05.11.2012 Views

Six German Retail Properties - the Louis Group International ...

Six German Retail Properties - the Louis Group International ...

Six German Retail Properties - the Louis Group International ...

SHOW MORE
SHOW LESS

Create successful ePaper yourself

Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.

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

Hooray! Your file is uploaded and ready to be published.

Saved successfully!

Ooh no, something went wrong!