Final Results

HIGHLIGHTS

Property valued by DTZ Debenham Tie Leung at £31.2 million (2007: £24.9 million).

Net asset value at 31 December 2008 of £24.7 million, 127.21p per share, an increase of 7% (8.52p per share) from 31 December 2007.

Profit for the year ended 31 December 2008 of £1.1 million, equal to 5.68p per share.

Gain on revaluation of investment properties (after accounting for the foreign exchange gain) of £4.9 million (2007: £2.4 million).

Purchase of two buildings and renovation of others in prime locations in Istanbul, significantly enhancing the property portfolio by their proximity to the existing buildings in Turkey.

Opening of a major metro link beside the main Turkish properties owned by the Company.

For further information please visit the www.eepfl.com or contact:

Azhic Basirov / Siobhan Sergeant

Smith & Williamson Corporate Finance Ltd

Tel: +44 207 131 4000

Steve Pearce / Simon Stillwell

Liberum Capital Limited

Tel: +44 203 100 2000

Bob Locker

CNC Property Fund Management Ltd

Tel: +44 1784 424 784

Keiran Gallagher / Ollie Cadogan

Active Property Investments Ltd

Tel: +44 1481 731 987

CHAIRMAN'S STATEMENT

I am pleased to present the Results of the Company for the year ended 31 December 2008.

Results

The Company generated a net profit for the year ended 31 December 2008 of £1.1 million (nine month period ended 31 December 2007: £1.4 million), representing a profit per Ordinary Share of 5.68p (31 December 2007: 6.85p). The consolidated net asset value at 31 December 2008 was £24.7 million, 127.21p per Ordinary Share (31 December 2007: £23.7 million - 118.69p per Ordinary Share).

Despite the Company's strong performance during the year, the price of the Ordinary Shares has suffered from current market conditions and adverse sentiment towards the property sector and AIM, falling 40.00p during the year to 54.00p at 31 December 2008 (31 December 2007: 94.00p). As a result, the discount to net asset value widened during the year. After the year end the share price fell further and at the close of business on 14 May 2009 it stood at 40.50p. 

Property

During the year the Company purchased two small properties in Turkey, but mainly utilised its funds to maximise the value of its existing properties through further refurbishment.

Property prices in the Company's Target Countries declined during the year and, although the value of the Company's properties has also fallen in local currency terms, the Company achieved a net unrealised gain of £4.9 million (after accounting for the foreign exchange gain) on revaluation of investment properties during the year. Further details of the properties are disclosed in the Property Manager and Adviser's Report.

In line with the Admission Document, the Company does not hedge exchange rate risk. As a result, the Company achieved net foreign exchange gains of £6.5 million (including £8.5 million which is disclosed in the unrealised gain on revaluation of investment property) for the year.

Loan Facility

On 18 December 2007, HSBC Bank plc (the "Bank") made available to the Company's two Turkish subsidiaries two loan facilities totalling US$17.5 million, which were drawn down on 19 December 2007 and are to be repaid at the end of five years from drawdown.  The loan facilities contain financial and other covenants including the requirement that during the first year the loan to value ("LTV") of the Turkish properties charged to the Bank would not exceed 55% and that after 18 December 2008 the LTV ratio would not exceed 50%.

At 31 December 2008 the LTV ratio was in excess of 50%. Following negotiation with the Bank, a side letter and pledge agreement were signed in May 2009 whereby Doğu Avrupa, a Turkish subsidiary of the Company, pledged US$4 million of a cash deposit to the bank and is only able to draw on this cash deposit to purchase new property in Turkey.

Structure

As part of the continual monitoring of the Company's costs and effectiveness, the Board has taken steps to implement a more stream-lined and efficient structure.  The interest on the loans from the Company to the Turkish subsidiaries has been cancelled in order to reduce Turkish withholding tax and to improve cashflow and the Turkish subsidiaries have been merged to form just one company, thereby facilitating significant cost savings. Additional cost saving and further changes to the structure and operations of the Group have been proposed and are in process of being implemented during 2009.

The Board and its advisers believe that, due to the investment opportunities available, the Group's resources would be best employed investing in Turkey. Therefore, it is intended that the Group will focus on Turkey and will not purchase any further property in Bulgaria or Romania. The Group has held back from investing in the Ukraine due to past political and economic uncertainty and this policy will continue whilst market conditions remain outside our stated investment criteria. Therefore, it is proposed that the investment objective of the Group be amended at the forthcoming Annual General Meeting so that Ukraine is no longer included in the objective.

Dividend

During the year, as the Ordinary Shares were trading at a significant discount to net asset value, the Board decided that, instead of paying a second interim dividend for the year ended 31 December 2007, the Company would buy back shares to try to narrow the discount of the share price to net asset value. The Company purchased 608,750 Ordinary Shares to hold as Treasury Shares for a total of £497,094.

The Board carefully considered the payment of a dividend for the period ended 31 December 2008. However, due to the difficult trading conditions, the continued renovation of existing properties, resultant low level of rental income generated during the year and the cash lock-up in Turkey mentioned above, the Board considers it prudent to conserve funds and does not propose an interim or a final dividend for the year ended 31 December 2008.

Outlook

Given the challenging conditions for property markets almost everywhere, we believe it is appropriate to focus on our core strength and expertise in the attractive opportunities in Istanbul. As a result, in the short-term our focus will be to complete our refurbishment projects there and to secure additional tenants, thereby increasing our core income over the coming months. We are fortunate to maintain additional funding and resources and will seek additional acquisitions within this market place as and when attractive opportunities become available. We will also maintain a focus on operating the Group in the most effective and cost efficient way deemed appropriate.

The Board and its advisers believe the Group is, therefore, well placed to weather any further short-term downturn in the property markets in the Target Countries over the next twelve months and, as confidence returns, ultimately will review carefully the strategic options to secure the best value for shareholders from the portfolio.

Charles Parkinson

Chairman

15 May 2009

PROPERTY MANAGER AND ADVISER'S REPORT

Strategy

The year from 1 January to 31 December 2008 has seen the Company experience the most volatile economic and market conditions in modern times. During the first half of the year the impact of the global economic crisis appeared to be relatively benign but as the 'bad news' spread, eventually the economies of all the target countries were adversely affected and this has had a negative impact on property yields, the perception of rental growth and has raised questions over the sustainability of existing rental income streams, all of which ultimately affect the valuation of our properties.

Following the dramatic falls in the UK property market and increasing signs of falls in the European markets, the Company has limited its exposure to further acquisitions (despite the availability of funds in Turkey following the drawdown from the HSBC loan facility), except for previously committed transactions that are strategically aligned with its existing core holdings. Instead we continued to focus on maintaining, renovating and managing the existing properties and their income streams as efficiently as possible.

In doing this the Company has been pro-active in dealing with its tenants, particularly those in Turkey who have been heavily impacted by the devaluation of the local currency (as all of the Company's leases in Turkey are denominated in US Dollars). This active support and relationship management has resulted in sustained income streams and the Company anticipates further income growth in the forthcoming year, despite the difficult conditions that currently prevail.

The sound location of our properties and our careful management of exposure to the risks of development remain key strengths of the Company. We continue to be able to let space despite the current market uncertainties as the overall quality of our portfolio, coupled with the limited availability of comparable properties, keeps tenant demand relatively high. Additional, opportunities remain to enhance this position going forward, particularly in locations close to the Company's core holdings in Beyoglu, Istanbul, Turkey.

Property Portfolio

One of the highlights of 2008 was the completion of George Washington Street, Sofia. This property has been let to the United Bulgarian Bank and Bulgarian Property Management. Each tenant has approximately 50% of the space.

Progress continues on various refurbishment/renovation projects in Beyoglu, Istanbul, Turkey, where the Company expects to enhance values by taking advantage of the active management opportunities it had identified at purchase. A number of these opportunities have been refined and progressed such that, combined with the limited remaining space available on 'finished' projects and based on current rental expectations, once the projects have been completed, the Company's advisers believe that its current income in Turkey can be enhanced by in excess of 50% of its existing level. The expected income returns arising from the refurbishment/renovation programmes are anticipated to be comfortably in excess of the Company's target and the Company has the cash available to carry out this work.

As indicated previously, due to global economic conditions, values have come under pressure and the 31 December 2008 property valuations have fallen by 15% in relation to 31 December 2007, before taking into account foreign exchange movements and the weakness of Sterling relative to the US Dollar and the Euro. It is anticipated that this decline in property values is likely to continue throughout 2009, but the impact of this decline may be offset by improvements in the income streams (as outlined above).

HSBC Bank plc in Turkey continues to be supportive, as previously mentioned, and the Company has agreed to 'ring fence' US$4 million in its Turkish bank accounts, which is only to be used in Turkey for further acquisitions in the country.

DTZ Debenham Tie Leung valued the properties at 31 December 2008 at £31.2 million (2007: £24.9 million).

The properties held at the year end were as follows:-

24 George Washington Street, Sofia, Bulgaria (Leisure/Officel)

The United Bulgarian Bank is in occupation under a lease for approximately 50% of the building and has sub-let additional space from the second tenant Bulgarian Property Management.

Recently Bulgaria Property Management has sub-let the ground floor to the Bulgarian National Art Centre, which was officially opened by the Sofia Mayor in March 2009.

Transalkim Warehouse, Gara Progr Street, S. Bucharest, Romania (Industrial)

Transalkim remains in occupation under a lease due to expire in January 2010. While it has started a programme to construct a new facility, it has indicated that due to the requirements of its main client it may wish to remain in occupation for a further period.

Kadife Palas Building, 134-139 Susam Street, Cihangir, Istanbul, Turkey (Leisure/Office/Residential)

While there has been some turnover of tenants only two floors are now available. The main restaurant tenant continues to trade well.

6th Floor, The Misir Building, Istiklal Street, Beyoglu, Istanbul, Turkey (Office)

The property remains fully let to Electronik and Propaganda.

Ravouna Apartments, 401 Istiklal Street, Beyoglu, Istanbul, Turkey (Office/Retail)

The Company has recently won its possession case against Mudo, the tenant on the ground floor. Providing they do not appeal and take the matter to the High Court, the Company should be in a position to proceed with its major renovation proposals for this property.

Markiz (Oriental) Passage, Istiklal Street, Beyoglu, Istanbul, Turkey (Leisure/Office/Retail)

The major tenants remain in occupation and appear to be trading well in the current economic climate and are likely to benefit from the opening of the new metro station at the southern end of Istiklal Street.

Other occupiers have vacated, which has been encouraged as the Company seeks to proceed with its medium term plans to renovate part of the upper floors for leisure use. Negotiations for the letting of these areas are taking place with several interested parties.

Nil Passage, Istiklal Street, Beyoglu, Istanbul, Turkey (Leisure/Office/Retail)

The smaller internal units have been gradually emptied as the Company pursues its objectives to renovate the premises prior to re-letting.

Pera Residence, Asmalimescrit Street, Beyoglu, Istanbul, Turkey (Retail)

The single restaurant tenant remains in occupation.

"Yellow" Building, Asmalimescrit Street, Beyoglu, Istanbul, Turkey (Retail)

Proposals for the redevelopment of the building including two extra floors have been submitted to the Building Conservation Committee.

Gonul Sokak, Asmalimescrit Street, Beyoglu, Istanbul, Turkey (Retail/Office)

The first floor of this building has now been let, but the ground floor remains vacant.

Regional Overview

Romania

The national elections at the end of November provided a change of government with a coalition of the centre left PSD and the centre right Democrat-Liberal Party taking over from the centre right National Liberal Party.

In the autumn, Romania had its debt rating downgraded to BB+ by Standard & Poor's, below investment grade, citing wide current account gaps and hefty external debts. Standard & Poor's cut both Romania and Bulgaria's ratings as it believes the ability of these countries to meet external financing needs is an important determinant for their ratings and, therefore, Western banks should review cash flows to their Eastern European subsidiaries to avert further trouble. Standard & Poor's believes the recent 2% budget gap set by the new government is unrealistic (over 5% in 2009) and economic growth is estimated by the agency to be in the low single digits in 2009 or will possibly drop into negative territory.

Arguments against Romania being affected as much as other countries in the global economic crisis include its floating currency helping to mitigate the effect on the real economy, its relative energy independence, its exports accounting for only 25% of GDP and loans accounting for only 40% of GDP.

Romania is currently negotiating a medium-term loan from the IMF.

Bulgaria

Bulgaria's main vulnerability, according to Standard & Poor's, is its debt-financed current account deficit and a currency-board regime which prevents adjustments in the Bulgarian Lev.  The agency predicts the Bulgarian economy will grow at a rate of about 1% this year, but did not rule out "negative growth".

Turkey

In March the local elections took place and the ruling AKP Party obtained 39% of the votes. Turkey is currently in negotiations with the IMF for a new three-year loan arrangement for US$10 billion.  It is expected that such an agreement would provide stability for Turkey in the form of fiscal responsibility. Turkey's economy grew in the first three quarters  of 2008 but shrank by 6.2% in the last quarter, giving it an overall annual growth rate of 1.1%. Turkey's Deputy Prime Minister has predicted that the country's economy will contract by 3.6% in 2009.

The banking sector still appears robust relative to other economies, and the key weaknesses are in the export and corporate sectors which are considered to be over-leveraged.

A combination of the weakness of the Turkish Lira together with Turkey's widespread trade partnerships are expected to provide relative support to the economy over the next eighteen months. Additionally, tourism is considered to be a potentially attractive sector of the economy as Turkey is considerably cheaper than competing vacation destinations within the euro zone.

The currency depreciation of the Turkish Lira appears to have been manageable but there remains a small risk of a currency meltdown due to foreign currency speculation. However, economic fundamentals do not seem to support such speculation at this time.

There still remains limited transparency over property transactions particularly in the commercial sector. However, within the more liquid residential market, it appears that property agents are indicating that quoted prices are down and that, actual reductions are discernable at 10% or more.

The devaluation of the Turkish Lira will impact on the ability of tenants to meet rental obligations as their earnings are in the local currency and rent is generally in US Dollars. This will potentially impact negatively on yields in the future, if devaluation of the Turkish Lira continues.

Prospects

The Company's position in Romania and Bulgaria is now limited. However, the existing properties continue to provide some portfolio and risk exposure balance and a healthy income stream, which is certainly helpful in the current economic climate.

While Turkey seems to experience greater economic and political volatility, the Company still views its positions in Beyoglu, Istanbul, Turkey very positively as they provide continued opportunities for growth in overall returns. The portfolio has been acquired on the basis of a long-term strategy and its prestigious locations will only benefit from the continued regeneration of this part of Istanbul. The Company believes this will continue over the economic cycle and that it will be able to exploit its advantageous position of having holdings already in place, which were acquired at sensible price levels.

The Company has managed to keep its overall leverage low, has continued to sustain income levels and at the same time has created a number of development opportunities to considerably enhance income as and when the market allows.

Bob Locker

CNC Property Fund Management Limited

Keiran Gallagher

Oliver Cadogan

Active Property Investments Limited

15 May 2009

CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2008 

Year ended 31 December2008

1 April 2007 to 31 December 2007

£'000

£'000

Income

Rent receivable

1,499

573

Bank interest receivable

261

80

Other income

36

-

------------

------------

Total income

1,796

653

------------

------------

Expenses

Administration fees

(125)

(94)

Management fees

(571)

(295)

Performance fee

(475)

(256)

Interest payable and similar charges

(712)

19

Other operating expenses

(987)

(528)

------------

------------

Total expenses

(2,870)

(1,154)

------------

------------

Investment gains and losses

Gain on revaluation of investment properties

4,866

2,359

------------

------------

Total investment gain

4,866

2,359

------------

------------

Net profit from operating activities before gains and losses on foreign currency exchange

3,792

1,858

Loss on foreign currency exchange

(2,023)

(733)

------------

------------

Net profit from operating activities

1,769

1,125

Taxation

(653)

245

------------

------------

Profit for the year/period

1,116

1,370

------------

------------

Earnings per share - basic and fully diluted

5.68p

6.85p

------------

------------

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2008

Share capital

Reserve for own shares

Distributable reserves

Non-distributable reserves

Foreign exchange translation reserve

Total

£'000

£'000

£'000

£'000

£'000

£'000

Net assets at 1 January 2008

200

-

17,174

5,757

606

23,737

Re-designation of non-distributable reserves

-

-

5,757

(5,757)

-

-

Profit for the year

-

-

1,116

-

-

1,116

Foreign exchange movement

-

-

-

-

312

312

Purchase of own shares for treasury

-

(497)

-

-

-

(497)

----------

----------

----------

----------

----------

----------

Net assets at 31 December 2008

200

(497)

24,047

-

918

24,668

----------

----------

----------

----------

----------

----------

for the period from 1 April 2007 to 31 December 2007

Share capital

Distributable reserves

Non-distributable reserves

Foreign exchange translation reserve

Total

£'000

£'000

£'000

£'000

£'000

Net assets at 31 March 2007

200

18,252

3,949

-

22,401

(Loss)/profit for the period

-

(438)

1,808

-

1,370

Foreign exchange movement

-

-

-

606

606

Dividends paid

-

(640)

-

-

(640)

----------

----------

----------

----------

----------

Net assets at 31 December 2007

200

17,174

5,757

606

23,737

----------

----------

----------

----------

----------

CONSOLIDATED BALANCE SHEET

as at 31 December 2008

31 December 2008

31 December 2007

£'000

£'000

Non-current assets

Freehold investment property

31,205

24,936

Property, plant and equipment

39

196

Advances for fixed assets

15

28

Intangible assets

12

13

Deferred tax assets

-

148

----------

----------

31,271

25,321

Current assets

Trade and other receivables

1,101

1,888

Tax assets

57

14

Cash and cash equivalents 

6,428

8,008

----------

----------

7,586

9,910

----------

----------

Total assets

38,857

35,231

Current liabilities

Trade and other payables

(927)

(1,869)

Overseas corporate tax

(98)

(89)

Bank loan

(11,932)

-

----------

----------

(12,957)

(1,958)

Non-current liabilities

Rents received in advance

(217)

(166)

Deferred tax liabilities

(968)

(621)

Bank loans

-

(8,749)

Other provisions and payables

(47)

-

----------

----------

(1,232)

(9,536)

----------

----------

Total liabilities

(14,189)

(11,494)

----------

----------

Net assets

24,668

23,737

----------

----------

Capital and reserves

Called-up share capital

200

200

Reserve for own shares

(497)

-

Distributable reserves

24,047

17,174

Non-distributable reserves

-

5,757

Foreign exchange translation reserve

918

606

----------

----------

Total equity shareholders' funds

24,668

23,737

----------

----------

Net Asset Value per Ordinary Share - basic and fully diluted

127.21p

118.69p

----------

----------

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 December 2008

Year Ended 31 December 2008

1 April 2007 to 31 December 2007

£'000

£'000

Net profit from operating activities

1,769

1,125

Adjustments for:

Interest receivable

(261)

(80)

Gain on revaluation of investment properties

(4,866)

(2,359)

Loss on foreign currency exchange

2,023

733

Depreciation and amortisation

(10)

26

Bank loan interest payable

660

-

----------

----------

Net cash outflow from operating activities before working capital changes

(685)

(555)

Increase in trade and other receivables

(166)

(528)

Increase in other payables

85

364

Increase in other non-current liabilities

98

94

Interest received in the year/period

261

60

Interest paid in the year/period

(439)

(2)

Tax refund received/(tax paid) in the year/period

107

(6)

----------

----------

Net cash outflow from operating activities

(739)

(573)

Investing activities

Acquisition and development of investment property

(2,288)

(2,193)

Purchase of property, plant and equipment

(10)

-

----------

----------

Net cash outflow from investing activities

(2,298)

(2,193)

Financing activities

Dividends paid

-

(640)

Bank loan proceeds

-

8,784

Loan arrangement fees

-

(75)

Loan received from Manager

-

100

Purchase of own shares

(497)

-

Repayment of loan from Manager

-

(100)

----------

----------

Net cash (outflow)/inflow from financing activities

(497)

8,069

----------

----------

(Decrease)/increase in cash and cash equivalents

(3,534)

5,303

----------

----------

Cash and cash equivalents at beginning of year/period

8,008

1,364

(Decrease)/increase in cash and cash equivalents

(3,534)

5,303

Foreign exchange movement

1,954

1,341

----------

----------

Cash and cash equivalents at end of year/period

6,428

8,008

----------

----------