18th Mar 2015 09:19
LONDON (Alliance News) - Mirland Development Corp PLC Wednesday said it swung to a net loss in 2014, as the geopolitical crisis surrounding Russia and economic sanctions imposed on the country hit the value of its property portfolio, although its net operating income rose as it fully consolidated the Vernissage Mall in Yaroslavl and portfolio income increased.
The property investor in Russia reported a net loss of USD71.3 million for 2014, compared with the USD3.3 million net profit it reported a year earlier, as it booked a negative fair value adjustment of investment properties of approximately USD185.8 million following a decrease in projected net operating income, a 1.5% increase to discount rates and a 1% increase to CAP rates - the ratio of net operating income to property asset value - in the real estate market.
It also booked net foreign exchange losses of USD175.9 million, although the combined losses were partly offset by a positive fair value adjustment of investment properties of USD270.6 million following an appreciation of the US Dollar against the Rouble of approximately 72%, resulting in the nominal appreciation of commercial assets at the same rate.
"The combined effects of a major devaluation in the Rouble, economic sanctions, further reductions to oil prices, low growth and high inflation have damaged both the real estate sector and the business environment as a whole. Given this exceptional combination of factors our core business has proved remarkably resilient and our results at the operating level remain encouraging. Unfortunately, however, the economic events I refer to have had a major adverse impact on our portfolio valuations and bottom line profitability," Chairman Nigel Wright said in a statement.
Mirland's net operating income from its share of investment properties rose to USD37.3 million in 2014, from USD33.4 million in 2013, as revenue from the properties rose to USD56.5 million from USD47.8 million due to an increase in income from yielding assets and full consolidation of the Vernissage Mall.
The company expects the difficulties for the Russian economy due to the crisis in Ukraine will continue this year, and it admitted it has no way of predicting when the situation will turn.
"We believe we have taken prudent steps to protect our business to the greatest extent possible but we cannot control the impact of outside factors, either political or economic, on our core activities. We continue to monitor the situation closely while evaluating the potential impact on the group's cash flow and portfolio valuation. We believe we are capable of withstanding any foreseeable difficulties," Wright said.
"Despite rising mortgage rates, our residential sales are holding up well as buyers continue to seek refuge from a falling Rouble in bricks and mortar. With regard to rental income, we anticipate some reductions in cash flow as tenants seek concessions but again we have factored this into our Business Plan. Long term, we remain positive about both our business and Russia as a whole but as outlined below we face a number of considerable challenges. Inevitably there will be continuing uncertainty at least in the short to medium term," the chairman added.
Mirland Development Corp shares were untraded in London Wednesday morning, having last traded at 51.25 pence. The shares have fallen 78% over the last six months due to the issues in Russia.
By Steve McGrath; [email protected]; @stevemcgrath1
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