2nd May 2008 11:32
Eastern European Property Fund Ltd02 May 2008 EASTERN EUROPEAN PROPERTY FUND LIMITEDRESULTS FOR THE PERIOD ENDED 31 DECEMBER 2007 HIGHLIGHTS Property valued by DTZ Debenham Tie Lung at £24.9 million, an increase of 16%. Net asset value at 31 December 2007 of £23.7 million, 118.69p per share, anincrease of 6% from 31 March 2007. Total return (NAV plus dividend paid) for the nine months ended 31 December 2007of 9% - an annualised increase of 12%. Profit for the nine months ended 31 December 2007 of £1.4 million, equal to6.85p per share. Five year loan facility of US$17.5 million with HSBC Bank plc agreed on 18December 2007 and drawn down on 19 December 2007. Azhic Basirov/Siobhan Sergeant Steve Pearce/Simon StillwellSmith & Williamson Corporate Finance Ltd Liberum Capital LimitedTel: +44 207 131 4000 Tel: +44 203 100 2000 Bob Locker Keiran Gallagher/Ollie CadoganCNC Property Fund Management Ltd Active Property Investments LtdTel: +44 1784 424 784 Tel: +44 1481 731 987 CHAIRMAN'S STATEMENT I am pleased to present the results of the Company for the period from 1 April2007 to 31 December 2007. Results The Company generated a net profit for the nine month period ended 31 December2007 of £1.4 million (thirteen month period ended 31 March 2007: £3.3 million),representing a profit per Ordinary Share of 6.85p (31 March 2007: 16.55p). Theconsolidated net asset value at 31 December 2007 was £23.7 million, 118.69p perOrdinary Share (31 March 2007: £22.4 million - 112.01p per Ordinary Share). TheGroup achieved a total return (NAV plus dividend paid) for the nine months ended31 December 2007 of 9% - an annualised increase of 12%. Despite the Company's strong performance during the period, the price of theOrdinary Shares has suffered from current market conditions, falling 3.75pduring the period to 94.00p at 31 December 2007. As a result, the discount to net asset value widened during the period. After the year end the share price fell further and at 1 May 2008 it stood at 69.25p. During the period the Company acquired one property (after the funding wasarranged), a small building on Asmalimescrit Street adjacent to the OrientalPassage. The Company mainly utilised its funds to try to maximise the value ofits existing properties through further refurbishment. This has proved to be aprofitable strategy with the fair value of the Company's properties increasingby £3.4 million, an uplift of £1.9 million during the period, excludingadditions to costs and foreign exchange movements. In line with the Admission Document, the Company did not hedge the exchange raterisk, which increased the Company's profit for the period by £0.4 million. Dividend On 6 August 2007 the Board declared an interim dividend of 3.20p per OrdinaryShare for the period ended 31 March 2007. This dividend was paid on 16 November2007. The Board carefully considered the payment of a dividend for the period ended 31 December 2007. However, as the Ordinary Shares are currently trading at a 42% discount to the 31 December 2007 net asset value, it was decided that these funds could be better utilised by buying back shares to try to narrow thediscount of the share price to net asset value. In the event that the Companyis unable to repurchase shares in the market at a suitable discount, the Boardwill reconsider the payment of a dividend in respect of this period. Change of Nominated Adviser and Broker On 12 October 2007 the Company appointed Smith & Williamson Corporate FinanceLimited as Nominated Adviser and Liberum Capital Limited as Broker. Loan Facility The Company has invested all of its available equity, and therefore, in order totake advantage of the strong property market in Turkey, the Company sought aloan facility during the period. On 18 December 2007, HSBC Bank plc madeavailable to the Company's two Turkish subsidiaries two loan facilitiestotalling US$17,500,000 which were drawn down on 19 December 2007 and are to berepaid at the end of five years from drawdown. Raising Further Equity Due to the "credit crunch" it has proven difficult to raise funds, especiallywhen related to property. However, in order to take advantage of theopportunities that exist in the Eastern European property markets, the Board andits advisers continue to explore ways to increase the equity base of theCompany. Outlook The Directors' visit to Turkey during the period to inspect the Company'sTurkish properties reinforced our opinion that the Turkish property marketappears to be buoyant and that excellent opportunities still exist to acquirefurther properties in prime locations. The Bulgarian, Romanian and Turkishproperty markets have not suffered the same recent downturn as the UK propertymarket and the Board and its advisers are cautiously optimistic that theCompany's property portfolio will continue to perform strongly for the remainderof 2008. Charles ParkinsonChairman1 May 2008 PROPERTY MANAGER AND ADVISER'S REPORT Strategy During the period from 31 March to 31 December 2007, the Company continued toconsolidate its holdings, finish existing projects and lease its properties,with average yields in excess of 9% being achieved on the total cost. We havecontinued to build an investment portfolio based on the sound quality of thelocations and added value in the creation of the finished properties. To-date the Company has predominately concentrated on Turkey and in particularan area of Pera in and around Istiklal Street in Beyoglu, Istanbul. The streethas a footfall believed to be in excess of 1 million people every day and thesurrounding area is attracting major international retailers and prominentoffice occupiers, some of whom the Company has managed to attract as tenants toits properties. The basis behind this current focus is to take advantage of the opportunitiesthat have been available to-date to build a core part of the portfolio in thecentral retail and leisure district of one of the world's major cities, whichstill has substantial opportunity for rental and capital growth for real estatein the immediate future. The other holdings within the portfolio reflect the wish to incorporate somespread of risk in the Company's portfolio and to provide opportunities fordiversification, depending on market conditions throughout the region at any onetime. All properties have the benefit of being in excellent locations. A coreaspect of the portfolio is that every property has to be in a location thatgives it sustainability in terms of its ability to be let and to maintain andgrow rent levels in the future. In addition, the Company looks for property where active managementopportunities are available, adding to the potential for capital appreciation.To date it has been very successful in this respect and will continue tomaintain this element of the strategy going forward as we seek futureacquisitions. Having successfully put in place loan facilities with HSBC Bank in Turkey inDecember 2007, as reported in the 30 September 2007 Interim Report and FinancialStatements, a number of purchase opportunities are being considered. This hasresulted in an immediate small consolidating purchase adjacent to the OrientalPassage, Istanbul. Other deals are being considered across the portfolio'sexisting locations and we anticipate progressing these in the coming months. Ithad been hoped to raise additional funds to enhance opportunities to purchaselarger lot sizes, but this has not been possible at the present time due to theoverall global economic conditions and negative perception of property in the UKand the wider market, although these issues have not impacted on the Company'sproperties at this time. Property Portfolio The amount of available space within the portfolio continues to reduce asprojects complete. An example of this is the imminent letting of part of 24George Washington Street, Sofia, to UBB Bank of Sofia. It is fair to say that, the wider real estate market remains cautious about theeffect on property values and rents in the target countries due to the globaleconomic conditions. However, there had been no obvious immediate impact on theCompany's specific projects at the time of reporting. Indeed local markets are,if anything, becoming more difficult as value expectations remain buoyant.However, the Company has now established a track record in the differentlocalities and has proved that it can proceed for the appropriate 'deal' and anumber of opportunities are currently being reviewed. In this respect theManagers and Advisers remain resolute that opportunities are properly appraisedand only those that offer the returns required will be taken further. DTZ Debenham Tie Leung revalued the properties at 31 December 2007 at £24.9million. Current Holdings Market Value 31 December 31 March 2007 2007 £'000 £'000Bulgaria24 George Washington Street, Sofia Office 3,969 3,421 RomaniaTransalkim Warehouse, S Bucharest Industrial 3,969 3,285 Turkey134-39 Susam Street, Cihangir, Istanbul Leisure/office/ 1,940 1,481 residential6th Floor, The Misir Building, Istiklal Office 1,335 1,192Street, IstanbulRavouna Apartments, 401 Istiklal Street, Office/retail 2,771 2,226Beyoglu, IstanbulOriental Passage, Istiklal Street, Beyoglu, Leisure/office/ 8,817 8,222Istanbul retailNil Passage, Istiklal Street, Beyoglu, Leisure/office/ 1,103 1,016Istanbul retailPera Residence, Asmalimescrit Street, Retail 1,032 661Beyoglu, Istanbul ---------- ---------- 16,998 14,798 ---------- ----------Total investment properties 24,936 21,504 ---------- ---------- The properties held at the period end were as follows:- 24 George Washington Street, Sofia, Bulgaria(Office)This building was finally completed shortly after the year end and althoughthere were considerable delays the quality of the product is excellent and hasattracted considerable interest. The pre-existing Agreement to Lease has been cancelled in favour of a newletting to UBB Bank of Sofia at a higher rent and for a five year term. Thislease is due to be signed in the immediate future and will account forapproximately 50% of the building. Transalkim Warehouse, S. Bucharest, Romania(Industrial)This property remains let to Transalkim at a rental of €460,000 per annum. 134-39 Susam Street, Cihangir, Istanbul, Turkey(Leisure/Office/Residential)As indicated in the 30 September 2007 Interim Report and Financial Statements,this major renovation project was completed in the late summer of last year to ahigh standard. The restaurant is now let (completely fitted out), for US$108,000 per annum andhas become one of Istanbul's fashionable destinations. While consideration was given to selling individual apartments, rent levels havegrown such that it was felt more appropriate to retain ownership within theCompany. In this respect the top floor was let at the beginning of 2008 forUS$45,000 per annum. The other apartments are now available on a similar basis. 6th Floor, The Misir Building, Istiklal Street, Beyoglu, Istanbul, Turkey(Office)This property remains let to Electronick and Propaganda whose rents haveincreased by 17% this year. Ravouna Apartments, 401 Istiklal Street, Beyoglu, Istanbul, Turkey(Office/Retail)Despite numerous attempts to negotiate a settlement with the existing tenant,the Company is having to pursue an action through Courts to obtain possession. All formalities have been completed in respect of conservation and planningmatters for this extremely well located and attractive building in order forproceedings to be taken forward positively. Capital appreciation has occurred as rental values on Istiklal Street rise. Oriental Passage (also known as the Markiz Passage), Istiklal Street, Beyoglu,Istanbul(Leisure/Office/Retail)The building is anchored by Roberts (coffee shop) and Darty (electrical retail)but has a number of other tenants, who collectively pay a rent currently inexcess of US$800,000 per annum. The remaining space in the building attractsinterest and the target rental value is in excess of US$1.2 million. Nil Passage, Asmalimescrit Street, Beyoglu, Istanbul, Turkey(Leisure/Office/Retail).The Company continues to pursue other potential purchases in this block as partof its longer term ambitions to combine this property with the Oriental Passage.It has recently purchased another adjoining property for US$350,000 which formspart of the consolidation process for the street. Pera Residence, Asmalimescrit Street, Beyoglu, Istanbul, Turkey(Retail)The new tenant, Northshields, has now fitted out this bar restaurant to a veryhigh standard and it has immediately become one of the most popular locations inthe Pera district. The rent is US$165,000 per annum. Regional Overview BulgariaEconomic forecasts suggest that Bulgaria's inflation will slow this year andtake a further dip in 2009, to circa 6%. The country's year-on-year inflationstood at 12.5% at the end of January 2008. The Bulgarian Lev (BGN) is fixed tothe Euro, thus limiting monetary policy. A flat 10% income tax rate (the lowestin Europe) has come into force in Bulgaria since January 1 and is expected to bevery beneficial for the economy. The strong office rents in central Sofia have been sustained at €15 per m(2)plus, due to a lack of supply of class A stock. RomaniaIn February, Romania's annual inflation rose to 8%, its highest level in almosttwo years, and is expected to peak at 8.5% according to analysts' forecasts.This has put further pressure on the national bank to raise borrowing costs. The central bank has forecast 2008 inflation at 5.9%, well above this year's2.8% - 4.8% target range. The national bank's local Leu reference interest ratecontinues to rise, however, most big ticket items, such as real estate and cars,are denominated in Euros. The trade deficit has however stabilised due to thelocal currency depreciation. The interest shown by both multinational and domestic companies to situate theirhead quarters in modern buildings in Bucharest has reduced the availability ofcommercial stock for Class A office space to 0.02% - an all time low, accordingto the real estate consulting company Colliers International. Anecdotal evidencesuggests that similar interest in the industrial sector is driving up rentalvalues in both secondary and prime sectors as the quality of existing stock isvery variable from a western perspective. Political disputes continue between the President and Parliamentary Ministersbut this seems to have little impact on general economic activity. TurkeySince the elections returning the AK (party) last year and following the standoff with the military earlier in the year, the Government has strengthened itsposition. However, despite being returned by a majority based on their strongeconomic performance and commitment to pursue E.U. reforms, the Judiciary andSecularists are now challenging the A.K. (party) and seeking to ban both theparty and a number of party members, including the Prime Minister and President. This is likely to press the Prime Minister to accelerate E.U. inspired reformsand to reform the constitution but political uncertainty remains. Otherchallenges have been made relating to the issue of foreign ownership ofproperty, but this seems to be a case of 'tightening up' weak drafting in the'laws' and attacking other countries' nationals who invest where there are noreciprocal arrangements. The economic forecast for Turkey is that growth will slow to 4.5% GDP duringthis year. While there is a risk of contagion in the property market this hasnot been affected at the present time. Property rental levels continue to rise and yields for properties continue todecrease. However, actual transaction evidence is difficult to ascertain withany sense of reliability. The Turkish lira has remained remarkably resilient, although it has weakenedrecently due to political concerns and the potential slowdown of foreign directinvestment. ProspectsBoth Bulgaria and Romania still have historical bureaucratic issues that affectthe completion of contractual matters, but opportunities remain, providing localknowledge and contacts are exploited. Despite the political uncertainty in Turkey the general economy remains buoyantand indeed some 'negative' sentiment would help to slow down the valuationexpectations of property sellers. This would help, at the present time, toshorten the often tortuous negotiations over price. The Company has built a resilient and attractive property portfolio and hasestablished that it can perform. Although we would prefer to make greaterprogress through larger acquisitions, the Company still has enough scope tobroaden its property base and increase overall returns in the existing targetmarkets through organic growth. This is against a backdrop of similarly agedlisted companies in the region who have failed to live up to expectations. It is disappointing that the market fails to discriminate between differentcompany strategies and actual performance. We believe that, with shareholdersupport, the Company can grow very successfully and deliver both income andcapital growth, as indicated in its investment objective. Bob LockerCNC Property Fund Management Limited(formerly Collins Stewart Property Fund Management Limited) Keiran GallagherOliver CadoganActive Property Investments Limited 1 May 2008 CONSOLIDATED INCOME STATEMENTfor the period from 1 April 2007 to 31 December 2007 1 April 2007 to 27 February 2006 31 December 2007 to 31 March 2007 £'000 £'000IncomeRent receivable 573 69Bank interest receivable 80 614Movement in unrealised gain on revaluation of 1,931 4,559investment properties ------- --------Total income 2,584 5,242 ------- --------ExpensesAdministrator's fees (94) (128)Management fees (295) (340)Performance fee (256) (241)Other operating expenses (509) (392)Loss on foreign currency exchange (305) (2) ------- --------Total expenses (1,459) (1,103) ------- --------Net profit from operating activities 1,125 4,139 Taxation 245 (829) ------- --------Profit for the period 1,370 3,310 ------- --------Earnings per share - basic and fully diluted 6.85p 16.55p ------- -------- CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the period from 1 April 2007 to 31 December 2007 Non-distributable Foreign reserves exchange Share Distributable translation capital reserves reserve Total £'000 £'000 £'000 £'000 £'000 Net assets at 31 March 2007 200 18,223 3,978 - 22,401(Loss)/profit for the period - (10) 1,380 - 1,370Foreign exchange movement - - - 606 606Dividends paid - (640) - - (640) ---------- ---------- ---------- ---------- ----------Net assets at 31 200 17,573 5,358 606 23,737December 2007 ---------- ---------- ---------- ---------- ---------- for the period from 27 February 2006 to 31 March 2007 Share Non-distributable premium reserves Share Distributable capital reserves Total £'000 £'000 £'000 £'000 £'000 Gross proceeds of placing 200 19,800 - - 20,000Issue costs - (909) - - (909)Cancellation of share - (18,891) 18,891 - -premium account(Loss)/profit for the period - - (668) 3,978 3,310 ---------- ---------- ---------- ---------- ----------Net assets at 31 March 200 - 18,223 3,978 22,4012007 ---------- ---------- ---------- ---------- ---------- CONSOLIDATED BALANCE SHEETas at 31 December 2007 31 December 31 March 2007 2007 £'000 £'000Non-current assetsFreehold investment property 24,936 21,504Property, plant and equipment 196 73Advances for fixed assets 28 -Intangible assets 13 15Deferred tax assets 148 161 ---------- ---------- 25,321 21,753Current assetsTrade and other receivables 1,888 759Tax assets 14 -Cash and cash equivalents 8,008 1,364 ---------- ---------- 9,910 2,123 ---------- ----------Total assets 35,231 23,876 Current liabilitiesTrade and other payables (1,869) (446)Overseas corporate tax (89) (89) ---------- ---------- (1,958) (535)Non-current liabilitiesRents received in advance (166) (72)Deferred tax liabilities (621) (868)Bank loans (8,749) - ---------- ---------- (9,536) (940) ---------- ----------Total liabilities (11,494) (1,475) ---------- ----------Net assets 23,737 22,401 ---------- ---------- Capital and reservesCalled-up share capital 200 200Share premium - -Distributable reserves 17,573 18,223Non-distributable reserves 5,358 3,978Foreign exchange translation reserve 606 - ---------- ----------Total equity shareholders' funds 23,737 22,401 ---------- ---------- Net Asset Value per Ordinary Share - basic and fully 118.69p 112.01pdiluted ---------- ---------- CONSOLIDATED CASH FLOW STATEMENTfor the period from 1 April 2007 to 31 December 2007 1 April 2007 to 27 February 31 December 2006 to 31 2007 March 2007 £'000 £'000 Net profit from operating activities 1,125 4,139Adjustments for:Interest receivable (80) (614)Gain on revaluation of investment properties (1,931) (4,559)Loss on foreign currency exchange 305 2Depreciation and amortisation 26 5 ---------- ----------Net cash outflow from operating activities before (555) (1,027)working capital changesIncrease in trade and other receivables (528) (757)Increase in other payables 364 446Increase in other non-current liabilities 94 72Interest received in the period 60 610Interest paid in the period (2) -Tax paid in the period (6) (33) ---------- ----------Net cash outflow from operating activities (573) (689) Investing activitiesAcquisition and development of investment property (2,193) (16,974)Purchase of intangible assets - (15)Purchase of property, plant and equipment - (78) ---------- ----------Net cash outflow from investing activities (2,193) (17,067) Financing activitiesDividends paid (640) -Loan proceeds 8,784 -Loan arrangement fees (75) -Loan received from Manager 100 -Repayment of loan from Manager (100) -Issue of shares - 20,000Share issue costs - (909) ---------- ----------Net cash inflow from financing activities 8,069 19,091 ---------- ----------Increase in cash and cash equivalents 5,303 1,335 ---------- ---------- Cash and cash equivalents at beginning of period 1,364 -Increase in cash and cash equivalents 5,303 1,335Foreign exchange movement 1,341 29 ---------- ----------Cash and cash equivalents at end of period 8,008 1,364 ---------- ---------- This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Eastern European Property