16th May 2011 07:00
EASTERN EUROPEAN PROPERTY FUND LIMITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010
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HIGHLIGHTS | ||
·; Property valued by DTZ Debenham Tie Leung at £31.4 million (2009: £27.7 million). ·; Net asset value at 31 December 2010 of £22.4 million, 116.97p per Ordinary Share (2009: £21.4 million, 110.44p per Ordinary Share). ·; Profit for the year ended 31 December 2010 of £1.2 million, equal to a profit of 6.11p per Ordinary Share (2009: loss of £2.8 million, equal to a loss of 14.49p per Ordinary Share). ·; Gain on revaluation of investment properties of £2.9 million (2009: loss of £4.1 million). ·; Modification of investment objective and policy, including divestment from Bulgaria and Romania, further investment in Turkey and buy back of Ordinary Shares, and amendment to the management agreement approved by shareholders at an EGM held on 29 October 2010.
For further information please visit www.eepfl.com or contact:
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Tom Fyson Liberum Capital Limited Tel: +44 203 100 2000 |
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Bob Locker CNC Property Fund Management Ltd Tel: +44 1784 424 740 | Keiran Gallagher / Oliver Cadogan Pera Pera Tel: +90 212 249 6920 |
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CHAIRMAN'S STATEMENT |
I am pleased to present the results of the Group for the year ended 31 December 2010.
2010 commenced amidst extremely challenging circumstances in Bulgarian and Romanian property markets. The Group has not been immune to these conditions but the Group's Turkish property portfolio, which at 31 December 2010 accounted for 84% by value of the properties held, has continued to perform significantly better than its properties in Bulgaria and Romania.
Results The Group reported a net profit for the year ended 31 December 2010 of £1.2 million (2009: loss of £2.8 million), representing a profit per Ordinary Share of 6.11p (2009: loss of 14.49p). The profit for the year was mainly attributable to the £2.9 million gain (2009: loss of £4.1 million) arising from the revaluation of investment property.
The consolidated net asset value ("NAV") at 31 December 2010 was £22.4 million, 116.97p per Ordinary Share (2009: £21.4 million, 110.44p per Ordinary Share).
During the year ended 31 December 2010, operating expenses increased slightly from 2009. However, with effect from 1 January 2011, the annual management and administration fees payable to the Manager have been reduced and the Board expects operating expenses to decrease further as the Group is streamlined and divests from Bulgaria and Romania.
The share price of the Group rose by 5.75p in the year to 58.50p at 31 December 2010 (31 December 2009: fall of 1.50p during the year to 52.75p). The Board has tried to narrow the discount of the share price to NAV by utilising the Company's authority to buy back Ordinary Shares. The Company purchased and cancelled 200,000 Ordinary Shares at a price of 52 pence per Ordinary Share on 13 July 2010 and 255,000 Ordinary Shares at an average price of 58.71 pence per Ordinary Share during March 2011. Despite this, the increase in the share price did not keep pace with the uplift in the NAV and the discount of the share price to NAV widened slightly during the year from 47.5% at 31 December 2009 to 50.0% at 31 December 2010. This discount is much wider than the Board would wish and thus the Board will continue the share buyback scheme as part of the revised strategy outlined below.
Strategy At an Extraordinary General Meeting ("EGM") held on 29 October 2010, shareholders approved the modification of the investment objective and policy of the Group, such that the Group is permitted only to invest in Turkey (and specifically in Istanbul) and to sell the Group's existing assets held in Bulgaria and Romania.
The Board believes that the Group will benefit from divesting from Bulgaria and Romania and focussing its resources entirely on Turkey as the Turkish property market is faring significantly better than Bulgaria's and Romania's. This will remove the overhead and administrative costs arising from operating in Romania, Bulgaria, Malta and Cyprus and reduce the overall overhead costs of the Group.
Being overly prescriptive on the timeframe could prove detrimental to the realisation process of the Bulgarian and Romanian assets. Sensitive, however, to the need to agree to disposals on terms which create value for Shareholders, the Manager aims to realise such assets as soon as possible. By way of indication, however, the Board and the Manager hope that such assets will be fully realised during the current year. Once these assets have been disposed of, the Board and the Manager will apply those proceeds to generate the best returns to Shareholders, either through share buybacks via tender offers or through value accretive additions to the Turkish portfolio.
The continuation of the Company was originally due to be voted on at the Annual General Meeting to be held in 2013. However, to align the continuation of the Company with the repayment of the Turkish bank loan in December 2012, it is now intended for the continuation vote to take place at the Annual General Meeting ("AGM") of the Company to be held in 2012, whereby a special resolution shall be put to the Meeting that the Company ceases to continue as an investment company. If that resolution is passed, the Directors are required to formulate proposals to put to shareholders to reorganise, unitise or reconstruct the Company or to wind the Company up. If the resolution to cease being an investment company is not passed, a similar resolution will be proposed at every fifth Annual General Meeting thereafter. A resolution to amend the Company's Articles of Incorporation to bring forward the continuation vote will be placed before shareholders at the forthcoming AGM, to be held on 5 September 2011.
In addition, at the EGM held on 29 October 2010, the terms of the Management Agreement were amended to reduce the annual fee payable to the Manager and to amend the method by which the performance fee is calculated, thereby better aligning the interests of the Manager with the shareholders.
Property During the year, the Group purchased one small property, Asmali Cumba, in Istanbul and continued to refurbish the Turkish portfolio to maximise the value of its assets.
The Group has focussed on increasing the value of the portfolio by continuing with extensive redevelopment and refurbishment of two of its largest Turkish properties. The construction work has been delayed, due to issues relating to building consents but is expected to be finished in the second half of 2011 and will significantly increase the rental and earnings potential of the buildings.
Property values in Bulgaria and Romania declined during the year but increased in Turkey and the Group achieved a net unrealised gain on revaluation of investment properties of £2.9 million (2009: loss of £4.1 million), comprising a £4.9 million gain in Turkey and a £2.0 million loss in Bulgaria and Romania. Further details of the properties are disclosed in the Property Manager and Adviser's Report.
Loan Facility The US$17.5 million loan facility that the Group's Turkish subsidiary has with HSBC Bank plc (the "Bank") contains financial and other covenants, including the requirement that the loan to value ("LTV") of the Turkish properties charged to the Bank, comprising most of the Turkish properties, would not exceed 50%. In April 2010, the cash pledged by the Group to the Bank to satisfy the LTV covenant was reduced from US$4 million to US$2.545 million. Then, following a review by the Bank on 9 May 2011, due to the increase in the market values of the Turkish properties and two additional Turkish properties added as security to the Bank, the Bank agreed to release all of the restrictions on the pledged cash deposit.
Dividend As the Group is divesting from Bulgaria and Romania and, with the proceeds, planning to invest further in Turkey and also buy back shares, the Board considers it prudent to conserve funds and does not propose an interim or final dividend for the year ended 31 December 2010 (31 December 2009: nil).
Outlook Following the disposal of the Bulgarian and Romanian properties and the concentration of our resources in Turkey, we expect that the fortunes of the Group will be significantly enhanced as our core strength and expertise will be focussed in the more vibrant and prestigious areas of Istanbul. This, coupled with prospective higher rental income from the completion of major renovation works and the continued economic recovery in Turkey, lead me to believe that the outlook for the Group is positive in the medium-term.
The Board and its advisers believe that the forthcoming year will be challenging in respect of the implementation of the proposed strategy. However, the Board is confident that it will be able to manage the necessary changes effectively and in the best interests of shareholders. |
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Charles Parkinson Chairman |
13 May 2011 |
PROPERTY MANAGER AND ADVISER'S REPORT
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The year ended 31 December 2010, was one of mixed fortunes for the Group as the differences between the performance of its investments in the European Union countries (of Bulgaria and Romania) and Turkey become more pronounced.
Trading conditions remain very difficult in Bulgaria and Romania. However, the Group has made slow but steady progress in letting space at both city locations in Sofia and Bucharest.
The Group has also been active regarding the disposal of the Bulgarian and Romanian properties, but investor and/or owner occupier interest has been extremely limited, although some positive progress has been made more recently in this respect.
In complete contrast, the economy in Turkey bounced back during 2010 and appears to have experienced a 'V' shaped recovery. The performance of the Group's property portfolio in Istanbul has reflected this general economic improvement and the return of rental growth to the market. Lettings have been more easily achieved and voids are now limited to properties where there is an ongoing development project. Capital values, particularly in and around Istiklal Street, Beyoglu, continue to be driven upwards as regeneration of this area continues at some pace.
The main problem at present remains the difficulties in obtaining the relevant consents from the local municipalities and conservation bodies for projects to proceed, which is resulting in slower progress than had been expected.
The recent disturbances in the North African countries adjacent to the Mediterranean has led some less informed commentators to question whether there is a chance of similar events occurring in Turkey. However, Turkey has an established democracy and, in recent years, the Government has gradually established its primacy over the Military and the Courts.
Property Portfolio
Despite the extremely difficult conditions in Bulgaria and Romania, overall the Property Portfolio has performed very well. The income position has improved since June 2010 and, because of the improvement in capital values in Turkey, the overall value of the Property Portfolio has gone up. However, the overall void rate (by rental value) for the portfolio had increased from 29% at 31 December 2009 to 41% at 31 December 2010. This increase in space available to let is primarily due to the increase in void space in Romania and Bulgaria from 25% at 31 December 2009 to 64% at 31 December 2010, whilst the unlet space in Turkey decreased during the year from 31% to 29%.
The Group is confident that the realisation of the properties in Bulgaria and Romania is only a matter of time as the gradual improvement in the income profiles of the properties match investors' expectations. Also, despite current market conditions, the economies of both countries are expected to grow this year. As has been stated in previous reports, the properties were purchased on the basis of the quality of the location and this will ultimately enable sales to proceed as soon as market conditions are sufficiently liquid in these property markets. |
Current Holdings | Market Value | ||
2010 | 2009 | ||
£'000 | £'000 | ||
Bulgaria | |||
The Atrium, 24 George Washington Street, Sofia | Leisure/Office | 2,572 | 3,636 |
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Romania | |||
Gara Progresului Business & Logistics Centre, Gara Progresului Street, Bucharest | Industrial | 2,315 | 3,158 |
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Turkey | |||
Kadife Palas Building, 134-139 Susam Street, Cihangir, Istanbul | Leisure/Office/Residential | 2,754 | 2,474 |
6th Floor, The Misir Building, Istiklal Street, Beyoglu, Istanbul | Office | 2,402 | 2,041 |
Ravuna Apartments, 401 Istiklal Street, Beyoglu, Istanbul | Office/Retail | 3,683 | 3,207 |
Markiz (Oriental) Passage, Istiklal Street, Beyoglu, Istanbul | Leisure/Office/Retail | 12,171 | 9,276 |
Nil Passage, Istiklal Street, Beyoglu, Istanbul | Leisure/Office/Retail | 1,720 | 1,351 |
Pera Residence, Asmalimescit Street, Beyoglu, Istanbul | Retail | 1,313 | 1,268 |
"Yellow" Building, Asmalimescit Street, Beyoglu, Istanbul | Retail | 512 | 235 |
Gonul Sokak, Asmalimescit Street, Beyoglu, Istanbul | Office/Retail | 525 | 507 |
Taka Building, Asmalimescit Street, Beyoglu, Istanbul | Retail | 961 | 556 |
Asmali Cumba, Asmalimescit Street, Beyoglu, Istanbul | Retail | 512 | - |
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26,553 | 20,915 | ||
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Total Investment Properties | 31,440 | 27,709 | |
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The Atrium, 24 George Washington Street, Sofia, Bulgaria The United Bulgarian Bank continues to occupy approximately 50% of the space and it is currently considering taking a further tranche of space. Potential buyers have viewed the building and expressions of interest have been received. We will sell this property once a realistic sale price can be agreed.
Gara Progresului Street, South Bucharest, Romania Following the rebranding as a "Business and Logistics Centre", various tenants have been signed-up. Recently Transkalkim (the former tenant of the whole property) signed-up short-term occupational agreements and a number of other potential occupiers continue to view the premises.
Although the property is being marketed for sale, we believe that the overall occupation and income profile needs to improve for it to become a liquid asset in the current economic climate.
Kadife Palas, Susam Street, Cihangir, Istanbul The property remains fully let and the tenants pay their rent promptly.
6th Floor, The Misir Building, Istiklal Street, Beyoglu, Istanbul The property remains fully let to the original tenants.
Ravuna Apartments, 401 Istiklal Street, Beyoglu, Istanbul The project to upgrade and refurbish this property continues to be held up due to issues relating to the building consents, but the Group continues in its application for a construction permit. The Group has won a recent court case against the former tenants and continues to review its position in relation to the proposed scheme to upgrade the building.
Markiz (Oriental) Passage, Istiklal Street, Beyoglu, Istanbul The principal tenants remain in occupation and we are in talks to let one of the upper floors to a new tenant.
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Nil Passage, Istiklal Street, Beyoglu, Istanbul Following completion of the renovation works, the first letting of a whole floor has been achieved and a second floor is close to being let.
Pera Residence, Asmalimescit Street, Istanbul This property is fully occupied and the tenant is trading successfully.
'Yellow' Building, Asmalimescit Street, Beyoglu, Istanbul We are currently working on a larger project involving this property, together with the adjoining building (Asmali Cumba), which was purchased by the Group in December 2010.
Gonul Sokak, Asmalimescit Street, Beyoglu, Istanbul The first floor has now been let and the ground floor restaurant has been trading very successfully.
Taka Building, Asmalimescit Street, Beyoglu, Istanbul A new tenant has now been secured for this building.
Asmali Cumba, Asmalimescit Street, Beyoglu, Istanbul This building, which adjoins the Yellow Building, was purchased in December 2010 for US$800,000.
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Regional Overview
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Romania Romania has a €20 billion financing agreement with the International Monetary Fund ("IMF"), the European Commission ("EC") and the World Bank. In February 2011, the Romanian Government decided not to draw down the last tranche of the loan from the IMF and would only use the last loan disbursement from the EC. This was decided after the IMF, World Bank and EC had allowed Romania to partially finance the budget deficit of €6 billion by raising up to €5 billion from the Romanian subsidiaries of local banks. The IMF submitted a new €3.5 billion precautionary stand-by arrangement for Romania in March 2011 and completed its seventh and final review under the existing stand-by arrangement. However, the Romanian Government is hoping to raise €600 million in 2011 from the sale of minority packages or energy companies, via secondary offerings of shares of Petrom, Transgaz and Transelectrica.
Although estimates for GDP growth in Romania for 2011 have been revised upwards to between plus 0.2% and plus 1.5%, from a general property perspective, both the leasing and sales market continue to be extremely depressed. |
Bulgaria The Bulgarian economy expanded by 0.2% in 2010, according to the National Statistics Institute ("NSI"). Although this was lower that the NSI's 0.7% estimate, it compares favourably to the 5.5% contraction in 2009. Significantly adding to the increase in 2010 was the 2.1% increase in Q4 2010 (Q4 2009: 1.75%), which improved on the 0.3% increase in Q3 2010, per the NSI. Agriculture and industry appear to have been the drivers of this growth, while exports of goods and services fell by 3.9% compared to Q3. However, it should be noted that any GDP growth in 2010 was based on a low starting point, following the contraction in 2009.
As with Romania, both the leasing and sales markets are very difficult at the present time.
Turkey Turkey is estimated to have achieved GDP growth of 7.8% during 2010 (2009: 5.6% decrease) having experienced a 'V' shaped recovery. Colliers has reported an improving rental market for offices and even the up-market rental malls and neighbourhoods are no longer having to give incentives to attract new tenants. The IMF has predicted that the Turkish economy would expand by 4.5 % in 2011, while also cautioning against a rapidly increasing current account deficit.
While the riots and disenchantment by the population in the North African states might impact on trade, it is perceived that Turkey could benefit from greater tourism as its status as an already established democracy are more widely recognized. The Government has never been particularly close to Mubarak, the outgoing Egyptian President, and its overall influence and contact with the Middle East is perceived to be greater than it has been for some time. There are Government Elections on 12 June 2011 and it is believed that the ruling AK Party will be comfortably re-elected.
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Prospects
It is expected that the Bulgarian and Romanian property markets will experience a slow rate of recovery. Therefore, we will continue to try to divest from Bulgaria and Romania in order that we can concentrate the Group's resources in Turkey, where we believe the Group will continue to be able to benefit from the opportunities available.
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Bob Locker CNC Property Fund Management Limited
Keiran Gallagher Pera Pera
Oliver Cadogan Pera Pera
13 May 2011 |
The financial information set out in this announcement does not constitute the Company's statutory financial statements for the year ended 31 December 2010.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME | |||
for the year ended 31 December 2010 | |||
Year ended31 December 2010 | Year ended31 December 2009 | ||
£'000 | £'000 | ||
Income | |||
Rent receivable | 1,347 | 1,610 | |
Bank interest receivable | 21 | 46 | |
Other income | 21 | 16 | |
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Total income | 1,389 | 1,672 | |
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Expenses | |||
Administration fees | (138) | (125) | |
Management fees | (576) | (594) | |
Interest payable and similar charges | (348) | (398) | |
Other operating expenses | (744) | (678) | |
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Total expenses | (1,806) | (1,795) | |
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Investment gains and losses | |||
Gain/(loss) on revaluation of investment properties | 2,887 | (4,102) | |
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Total investment gain/(loss) | 2,887 | (4,102) | |
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Net profit/(loss) from operating activities before gains and losses on foreign currency exchange | 2,470 | (4,225) | |
(Loss)/gain on foreign currency exchange | (249) | 1,135 | |
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Net profit/(loss) from operating activities | 2,221 | (3,090) | |
Taxation | (1,042) | 280 | |
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Profit/(loss) for the year | 1,179 | (2,810) | |
Other comprehensive income | |||
Exchange differences arising from translation of foreign operations | (40) | (443) | |
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Total other comprehensive loss | (40) | (443) | |
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Total comprehensive income/(loss) for the year attributable to the Owners of the Group |
1,139 |
(3,253) | |
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Earnings/(loss) per share - basic and diluted | 6.11p | (14.49)p | |
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All the items in the above statement are derived from continuing operations. | |||
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to Owners of the Company |
for the year ended 31 December 2010 | ||||||
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Share capital | Reserve for own shares |
Distributable reserves | Foreign exchange translation reserve |
Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Net assets at 1 January 2010 | 200 | (497) | 21,237 | 475 | 21,415 | |
Total comprehensive income/(loss) for the year | ||||||
Profit for the year | - | - | 1,179 | - | 1,179 | |
Other comprehensive loss | - | - | - | (40) | (40) | |
Contributions by and distributions to owners | ||||||
Buy back and cancellation of own shares | (2) | - | (104) | - | (106) | |
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Net assets at 31 December 2010 | 198 | (497) | 22,312 | 435 | 22,448 | |
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for the year ended 31 December 2009 | ||||||
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Share capital | Reserve for own shares |
Distributable reserves | Foreign exchange translation reserve |
Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | ||
Net assets at 1 January 2009 | 200 | (497) | 24,047 | 918 | 24,668 | |
Total comprehensive loss for the year | ||||||
Loss for the year | - | - | (2,810) | - | (2,810) | |
Other comprehensive loss | - | - | - | (443) | (443) | |
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Net assets at 31 December 2009 | 200 | (497) | 21,237 | 475 | 21,415 | |
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION | |||
as at 31 December 2010 | |||
31 December 2010 | 31 December 2009 | ||
£'000 | £'000 | ||
Non-current assets | |||
Freehold investment property | 31,440 | 27,709 | |
Intangible assets | 12 | 10 | |
Property, plant and equipment | 31 | 33 | |
Deferred tax assets | 111 | 62 | |
Cash pledged to bank | 1,630 | 2,474 | |
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33,224 | 30,288 | ||
Current assets | |||
Trade and other receivables | 456 | 538 | |
Tax assets | 3 | 15 | |
Cash and cash equivalents | 2,038 | 2,389 | |
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2,497 | 2,942 | ||
---------- | ---------- | ||
Total assets | 35,721 | 33,230 | |
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Current liabilities | |||
Trade and other payables | (262) | (212) | |
Overseas corporate tax | (24) | (22) | |
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(286) | (234) | ||
Non-current liabilities | |||
Rents received in advance | (226) | (221) | |
Deferred tax liabilities | (1,531) | (539) | |
Other provisions and payables | (43) | (40) | |
Bank loan | (11,187) | (10,781) | |
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(12,987) | (11,581) | ||
---------- | ---------- | ||
Total liabilities | (13,273) | (11,815) | |
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Net assets | 22,448 | 21,415 | |
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Capital and reserves | |||
Called-up share capital | 198 | 200 | |
Reserve for own shares | (497) | (497) | |
Distributable reserves | 22,312 | 21,237 | |
Foreign exchange translation reserve | 435 | 475 | |
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Total equity attributable to owners of the Group | 22,448 | 21,415 | |
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Net Asset Value per Ordinary Share - basic and diluted | 116.97p | 110.44p | |
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CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2010 | |||
Year Ended31 December 2010 | Year Ended31 December 2009 | ||
£'000 | £'000 | ||
Net profit/(loss) from operating activities | 2,221 | (3,090) | |
Adjustments for: | |||
Bank interest receivable | (21) | (46) | |
(Gain)/loss on revaluation of investment properties | (2,887) | 4,102 | |
Loss/(gain) on foreign currency exchange | 249 | (1,135) | |
Amortisation and depreciation | 7 | 8 | |
Amortisation of bank loan fees | 19 | 18 | |
Bank loan interest payable | 320 | 370 | |
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Net cash (outflow)/inflow from operating activities before working capital changes | (92) | 227 | |
Decrease in trade and other receivables | 96 | 563 | |
Increase/(decrease) in trade and other payables | 112 | (683) | |
Increase in other non-current liabilities | 3 | 33 | |
Interest received in the year | 21 | 46 | |
Interest paid in the year | (320) | (380) | |
Tax paid in the year | (96) | (111) | |
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Net cash outflow from operating activities | (276) | (305) | |
Investing activities | |||
Acquisition and development of investment property | (838) | (496) | |
Purchase of property, plant and equipment | - | (96) | |
---------- | ---------- | ||
Net cash outflow from investing activities | (838) | (592) | |
Financing activities | |||
Cash pledged to bank | 844 | (2,474) | |
Purchase of own shares | (106) | - | |
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Net cash inflow/outflow from financing activities | 738 | (2,474) | |
---------- | ---------- | ||
Decrease in cash and cash equivalents | (376) | (3,371) | |
---------- | ---------- | ||
Cash and cash equivalents at beginning of year | 2,389 | 6,428 | |
Decrease in cash and cash equivalents | (376) | (3,371) | |
Foreign exchange movement | 25 | (668) | |
---------- | ---------- | ||
Cash and cash equivalents at end of year | 2,038 | 2,389 | |
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Related Shares:
Eastern European Property