Half Yearly Report

EASTERN EUROPEAN PROPERTY FUND LIMITED

Unaudited half-yearly results for the six month period ended 30 June 2013

HIGHLIGHTS

· Two properties sold during the period generating aggregate proceeds of £2.2 million. Both properties were sold above their 31 December 2012 carrying values.

· Property held at 30 June 2013 valued at £20.4 million (30 June 2012: £20.1 million on a like-for-like basis; 31 December 2012: £19.2 million on a like-for-like basis).

· Net asset value at 30 June 2013 of £19.7 million, 112.25p per Ordinary Share (30 June 2012: £21.2 million, 113.80p per Ordinary Share; 31 December 2012 of £19.5 million, 105.03p per Ordinary Share).

· Profit for the six months ended 30 June 2013 of £1.2 million (six months ended 30 June 2012: loss of £1.0 million; year ended 31 December 2012, loss of £2.6 million), equal to earnings per share of 6.58p (30 June 2012: loss of 5.41p; 31 December 2012: loss of 13.97p) per Ordinary Share.

· Gain on revaluation of investment properties of £1.3 million (30 June 2012: loss of £0.8 million; 31 December 2012: loss of £1.8 million).

· 925,000 Ordinary Shares bought for cancellation during the year.

Events after the period end:

· Since the period end, 485,000 Ordinary Shares have been purchased for cancellation.

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

Tom Fyson

Liberum Capital Limited

Tel: +44 203 100 2000

Bob Locker

CNC Property Fund Management Limited

Tel: +44 1784 424 740

Keiran Gallagher / Oliver Cadogan

Pera Pera

Tel: +90 (212) 252 6048

CHAIRMAN'S STATEMENT

Renewed investor uncertainty has emerged since mid-2013 as a result of the turmoil in emerging markets and regional tensions, protests and political demonstrations in Turkey and Bulgaria, two of the three countries in which Eastern European Property Fund Limited (the "Company") and its subsidiaries (together "EEP") are invested. This stalled the progress that had been made this year in implementing the Company's realisation strategy, where £2.2 million was generated from the sale of properties during the six month period ended 30 June 2013.

Results

EEP reported net profit for the period ended 30 June 2013 of £1.2 million (30 June 2012: net loss of £1.0 million), representing earnings per Ordinary Share of 6.58p (30 June 2012: loss of 5.41p). The profit for the period arose substantially as a result of the unrealised gain on revaluation of investment properties amounting to £1.3 million (30 June 2012: unrealised loss of £0.8 million) and realised gain on disposal of investment properties of £0.4 million (30 June 2012: realised loss of £0.2 million). Total comprehensive income for the period was £1.1 million (30 June 2012: total comprehensive loss of £0.8 million).

EEP's consolidated net asset value ("NAV") at 30 June 2013 was £19.7 million, 112.25p per Ordinary Share (30 June 2012: £21.2 million, 113.80p per Ordinary Share; 31 December 2012: £19.5 million, 105.03p per Ordinary Share).

During the period ended 30 June 2013, operating expenses increased marginally, compared to the same period in 2012. This was largely for technical reasons as operating expenses during the comparative six month period included a partial reversal of the performance fee accrued at the previous year end. Excluding performance fees, EEP's operating expenses have reduced by 28% as a result of the reduction in administration and management fees and interest associated with the bank loan that was repaid in November 2012. Management fees will continue to reduce as investment properties are realised, funds are returned to Shareholders and total assets, upon which the management fee is calculated shrink.

The Company's share price decreased by 5.50p during the period to 82.00p at 30 June 2013 (30 June 2012: 73.00p, 31 December 2012: 87.50p), with the discount to NAV widening from 17% at 31 December 2012 to 27% at 30 June 2013. During the period, a total of 925,000 Ordinary Shares were purchased by the Company at an average price per Ordinary Share of 83.16p and cancelled at a total cost of £773,000. The average price per Ordinary Share purchased for cancellation during 2012 was 84.50p. Since 30 June 2013 to date, the Company has bought back for cancellation a further 485,000 Ordinary Shares at 80.00p per Ordinary Share.

Property Portfolio

EEP completed two property disposals in the period under review:

· On 18 March 2013, the Pera Residence was sold for US$2.1 million (£1.4 million), crystallising a gain, based on historic cost, of US$1.4 million (£0.9 million). As the Turkish subsidiary had used up all of its brought forward losses, the sale resulted in the payment of corporate income tax of US$0.3 million (£0.2 million) on the gain. The sale price was 26% higher (in Sterling terms) than the fair value of the property at 31 December 2012.

· On 12 June 2013, the Taka Building was sold for US$1.3 million (£0.8 million), crystallising a gain, based on historic cost, of US$0.8 million (£0.5 million). Corporate income tax of US$0.2 million (£0.1 million) was paid on the gain. The sale price was 18% higher (in Sterling terms) than the fair value of the property at 31 December 2012.

EEP and its service providers continue to implement the realisation investment objective and policy. The remaining properties will be sold as and when appropriate offers are received. Investor interest in EEP's remaining properties in Istanbul has diminished noticeably since the protests in May 2013. This has been compounded by the global sell-off in emerging markets since the summer and global political tensions over neighbouring Syria. Since 30 June 2013, the Turkish Lira has depreciated by 8% against Sterling.

In Bulgaria and Romania, a new sense of optimism had been evident among local property agents in early 2013, based on signs of renewed potential investor interest in local property. Whilst more positive economic conditions prevail in Romania, public demonstrations against political corruption in Bulgaria has again dampened the mood there.

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

Property Valuations

Consistent with previous years, DTZ Debenham Tie Leung carried out independent valuations of all properties held by EEP. The aggregate value of EEP's investment properties remaining at 30 June 2013 increased during the period and resulted in a net unrealised gain on revaluation of £1.3 million (30 June 2012: loss of £0.8 million). Details of the individual properties (but not their carrying values) are disclosed in the Property Manager and Investment Adviser's Report. For the reasons explained in the Chairman's Statement enclosed with the 31 December 2012 consolidated financial statements, EEP has not disclosed the breakdown of individual property values at 30 June 2013.

Distributions

The Board intends to distribute to Shareholders substantially all net proceeds of future property sales, subject to retaining sufficient monies to meet operating costs and liabilities. Where the amount of net cash available for distribution is relatively small, the Board intends to continue to effect distributions by means of market repurchases of Ordinary Shares at a discount to NAV. The Company is limited to repurchasing a maximum of 14.99% of the Ordinary Shares in issue at the time Shareholder authority was sought. Between the AGMs held on 14 September 2012 and 13 September 2013, EEP repurchased 1,530,000 Ordinary Shares out of a maximum permitted 2,793,574 Ordinary Shares.

At the AGM held on 13 September 2013, Shareholders renewed the authority for the Company to buy back up to 14.99% of its own Ordinary Shares, being a maximum of 2,689,393 Ordinary Shares. Larger distributions will be undertaken in as cost and tax efficient a manner as possible.

Outlook

Absent a significant further deterioration in investor sentiment in the region, the Property Manager and the Investment Adviser remain confident of achieving further sales of EEP's Turkish property investments at close to carrying values during the next twelve months. As the price and timing of realisations of the investments in Bulgaria and Romania are more difficult to ascertain, various options remain under consideration. We will, of course, continue to announce individual sales as and when they occur.

The Board very much appreciates your support and we continue to welcome Shareholder feedback directly, through the Property Manager, the Investment Adviser or the Broker.

Martin M. Adams

Chairman

19 September 2013

PROPERTY MANAGER AND INVESTMENT ADVISER'S REPORT

For the half year ended 30 June 2013, the emphasis of the management of EEP remained primarily focussed on achieving sales of the properties at the 31 December 2012 year end values or above.

In Turkey, the market conditions for sales during the first few months of the year were very promising and ultimately resulted in two sale transactions for EEP. Unfortunately, the political demonstrations that grew out of peaceful protests over the proposed retail development at Gezi Park in central Istanbul curtailed the interest of non-Turkish investors and severely dampened the market at the end of the second quarter.

In Bulgaria and Romania, where the economic conditions remained subdued, during the first few months of the year, local agents were expressing optimism that a trickle of potential investors were beginning to appear. However, in Bulgaria, as anti-corruption protests gained momentum during late spring, the feedback on potential interest became increasingly sporadic and eventually declined completely.

Property Portfolio

In the first half of 2013, EEP disposed of the Pera Residence in Asmalimescit Street, Beyoglu, Istanbul for US$2.1 million (approximately £1.4 million) plus VAT and the Taka Building in Asmalimescit Street, Beyoglu, Istanbul for US$1.3 million (approximately £0.8 million) plus VAT. Both properties were sold above their carrying values in the 31 December 2012 report and financial statements.

The remaining properties in Istanbul have all been brought to the market and are available for purchase.

In Bulgaria and Romania the opportunity for sales remains difficult. However, every effort is being made to improve net income, where possible, and to seek out all potential opportunities for liquidating these assets at realistic values.

The properties held by EEP during the six months ended 30 June 2013 were as follows:

Markiz Passage, Istiklal Street, Beyoglu, Istanbul

The property has been and continues to be widely marketed for sale. While considerable interest has been generated in the building during the first half of the year, the sales interest in this property has been adversely affected by the demonstrations that clearly deterred non-Turkish investors.

Nil Passage, Istiklal Street, Beyoglu, Istanbul

This property is available for sale on the market.

Pera Residence, Asmalimescit Street, Beyoglu, Istanbul

This property was sold in March 2013 for US$2.1 million (approximately £1.4 million) plus VAT, crystallising a gain (before transaction costs and compared against the historical cost of the property) of approximately USD1.4 million (GBP0.9 million).

'Yellow' Building and Asmali Cumba, Asmalimescit Street, Beyoglu, Istanbul

The plans to merge these two buildings have been submitted to the conservation committee and we await approval. By combining the buildings, it is expected that the overall value and marketability will be improved.

Gonul Sokak, Asmalimescit, Beyoglu, Istanbul

This property is available for sale on the market.

Taka Building, Asmalimescit Street, Beyoglu, Istanbul

This property was sold in June 2013 for US$1.3 million (approximately £0.8 million) plus VAT, crystallising a gain (before transaction costs and compared against the historical cost of the property) of approximately USD0.8 million (GBP0.5 million).

The Atrium, 24 George Washington Street, Sofia, Bulgaria

The United Bulgaria Bank continues to remain in occupation. The property is for sale and continues to be widely marketed.

Gara Progresului Business & Logistics Centre, Gara Progresului Street, Bucharest, Romania

The occupation of the building is gradually being built up again following the loss of the largest tenant, which vacated in January. It continues to be widely marketed for sale.

Regional Overview

Turkey

The economy recorded year on year growth for the first quarter of 2013 of 3.0%. The International Monetary Fund ("IMF") projects total growth of 3.4% in GDP for 2013.

Inflation, which is reported as being one of the major weaknesses of the economy, increased from a little over 6% at the end of 2012 to over 8% at 30 June 2013. The rise in the Consumer Price Index was reported as a result of high energy prices and the depreciation of the Turkish Lira in the second quarter of 2013, which impacted upon import prices.

Prior to the protests, many sectors of the investment property market were showing signs of increased liquidity. This followed the continued relatively positive performance of the economy and the recognition by Fitch and Moody's to rate Turkey's long-term sovereign debt as 'investment grade'.

The protests against the government have affected some potential investors, particularly those that are relatively new to the country or seeking to invest for the first time. Jones Lang LaSalle reports that the more experienced investors in the market are less likely to be affected and most commentators are of the opinion that confidence will be restored quickly. The Property Manager and Investment Adviser's feedback locally is that this will be the case, providing further protests do not re-occur at the levels seen during the early summer.

Bulgaria

Eurostat's data showed that GDP shrank by 0.1% in the quarter to 30 June 2013 compared to the first quarter of 2013. However, on an annualised basis, GDP growth is reported to have grown by 0.2% for the year to 30 June 2013.

Moody's has forecast Bulgaria's annual GDP growth rate to be 1.2% in 2013 based on higher exports. This is slightly higher than the Bulgarian government's own projections of 1% growth following reports of a worsening economic outlook against the background of the public demonstrations against corruption in the political classes.

While the high public discontent is noted and the risk this poses for the implementation of populist policies that might undermine economic progress, Moody's have commented that the major parties agree on the significance of fiscal stability and low levels of government debt. Therefore, Moody's has assessed the overall political risk to the economy as low.

However, investor sentiment has clearly impacted on this relatively small country and the increasing public disaffection with the political elite has taken its toll during the second quarter. This has had a negative impact on the property market, in as much that initial signs of optimism and activity from an investment perspective have evaporated.

Romania

The IMF recently revised the annual economic growth forecast for Romanian GDP to 2% in 2013 and 2.25% in 2014. Previously, the figures were 1.6% and 2%. The improved projections were based on 'strong exports in the first part of the year'.

Also, inflation is expected to decline further. According to recent data provided by Romania's Statistics Institute, the annual inflation rate for the first half of 2013 was 5.4% (in June the monthly rate was only 0.01%).

The IMF and European Commission agreed a EUR4 billion safety net over the next two years for the country. The funds will not be drawn unless necessary and are a precautionary credit line only, according to the government.

The World Bank also predicted above average growth in GDP for Romania during 2013 and it is expected that this will continue into 2014, supporting the improving economic conditions in the country.

While there are a couple of large malls under construction in Bucharest, there is yet no strong signal of a recovery or even an approaching inflection point in the Romanian property markets. Indeed there were no major transactions in Q2 2013 and the overall transaction value level of H1 2013 was slightly down on H1 2012.

The lack of transactions are due to: a) the fragile macroeconomic environment; b) Romania being seen as a higher risk market; c) few active purchasers; d) difficulty in obtaining bank financing; e) large differences in price expectations between potential buyers and sellers; f) the low level of institutional-quality investment product available; g) relatively high vacancy rates; and h) short duration lease contracts.

Overall, the signs are that the country's economy is gradually improving and general activity is growing, which has been reflected in the Property Manager and Investment Adviser's own feedback locally in Bucharest. Unlike Bulgaria, where unemployment is running at 12.6% and political protests continue, the general sentiment is somewhat more positive in Romania, where unemployment is running at 7.6%.

Prospects

All of the properties are now on the market and sales are being pursued as a priority. However, the Property Manager and Investment Adviser continue to seek to achieve the best prices in markets that are still affected by distressed assets available at heavily discounted prices and very limited acquisition property funding. This is much more of an impediment in Bulgaria and Romania than in Turkey, but generally, property investors are still seeking 'extra value' out of their purchases.

During March and April, there was considerable optimism of achieving sales across the portfolio as all of the economies of the target countries appeared stable or improving and the property agencies were giving positive reactions following contact with potential investors. While two sales were achieved in Istanbul by the end of June, this was an anti-climax compared to the momentum in activity that appeared to be growing in the spring. However, despite the political unrest in Turkey, the underlying economic performance is still one of continuing improvement and the Property Manager and Investment Adviser are hopeful that the latest 'crisis' in the country will be overcome, as has been the case in previous crises, and investors will return in similar numbers ensuring that full value for EEP's properties is achieved.

The property in Bulgaria may be more difficult to dispose of, although, as reported by Moody's, Bulgaria has relatively small amounts of debt, but investors, particularly if they are foreign to the country, may be put off temporarily while there is an ongoing political issue relating to corruption within the political elite.

In Romania, the country's continuing economic improvement is expected to draw in investors as property generally appears cheap relative to other countries within the EU.

Bob Locker

CNC Property Fund Management Limited

Keiran Gallagher

Oliver Cadogan

Pera Pera

19 September 2013

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six month period ended 30 June 2013 (unaudited)

1 January 2013

 to 30 June 2013

1 January 2012

 to 30 June 2012

1 January 2012

 to 31 December 2012

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Income

Rent receivable

535

736

1,322

Other income

20

31

87

Bank interest receivable

4

9

14

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

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

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

Total income

559

776

1,423

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

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

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

Expenses

Management fees

(125)

(206)

(372)

Performance fees

(174)

91

210

Administration fees

(50)

(75)

(125)

Other operating expenses

(439)

(441)

(1,161)

Interest payable and similar charges

-

(129)

(172)

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

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

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

Total expenses

(788)

(760)

(1,620)

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

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

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

Investment gains and losses

Gain/(loss) on revaluation of investment properties

1,323

(758)

(1,806)

Gain/(loss) on disposal of investment properties

362

(242)

(731)

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

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

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

Total investment gains/(losses)

1,685

(1,000)

(2,537)

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

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

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

Net profit/(loss) from operating activities before gains and losses on foreign currency translation

1,456

(984)

(2,734)

Gain/(loss) on foreign currency translation

151

(131)

13

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

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

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

Net profit/(loss) from operating activities

1,607

(1,115)

(2,721)

Taxation

(409)

106

118

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

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

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

Profit/(loss) for the period/year

1,198

(1,009)

(2,603)

Other comprehensive (loss)/income

Exchange differences arising from translation of foreign operations

(126)

184

120

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

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

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

Total other comprehensive (loss)/income

(126)

184

120

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

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

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

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

1,072

(825)

(2,483)

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

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

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

Earnings/(loss) per share - basic and diluted

6.58p

(5.41)p

(13.97)p

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

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

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

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

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to the Owners of the Company

for the six month period ended 30 June 2013 (unaudited)

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2013

185

19,964

(702)

19,447

Total comprehensive income/(loss) for the period

Profit for the six month period

-

1,198

-

1,198

Other comprehensive loss

-

-

(126)

(126)

Contributions by and distributions to owners

Buy back and cancellation of own shares

(9)

(764)

-

(773)

----------

----------

----------

----------

Net assets at 30 June 2013

176

20,398

(828)

19,746

----------

----------

----------

----------

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to the Owners of the Company

for the six month period ended 30 June 2012 (unaudited)

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2012

186

22,669

(822)

22,033

Total comprehensive income/(loss) for the period

Loss for the six month period

-

(1,009)

-

(1,009)

Other comprehensive income

-

-

184

184

----------

----------

----------

----------

Net assets at 30 June 2012

186

21,660

(638)

21,208

----------

----------

----------

----------

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to the Owners of the Company

for the year ended 31 December 2012 (audited)

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2012

186

22,669

(822)

22,033

Total comprehensive income/(loss) for the year

Loss for the year

-

(2,603)

-

(2,603)

Other comprehensive income

-

-

120

120

Contributions by and distributions to owners

Buy back and cancellation of own shares

(1)

(102)

-

(103)

----------

----------

----------

----------

Net assets at 31 December 2012

185

19,964

(702)

19,447

----------

----------

----------

----------

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

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2013 (unaudited)

30 June 2013

30 June 2012

31 December 2012

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Current assets

Freehold investment property

20,432

29,972

20,959

Intangible assets

8

9

8

Property, plant and equipment

11

15

13

Trade and other receivables

170

210

114

Cash and cash equivalents

1,947

1,943

807

Deferred tax assets

-

141

-

Tax assets

-

1

-

----------

----------

----------

Total assets

22,568

32,291

21,901

----------

----------

----------

Current liabilities

Trade and other payables

(385)

(336)

(194)

Rents received in advance

(160)

(189)

(165)

Overseas corporate tax

(255)

(19)

(125)

Other provisions and payables

(41)

-

(39)

Deferred tax liabilities

(1,981)

(2,271)

(1,931)

Bank loan

-

(8,268)

-

----------

----------

----------

Total liabilities

(2,822)

(11,083)

(2,454)

----------

----------

----------

Net assets

19,746

21,208

19,447

----------

----------

----------

Capital and reserves

Called-up share capital

176

186

185

Distributable reserve

20,398

21,660

19,964

Foreign currency translation reserve

(828)

(638)

(702)

----------

----------

----------

Total equity attributable to owners of the Company

19,746

21,208

19,447

----------

----------

----------

NAV per Ordinary Share

 - basic and diluted

112.25p

113.80p

105.03p

----------

----------

----------

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

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six month period ended 30 June 2013 (unaudited)

1 January 2013

 to 30 June 2013

1 January 2012

 to 30 June 2012

1 January 2012

 to 31 December 2012

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Net profit/(loss) from operating activities

1,607

(1,115)

(2,721)

Adjustments for:

Bank interest receivable

(4)

(9)

(14)

(Gain)/loss on revaluation of investment properties

(1,323)

758

1,806

(Gain)/loss on disposal of investment properties

(362)

242

731

(Gain)/loss on foreign currency exchange

(151)

131

(13)

Amortisation and depreciation

2

2

5

Bank loan interest payable

-

132

166

Amortisation of bank loan arrangement fees

-

(6)

3

----------

----------

----------

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

(231)

135

(37)

(Increase)/decrease in trade and other receivables

(48)

232

327

Increase/(decrease) in trade and other payables and other current liabilities

356

(254)

(415)

----------

----------

----------

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

77

113

(125)

Interest received in the period/year

4

9

14

Interest paid in the period/year

-

(135)

(169)

Tax paid in the period/year

(348)

(28)

(67)

----------

----------

----------

Net cash outflow from operating activities

(267)

(41)

(347)

Investing activities

Sale of investment property

2,216

2,842

10,438

Acquisition and development of investment property

(4)

(96)

(214)

----------

----------

----------

Net cash inflow from investing activities

2,212

2,746

10,224

Financing activities

Purchase of own shares

(773)

-

(103)

Repayment of bank loan

-

(2,853)

(11,040)

----------

----------

----------

Net cash outflow from financing activities

(773)

(2,853)

(11,143)

----------

----------

----------

Increase/(decrease) in cash and cash equivalents

1,172

(148)

(1,266)

----------

----------

----------

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

807

1,995

1,995

Increase/(decrease) in cash and cash equivalents

1,172

(148)

(1,266)

Foreign exchange movement

(32)

96

78

----------

----------

----------

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

1,947

1,943

807

----------

----------

----------

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