunity which entails an investment in 6 retail <strong>German</strong><br />
properties in Berlin, Braunfels, Ellwangen, Lorrach, Radolfzell and Stockach.<br />
In 2005, some € 20.55 billion was invested in <strong>German</strong> commercial property. The bulk of investment was seen outside<br />
<strong>the</strong> traditional property centres and came in <strong>the</strong> form of individual transactions and larger nationwide portfolios. Also<br />
during this period, <strong>German</strong>y attracted 9.4% (2nd most) of all shopping centre investment in Europe, with <strong>the</strong> result<br />
that in 2006 <strong>German</strong>y had 12,4 million m 2 €<br />
of shopping centre floorspace - <strong>the</strong> 3rd most in Europe.<br />
These 6 retail properties embody all <strong>the</strong> criteria for a great investment opportunity, namely <strong>the</strong> properties are (i) well<br />
located, (ii) fully let on long leases, (iii) let to very strong covenants and (iv) tenants are well-established national<br />
brands.<br />
It needs to be noted at <strong>the</strong> outset that although terms have been agreed with <strong>the</strong> various sellers and legals completed,<br />
all <strong>the</strong> acquisitions are subject to suspensive provisions inserted for <strong>the</strong> benefit of <strong>the</strong> purchaser, which if not fulfilled,<br />
could entitle <strong>the</strong> purchaser to rescind from <strong>the</strong> contract. Although we do not foresee problems, in <strong>the</strong> event that <strong>the</strong><br />
purchaser should withdraw from any one or more property purchases, <strong>the</strong>n a pro-rata amount of <strong>the</strong> investment<br />
proceeds plus accumulated interest will be returned to investors.<br />
This memorandum is for <strong>the</strong> use of <strong>the</strong> persons to whom it is addressed and <strong>the</strong> recipients of this memorandum agree that all of <strong>the</strong> information<br />
contained herein is of a confidential nature. This memorandum must not be copied, reproduced, distributed or passed to o<strong>the</strong>rs at any time without<br />
<strong>the</strong> prior written consent of <strong>Louis</strong> <strong>Group</strong>.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
1
key features<br />
properties germany<br />
Preamble: This venture is an investment opportunity in 6 multi-let retail properties well located in 6 key<br />
<strong>German</strong> towns/cities. The properties are all let to very strong covenants who are well-established<br />
national brands.<br />
Location Tenant Lease Expiry Annual Rent Rent Esc.<br />
Berlin Plus 30/10/2022 € 221,125 60% of CPI<br />
Braunfels Edeka 30/06/2013 € 156,455 50% of CPI<br />
Ellwangen Rewe 08/11/2021 € 330,000 60% of CPI<br />
Lorrach DM-Vermog<br />
HD-Schuhe<br />
31/03/2019<br />
31/12/2016<br />
€ 126,000<br />
€ 82,800<br />
60% of CPI<br />
60% of CPI<br />
KiK Textilien 31/03/2019 € 82,800 65% of CPI<br />
Mr D. Isbilir 31/07/2008 € 12,000 60% of CPI<br />
Radolfzell Takko 30/09/2012 € 99,990 67% of CPI<br />
Lidl 31/12/2011 € 147,395 60% of CPI<br />
HD-Schuhe 29/09/2016 €€ 58,959 60% of CPI<br />
Fristo 31/05/2011 € 48,777 60% of CPI<br />
Schwarz-Aubenwerbung € 1,020 Not applicable<br />
Stockach Edeka 30/06/2016 € 393,845 50% of CPI<br />
Aach Sulger 30/06/2016 € 40,014 50% of CPI<br />
Expenses: Landlord is liable for property insurances, rates and external repairs.<br />
Gross Rental: € 1,804,805<br />
Total Expenses: € 120,600 (Estimated)<br />
Net Rental: € 1,684,205 (Estimated)<br />
Capitalization Value: € 22,970,000 (Property Costs)<br />
€ 1,200,000 (Berlin Development Costs)<br />
€ 2,530,000 (Acquisition Costs)<br />
€ 600,000 (Cash Reserve)<br />
€ 27,300,000 (Approx. Total)<br />
Bank Finance: €19,400,000<br />
Bank Leverage on Property Costs: 80% Bank Leverage on Total Costs: 73%<br />
Finance Terms: Debt & Interest to be repaid over a 20 year amortization schedule. Interest rate @ 3 month<br />
Euribor plus 1% banker's margin plus cost of hedging instrument.<br />
Invest Company: <strong>Louis</strong> <strong>Group</strong> InvestCo Pink Ltd<br />
Managing Agent: <strong>Louis</strong> <strong>Group</strong> (IOM) Ltd<br />
Required Equity: €7,900,000<br />
Available Shares: 790 @ €10,000 per share<br />
Investment Commencement: Investors to pay no later than 1 April 2007<br />
Projected Return: In excess of 10% in Euros compounded per annum<br />
Risk Profile: Low<br />
Comparison: In excess of 5x current <strong>German</strong> inflation or 3x Euro bank deposit rate.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
2
<strong>the</strong> german property market<br />
Activity in <strong>the</strong> <strong>German</strong> commercial property market has<br />
recently been dominated by foreign investors. The basis<br />
for this foreign investment has been <strong>the</strong> low cost of<br />
finance, <strong>the</strong> relatively attractive yields compared with<br />
o<strong>the</strong>r European property markets and <strong>the</strong> improved macroeconomic<br />
conditions in <strong>German</strong>y.<br />
In 2005, some € 20.55 billion was invested in <strong>German</strong><br />
commercial property. The bulk of investment was seen<br />
outside <strong>the</strong> traditional property centres and came in <strong>the</strong><br />
form of individual transactions and larger nationwide<br />
portfolios.<br />
In <strong>the</strong> light of signs which suggest that lettings markets<br />
are recovering, <strong>the</strong> transaction volume in <strong>the</strong> major office<br />
centres of Berlin, Dusseldorf, Frankfurt, Hamburg and<br />
Munich have enjoyed a positive trend throughout. The<br />
investment volume of € 20.55 billion represented a 33%<br />
advance on <strong>the</strong> previous year's result.<br />
Demand for commercial property is likely to remain high<br />
throughout 2007. Demand from foreign investors will<br />
properties germany<br />
continue to be strong for as long as <strong>the</strong> interest-rate<br />
differential provides scope for arbitrage deals.<br />
Financing is initiated to a growing extent by foreign<br />
institutions which have come to look at <strong>the</strong> <strong>German</strong> market<br />
as being more lucrative. In this context <strong>the</strong> value of<br />
property will depend to a much larger extent on <strong>the</strong> cash<br />
flow and <strong>the</strong> underlying financial engineering. In future,<br />
<strong>the</strong> location of a property will no longer be <strong>the</strong> sole<br />
deciding factor for an investment.<br />
While residential property prices in much of Europe have<br />
surged in recent years, <strong>the</strong> <strong>German</strong> residential market<br />
has been relatively unaffected. Office rentals in <strong>German</strong>y<br />
have also lagged and <strong>the</strong> retail market is comparatively<br />
under-supplied in terms of space.<br />
The comparatively sluggish performance of recent years,<br />
coupled with <strong>the</strong> very attractive financing opportunities<br />
would suggest that significant capital uplift is imminent.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
3
<strong>the</strong> german retail property market<br />
With a 2005 retail spend of €333 billion (of Europe's<br />
€2,300 billion), <strong>German</strong>y is <strong>the</strong> 3rd largest retail market<br />
in Europe behind France and <strong>the</strong> UK. Yet, on a per capita<br />
basis it ranks only 14th, whereas France and <strong>the</strong> UK are<br />
tied at 6th.<br />
<strong>Retail</strong> sales growth over <strong>the</strong> period 1995 - 2005 was a<br />
mere 2%, significantly behind France and <strong>the</strong> UK at 35%<br />
and 52% respectively. Although forecast retail sales<br />
growth for <strong>the</strong> next decade (2006-2017) is better at 6%,<br />
it is still far behind <strong>the</strong> expectations for France at 27%<br />
and <strong>the</strong> UK at 31%.<br />
<strong>German</strong> consumers, although among <strong>the</strong> most well-off in<br />
Europe, are extremely price sensitive. Price is consistently<br />
placed above considerations such as quality, choice and<br />
service, and <strong>the</strong> concept of "value-added" is almost nonexistent.<br />
This gives little incentive to retailers to improve<br />
<strong>the</strong>ir offerings or be innovative in <strong>the</strong>ir retail practices.<br />
Lacking <strong>the</strong> vibrancy of a consumer driven market (such<br />
as France or <strong>the</strong> UK), many of <strong>German</strong>y's larger retailers<br />
are forced to look to broader European markets for growth.<br />
Consequently, of all European retailers, <strong>German</strong> businesses<br />
are among <strong>the</strong> most international (accounting for 25%<br />
of European cross-border sales) with significant market<br />
share in most countries.<br />
Somewhat paradoxically, however, <strong>German</strong>y attracted<br />
3.6% (7th most) of all shopping centre investment in<br />
Europe in 2004, and 9.4% (2nd most behind <strong>the</strong> UK)<br />
in 2005, with <strong>the</strong> result that (in 2006) <strong>German</strong>y had<br />
12,4 million m 2 of shopping centre floorspace - <strong>the</strong> 3rd<br />
most in Europe.<br />
There is undoubtedly enormous international interest in<br />
<strong>German</strong> retail property, which may be for 3 main reasons:<br />
• Under-Supply - Although shopping centre space has<br />
doubled in <strong>the</strong> last 10 years, <strong>German</strong>y still offers only<br />
140m2 of shopping centre space per 1,000<br />
inhabitants. In contrast to more than 200m 2 in Spain<br />
and France, and around 300m 2 in <strong>the</strong> Ne<strong>the</strong>rlands<br />
and Sweden, <strong>German</strong>y appears to have some catching<br />
up to do.<br />
properties germany<br />
• Yield Gap - Financial investors are attracted by <strong>the</strong><br />
favourable interest rate environment. The comparatively<br />
high property yields contrast with relatively low<br />
financing rates, create an attractive opportunity for<br />
highly leveraged investors. The interest rate spread<br />
between rental yields and long-term financing rates<br />
is favourably high in comparison to o<strong>the</strong>r European<br />
countries.<br />
• Economic Revival - Statisticians talk of <strong>the</strong> mean<br />
reversion concept. What this implies is simply that<br />
a market will not be able to deviate permanently from<br />
its trend growth rate. <strong>Retail</strong> trade has been depressed<br />
in <strong>German</strong>y for some time and <strong>the</strong>re is an expectation<br />
that "what goes down must come up."<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
4
convenant details<br />
Dm-Drogerie Mark<br />
The first dm-drogerie markt (chemist store) was founded<br />
in 1973 in Karlsruhe. Just 5 years later <strong>the</strong>re were<br />
already over 100 stores in <strong>German</strong>y and Austria. The past<br />
2 years have seen sales growth of 8.6% and 11.7%<br />
respectively, with 2005 turnover reaching €3,7 billion.<br />
With stores in <strong>German</strong>y (900), Austria (where <strong>the</strong>y have<br />
a 40% market share and operate over 350 stores), <strong>the</strong><br />
Czech Republic, Hungary, Croatia, Slovakia, Slovenia,<br />
Serbia and Bosnia, today <strong>the</strong> dm-group trades from nearly<br />
2,000 stores across Europe employing 25,000 people.<br />
Edeka<br />
The Edeka <strong>Group</strong> is <strong>the</strong> largest <strong>German</strong> supermarket<br />
corporation, currently holding a market share of 26%.<br />
Founded in 1898, it now consists of several co-operatives<br />
of independent supermarkets all operating under <strong>the</strong><br />
umbrella organisation Edeka Zentrale AG & Co KG,<br />
headquartered in Hamburg.<br />
Ranging from small corner stores to hypermarts, <strong>the</strong>re<br />
are approximately 11,000 stores with <strong>the</strong> Edeka name,<br />
employing about 250,000 people. Showing 22% sales<br />
growth over <strong>the</strong> period 2001-2005, Edeka generated<br />
turnover of €38 billion for <strong>the</strong> 2005 financial year.<br />
Fristo<br />
properties germany<br />
Founded in 1970 in Nuremberg, Fristo is a private<br />
company operating retail beverage stores across 9 <strong>German</strong><br />
states as well as in Austria with over 300 stores and an<br />
annual turnover of €150 million.<br />
Fristo continues to invest heavily in distribution and<br />
logistics technology to both reduce <strong>the</strong> costs of transport<br />
and storage, and ensure consistently high levels of product<br />
availability. This focus on customer convenience and<br />
competitive pricing keeps Fristo at <strong>the</strong> forefront of its<br />
market.<br />
Heinrich Deichmann-Schuhe<br />
The Heinrich Deichmann-Schuhe GmbH & Co. KG is a<br />
<strong>German</strong> company established in 1913 that manufactures<br />
shoes and sports wear. With over 1,000 outlets in <strong>German</strong>y<br />
alone, Deichmann operates a fur<strong>the</strong>r 1,100 retail stores<br />
in Austria, Poland, Hungary, Great Britain, <strong>the</strong> Ne<strong>the</strong>rlands,<br />
Switzerland, <strong>the</strong> USA, <strong>the</strong> Czech Republic, Turkey,<br />
Denmark, Slovakia, Slovenia, Croatia, Sweden and<br />
Romania.<br />
Although <strong>the</strong> Institut fur Handelsforschung (Trade Research<br />
Institute) reports that shoe retailing was down by 0.2%<br />
in <strong>German</strong>y for 2006, Deichmann increased turnover by<br />
over 7%, selling 65 million pairs of shoes for €1.26<br />
billion. Across all markets, turnover was up 10.5% to<br />
€2.71 billion in 2006.<br />
KiK Textil-Diskont<br />
KiK forms part of <strong>the</strong> Tengelmann <strong>Group</strong> - a 140 year old<br />
business founded by <strong>the</strong> Schmitz-Scholl family in M?lheim<br />
an der Ruhr in 1867. As of 2005, <strong>the</strong> <strong>Group</strong> employed<br />
185,000 people at over 7,500 branches in 15 countries,<br />
and generated sales totaling€€26.3 billion.<br />
From its beginnings in <strong>the</strong> early 1990's, KiK has already<br />
expanded its branch network to just short of 2,000<br />
branches, employing 13,000 people. In 2005, footfall<br />
increased 27% and sales were up 22% over <strong>the</strong> 2004<br />
figures to €995 million. With a strong focus on developing<br />
a positive brand image, preparations for expansion to<br />
3,000 stores are in progress.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
5
convenant details<br />
Lidl<br />
Lidl is a discount supermarket chain of <strong>German</strong> origin<br />
that operates 5,000 stores across 17 European countries<br />
with an annual turnover of circa $46 billion.<br />
A member of <strong>the</strong> Schwarz group of companies, which<br />
also owns <strong>the</strong> store chains Handelshof and Kaufland, <strong>the</strong><br />
first Lidl store of was opened in 1973. Lidl is <strong>German</strong>y's<br />
second largest discount supermarket chain, Aldi being<br />
<strong>the</strong> largest.<br />
Plus <strong>Retail</strong><br />
Plus, which is part of <strong>the</strong> Tengelmann <strong>Group</strong>, operates<br />
approx. 2,800 stores in <strong>German</strong>y alone, with a fur<strong>the</strong>r<br />
1,000 across Austria, Spain, Portugal, Hungary, Poland<br />
and <strong>the</strong> Czech Republic. Although 28% of <strong>the</strong> company's<br />
€8.6 billion in sales are already generated outside of<br />
<strong>German</strong>y, <strong>the</strong> focus on European expansion will continue<br />
with Romania and Greece <strong>the</strong> immediate objectives.<br />
The market leader in <strong>the</strong> food discount sector in Hungary,<br />
Plus was also singled out by consumer organizations in<br />
Spain and Portugal as <strong>the</strong> lowest-cost food retailer.<br />
Fur<strong>the</strong>rmore, Plus Online Shop has become one of <strong>the</strong><br />
top ten <strong>German</strong> internet mail order retailers.<br />
properties germany<br />
Rewe<br />
Rewe was founded in Cologne in 1927 when 17 purchasing<br />
co-operatives joined forces, and now, 80 successful years<br />
later, <strong>the</strong> Rewe <strong>Group</strong>'s operations cover food retailing,<br />
travel and tourism, DIY stores, gardening stores, specialist<br />
consumer electronics stores and even drugstores.<br />
At <strong>the</strong> conclusion of <strong>the</strong> 2005 financial year, <strong>the</strong> group<br />
operated 12,000 stores in 14 European countries,<br />
employing 260,000 people and generating a net turnover<br />
of €41.7 billion, making Rewe <strong>the</strong> 3rd largest retailing<br />
group in Europe and <strong>the</strong> 9th largest in <strong>the</strong> world.<br />
Takko<br />
One of <strong>the</strong> largest fashion discounters in <strong>German</strong>y, Takko<br />
passes on <strong>the</strong> benefits of its huge purchase volumes to<br />
its customers in <strong>the</strong> form of lower prices. Founded in<br />
1982 by <strong>the</strong> Hettlage <strong>Group</strong>, a majority shareholding was<br />
purchased by <strong>the</strong> Tengelmann <strong>Group</strong> in 1990. In 1999<br />
<strong>the</strong> business underwent a management buy out, at which<br />
time it was renamed Takko ModeMarkt GmbH & Co. KG.<br />
With currently 1,000 branches, Takko plans to openg a<br />
fur<strong>the</strong>r 100 branches per year. Takko currently operates<br />
in <strong>German</strong>y, Austria, <strong>the</strong> Ne<strong>the</strong>rlands, Hungary and <strong>the</strong><br />
Czech Republic.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
6
erlin<br />
Landlord: <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR15 Ltd<br />
City: Berlin<br />
Street: Buckower Damm 106 - 110<br />
Postcode: 12349<br />
Location:<br />
Berlin is <strong>the</strong> capital city of <strong>the</strong> Federal Republic of<br />
<strong>German</strong>y. With a population of 3.4 million, it is <strong>German</strong>y's<br />
largest city, and <strong>the</strong> second most populous city in <strong>the</strong><br />
European Union. Berlin is one of <strong>the</strong> most influential<br />
centers in European politics, culture and science, and<br />
serves as an important hub of continental transportation.<br />
Following <strong>the</strong> reunification in 1990, <strong>the</strong> city regained<br />
its status as <strong>the</strong> capital of all <strong>German</strong>y.<br />
Lettable Area: €1,010m 2<br />
Purchase Price: 3,050,000 (excluding acquisition costs)<br />
Rental Schedule: Refer to enclosed Rental Schedule.<br />
Annual Gross Rental: €221,125 (plus VAT)<br />
Approx. Annual Expenses: €15,500 (Estimated)<br />
properties germany<br />
Approx. Annual Net Rental: €205,625 (Estimated)<br />
Net Initial Yield: 6.7%<br />
Important Lease Provisions:<br />
• Rent reviews are all upward only.<br />
• The tenant bears <strong>the</strong> cost of <strong>the</strong>ir own utilities<br />
consumption, as well as cleaning and maintenance<br />
of all interiors, <strong>the</strong> winter services and maintenance<br />
of installations such as heating and ventilation.<br />
• The Landlord is responsible for insurance, property<br />
rates and structural maintenance.<br />
Notes:<br />
• This is a development site and construction is due to<br />
commence on or about 1 April 2007 and should take<br />
approximately 7 months to complete.<br />
• A lease agreement with <strong>the</strong> Tenant for a period of 15<br />
years has already been<br />
concluded.<br />
• The acquisition of this property is subject to <strong>the</strong><br />
fulfillment of certain suspensive conditions in favour<br />
of <strong>the</strong> Purchaser. In <strong>the</strong> event that <strong>the</strong>se conditions<br />
are not fulfilled <strong>the</strong> Purchaser may elect to withdraw<br />
from <strong>the</strong> acquisition.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong> 7
aunfels<br />
Landlord: <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR12 Ltd<br />
Town: Braunfels<br />
Street: Wetzlaer Str. 16<br />
Postcode: 35619<br />
Location:<br />
Braunfels is a town of 11,500 inhabitants in <strong>the</strong> charming<br />
valley of Lahn, in <strong>the</strong> Lahn-Dill-Kreis district in Hesse.<br />
First named in <strong>the</strong> 12th century, Braunfels received its<br />
town charter in 1607. With festivals running throughout<br />
<strong>the</strong> year, and a state-approved climatic spa, Braunfels is<br />
a family friendly holiday town.<br />
Lettable Area: 1,444m 2<br />
Purchase Price: €2,057,387 (excluding acquisition costs)<br />
Rental Schedule: Refer to enclosed Rental Schedule.<br />
Annual Gross Rental: €156,455 (plus VAT)<br />
Approx. Annual Expenses: €10,500 (Estimated)<br />
Approx. Annual Net Rental: €145,955 (Estimated)<br />
Net Initial Yield: 7.1%<br />
Important Lease Provisions:<br />
• Rent reviews are all upward only.<br />
properties germany<br />
• The tenant bears <strong>the</strong> cost of <strong>the</strong>ir own utilities<br />
consumption, as well as cleaning and maintenance<br />
of all interiors, <strong>the</strong> winter services and maintenance<br />
of installations such as heating and ventilation.<br />
• The Landlord is responsible for insurance, property<br />
rates and structural maintenance.<br />
Notes:<br />
• The acquisition of this property is subject to <strong>the</strong><br />
fulfillment of certain suspensive conditions in favour<br />
of <strong>the</strong> Purchaser. In <strong>the</strong> event that <strong>the</strong>se conditions<br />
are not fulfilled <strong>the</strong> Purchaser may elect to withdraw<br />
from <strong>the</strong> acquisition.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
8
ellwangen<br />
Landlord: <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> Pink Ltd<br />
Town: Ellwangen<br />
Street: An der Jagt 42<br />
Postcode: 73479<br />
Location:<br />
Ellwangen an der Jagst is a town of 25,000 inhabitants<br />
in <strong>the</strong> district of Ostalbkreis in <strong>the</strong> east of Baden-<br />
Württemberg in <strong>German</strong>y. First settled in <strong>the</strong> 7th century,<br />
<strong>the</strong> town is situated in <strong>the</strong> valley of <strong>the</strong> river Jagst, between<br />
<strong>the</strong> foothills of Swabian Alb and and Swabian-Franconian<br />
Forest. 1300 years later <strong>the</strong> combination of <strong>the</strong> town's<br />
rich architecture, ancient cultural events, fascinating<br />
history and natural beauty make Ellwangen a popular<br />
holiday destination.<br />
Lettable Area: 2,200m 2<br />
Purchase Price: €4,600,000 (excluding acquisition costs)<br />
Rental Schedule: Refer to enclosed Rental Schedule.<br />
Annual Gross Rental: €330,000 (plus VAT)<br />
properties germany<br />
Approx. Annual Expenses: €19,500 (Estimated)<br />
Approx. Annual Net Rental: €310,500 (Estimated)<br />
Net Initial Yield: 6.8%<br />
Important Lease Provisions:<br />
• Rent reviews are all upward only.<br />
• The tenant bears <strong>the</strong> cost of <strong>the</strong>ir own utilities<br />
consumption, as well as cleaning and maintenance<br />
of all interiors, <strong>the</strong> winter services and maintenance<br />
of installations such as heating and ventilation.<br />
• The Landlord is responsible for insurance, property<br />
rates and structural maintenance.<br />
Notes:<br />
• The acquisition of this property is subject to <strong>the</strong><br />
fulfillment of certain suspensive conditions in favour<br />
of <strong>the</strong> Purchaser. In <strong>the</strong> event that <strong>the</strong>se conditions<br />
are not fulfilled <strong>the</strong> Purchaser may elect to withdraw<br />
from <strong>the</strong> acquisition.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
9
lorrach<br />
Landlord: <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR12 Ltd<br />
City: Lörrach<br />
Street: Bärenfelser Str. 4<br />
Postcode: 79539<br />
Location:<br />
Lörrach is a city of over 47,000 inhabitants in southwest<br />
<strong>German</strong>y, in <strong>the</strong> valley of <strong>the</strong> Wiese, close to <strong>the</strong> French<br />
and Swiss borders. It is <strong>the</strong> capital of <strong>the</strong> district Lörrach<br />
in Baden-Württemberg. The biggest industry is <strong>the</strong><br />
chocolate factory Milka. Lörrach received market rights<br />
in 1403, but did not obtain <strong>the</strong> privileges of a city until<br />
1682. Lörrach was officially <strong>the</strong> capital of <strong>German</strong>y for<br />
one day - <strong>the</strong> 21st of September 1848 - during <strong>the</strong><br />
Revolutions of 1848/9.<br />
Lettable Area: 2,435m 2<br />
Purchase Price: €4,072,818 (excluding acquisition costs)<br />
Rental Schedule: Refer to enclosed Rental Schedule.<br />
Annual Gross Rental: €303,600 (plus VAT)<br />
properties germany<br />
Approx. Annual Expenses: €21,500 (Estimated)<br />
Approx. Annual Net Rental: €282,100 (Estimated)<br />
Net Initial Yield: 6.9%<br />
Important Lease Provisions:<br />
• Rent reviews are all upward only.<br />
• The tenant bears <strong>the</strong> cost of <strong>the</strong>ir own utilities<br />
consumption, as well as cleaning and maintenance<br />
of all interiors, <strong>the</strong> winter services and maintenance<br />
of installations such as heating and ventilation.<br />
• The Landlord is responsible for insurance, property<br />
rates and structural maintenance.<br />
• Heinrich Deichmann Schuhe GmbH & Co KG<br />
(representing 26% of <strong>the</strong> lettable area and 27% of<br />
<strong>the</strong> gross annual rental) are responsible for any<br />
increases in land taxes and insurance.<br />
Notes:<br />
• The acquisition of this property is subject to <strong>the</strong><br />
fulfillment of certain suspensive conditions in favour<br />
of <strong>the</strong> Purchaser. In <strong>the</strong> event that <strong>the</strong>se conditions<br />
are not fulfilled <strong>the</strong> Purchaser may elect to withdraw<br />
from <strong>the</strong> acquisition.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
10
adolfzell<br />
Landlord: <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR12 Ltd<br />
Town: Rädolfzell<br />
Street: Böhringer Str. 79<br />
Postcode: 78315<br />
Location:<br />
Radolfzell am Bodensee is a town of over 30,000<br />
inhabitants at <strong>the</strong> western end of Lake Constance. It is<br />
<strong>the</strong> third largest town in <strong>the</strong> district of Konstanz, in Baden-<br />
Württemberg. Radolfzell is a well known health care city<br />
and a very important railroad junction. The city was<br />
founded in 826 and was dedicated to Jesus Christ by<br />
Bishop Radolf of Verona, from whom <strong>the</strong> town took its<br />
name. In 1990 Radolfzell was named <strong>the</strong> Federal<br />
Environment Capital City of <strong>German</strong>y.<br />
Lettable Area: 2,442m 2<br />
Purchase Price: €4,683,258 (excluding acquisition costs)<br />
Rental Schedule: Refer to enclosed Rental Schedule.<br />
Annual Gross Rental: €356,141 (plus VAT)<br />
properties germany<br />
Approx. Annual Expenses: €23,600 (Estimated)<br />
Approx. Annual Net Rental: €332,541 (Estimated)<br />
Net Yield: 7.1% (Based on above estimates)<br />
Important Lease Provisions:<br />
• Rent reviews are all upward only.<br />
• Negotiations are underway with Lidl GmbH & Co KG<br />
(representing 31% of lettable area and 41% of gross<br />
annual rental) to enlarge <strong>the</strong>ir trading area and sign<br />
a new 10 year lease.<br />
• The tenant bears <strong>the</strong> cost of <strong>the</strong>ir own utilities<br />
consumption, as well as cleaning and maintenance<br />
of all interiors, <strong>the</strong> winter services and maintenance<br />
of installations such as heating and ventilation.<br />
• The Landlord is responsible for insurance, property<br />
rates and structural maintenance.<br />
Notes:<br />
• The acquisition of this property is subject to <strong>the</strong><br />
fulfillment of certain suspensive conditions in favour<br />
of <strong>the</strong> Purchaser. In <strong>the</strong> event that <strong>the</strong>se conditions<br />
are not fulfilled <strong>the</strong> Purchaser may elect to withdraw<br />
from <strong>the</strong> acquisition.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
11
stockach<br />
Landlord: <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR11 Ltd<br />
City: Stockach<br />
Street: Bahnhof Str. 10<br />
Postcode: 78333<br />
Location:<br />
Stockach is a town of 16,500 inhabitants less than 15km<br />
north of Radolfzell, in <strong>the</strong> district of Konstanz, in Baden-<br />
Württemberg. Its idyllic location encourages outdoor<br />
pursuits, and <strong>the</strong> nearby Bodensee (5km away) offers<br />
excellent water sports facilities. Stockach has existed<br />
since <strong>the</strong> 8th century and was awarded a town charter<br />
1278. Annual events such as <strong>the</strong> "Schwaebischalemannisch-carnival"<br />
and <strong>the</strong> "Stockacher cuckoo tribunal"<br />
present opportunities for <strong>the</strong> locals to display <strong>the</strong>ir townpride.<br />
Lettable Area: 3,942m 2<br />
Purchase Price: €5,705,243 (excluding acquisition costs)<br />
Rental Schedule: Refer to enclosed Rental Schedule.<br />
Annual Gross Rental: €433,859 (plus VAT)<br />
properties germany<br />
Approx. Annual Expenses: €30,000 (Estimated)<br />
Approx. Annual Net Rental: €403,859 (Estimated)<br />
Net Initial Yield: 7.1%<br />
Important Lease Provisions:<br />
• Rent reviews are all upward only.<br />
• The tenant bears <strong>the</strong> cost of <strong>the</strong>ir own utilities<br />
consumption, as well as cleaning and maintenance<br />
of all interiors, <strong>the</strong> winter services and maintenance<br />
of installations such as heating and ventilation.<br />
• The Landlord is responsible for insurance, property<br />
rates and structural maintenance.<br />
Notes:<br />
• The acquisition of this property is subject to <strong>the</strong><br />
fulfillment of certain suspensive conditions in favour<br />
of <strong>the</strong> Purchaser. In <strong>the</strong> event that <strong>the</strong>se conditions<br />
are not fulfilled <strong>the</strong> Purchaser may elect to withdraw<br />
from <strong>the</strong> acquisition.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
12
ental schedule<br />
Area Lease Lease Lease Option Annual<br />
Property Tenant m 2<br />
Start Period Expire Period Rent Annual Escalations<br />
Berlin<br />
Plus Warenhandelsgesellschaft mbH 1,010 01/11/2007 15 30/10/2022 3 x 5y € 224,750 Adjusted by 60% of change in CPI<br />
if CPI change > 10%<br />
Braunfels<br />
Edeka Handelsgesellschaft Hessenring mbH Melsungen 1,444 01/07/1999 15 30/06/2013 3 x 5y € 156,455 Every 3 years, max 50% of increase<br />
if CPI change > 10%<br />
Ellwangen<br />
REWE Deutsche Supermarkt KG 2,200 08/11/2006 15 08/11/2021 3 x 5y € 330,000 Fixed until 2010, <strong>the</strong>reafter every 2 years<br />
60% of increase if CPI change > 10%<br />
Lorrach<br />
Dm-Vermogensverwaltungsgesellschaft mbH 1,090 01/04/2007 12 31/03/2019 3 x 3y € 126,000 Fixed until 2010, <strong>the</strong>reafter 60% of increase<br />
if CPI change > 10%<br />
Heinrich Deichmann-Schuhe GmbH & Co KG 640 02/01/1997 20 31/12/2016 4 x 5y € 82,800 Fixed until 2011, <strong>the</strong>reafter 60% of increase<br />
if CPI change > 12%<br />
KiK Textilien - und Non-Food GmbH 625 01/04/2007 12 31/03/2019 3 x 3y € 82,800 Fixed until 2011, <strong>the</strong>reafter 65% of increase<br />
if CPI change > 10%<br />
Mr Dursun Isbilir 80 01/08/1995 1331/07/2008 1 x 5y € 12,000 Adjusted if CPI change > 10%<br />
2,435 € 303,600<br />
Radolfzell<br />
Takko Holding GmbH 778 30/09/1997 15 30/09/2012 2 x 5y € 99,990 66.6% of increase if CPI change > 10%<br />
Lidl GmbH & Co KG 755 27/05/1999 Indefinite 31/12/2011 Indefinite € 147,395 60% of increase if CPI change > 10%<br />
Heinrich Deichmann-Schuhe GmbH & Co KG 450 27/09/1997 19 29/09/2016 4 x 5y € 58,959 Fixed until 2010, <strong>the</strong>reafter 60% of<br />
increase if CPI change > 10%<br />
Fristo Getrankemarkt GmbH & Co Betriebs KG 459 01/06/1999 12 31/05/2011 2 x 5y € 48,777 60% of increase if CPI change > 10%<br />
Schwarz-Aubenwerbung GmbH 20/01/20035 21/01/2008 n/a € 1,020 Not applicable, advertising space<br />
2,442 € 356,141<br />
properties germany<br />
Stockach<br />
Edeka Handelsgesellschaft mbH 3,250 01/07/2001 15 30/06/2016 3 x 5y € 393,845 Every 3 years, 50% of increase<br />
if CPI change > 10%<br />
Aachcenter Sulger & Eichwald GmbH & Co KG 692 01/07/2001 15 30/06/2016 3 x 5y € 40,014 Every 3 years, 50% of increase<br />
if CPI change > 10%<br />
3,942 € 433,859<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
13
finances<br />
Acquisition Costs<br />
The approximate acquisition costs are as follows:<br />
Purchase Price - Radolfzell € €4,683,258<br />
- Loerrach € €4,072,818<br />
- Stockach € €5,705,243<br />
- Braunfels € €2,057,387<br />
- Ellwangen € €4,600,000<br />
- Berlin € €3,050,000<br />
Property Transfer Tax € €805,000<br />
<strong>Louis</strong> <strong>Group</strong> Project Fee € €360,000<br />
Third Party Agent Fee € €300,000<br />
Equity Introducers Fee € €180,000<br />
Valuation Fee € €85,000<br />
Environmental Study € €50,000<br />
Bank Finance Fee € €155,000<br />
Tax Opinion Fee € €20,000<br />
Attorney Fees € €250,000<br />
Notary Fees € €120,000<br />
Bank Legals €95,000<br />
Company Reg. Fees € €15,000<br />
VAT Reg. Fees € €25,000<br />
Miscellaneous Fees € €60,000<br />
Approx. Acquisition Fees €26,688,706<br />
The aforementioned costs are approximates only and may vary.<br />
The amounts exclude VAT at 19%.<br />
Capitalization<br />
The capitalization requirements of <strong>the</strong> company are:<br />
Acquisition Costs 26,700,000<br />
Float 600,000<br />
Total €27,300,000<br />
The company is to be capitalized as follows:<br />
Shareholders Loans 7,900,000<br />
Bank Finance 19,400,000<br />
Total €27,300,000<br />
General Fees<br />
<strong>Louis</strong> <strong>Group</strong> (IOM) Ltd or <strong>the</strong> duly appointed nominees<br />
of <strong>Louis</strong> <strong>Group</strong> <strong>International</strong> Holdings Ltd ("LG") have<br />
been selected as <strong>the</strong> property managing agents and <strong>the</strong><br />
corporate service providers for <strong>the</strong> duration of <strong>the</strong><br />
investment period.<br />
LG's fee from time to time for providing corporate services<br />
is posted on www.lgtrustees.com<br />
LG's project management fee is 1.50% of <strong>the</strong> property<br />
purchase price.<br />
LG's fee for managing <strong>the</strong> property is 5% of funds collected<br />
in rents and o<strong>the</strong>r recoveries.<br />
properties germany<br />
LG's fee for negotiating <strong>the</strong> sale of any one or more of<br />
<strong>the</strong> properties in <strong>the</strong> portfolio will be <strong>the</strong> greater of 2%<br />
of <strong>the</strong> selling price or <strong>the</strong> performance fee (as detailed<br />
below). If a performance fee is charged <strong>the</strong>n no sale fee<br />
will be levied.<br />
LG also reserves <strong>the</strong> right to charge a fee for new leases<br />
concluded, lease renewals or negotiating rental reviews.<br />
These fees will not exceed <strong>the</strong> market related fees for<br />
<strong>the</strong>se services.<br />
Performance Fees<br />
Where <strong>the</strong> fund's annualized performance is in excess of<br />
an established benchmark return, LG may levy an<br />
annualised performance fee against <strong>the</strong> investor's return<br />
(Internal Rate of Return), based on <strong>the</strong> out-performance<br />
of <strong>the</strong> fund. The set benchmark return in this case is<br />
10% per annum and <strong>the</strong> performance fee would be<br />
calculated as follows:<br />
IRR Performance fee<br />
0 - 9.9% No fee levied<br />
10% + 20% of <strong>the</strong> out-performance will be levied<br />
The performance fee will be calculated over <strong>the</strong> holding<br />
period of <strong>the</strong> investment since commencement.<br />
In <strong>the</strong> event of out-performance, <strong>the</strong> decision to levy a<br />
performance fee will remain at <strong>the</strong> discretion of LG.<br />
LG may choose to waive certain fees in <strong>the</strong> event that <strong>the</strong><br />
property does not perform to certain levels.<br />
In all cases <strong>the</strong>se fees exclude VAT, disbursements and<br />
third party fees.<br />
Issued Shares<br />
790 shares will be issued at €10,000 per share, structured<br />
as described herein.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
14
ank finance<br />
Leverage<br />
This property investment allows for 80% bank leverage<br />
on <strong>the</strong> property purchase prices and 73% bank leverage<br />
on <strong>the</strong> total acquisition costs (as outlined under <strong>the</strong><br />
category "Finances"), without <strong>the</strong> inherent risks to <strong>the</strong><br />
investor. The investor is not personally liable in any manner<br />
for <strong>the</strong> bank finance, as <strong>Louis</strong> <strong>Group</strong> <strong>International</strong> Holdings<br />
Ltd has made suitable arrangements with <strong>the</strong> financing<br />
institution to exclude any liability to <strong>the</strong> investor.<br />
Leverage is <strong>the</strong> principle employed as one of <strong>the</strong> optimal<br />
ways to make capital grow faster than <strong>the</strong> rate of inflation.<br />
Leverage involves <strong>the</strong> utilization of bank finance in order<br />
to help <strong>the</strong> investor increase <strong>the</strong> size of <strong>the</strong>ir stake in a<br />
property, by allowing <strong>the</strong>m enhanced capital growth with<br />
<strong>the</strong> greatest after tax income. There are tax benefits and<br />
increased capital profit that can be achieved from<br />
incorporating leverage in a property investment.<br />
Leveraging has inherent risks described under Investment<br />
Risks.<br />
Non-Recourse Loan<br />
We will obtain a mortgage loans from Barclays Bank and<br />
Royal Bank of Scotland for a total sum in <strong>the</strong> order of<br />
74% of <strong>the</strong> property acquisition costs.<br />
If <strong>Louis</strong> <strong>Group</strong> on behalf of <strong>the</strong> Investment Company is<br />
able to secure greater leverage ei<strong>the</strong>r now or in <strong>the</strong> future,<br />
<strong>the</strong>n <strong>the</strong> Investment Company will exercise this option<br />
and utilize any excess funds in its discretion to redeem<br />
shareholder loans.<br />
The non-recourse nature of <strong>the</strong> bank loan will effectively<br />
reduce <strong>the</strong> risks associated with <strong>the</strong> property investment<br />
since, in <strong>the</strong> unlikely event of tenant failure and / or<br />
collapse in commercial property values and / or any<br />
unforeseen circumstances, <strong>the</strong> lending banks' recourse<br />
is not to <strong>the</strong> investor but only to <strong>the</strong> property and such<br />
o<strong>the</strong>r arrangements as <strong>the</strong> company has made with <strong>the</strong><br />
Bank and <strong>Louis</strong> <strong>Group</strong> <strong>International</strong> Holdings Ltd.<br />
properties germany<br />
Therefore, if <strong>the</strong> property falls in value, exposure would<br />
be limited to <strong>the</strong> extent of <strong>the</strong> investors initial cash<br />
investment.<br />
Finance Interest<br />
The terms of <strong>the</strong> bank loans are that <strong>the</strong> debt and interest<br />
will be repaid over approximately a 20 year amortization<br />
schedule, with a hedging instrument to <strong>the</strong> banks<br />
satisfaction.<br />
The interest rate applicable on <strong>the</strong> loans is <strong>the</strong> 3 month<br />
Euribor plus a 1% banker's margin. Take note that this<br />
rate excludes <strong>the</strong> additional costs associated with <strong>the</strong><br />
hedging instrument which is a requirement in terms of<br />
<strong>the</strong> bank loans.<br />
Generally <strong>the</strong> interest payable on <strong>the</strong> bank loans can, for<br />
tax purposes, be offset against <strong>the</strong> rental income from<br />
<strong>the</strong> property. Without this offset, income tax would be<br />
payable on all of <strong>the</strong> rental income.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
15
taxation issues<br />
KPMG and Schuchardt Ohmer Szpak were consulted to<br />
provide taxation advice focusing predominantly on <strong>the</strong><br />
following issues:<br />
• The appropriate acquisition structure;<br />
• Reducing <strong>German</strong> income tax on rental income received;<br />
• Reducing <strong>German</strong> capital gains tax on <strong>the</strong> ultimate<br />
disposal of <strong>the</strong> properties;<br />
• Limiting <strong>the</strong> financing to <strong>the</strong> <strong>German</strong> thin capitalization<br />
rules.<br />
Acquisition Structure<br />
Two alternatives were provided as <strong>the</strong> appropriate acquisition<br />
structure:<br />
a. Foreign company holds <strong>German</strong> properties directly<br />
("Isle of Man Co Structure"); or<br />
b. Foreign company holds interests in a <strong>German</strong> (limited)<br />
partnership which acquires and holds <strong>German</strong> real<br />
estate ("KG Structure").<br />
There were not severe differences in taxation for ei<strong>the</strong>r<br />
structure. The KG structure was found to be more complex,<br />
expensive and susceptible to possible changes in <strong>German</strong><br />
tax legislation. For <strong>the</strong>se reasons, <strong>the</strong> Isle of Man Co<br />
Structure was decided upon.<br />
Income Tax<br />
The Isle of Man property company will be subject to<br />
<strong>German</strong> corporate income tax currently at 26.38% (corporate<br />
tax rate of 25% plus a solidarity surcharge of 5.5% <strong>the</strong>reon)<br />
on net rental income arising from any <strong>German</strong> held<br />
properties.<br />
Foreign companies can also, in certain circumstances, be<br />
subject to <strong>German</strong> trade tax, which vary between 14% and<br />
20% depending on <strong>the</strong> community where <strong>the</strong> properties<br />
are located. However, to <strong>the</strong> extent that a foreign company<br />
does not operate a permanent establishment in <strong>German</strong>y,<br />
<strong>the</strong>n no <strong>German</strong> trade tax will be due. The structure we<br />
have adopted, will not (under current legislation) be liable<br />
to <strong>German</strong> trade tax.<br />
properties germany<br />
Capital Gains Tax<br />
In general, a capital gain from <strong>the</strong> disposal of <strong>German</strong> real<br />
estate is subject to <strong>German</strong> corporate income tax currently<br />
at 26.38%. This general rule applies to both resident and<br />
non-resident companies.<br />
The capital gain is calculated as <strong>the</strong> difference between<br />
<strong>the</strong> sale proceeds and <strong>the</strong> acquisition costs<br />
The tax deductible depreciation rate for buildings held by<br />
foreign investors is 2% per annum if <strong>the</strong> building was built<br />
in 1925 or later and 2.5% if <strong>the</strong> building was built before<br />
1925.<br />
Thin Capitalization Rules<br />
In general, interest paid on both shareholder and bank<br />
loans is deductible for tax purposes. For loans from a<br />
related party, <strong>the</strong> interest rate must be in line with <strong>the</strong><br />
interest rate that would have been charged by a third party.<br />
However, <strong>the</strong>re is an important restriction to this general<br />
rule. Interest on loans falling under <strong>the</strong> scope of <strong>the</strong> <strong>German</strong><br />
thin capitalization rules is only deductible for tax purposes<br />
under certain circumstances. It should be noted that <strong>the</strong><br />
thin capitalization rules not only affect shareholder loans<br />
but also certain bank loans.<br />
Real Estate Transfer Tax<br />
The Real Estate Transfer Tax (RETT) payable to <strong>German</strong><br />
Revenue is 3.5% of <strong>the</strong> property purchase price.<br />
Value Added Tax<br />
The VAT rate in <strong>German</strong>y has in 2007 increased to 19%.<br />
Disclaimer<br />
The aforementioned is for general information purposes<br />
only. It is not intended to be comprehensive or to provide<br />
any specific tax advice.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
16
investment projections<br />
Investment Strategy<br />
The core investment strategy will be to hold <strong>the</strong> property<br />
for at least 7 years and during this period we will continue<br />
to negotiate refinance terms for <strong>the</strong> property to release<br />
shareholder loans.<br />
During <strong>the</strong> investment period, net surplus funds after<br />
servicing bank debt, company expenses, <strong>German</strong> taxes<br />
and providing for reserves, will be distributed to investors<br />
in <strong>the</strong> most tax efficient manner. It is <strong>the</strong> stated objective<br />
of <strong>the</strong> company to make income & loan repayment<br />
distributions to <strong>the</strong> investors from available net cash<br />
proceeds.<br />
After <strong>the</strong> first 2 years, <strong>the</strong> company aims to annually<br />
return in excess of 2% cash to <strong>the</strong> investor, which may<br />
be largely increased due to loan refinancing.<br />
Based on an assumed gradual increase in rent and positive<br />
capital growth over <strong>the</strong> investment period, we project that<br />
<strong>the</strong> return on investment will be in excess of 10% per<br />
annum compounded in Euros.<br />
As a comparison, it is noteworthy to mention that <strong>the</strong><br />
current bank deposit rates on Euros is circa 3.5% and<br />
<strong>German</strong> inflation index is currently less than 2%. This<br />
implies that <strong>the</strong> projected returns are 3 to 5 times greater<br />
than <strong>the</strong> bank or inflation rates respectively.<br />
Liquidity of Investment<br />
To enjoy <strong>the</strong> expected return, which we have projected<br />
to be in excess of 10% per annum compounded, investors<br />
should ideally hold shares for a minimum period of 5-7<br />
years - if held for an even longer period <strong>the</strong> growth should<br />
be proportionately greater.<br />
However, <strong>the</strong>re is nothing withholding investors from<br />
realizing <strong>the</strong> investment earlier. This can be effected as<br />
follows:<br />
• Shares are freely tradeable and investors may dispose<br />
of <strong>the</strong>ir shareholding, subject to <strong>the</strong> purchaser being<br />
bound by <strong>the</strong> conditions contained in <strong>the</strong> share<br />
application form and <strong>the</strong> company's memorandum<br />
and articles of association.<br />
properties germany<br />
• <strong>Louis</strong> <strong>Group</strong> would always endeavour to assist in selling<br />
<strong>the</strong> shares for <strong>the</strong> investor (<strong>Louis</strong> <strong>Group</strong>'s fee in this<br />
regard will be a max. of 3.5% plus VAT of <strong>the</strong> selling<br />
price of <strong>the</strong> shares). Although experience has shown<br />
that it takes approximately one to three months to<br />
sell shares, <strong>Louis</strong> <strong>Group</strong> cannot guarantee a sale within<br />
this period.<br />
• Indication of fair value for <strong>the</strong> shares will be made<br />
available by <strong>Louis</strong> <strong>Group</strong> on request.<br />
Naturally, investors would not enjoy <strong>the</strong> growth envisaged<br />
on early disposal as investment returns grow relative to<br />
<strong>the</strong> time period held. By way of example, if shares are<br />
sold after being held for two years, an investor could in<br />
all likelihood expect to achieve a return on equity of say<br />
5% per annum compounded. However, if <strong>the</strong> same shares<br />
were disposed of after 5 years, <strong>the</strong> return on equity should<br />
be substantially greater - say in excess of 10% per annum<br />
compounded.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
17
investment advantages<br />
There are many advantages to this investment, which<br />
must be read in conjunction with <strong>the</strong> investment risks:<br />
Tenant & Portfolio Status<br />
This is truly a rare investment opportunity because it is<br />
very difficult to assemble a good portfolio of well located<br />
<strong>German</strong> retail properties. In addition, <strong>the</strong> properties are<br />
fully let on long leases to national brands. These retail<br />
properties are scarce commodities, especially considering<br />
<strong>the</strong> high international demand for quality <strong>German</strong><br />
commercial properties.<br />
Purchase at Cost<br />
The properties were purchased at attractive yields which<br />
makes <strong>the</strong> potential future capital value of <strong>the</strong> properties<br />
particularly attractive.<br />
Profitable Spread<br />
The Cost of Debt on this venture is likely to be around<br />
5% (inclusive of an appropriate hedging instrument).<br />
The Net Initial Yield for <strong>the</strong> first year should be around<br />
6.3% (before leverage any gearing into account). This<br />
implies a spread of circa 1.3%, which will grow as rentals<br />
within <strong>the</strong> portfolio escalate. Even if <strong>the</strong> property was<br />
properties germany<br />
leveraged at 100% and no equity was introduced, an<br />
income profit on <strong>the</strong> venture would still be achieved from<br />
year one. This situation is both uncommon and profitable.<br />
Additional Funding<br />
Based on <strong>the</strong> agreed rental uplifts, an additional nonrecourse<br />
bank loan could be secured in <strong>the</strong> future,<br />
providing <strong>the</strong> company with a cash lump sum for<br />
distribution.<br />
Non-Recourse Lending<br />
This property investment allows for bank leverage without<br />
<strong>the</strong> inherent risks to <strong>the</strong> investor. The investor is not<br />
personally liable in any manner for <strong>the</strong> bank finance.<br />
Tax Advantages<br />
Based on current <strong>German</strong> tax legislation, <strong>the</strong> tax deductible<br />
depreciation rate for buildings held by foreign investors<br />
is 2% per annum. Also, <strong>the</strong> company can claim some of<br />
<strong>the</strong> interest paid on shareholder loan accounts as an<br />
expense.<br />
<strong>Louis</strong> <strong>Group</strong> Property Association Benefits<br />
• <strong>Louis</strong> <strong>Group</strong>'s performance and track record;<br />
• The opportunity for an investor to access this quality<br />
deal via <strong>Louis</strong> <strong>Group</strong>;<br />
• <strong>Louis</strong> <strong>Group</strong>'s conservative investment philosophy, ie.<br />
good location, covenant strength, strong economy;<br />
• Joint investment with <strong>Louis</strong> <strong>Group</strong>;<br />
• Leveraging on <strong>Louis</strong> <strong>Group</strong>'s financial strength and<br />
reputation;<br />
• Low barriers to investment entry;<br />
• Greater liquidity than o<strong>the</strong>r private property alternatives;<br />
• Offshore holding platform;<br />
• <strong>Louis</strong> <strong>Group</strong>'s hands-on management style.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
18
investment risks<br />
Potential shareholders should be aware of <strong>the</strong> risks of<br />
investing in <strong>the</strong> Company and <strong>the</strong> property described<br />
herein.<br />
Value<br />
The value of <strong>the</strong> investment may go down as well as up,<br />
and <strong>the</strong> investor may not get back <strong>the</strong> full amount invested.<br />
Over <strong>the</strong> medium to long-term <strong>the</strong> value of <strong>the</strong> property<br />
will be affected (ei<strong>the</strong>r positively or negatively) by changes<br />
in a myriad of socio-economic factors, eg. government<br />
policy, taxation, infrastructure development, GDP, inflation<br />
and borrowing rates, and so forth.<br />
In <strong>the</strong> short to medium-term however, value is driven<br />
primarily by existing leases and it is most unlikely that<br />
all tenants would default simultaneously.<br />
Business Risks<br />
The investment will be subject to <strong>the</strong> usual risks of owning<br />
commercial property in <strong>German</strong>y, including general<br />
economic conditions, uninsured calamities and o<strong>the</strong>r<br />
factors.<br />
The Future<br />
Historical facts, information gained from historic<br />
experiences, present facts, circumstances and information,<br />
and assumptions, from all or any of <strong>the</strong>se, do not guide<br />
<strong>the</strong> future. Aims, targets, plans, intentions and projections<br />
referred to are no more than that and do not imply a<br />
forecast. Past performance is not necessarily a guide to<br />
future performance.<br />
lliquidity<br />
The market for investments in private property syndications<br />
such as this is illiquid and <strong>the</strong>re is no certainty that a<br />
buyer will be available or that a particular price will be<br />
obtained. There is no established market for interests in<br />
<strong>the</strong> company.<br />
Investments in <strong>the</strong> company will not be quoted or listed<br />
on any investment exchange. It may be difficult to obtain<br />
reliable information on <strong>the</strong> current value of <strong>the</strong> property.<br />
An application for shares in <strong>the</strong> company may not be<br />
cancelled.<br />
properties germany<br />
Leverage<br />
There are risks associated with using bank lending which<br />
include <strong>the</strong> risk of a forced property sale if default occurs,<br />
leverage can augment potential losses, debt ranks ahead<br />
of <strong>the</strong> investors' capital and loan injections and <strong>the</strong> interest<br />
rate may not be fixed.<br />
Investment Advice<br />
The information on this memorandum is directed at<br />
professional persons and is not to be regarded as an offer<br />
to buy or sell, or <strong>the</strong> solicitation of any offer to buy or sell<br />
securities or investments in any jurisdiction. Investors<br />
will have to undertake due diligence procedures and<br />
accept standard terms of business.<br />
Note that this is not a "Collective Investment Scheme"<br />
within <strong>the</strong> definitions contained in Section 30 of <strong>the</strong> Isle<br />
of Man Financial Supervision Act 1988. The company is<br />
a Closed Ended Company and is unregulated.<br />
An investment in <strong>the</strong> company should be viewed as a<br />
long term commitment, at least 7 years. Investors should<br />
seek <strong>the</strong> advice of <strong>the</strong>ir own investment adviser before<br />
considering investing in <strong>the</strong> company.<br />
O<strong>the</strong>r Risk Factors<br />
The good location and physical characteristics of <strong>the</strong><br />
buildings may change over <strong>the</strong> investment period. The<br />
credit-worthiness of <strong>the</strong> tenant may also change.<br />
Yields may rise and property prices consequently fall. The<br />
property market is cyclical and may be affected by oversupply<br />
or decreased demand.<br />
Disclaimers<br />
The investor is advised to refer to <strong>the</strong> disclaimers described<br />
herein.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
19
investment structure<br />
properties germany<br />
Property Company<br />
The properties were purchased by <strong>the</strong> following Isle of Man companies (hereinafter collectively referred to as <strong>the</strong><br />
"Property Companies"):<br />
Berlin - <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR15 Limited (Reg. No. 117818C)<br />
Braunfels - <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR12 Limited (Reg. No. 00527V)<br />
Ellwangen - <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> Pink Limited (Reg. No. 00218V)<br />
Lorrach - <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR12 Limited (Reg. No. 00527V)<br />
Radolfzell - <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR12 Limited (Reg. No. 00527V)<br />
Stockach - <strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong> GR11 Limited (Reg. No. 00528V)<br />
The Holding Company, <strong>the</strong> Investment Company as well as each of <strong>the</strong> Property Companies have <strong>the</strong> same two Directors,<br />
namely Lukas Nakos [B.Bus.SCI] and Lynn Keig [MBA FCIS FCMI FICA], or nominees appointed from time to time<br />
by <strong>Louis</strong> <strong>Group</strong> (IOM) Limited. The Directors are experienced and approved Directors.<br />
Each Property Company is wholly owned by <strong>Louis</strong> <strong>Group</strong> Investments Pink Limited (an Isle of Man company with Reg.<br />
No. 00215V) hereinafter referred to as <strong>the</strong> "Holding Company." The Holding Company has <strong>the</strong> same Directors as <strong>the</strong><br />
property company. The Holding Company will be controlled by <strong>Louis</strong> <strong>Group</strong> InvestCo Pink Limited (an Isle of Man<br />
company with Reg. No. 00584V) hereinafter referred to as <strong>the</strong> "Investment Company." Investors will acquire <strong>the</strong>ir<br />
shares in <strong>the</strong> investment company.<br />
Classes of Shares<br />
The Investment Company will issue 2 classes of shares, namely Ordinary A class shares and Ordinary B class shares.<br />
The Ordinary A Class shareholders have no voting rights, but <strong>the</strong>y enjoy all <strong>the</strong> economic rights, namely rights to<br />
participate in distributions of income or capital. The Ordinary B Class shareholders have all <strong>the</strong> voting rights, but <strong>the</strong>y<br />
do not enjoy any economic rights.<br />
The Ordinary A Class shareholders will consist of <strong>the</strong> investors and <strong>the</strong> Ordinary B Class shareholders will be <strong>Louis</strong><br />
<strong>Group</strong> <strong>International</strong> Nominees (One) Limited or <strong>the</strong>ir appointees. Take note that this structure may change in line<br />
with Directors decisions to save money and maximize investor objectives.<br />
Loan Accounts<br />
The Investment Company will be capitalized with shareholder loans. Each shareholder will be obliged to make an<br />
interest free loan to <strong>the</strong> company in <strong>the</strong> amount of €9,999 per share acquired. These loans may earn interest at <strong>the</strong><br />
discretion of <strong>the</strong> Directors. Shareholder loans will be treated equally.<br />
<strong>Louis</strong> <strong>Group</strong> <strong>International</strong> Holdings Ltd or its subsidiary company/ies and/or associated companies and/or Trusts and/or<br />
Foundations ("<strong>Louis</strong> <strong>Group</strong>") will also be investing in this venture and providing its pro-rata portion of shareholder<br />
loans. Since <strong>Louis</strong> <strong>Group</strong> facilitated <strong>the</strong> acquisition of this deal and made <strong>the</strong> necessary leverage arrangements with<br />
<strong>the</strong> banks, <strong>Louis</strong> <strong>Group</strong> may redeem its credit loan from surplus funds available in <strong>the</strong> Investment Company before<br />
investors are entitled to redeem <strong>the</strong>ir loans. <strong>Louis</strong> <strong>Group</strong> has made arrangements with <strong>the</strong> Investment Company that<br />
in <strong>the</strong> unlikely event that any losses are suffered by shareholders, <strong>Louis</strong> <strong>Group</strong> will also suffer its pro-rata share of<br />
such losses.<br />
Organogram of Structure<br />
All Investors A Class Shareholders B Class Shareholders LGI Nominees<br />
Organogram of Structure<br />
<strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong><br />
GR11 Ltd<br />
<strong>Louis</strong> <strong>Group</strong> Property<br />
Stockach<br />
<strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong><br />
Pink Ltd<br />
<strong>Louis</strong> <strong>Group</strong> Property<br />
Ellwangen<br />
<strong>Louis</strong> <strong>Group</strong> InvesCo Pink Ltd<br />
<strong>Louis</strong> <strong>Group</strong> Investments Pink Ltd<br />
* Note: This structure may be altered to maximise investor objectives.<br />
<strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong><br />
GR12 Ltd<br />
<strong>Louis</strong> <strong>Group</strong> Property<br />
Randolfzell, Lorrach, Braunfels<br />
<strong>Louis</strong> <strong>Group</strong> <strong>Properties</strong><br />
GR15 Ltd<br />
Plus Property<br />
Berlin<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
20
administrative issues<br />
Investment Cost Per Share<br />
The investment cost per share will be €10,000 split as<br />
a 1 payment for <strong>the</strong> Ordinary A class shares plus a<br />
corresponding €9,999 loan account.<br />
Payments after Due Date<br />
Investors purchasing shares in <strong>the</strong> Investment Company<br />
after 1 April 2007 will be charged interest at 6% per<br />
annum from 1 April 2007 until date of receipt of <strong>the</strong><br />
investors' funds. Similarly, investors depositing funds for<br />
<strong>the</strong> purchase of company shares before 1 April 2007 will<br />
earn interest at <strong>the</strong> applicable deposit rates of <strong>the</strong> Royal<br />
Bank of Scotland.<br />
Financial Reports<br />
The company will report to each of its shareholders in<br />
<strong>the</strong> following ways:<br />
• submitting a comprehensive Investment Report and<br />
Asset Register for <strong>the</strong> period ending <strong>the</strong> 28th February<br />
of each year; and<br />
properties germany<br />
• posting or displaying on <strong>the</strong> <strong>Louis</strong> <strong>Group</strong> website a<br />
copy of <strong>the</strong> Company's Audited Annual Financial<br />
Statements.<br />
Shareholders Agreement<br />
Investors who wish to become shareholders of <strong>the</strong><br />
Investment Company must make a private placement<br />
application for shares in <strong>the</strong> Company. Each shareholder<br />
will also be obliged to make a loan to <strong>the</strong> company as<br />
outlined in <strong>the</strong> investment structure.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
21
disclaimer<br />
Prerequisites<br />
Please note that it is only possible to acquire shares in <strong>Louis</strong> <strong>Group</strong><br />
InvestCo Pink Ltd ("<strong>the</strong> Company") by personal invitation. Consequently,<br />
investment in <strong>the</strong> company will be limited to those who receive this<br />
Private Placement Memorandum.<br />
An investment in <strong>the</strong> company should be viewed as a long term commitment<br />
(at least 7 years). Our aim will be to generate returns in excess of 10%<br />
per annum in Euros over this investment period. There are however no<br />
guarantees in this regard.<br />
Note that this is not a "Collective Investment Scheme" within <strong>the</strong> definitions<br />
contained in Section 30 of <strong>the</strong> Isle of Man Financial Supervision Act<br />
1988. The company is a Closed Ended Company. It should be noted that<br />
<strong>the</strong> contributions of participants/investors and <strong>the</strong> profits or income out<br />
of which payments may be made to <strong>the</strong>m are not pooled. Investors in <strong>the</strong><br />
investment company will have <strong>the</strong> rights of shareholders in a private<br />
company incorporated in <strong>the</strong> Isle of Man according to <strong>the</strong> Memorandum<br />
& Articles of Association of <strong>the</strong> company.<br />
<strong>Louis</strong> <strong>Group</strong> (IOM) Ltd or <strong>the</strong> duly appointed nominees of <strong>Louis</strong> <strong>Group</strong><br />
<strong>International</strong> Holdings Ltd ("LG") have been appointed as Corporate Service<br />
Providers to <strong>the</strong> Company over <strong>the</strong> entire investment period. LG have also<br />
been appointed over <strong>the</strong> entire investment period as Managing Agents to<br />
<strong>the</strong> Property, and as Property Advisors to <strong>the</strong> Directors of <strong>the</strong> company.<br />
The company has investigated <strong>the</strong> property described in this document<br />
(<strong>the</strong> "Property") and has utilized LG and o<strong>the</strong>r consultants to evaluate <strong>the</strong><br />
Property. The information is being issued by <strong>the</strong> company and is provided<br />
to a limited number of prospective investors solely for <strong>the</strong>ir use in<br />
considering <strong>the</strong>ir investment in <strong>the</strong> property.<br />
Whilst <strong>the</strong> company has made all reasonable efforts to ensure <strong>the</strong> accuracy<br />
of <strong>the</strong> information provided to it and <strong>the</strong> projections based <strong>the</strong>reon, it<br />
makes no representation or warranty, express or implied, as to <strong>the</strong> accuracy<br />
or completeness of <strong>the</strong> information contained herein and expressly<br />
disclaims any and all liability relating to or resulting from <strong>the</strong> use of such<br />
information. In particular no representation or warranty is given as to <strong>the</strong><br />
achievement or reasonableness of any future projections, estimates or<br />
statements about future prospects of <strong>the</strong> Property. Investors are advised<br />
to obtain <strong>the</strong>ir own independent legal or investment advice with regards<br />
to <strong>the</strong> proposed investment in <strong>the</strong> company.<br />
Also note that <strong>the</strong> projected returns are quoted in Euros and no projection<br />
is provided for returns in any o<strong>the</strong>r currency. No liability is accepted for<br />
exchange rate fluctuations.<br />
The taxation issues contained in this Memorandum are merely intended<br />
as a guide as to some of <strong>the</strong> significant taxation factors affecting this<br />
investment. It is not intended to be used for taxation advice and no<br />
liability is accepted.<br />
The information on this memorandum is directed at professional persons<br />
and is not to be regarded as an offer to buy or sell, or <strong>the</strong> solicitation of<br />
any offer to buy or sell securities or investments in any jurisdiction.<br />
Investors will have to undertake due diligence procedures and accept<br />
standard terms of business.<br />
properties germany<br />
Specifically, <strong>the</strong> investments described are not available for distribution<br />
to or investment by US investors. The units/shares will not be registered<br />
under <strong>the</strong> US Securities Act of 1933, as amended (<strong>the</strong> "Securities Act")<br />
and, except in a transaction which does not violate <strong>the</strong> Securities Act or<br />
any o<strong>the</strong>r applicable US securities laws (including without limitation any<br />
applicable law of any of <strong>the</strong> States of <strong>the</strong> USA) may not be directly or<br />
indirectly offered or sold in <strong>the</strong> USA or any of its territories or possessions<br />
or areas subject to its jurisdiction or to or for <strong>the</strong> benefit of a US person.<br />
Persons resident in territories o<strong>the</strong>r than <strong>the</strong> Isle of Man should consult<br />
<strong>the</strong>ir professional advisers as to whe<strong>the</strong>r <strong>the</strong>y require any governmental<br />
or o<strong>the</strong>r consents or need to observe any formalities to enable <strong>the</strong>m to<br />
invest in <strong>the</strong> products described on this memorandum.<br />
If you need more information about <strong>the</strong> investment with <strong>the</strong> company,<br />
please contact us directly. Alternatively, if you wish to obtain personal<br />
advice as to whe<strong>the</strong>r <strong>the</strong> products on this Memorandum are suitable for<br />
your needs, you should consult an Independent Financial Adviser ("IFA").<br />
LG may be approached directly for investment advice or for<br />
recommendations regarding investments. LG is licensed to perform<br />
Corporate Services and Investment Business by <strong>the</strong> Isle of Man Financial<br />
Supervision Commission. The information on this memorandum is for<br />
informative purposes only. Under no circumstances is <strong>the</strong> information to<br />
be used or considered on as an offer to sell, or a solicitation of an offer<br />
to buy, any security. Additional information is available upon request.<br />
Where information has been obtained from outside sources, it is believed<br />
to be reliable but is not represented to be accurate or complete. Past<br />
performance is not necessarily a guide to <strong>the</strong> future. The value of an<br />
investment and any income from it can go down as well as up and you<br />
may not get back <strong>the</strong> amount originally invested. To <strong>the</strong> best of our<br />
knowledge and belief (having taken all reasonable care to ensure that<br />
such is <strong>the</strong> case) <strong>the</strong> information on this memorandum is in accordance<br />
with <strong>the</strong> facts and does not omit anything likely to affect <strong>the</strong> import of<br />
such information.<br />
Data Protection / Privacy Policy Statements<br />
The Company and LG treats <strong>the</strong> privacy of its investors very seriously.<br />
Although <strong>the</strong> company maintains strict confidentiality, <strong>the</strong> legal duties<br />
imposed by law to record and disclose information to <strong>the</strong> relevant authorities<br />
are complied with. The company will accordingly not be liable for any<br />
claims, which may be made in relation to disclosures in compliance with<br />
<strong>the</strong>se legal obligations.<br />
You have <strong>the</strong> right to receive details of <strong>the</strong> personal information that we<br />
maintain about you although we reserve <strong>the</strong> right to make a nominal<br />
charge for this service. We will not disclose personal information to third<br />
parties, unless we are obliged to disclose such information to a regulatory<br />
authority who is legally empowered to require such information.<br />
This memorandum is for <strong>the</strong> use of <strong>the</strong> persons to whom it is addressed<br />
and <strong>the</strong> recipients of this memorandum agree that all of <strong>the</strong> information<br />
contained herein is of a confidential nature. This memorandum must not<br />
be copied, reproduced, distributed or passed to o<strong>the</strong>rs at any time without<br />
<strong>the</strong> prior written consent of <strong>the</strong> company.<br />
Private Placement Memorandum <strong>Six</strong> <strong>German</strong> <strong>Retail</strong> <strong>Properties</strong><br />
22