Half-year Report

EASTERN EUROPEAN PROPERTY FUND LIMITED

Unaudited half-yearly results for the six month period ended 30 June 2016

HIGHLIGHTS

· All remaining units within the Nil Passage property, Istanbul, were sold during the period, generating aggregate proceeds of £0.7 million.

· Property held at 30 June 2016 valued at £16.7 million (30 June 2015: £16.1 million on a like-for-like basis; 31 December 2015: £16.9 million on a like-for-like basis).

· Net asset value at 30 June 2016 of £15.7 million, equivalent to 100.79p per Ordinary Share (30 June 2015: £15.5 million, 99.56p per Ordinary Share; 31 December 2015 of £15.8 million, 101.46p per Ordinary Share).

· Income for the six months ended 30 June 2016 of £0.3 million (six months ended 30 June 2015: loss of £1.3 million; year ended 31 December 2015, loss of £1.0 million), equivalent to earnings per share of 2.24p (30 June 2015: loss of 8.30p; 31 December 2015: loss of 6.30p) per Ordinary Share.

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

Steve Pearce (nominated adviser)

Henry Freeman (corporate broker)

Liberum Capital Limited

Tel: +44 203 100 2000

Bob Locker

CNC Property Fund Management Limited

Tel: +44 1784 424 740

Keiran Gallagher

Pera Pera

Tel: +90 (212) 252 6048

Oliver Cadogan

Walnut Investments OOD

Tel: +40 21 451 0823

CHAIRMAN'S STATEMENT

Despite disposing of the remaining units within Nil Passage, Istanbul, where EEP's remaining prime asset (Markiz Passage) is located, Turkey has posed a particularly challenging investment environment during the first six months of 2016. The bombings, including on Istiklal Street uncomfortably close to Markiz Passage, and the challenging political situation have contributed towards a significant drop in investment and tourism and this has negatively affected domestic and foreign interest in EEP's property. The attempted coup in July has exacerbated the situation.

Results

EEP reported net income after tax for the period ended 30 June 2016 of £0.3 million (30 June 2015: loss of £1.3 million), representing earnings per Ordinary Share of 2.24p (30 June 2015: loss of 8.30p). Rental income in the period remained steady compared to the first six months of 2015. Excluding Turkey, where rental income has naturally decreased as properties have been sold, rental income in respect of the property in Bulgaria has remained steady and in Romania, rental income has increased.

During the period ended 30 June 2016, operating expenses slightly increased by 1.0% (before accounting for accrued performance fees), compared to the same period in 2015. Cost control is a key focus of the Board and expenses are expected to reduce further as EEP continues its orderly realisation of investment properties.

EEP's consolidated net asset value ("NAV") at 30 June 2016 was £15.7 million, representing 100.79p per Ordinary Share (31 December 2015: £15.8 million, 101.46p per Ordinary Share).

The Company's share price decreased by 1.25p during the period from 50.75p at 31 December 2015 to 49.50p at 30 June 2016, with the discount to NAV widening from 50.0% at 31 December 2015 to 50.9% at 30 June 2016.

Property Portfolio

All remaining units within the Nil Passage property were sold during the first half of 2016 for a total of US$1.0 million (£0.7 million) (including VAT). The disposals were marginally above the 31 December 2015 independent valuation and EEP no longer has any interest in the Nil Passage property.

EEP's three remaining properties continue to be actively marketed for sale. The flagship Markiz Passage continues to elicit interest from Turkish buyers, however, to date no acceptable fully funded offers have been received.

Similarly, it is particularly disappointing that, despite pursuing active sales processes in Sofia and Bucharest over the past six years, EEP is still yet to receive any deliverable bona fide offers for either property.

Further information on the property markets and the investment environment is provided in the Property Manager and Investment Advisers' Report.

Property Valuations

The aggregate value of EEP's investment properties remaining at 30 June 2016 decreased during the period and resulted in a net loss on property of £0.1 million (30 June 2015: loss of £0.8 million). Note 11 provides a reconciliation of the investment property valuation movement.

Distributions

As previously stated, the Board's intention remains to distribute to Shareholders substantially all net proceeds of property sales, subject to meeting solvency and local legal requirements in each jurisdiction. The Board intends to continue to effect distributions by means of market repurchases of Ordinary Shares at a discount to NAV where the amount of net cash available for distribution is relatively small. However, the disposal of EEP's principal asset, Markiz Passage, will trigger a more formal pro rata return of capital to Shareholders.

It is likely that corporate income tax will arise to the extent any capital gains crystallise on the disposal of the remaining Turkish property. This liability has been provided for in these consolidated results as deferred tax and calculated on the assumption that the properties are realised at their current carrying values. However, additional taxes, such as a 15% withholding tax, may arise on the repatriation to Guernsey of non-capital reserves from Turkey. At this time, the Board expects that future income (including realised gains on the sale of properties) will exceed expenses (including withholding tax, other sales taxes and sales commission) and, therefore, no provision for estimated operating losses to liquidation have been made in these consolidated results.

If the remaining Turkish property were to be sold in the second half of 2016, any profits would be paid as a dividend to the Company in 2017, with the remaining funds being transferred on the liquidation of the Turkish subsidiary later in 2017. If the remaining Turkish property is not sold in 2016, this process will be put back at least a year, with the subsequent distributions to Shareholders of the Company also being delayed. The Board will endeavour to ensure that cash is distributed to Shareholders as quickly as possible. Disposal of the Turkish subsidiary containing Markiz Passage should result in a more timely return of proceeds.

AGM proposals

EEP recently undertook an exercise to update its Memorandum and Articles of Incorporation ("Articles") in order to comply with amendments to the Companies (Guernsey) Law, 2008. A circular setting out details of the amendments is due to be issued shortly, along with details of the AGM at which Shareholders will have the opportunity to vote on all ordinary and special resolutions proposed.

Share repurchases

A resolution to renew the approval by Shareholders for the Company to repurchase up to a maximum of 14.99% of the Ordinary Shares in issue at the date the authority was sought will be put forward to be voted on at the AGM to be held later in 2016. If passed, the Company will have the authority to repurchase up to 2,331,132 Ordinary Shares.

Outlook

The Board and management team remain focussed on selling all of EEP's remaining properties at appropriate prices. The Board cannot predict when the remaining properties will be sold, but the Board and management team continue to explore various options in order to accelerate disposals while achieving appropriate prices. The Board continues to monitor and endeavour to reduce operating costs.

The Board appreciates your continued patience and support.

Martin M. Adams

Chairman

23 September 2016

PROPERTY MANAGER AND INVESTMENT ADVISERS' REPORT

As has been the case for some time, during the period ended 30 June 2016 and to date, all of EEP's properties have been on the market and available for sale. This led to sales of all of the remaining units at Nil Passage in Istanbul. However, in a generally more subdued market, enquiries for EEP's largest asset (the Markiz Passage on Istiklal Street, Istanbul) have been less frequent than equivalent quarters in previous years. In Sofia, Bulgaria, enquiries for the property there remain only very occasional but in Bucharest, Romania, although serious enquiries remain limited, there is optimism, given the increasing level of economic activity, that the opportunity to conclude a transaction is now more positive.

As indicated above, during the period, the last units at Nil Passage in Beyoglu, Istanbul (specifically two office suites and one shop) were sold for a total of US$957,000 (including VAT). As with other major investment properties in Istanbul city centre, the prospects of a near term sale of the Markiz Passage appear to have been adversely impacted by the substantial reduction in tourists and the knock-on effect of a reduction in revenues and confidence in the area.

In Sofia, the overall income level of EEP's property has been maintained; however, the lease tenancies remain short term and opportunities for buyers to obtain loans are very restrictive.

The position in Bucharest is more positive as Romania appears to be more actively engaged with reforming its institutions and tackling corruption. The after effects of the nightclub fire tragedy that occurred last year continue to be felt, including the impact this has had on the relevant fire-related requirements for property generally. This has been taken into account in the valuation of EEP's property in this city.

The properties held at 30 June 2016 were as follows:

Markiz Passage, Istiklal Street, Beyoglu, Istanbul

The property remains EEP's largest and prime asset and is very prominent on Istiklal Street due to the presence of the Markiz café, which is historically significant and is currently partially occupied by the remaining tenant in the building, Yemek Kulubi (Food Club). Although we have received fewer enquiries this year than has been the case for some time, there remains interest in the building from local businesses. Many of these are hoteliers or developers but virtually all are involved in tourism-related businesses, which are experiencing the most difficulties at the present time.

Additional rental propositions have been explored but the shorter-term opportunities have also been adversely impacted by the reduction in tourism in the area. Longer-term options remain as local consumption levels continue to hold up.

The Atrium, 24 George Washington Street, Sofia

There has been limited interest in the property from investors and alternative options to realise value from the property are being explored.

The United Bulgarian Bank remains in occupation and is the largest tenant by some margin. The other tenants are short-term occupiers which provide income and activity in the building. While total income varies over time, it generally remains at a steady level.

Gara Progresului, Business & Logistics Centre, Bucharest

This property remains for sale and attracted some interest during the first half of 2016. While no specific offers have been received at the time of writing, the Property Manager and Investment Adviser are more optimistic that a sale is possible than has been the case for some years.

The building continues to attract tenants on a regular basis, although these are on short-term agreements, which gives rise to a constant turnover of tenants.

The more stringent regulatory requirements relating to fire precautions have been assessed and tenders for additional compliance works are being undertaken. The local authorities are also taking other regulatory requirements more seriously and this may have an impact on other physical and environmental issues relating to property in general, including EEP's property at this location.

REGIONAL OVERVIEW

Turkey

The political situation became increasingly difficult as the first half of the year progressed.

One of the positives from a political perspective is that the government is working closely with the opposition which denounced the attempted coup and the threat to democracy.

The Economist's consensus poll is for GDP growth of 3.4% this year. Inflation is high (reaching 8.8% in July 2016) but is expected to reduce over the coming months. The current account deficit was 4.7% of GDP in August and is expected to deteriorate through the second half of 2016. The currency (at TL2.98 to US$1.00) has recovered half of the losses since the attempted coup as has the stock market.

There have been limited commercial property transactions since the attempted coup and property agents are uncertain about pricing levels as the attempted coup was just at the beginning of the summer holidays when market activity usually slows down. However, the residential property market appears to be stable and is supported by the continuing population growth. 

Unfortunately the Beyoglu area has been badly affected by the current environment as it is a central area, adjacent to Taksim Square and the prominent pedestrianised Istiklal Street, which is a focal point for political protests and terrorists. This has led to an increase in void space which is also being repeated on other high streets in cities around Turkey. Also, foreign tourist arrivals were down 37% in July compared to July 2015, which will have a further impact on the central tourist areas. 

BulgariaBulgaria continues to be beset by corruption. The Bulgarian National Statistics Office has stated that GDP growth in the first half of 2016 was approximately 3%, driven largely by consumer spending, while foreign direct investment ("FDI") into Bulgaria dropped by 18.7% year-on-year during the same period, according to the Bulgarian National Bank.

Bulgaria's economic growth is expected to slow to 2.3% in 2016 from 2015's 3.0% according to the International Monetary Fund ("IMF"). Its projection for growth is 2.3% for 2017. Domestic demand replaced net exports as the main driver of economic growth in the first half of 2016, while inflation is anticipated to be 0.2% for 2016 and 1.2% in 2017 (compared to -1.1% in 2015). Unemployment in Q2 2016 was reported to be 8%, a decrease from 9.9% in Q2 2015, according to the Bulgarian National Statistics Office.

RomaniaThe technocratic government, appointed by the president in November 2015 after large street protests, is likely to remain in power until at least the parliamentary elections due in November 2016. Local elections in June 2016 saw the centre-left PSD retain the largest number of seats, helped by a supportive media and a strong turnout by its pensioner and rural power bases. The Mayors in Craiova and Brasov, both of whom are accused of corruption, and the Mayor of Baia Mare, who is currently in prison, were all re-elected.

Romania's GDP growth accelerated to 6% in Q2 of 2016 from 4.3% in Q1 2016, reaching its highest level since Q3 2008. In the first half of 2016, the country's GDP rose by an annual rate of 5.2%. Analysts at Nomura now forecast the Romanian economy to expand by 5% of GDP, up from 4.5% which they previously expected, boosted by fiscal and wage growth-led consumption.

The National Bank of Romania kept the key interest rate at 1.75% at its monetary policy meeting on 30 June.

Prospects

Recent events in Turkey, including the attempted coup, have clearly impacted the property market in central Istanbul. The events during the first six months of the year have been reflected in the 30 June 2016 valuation. It is particularly noticeable that Western tourist numbers are down and this is affecting the tourist sector. However, local businesses continue to remain resilient and with the attempted coup being denounced by the principal opposition parties, a united stance is being presented at national level. The main AK Party of government is pro-business and its success with the economy over some considerable time has enabled it to raise the living standards of the general population. It is therefore likely that the pro-business policies will continue and local investors will still be working to conclude property purchases and take on projects in the future as the political uncertainty subsides. Compared to the properties in Sofia and Bucharest, interest in the Markiz Passage (although more of the 'bargain hunting' variety) continues to be at a higher level out of the three remaining investment properties. The issue remains turning the indicated interest into an actual transaction at a market level that returns value to shareholders.

In Sofia, as has been the case for some time, property market activity levels are low despite considerable physical and environmental improvements to the central area where the property is situated. This includes the exposure and opening up of the remains of a large Roman City, Serdica, which will hopefully generate more tourism for what is increasingly an accessible and value-for-money city.

The banks are beginning to indicate that commercial property loans are available. However, the terms still appear very onerous unless the borrower has the 'perfect fit' for the loan requirements.

Market sentiment in Bucharest, from a business and property perspective, continues to improve, which reflects the generally improving economic position and outlook, despite the fire in a central nightclub in October 2015, which ultimately had a direct impact on capital expenditure required for EEP's property. This has led to the banks beginning to provide loans and the opportunity for a sale at market levels looks more likely.

Bob Locker

CNC Property Fund Management Limited

Keiran Gallagher

Pera Pera

Oliver Cadogan

Walnut Investments OOD

23 September 2016

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six month period ended 30 June 2016 (unaudited)

1 January 2016

 to 30 June 2016

1 January 2015

 to 30 June 2015

1 January 2015

 to 31 December 2015

Note

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Income

Rental income

330

336

626

Other income

30

32

56

Bank interest receivable

2

-

5

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

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

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

Total income

362

368

687

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

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

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

Expenses

Performance fees

5

9

97

61

Building maintenance, power and management

(135)

(122)

(263)

Management fees

5

(99)

(90)

(194)

Administration fees

5

(50)

(50)

(100)

Directors' remuneration

(41)

(43)

(85)

Other operating expenses

(185)

(200)

(387)

-----------

-----------

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

Total expenses

(501)

(408)

(968)

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

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

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

Investment gains and losses

Loss on revaluation of investment properties

10

(155)

(886)

(55)

Gain on disposal of investment properties

10

9

95

95

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

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

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

Total investment (losses)/gains

(146)

(791)

40

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

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

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

Net loss from operating activities before gains and losses on foreign currency translation

(285)

(831)

(241)

Gain/(loss) on foreign currency translation

300

(98)

(42)

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

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

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

Net profit/(loss) from operating activities

15

(929)

(283)

Taxation

333

(361)

(696)

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

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

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

Profit/(loss) for the period/year

348

(1,290)

(979)

Other comprehensive (loss)/income that may be reclassified to profit or loss in subsequent periods

Exchange differences arising from translation of foreign operations

(451)

388

372

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

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

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

Total other comprehensive (loss)/income

7

(451)

388

372

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

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

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

Total comprehensive loss for the period/year attributable to the Owners of the Group

(103)

(902)

(607)

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

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

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

Earnings/(loss) per share - basic and diluted

8

2.24p

(8.30)p

(6.30)p

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

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

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

These results are unaudited and are not the Group's statutory financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

ATTRIBUTABLE TO THE OWNERS OF THE COMPANY

for the six month period ended 30 June 2016 (unaudited)

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2016

155

15,774

(151)

15,778

Total comprehensive income/(loss) for the year

Profit for the six month period

-

348

-

348

Other comprehensive loss

-

-

(451)

(451)

----------

----------

----------

----------

Net assets at 30 June 2016

155

16,122

(602)

15,675

----------

----------

----------

----------

for the six month period ended 30 June 2015 (unaudited)

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2015

155

16,753

(523)

16,385

Total comprehensive income/(loss) for the year

Loss for the six month period

-

(1,290)

-

(1,290)

Other comprehensive income

-

-

388

388

----------

----------

----------

----------

Net assets at 30 June 2015

155

15,463

(135)

15,483

----------

----------

----------

----------

for the year ended 31 December 2015 (audited)

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2015

155

16,753

(523)

16,385

Total comprehensive income/(loss) for the year

Loss for the year

-

(979)

-

(979)

Other comprehensive income

-

-

372

372

----------

----------

----------

----------

Net assets at 31 December 2015

155

15,774

(151)

15,778

----------

----------

----------

----------

These results are unaudited and are not the Group's statutory financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2016 (unaudited)

30 June 2016

30 June 2015

31 December 2015

Note

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Current assets

Freehold investment property

10

16,736

16,587

17,421

Intangible assets

4

4

4

Property, plant and equipment

1

3

2

Trade and other receivables

11

213

616

125

Cash and cash equivalents

1,211

825

848

----------

----------

----------

Total assets

18,165

18,035

18,400

----------

----------

----------

Current liabilities

Deferred tax liabilities

(2,098)

(2,018)

(2,260)

Trade and other payables

(253)

(276)

(270)

Overseas corporate tax

(54)

(189)

(18)

Rents received in advance

(85)

(69)

(74)

----------

----------

----------

Total liabilities

(2,490)

(2,552)

(2,622)

----------

----------

----------

Net assets

15,675

15,483

15,778

----------

----------

----------

Capital and reserves

Called-up share capital

12

155

155

155

Distributable reserve

16,122

15,463

15,774

Foreign currency translation reserve

(602)

(135)

(151)

----------

----------

----------

Total equity attributable to owners of the Company

15,675

15,483

15,778

----------

----------

----------

NAV per Ordinary Share - basic and diluted

13

100.79p

99.56p

101.46p

----------

----------

----------

These results are unaudited and are not the Group's statutory financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six month period ended 30 June 2016 (unaudited)

Note

1 January 2016

 to 30 June 2016

1 January 2015

 to 30 June 2015

1 January 2015

 to 31 December 2015

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Net profit/(loss) from operating activities

15

(929)

(283)

Adjustments for:

Bank interest receivable

(2)

-

(5)

Loss on revaluation of investment properties

10

155

886

55

Gain on disposal of investment properties

10

(9)

(95)

(95)

(Gain)/loss on foreign currency exchange

(300)

98

42

Amortisation and depreciation

2

2

3

----------

----------

----------

Net cash outflow from operating activities before working capital changes

(139)

(38)

(283)

Increase in trade and other receivables

(22)

(6)

(10)

(Decrease)/increase in trade and other payables and other current liabilities

(30)

81

(88)

----------

----------

----------

Net cash (outflow)/inflow from operating activities after working capital changes

(191)

37

(381)

Interest received in the period/year

2

-

5

Tax paid in the period/year

(58)

(99)

(186)

----------

----------

----------

Net cash outflow from operating activities

(247)

(62)

(562)

Investing activities

Sale of investment property

556

444

916

Acquisition and development of investment property

(17)

-

(1)

----------

----------

----------

Net cash inflow from investing activities

539

444

913

----------

----------

----------

Increase in cash and cash equivalents

292

382

351

----------

----------

----------

Cash and cash equivalents at the beginning of the period/year

848

511

511

Increase in cash and cash equivalents

292

382

351

Foreign exchange movement

71

(68)

(14)

----------

----------

----------

Cash and cash equivalents at the end of the period/year

1,211

825

848

----------

----------

----------

These results are unaudited and are not the Group's statutory financial statements.

NOTES TO THE HALF-YEARLY RESULTS

for the six months ended 30 June 2016

1. General information

The Company is registered in Guernsey as an authorised closed-ended investment company and its Ordinary Shares are traded on AIM, a securities market operated by the London Stock Exchange.

The Company's investment objective and policy is to carry out an orderly realisation of the Company's portfolio of assets, distribution of the net proceeds to Shareholders and then undertake a voluntary winding-up of the Company. Disposals may be by individual sales or as transactions incorporating a group of properties.

2. Basis of preparation

These unaudited condensed consolidated half-yearly results, which have not been audited by an independent auditor, have been prepared in accordance with IAS 34: Interim financial reporting. They do not include all of the information required for full annual financial statements and should be read in conjunction with the Group's audited consolidated financial statements for the year ended 31 December 2015.

Going concern

The condensed consolidated half-yearly results have been prepared on the same basis as the audited consolidated financial statements for the year ended 31 December 2015, being a non-going concern basis, to reflect the Company's investment objective and policy to carry out an orderly realisation of the Company's portfolio of assets. This has had no significant impact on the condensed consolidated half-yearly results as the properties have been measured at fair value and are expected to be realised in an orderly manner.

It is likely that corporate income tax will arise on capital gains on the disposal of the remaining Turkish properties. This liability has been provided for in these condensed consolidated half-yearly results as deferred tax and calculated on the assumption that the properties are realised at their current carrying values. However, additional taxes, such as a 15% withholding tax, may arise on the repatriation to Guernsey of non-capital reserves from Turkey. At this time, the Board expects that future income (including realised gains on the sale of properties) will outweigh expenses (including withholding tax, other sales taxes and sales commission) and, therefore, no losses to liquidation have been provided for in these condensed consolidated half-yearly results, which have been prepared on a non-going concern basis.

These condensed consolidated half-yearly results were approved by the Board of Directors on 23 September 2016.

3. Significant accounting policies

Except for the adoption of the new, relevant, accounting standards noted below, these unaudited condensed consolidated half-yearly results have adopted the same accounting policies as the last audited financial statements, which were prepared in accordance with International Financial Reporting Standards ("IFRSs") (with the exception of IFRS 8, as explained in note 6, and IFRS 13, as explained in note 10), issued by the International Accounting Standards Board ("IASB"), interpretations issued by the IFRS Interpretations Committee and applicable legal and regulatory requirements of Guernsey Law, which have been adopted and applied consistently.

Effective date

IFRS 5

Non-current Assets Held for Sale and Discontinued Operations - changes in methods of disposal

1 January 2016

IFRS 7

Financial Instruments: Disclosures - annual improvements

1 January 2016

IFRS 10

Consolidated Financial Statements - amendments regarding the application of the consolidation exception

1 January 2016

IFRS 12

Disclosure of Interests in Other Entities - amendments regarding the application of the consolidation exception

1 January 2016

IAS 1

Presentation of Financial Statements - amendments resulting from the disclosure initiative

1 January 2016

IAS 16

Property, Plant and Equipment - various amendments

1 January 2016

IAS 34

Interim Financial Reporting - annual improvements

1 January 2016

IAS 38

Intangible Assets - amendments regarding the clarification of acceptable methods of depreciation and amortisation

1 January 2016

During the period, the Group did not adopt any standards or interpretations that had an impact on the financial position or performance of the Group.

The IASB has issued/revised a number of relevant standards and interpretations with an effective date after the date of these unaudited condensed consolidated half-yearly results. The Directors have chosen not to early adopt any standards, interpretations or amendments that have been issued but are not yet effective and they do not anticipate that they, with the exception of IFRS 9: Financial Instruments, would have a material impact on the Group's financial statements in the period of initial application. A full assessment of the impact of IFRS 9 has not yet been performed.

4. Use of estimates and judgements

The significant judgements made by the Directors in applying the accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for year ended 31 December 2015 (also see note 10).

5. Management, administration and performance fees

Elysium Fund Management Limited ("Elysium") is Manager, Administrator and Company Secretary to the Company, CNC Property Fund Management Limited ("CNC") is Property Manager and Pera Pera Yönetim ve Danişmanlik Hizmetleri ve Tic Limited ("Pera Pera") and Walnut Investments OOD ("Walnut") are the Investment Advisers. Pera Pera is Investment Adviser in respect of the Turkish portfolio and Walnut is Investment Adviser in respect of the Bulgarian and Romanian properties.

Administration fees

The Company pays Elysium, by way of remuneration for its administration and secretarial services, an administration fee of 0.1% of the Gross Asset Value per annum calculated at the close of business at each quarter end, subject to a minimum of £100,000 per annum.

The total administration fees due to Elysium relating to the period ended 30 June 2016 amounted to £50,000 (30 June 2015: £50,000, 31 December 2015: £100,000).

At 30 June 2016, £25,000 (30 June 2015: £50,000; 31 December 2015: £nil) was payable to Elysium in respect of administration fees.

Management fees

Elysium is entitled to receive a management fee of 1.25% of the Total Assets of the Group per annum. Total Assets is defined as the ongoing NAV of the Group plus an amount equal to long-term borrowings invested by the Group. The management fee is payable quarterly in advance. The total management fee paid to Elysium for the period ended 30 June 2016 was £99,000 (30 June 2015: £90,000; 31 December 2015: £194,000).

At 30 June 2016, £nil (30 June 2015: £24,000; 31 December 2015: £nil) was payable to Elysium in respect of management fees.

The Manager is responsible for the payment of the fees of the Investment Advisers and Property Manager. For details on the payment of commissions to the Investment Advisers for the sale of properties, please refer to note 14.

Performance fees

Elysium shall be entitled to receive a performance fee only in the event of a realisation event, which shall be paid no later than the date falling three months after the realisation event. The value of the performance fee shall be calculated by reference to the total distribution to Shareholders, as follows:

Total distribution

Performance fee

Less than 110 pence per Ordinary Share

None.

Greater than 110 pence per Ordinary Share but less than 130 pence per Ordinary Share

10% of the total distribution in excess of 110 pence per Ordinary Share multiplied by the number of shares in issue on the date of the Realisation Event.

Greater than 130 pence per Ordinary Share but less than 150 pence per Ordinary Share

a) 10% of the amount by which the total distribution to Shareholders is in excess of 110 pence per Ordinary Share but less than 130 pence per Ordinary Share; and

b) 20% of the amount by which the total distribution to Shareholders is in excess of 130 pence per Ordinary Share but less than 150 pence per Ordinary Share,

in each case multiplied by the number of Ordinary Shares in issue on the realisation date.

Greater than 150 pence per Ordinary Share

a) 10% of the amount by which the total distribution to Shareholders is in excess of 110 pence per Ordinary Share but less than 130 pence per Ordinary Share; and

b) 20% of the amount by which the total distribution to Shareholders is in excess of 130 pence per Ordinary Share but less than 150 pence per Ordinary Share; and

c) 30% of the amount by which the total distribution to Shareholders is in excess of 150 pence per Ordinary Share,

in each case multiplied by the number of Ordinary Shares in issue on the realisation date.

During the period ended 30 June 2016, the performance fee provision decreased by £9,000 to £112,000 (30 June 2015: decrease in provision for performance fee by £97,000 to £85,000; 31 December 2015: decrease in provision for performance fee by £61,000 to £121,000).

6. Segmental analysis

In accordance with IFRS 8: Operating segments, the Group is required to present and disclose segmental information based on the internal reports that are regularly reviewed by the Board in order to assess each segment's performance and to allocate resources to them. However, the Board has opted not to comply with IFRS 8 due to reasons of commercial sensitivity and the possible negative impact such information may have on the proceeds from the sale of individual properties.

7. Tax effects of other comprehensive income

There are no tax effects arising from the other comprehensive income disclosed in the condensed consolidated statement of comprehensive income (30 June 2015 and 31 December 2015: £nil).

8. Earnings per share - basic and diluted

The earnings per Ordinary Share, is based on income of £348,000 (30 June 2015: loss of £1,290,000; 31 December 2015: loss of £979,000) and on a weighted average number of 15,551,250 (30 June 2015: 15,551,250; 31 December 2015: 15,551,250) Ordinary Shares in issue. There is no difference between the basic and diluted loss per share.

9. Dividends

The Board does not propose an interim dividend for the six months ended 30 June 2016 (2015: nil).

10. Freehold investment property

Six months ended 30 June 2016

Six months ended 30 June 2015

Year ended

31 December 2015

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Brought forward

17,421

18,294

18,294

Additions

17

-

3

Disposals

(556)

(916)

(916)

Realised gain on disposal of investment property

9

95

95

Loss on revaluation of investment properties

(155)

(886)

(55)

----------

----------

----------

Carried forward

16,736

16,587

17,421

----------

----------

----------

All investment properties were valued by Cushman & Wakefield, international property advisers, at fair value at 30 June 2016, 30 June 2015 and 31 December 2015 in accordance with the methodology and guidelines set out in the latest edition of the Royal Institution of Chartered Surveyors ("RICS") Appraisal and Valuation Manual. In the opinion of the Board, the Property Manager and the Investment Advisers, the fair value of the properties held at the period end is equal to the values attributed to them in the independent valuation report prepared by Cushman & Wakefield.

Property assets in Turkey, Bulgaria and Romania are inherently difficult to value as there is no liquid market or transparent pricing mechanism. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the date of the valuation.

The appraisers determine the fair value by applying the methodology and guidelines as set out in the appropriate sections of both the current Practice Statements and United Kingdom Practice Statements contained within the RICS Valuation - Professional Standards 2014 Edition.

For certain properties, the valuation approach is based on discounting the future net income receivable from properties to arrive at the net present value of the future income stream. Future net income comprises the rent secured under existing leases, less any known or expected non-recoverable costs and the current market rent attributable to future vacancy rates. The consideration basis for this calculation excludes the effects of any taxes. The discount factors used to fair value are consistent with those used to value similar properties, with comparable leases in each of the respective markets. For other properties, values are determined on the basis of near vacant possession, whereby capital values are assessed per square metre and cross checked on a rent and yield approach, with adjustments made for void space and expected refurbishment costs prior to letting. This calculation also excludes the effects of any taxes.

All investment properties are classified as Level 3 in accordance with the fair value hierarchy levels set in IFRS 13: Fair value measurement. Apart from the property disposals in the six months ended 30 June 2016, there were no transfers into or out of Level 3 during the period.

In accordance with IFRS 13: Fair value measurement, it is a requirement for the Group to present and disclose key inputs and the sensitivity of those inputs in the valuation of the properties. However, the Board has opted not to fully comply with IFRS 13 due to reasons of commercial sensitivity and the possible negative impact such information may have on the proceeds from the sale of individual properties.

The Group invests primarily in US Dollars, Euros or local currencies in Turkey, Bulgaria and Romania. Although US Dollars, Euros and the local currencies of those countries are freely convertible into other currencies, exchange rate fluctuations could have a material effect on the market value of the Group's property investments, which although expressed in Sterling, are valued by the independent valuer in either US Dollars or Euros.

11. Trade and other receivables

30 June 2016

30 June 2015

31 December 2015

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Prepaid tax

49

-

10

VAT control account

21

19

15

Other receivables and prepayments

143

138

100

Due from sale of investment property

-

459

-

----------

----------

----------

213

616

125

----------

----------

----------

12. Share capital and reserves

30 June 2016

30 June 2015

31 December 2015

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Authorised:

200,000,000 Ordinary Shares of 1 pence each

2,000

2,000

2,000

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

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

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

Issued and fully paid:

15,551,250 (30 June 2015 and 31 December 2015: 15,551,250) Ordinary Shares of 1 pence each

155

155

155

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

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

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

No Ordinary Shares were purchased or cancelled during the period.

The Company has one class of Ordinary Shares, which carry no right to fixed income. Ordinary Shares carry the right to vote at general meetings and the entitlement to receive any dividends and surplus assets of the Company on a winding-up.

Any Ordinary Shares held in treasury do not have the right to vote at general meetings nor do they have an entitlement to receive any dividends or surplus assets of the Company on a winding-up.

Foreign currency translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

Reserve for own shares

The Company intends to seek approval from Shareholders to renew its authority to utilise its distributable reserve to buy back for cancellation up to 14.99% of the Ordinary Shares in issue. Authority will be sought at the AGM to be held later in 2016. In addition, the Company has the authority to purchase up to 10% of the Ordinary Shares in issue and hold them as Treasury Shares until a time when they are either re-issued or cancelled.

During the period ended 30 June 2016, no shares were purchased to be held as Treasury Shares (30 June 2015 and 31 December 2015: nil).

13. NAV per Ordinary Share

The NAV, in pence per Ordinary Share, is based on the net assets attributable to equity Shareholders of £15,674,643 and on 15,551,250 Ordinary Shares in issue at the end of the period (30 June 2015: £15,482,925 based on 15,551,250 Ordinary Shares; 31 December 2015: £15,778,283 based on 15,551,250 Ordinary Shares).

14. Related parties

The relationships and transactions between the Group, Elysium, CNC, Pera Pera and Walnut are disclosed in note 5. In addition, with effect from 8 May 2012, Andrew Duquemin was appointed as an alternate Director for Carol Goodwin. Mr Duquemin is executive chairman of Elysium.

The Group has agreed to pay Walnut commission of 2% of the sales proceeds of property in Bulgaria and Romania, if a third party agent is involved, split in the proportion of 1.5% to the agent and 0.5% to Walnut. If a property sale is executed solely by Walnut, the rate would be 1.5%. The Group has agreed to pay Pera Pera commission on any property sales in Turkey on the same terms as those agreed with Walnut.

The disposal of various units within the Nil Passage property during the period incurred total sales commission of £8,000, which was payable to Pera Pera.

The Directors are not aware of any ultimate controlling party.

15. Subsequent events

There were no material events after the financial reporting date that required disclosure as at 23 September 2016.

16. Capital management policy and procedures

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 December 2015.

The Group's capital management objectives are:

· to ensure that it will be able to continue to operate in order to return funds in an orderly manner to Shareholders; and

· to maximise its total return primarily through the capital appreciation of its investments.

The Board, with the assistance of the Manager, Property Manager and Investment Advisers, monitors and reviews the structure of the Group's capital on an ad hoc basis. This review includes:

· the current and future levels of gearing;

· cash flow projections for the Group;

· the working capital requirements of the Group;

· the need to buy back Ordinary Shares for cancellation or to be held in treasury, which takes account of the difference between the NAV per Ordinary Share and the Ordinary Share price;

· the current and future dividend policy; and

· the return of funds to Shareholders.

The Group's objectives, policies and processes for managing capital are as disclosed in the Group's consolidated financial statements for the year ended 31 December 2015.