21st Dec 2006 11:51
Eastern European Property Fund Ltd21 December 2006 EASTERN EUROPEAN PROPERTY FUND LIMITED UNAUDITED INTERIM RESULTSFOR THE PERIOD ENDED 30 SEPTEMBER 2006 CHAIRMAN'S STATEMENT I am pleased to present the interim results of the Company for the first interimperiod ended 30 September 2006. The Company was incorporated on 27 February 2006 and on 23 March 2006 theCompany raised gross proceeds of £20 million through the issue of 20,000,000Ordinary Shares at 100.00p each, with the Ordinary Shares being admitted totrading on the Alternative Investment Market ("AIM") of the London StockExchange. The Company's objective is to provide Shareholders with a high level of incomeand potential for significant capital growth by investing in a range of office,retail, industrial and residential properties in Turkey, Bulgaria, Romania andUkraine. Generating the desired level of income will not be possible until theCompany's funds are fully invested. Unsurprisingly the Company's income in its first accounting period has beenabsorbed by its operating costs. The Company is in the process of investing itsfunds and its income in this period consisted exclusively of bank interest. TheCompany suffered a net loss for the period to 30 September 2006 of £38,000,representing a loss per Ordinary Share of 0.19p. The consolidated net assetvalue at 30 September 2006 was £19,053,000 (95.27p per Ordinary Share). TheBoard does not propose an interim dividend for the period. The price of the Ordinary Shares ranged from 97.00p to 105.50p each during theperiod. At the period end the mid price of the Ordinary Shares was 98.75p (apremium to net asset value of 3.7%). Finding properties of appropriate quality during the period has proved to bechallenging in very competitive markets. Existing owners are expectingunrealistically high prices for buildings that are let, despite, in some cases,the leases being quite short. Fortunately investors continue to focus on theseproperties, opening up opportunities to purchase property, which is only part-let or un-let, on an attractive valuation. Part-let or un-let propertiesgenerally represent better value than fully-let equivalents, despite theadditional letting risk which this strategy entails. During the period investment was slower than originally anticipated with theCompany only purchasing two properties in Istanbul, details of which are set outin the Property Manager's Report. Since the period end three other propertieshave been purchased, two in Istanbul and one in Bulgaria. In addition, thecurrent pipeline of potential acquisitions is very promising. Based on the current negotiations the Board is optimistic that the equity of theCompany will be fully invested by the year end and expect to be able to makefurther positive announcements in the coming weeks regarding acquisitions. To date the Company has invested approximately £11.5 million, with a further £2million committed, in acquiring five properties and the Company continues activediscussion on a number of other property purchases. The Company intends to takeadvantage of the opportunities which still exist to acquire properties inexcellent locations, but the Board believes that the best overall return in thecurrent market is to be found where value can be added through refurbishment andleasing. Charles ParkinsonChairman21 December 2006 PROPERTY MANAGER'S REPORT The Property Manager and the Adviser have focussed, and continue to focus, ongood quality locations in the principal cities of the Target Countries. In the period we experienced some frustrating and protracted negotiations. However, following the successful conclusion of three property acquisitionssince the period end, the overall position in terms of property acquisitions forthe Company looks very positive. The Advisor has focussed on properties that will provide good overall returnsfor the Company and has resisted being drawn into unproductive deals. Wecontinue to focus on the principal cities, Istanbul, Sofia, Bucharest and Kievand existing buildings where occupancy is high. In all these locations theCompany's experience is that rental growth continues and yields continue tofall. As a result, we feel that the most productive opportunities are from propertieswhere the seller is not over pricing the property relative to its income stream,and, in this respect, much progress has been made in the past few months. Webelieve that, in the current market, the Company can achieve the best returnsthrough the refurbishment of part-let or un-let properties. However, we willcontinue to explore all opportunities when considering potential investments. The properties purchased during the period are: 134.39 Susam Street - Istanbul Susam Street is an established and cosmopolitan street and is located in theBeyoglu area of Istanbul, the city's major commercial centre. The property,built in 1904, is in a mixed-use area consisting of shops, offices andresidential accommodation. The building is arranged over six floors and has anannex and, unusually for property in this area, it also has a large rear gardenand garage space. The Company is currently renovating the property, which weexpect to be completed in March 2007, prior to letting the property as officeaccommodation, with a bar/restaurant situated over the garage. 6th Floor, The Misir Building, Istiklal Street - Istanbul Istiklal Street is one of the main thoroughfares in the Beyoglu area ofIstanbul. The Misir Building is of historical importance and includes existingrenovated office accommodation. Internal renovation and upgrading to a highstandard has been completed and the property is now on the market. Since the period end the following properties have been purchased: 401 Istiklal Street - Istanbul The Company has acquired a further property in Istiklal Street. The property,which was built in 1894, has a street frontage of 7 metres and includes a retailshop, which is let to an established local operator. It is the Company'sintention to carry out refurbishment works prior to letting the upper floors ofthe building and renegotiating the shop tenancy. 24 George Washington Street - Sofia The property in Bulgaria utilises an existing facade with a new construction tothe rear. It will provide five stories of mixed office and retail use withunderground parking and is part pre-let. Payment will be made to the developerin stages as the work on the building, which is scheduled to occur in the firstquarter of 2007, is completed. Oriental Passage Building, Istiklal Street - Istanbul The property, which was acquired for 9.2 million Euros, is a passage buildinglinking Istiklal Street and Amasalimescrit Street. It comprises a grossinternal space of 3,100 square metres (including mezzanine) over five floors anda further four basement floors, which provide a further 1,495 square metres ofcar parking space. The building is located close to a number of consulates andembassies as well as the new metro station which is due to open in 2007. Originally built in the 1890s the building was renovated approximately fouryears ago and little further work is required prior to letting. It is proposedthat the building will have a mix of retail, leisure and office use. Bob Locker Collins Stewart Property Fund Management Limited 21 December 2006 CONSOLIDATED INCOME STATEMENTfor the period from 27 February 2006 to 30 September 2006 (unaudited) 27 February 2006 to 30 September 2006 Note £'000IncomeBank interest 422 ------------Total income 422 ------------ExpensesAdministrator's fees 2 (66)Management fees 2 (175)Other operating expenses 3 (203) ------------Total expenses (444) ------------Loss before taxation (22) Taxation (16) ------------Loss for the period (38) ------------ Earnings per share - basic and diluted 4 (0.19)p ------------ CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the period from 27 February 2006 to 30 September 2006 (unaudited) Note Share Non-distributable premium reserves Share Distributable capital reserves Total £'000 £'000 £'000 £'000 £'000Proceeds of placing 6 200 18,891 - - 19,091Cancellation of share premium account 6 - (18,891) 18,891 - -Profit/(loss) for the period - - 137 (175) (38) ---------- ---------- ---------- ---------- ----------Net assets at 30 September 2006 200 - 19,028 (175) 19,053 ---------- ---------- ---------- ---------- ---------- CONSOLIDATED BALANCE SHEET as at 30 September 2006 (unaudited) Note 30 September 2006 £'000Non-current assetsFreehold investment property 5 1,604 ----------Current assetsCash and cash equivalents 17,521Debtors 64 ---------- 17,585 ----------Total assets 19,189 Current liabilitiesCreditors and accruals (136) ---------- ----------Net assets 19,053 ---------- Capital and reservesCalled-up share capital 6 200Share premium 6 -Distributable reserves 19,028Non-distributable reserves (175) ----------Total equity shareholders' funds 19,053 ----------Net Asset Value per Ordinary Share 7 95.27p ---------- CONSOLIDATED CASH FLOW STATEMENT for the period from 27 February 2006 to 30 September 2006 (unaudited) 27 February 2006 to 30 September 2006 £'000Operating activitiesBank interest received 409Management fee paid (175)Other expenses paid (189)Foreign exchange loss (11) ----------Net cash inflow from operating activities 34 Investing activitiesPurchase of/additions to investment property (1,604) ----------Net cash outflow from investing activities (1,604) Financing activitiesIssue of shares 20,000Share issue costs (909) ----------Net cash inflow from financing activities 19,091 ----------Increase in cash and cash equivalents 17,521 ---------- NOTES TO THE INTERIM RESULTSfor the period from 27 February 2006 to 30 September 2006 (unaudited) 1. Significant accounting policies a) Statement of compliance These unaudited interim results have been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting". These unaudited interim results are prepared in accordance with International Financial Reporting Standards, issued by the International Accounting Standards Board (" IASB"), interpretations issued by the International Financial Reporting Interpretations Committee of the IASB and applicable legal and regulatory requirements of Guernsey Law and reflect the following policies, which have been adopted and applied consistently. International Financial Reporting Standard 7: Financial Instruments: Disclosure ("IFRS 7") is effective for periods beginning on or after 1 January 2007. The Directors have chosen not to early adopt IFRS 7. b) Basis of preparation The unaudited interim results have been prepared on a historical cost basis except for the measurement at fair value of investment properties. The results are presented in Sterling, rounded to the nearest thousand. The accounting policies have been consistently applied by the Company. These results consolidate the results of the Company and its subsidiary undertakings drawn up to 30 September 2006. The results of the subsidiary undertakings are accounted for in the Consolidated Income Statement from the date the subsidiaries were formed (the subsidiaries are special purpose vehicles and have only been owned by the Company). c) Basis of consolidation These results incorporate the net assets and liabilities of the Company and its subsidiaries (together the "Company") at the balance sheet date and their results for the period then ended. d) Income recognition Short-term deposit interest is accounted for on an accruals basis. e) Expenses All expenses are accounted for on an accruals basis. The Company's management, performance and administration fees, finance costs and all other expenses are charged through the Consolidated Income Statement in the period to which they relate. f) Taxation The Company has been granted exemption from Guernsey taxation under The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and is charged an annual exemption fee which is currently £600. The Directors intend to conduct the Company's affairs such that it continues to remain eligible for exemption from Guernsey tax. Investment income is recorded gross of applicable taxes and tax expense is recognised in the Consolidated Income Statement as incurred. The property subsidiaries will be subject to tax on income arising on the Property Portfolio, after deduction of its debt financing costs and allowable expenses. Withholding tax and irrecoverable VAT may also arise on distributions and interest from the property subsidiaries. g) Deferred taxation Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amount for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences. Deferred income tax assets are recognised for all deductible temporary differences and unused tax losses, to the extent that it is probable that taxable profit will be available in the foreseeable future against which the deductible temporary differences and unused tax losses can be utilised. h) Distributable and non-distributable reserve Unrealised investment gains and losses are allocated to the non-distributable reserve. All other income and expenses, foreign exchange gains and losses and realised investment gains and losses of the Company are allocated to the distributable reserve. i) Cash and cash equivalents Cash in hand and in banks and short-term deposits, which are held to maturity, are carried at cost. Cash and cash equivalents are defined as cash in hand, demand deposits and short-term, highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash in hand and deposits at banks. j) Investment properties - freehold Investment properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the investment property. This is in accordance with International Accounting Standard 40, "Investment Properties". After initial recognition, freehold and leasehold investment properties are measured at fair value, with unrealised gains and losses recognised in the Consolidated Income Statement. k) Net asset value per share and earnings per share The net asset value per share disclosed on the face of the Consolidated Balance Sheet is calculated by dividing the net assets by the number of Ordinary Shares in issue at the period end. Net gain per share is calculated by dividing net gain for the period by the weighted average number of Ordinary Shares in issue during the period. l) Issue costs The placing expenses incurred have been written off in full against the share premium account. 2. Management and administration fees During the financial period Collins Stewart Fund Management Limited ("CSFM") acted as Manager, Administrator and Secretary to the Company, Collins Stewart Property Fund Management Limited ("CSPFM") acted as Property Manager and Active Property Investments Limited acted as the Investment Adviser. CSFM was entitled to receive an annual fee of 1.75% of the Gross Asset Value of the Company. The management fee was payable quarterly in advance. In addition, CSFM was entitled to a performance fee in certain circumstances. This fee was payable by reference to the increase in Adjusted NAV per Ordinary Share over the course of a 'performance period'. The first performance period began on Admission and ends on 31 March 2007; each subsequent performance period is a period of one financial year. CSFM would have become entitled to a performance fee in respect of a performance period only if two conditions were met. First, a performance hurdle condition must be met. The performance hurdle was that Adjusted NAV per Ordinary Share at the end of the relevant performance period exceeded an amount equal to the Placing Price increased at a rate of 7% per annum on a compounding basis up to the end of the relevant performance period. The second condition to be met (a 'high watermark' test) is that the Adjusted NAV per Ordinary Share at the end of the relevant performance period is higher than the highest previously recorded Adjusted NAV per Ordinary Share at the end of a performance period in relation to which a performance fee was last earned (or if no performance fee had been earned since Admission, is higher than the Placing Price). If the performance hurdle is met, and the high watermark exceeded, the performance fee will be an amount equal to 20% of the excess of the Adjusted NAV per Ordinary Share at the end of the relevant performance period over the higher of (i) the performance hurdle; (ii) the Adjusted NAV per Ordinary Share at the start of the relevant performance period; and (iii) the high watermark (in both cases on a per Ordinary Share basis), multiplied by the time weighted average of the number of Ordinary Shares in issue in the performance period (or since Admission in the first performance period) (together, if applicable, with an amount equal to the VAT thereon). The Manager has the benefit of an indemnity from the Company in relation to liabilities incurred by the Manager in the discharge of its duties other than those arising by reason of any fraud, willful default, negligence or bad faith on the part of the Manager or its delegates. The Manager's appointment as investment manager is terminable by either party on not less than twelve months' notice, such notice to expire at any time on or after the third anniversary of Admission. The Management Agreement may also be terminated by either the Manager or the Company if the other party, or CSPFM, has gone into liquidation, administration or receivership or has committed a substantial or continuing breach of the Management Agreement. The Manager is responsible for the payment of the fees of the Investment Adviser. On 20 October 2006 Collins Stewart Tullet plc ("Collins Stewart") sold substantially all of the business of CSFM to Elysium Fund Management Limited ("Elysium") a new fund management/administration business set up by the former management team of CSFM. The former management team and staff of CSFM have transferred to Elysium and your Board has been informed that there will continue to be a close working arrangement between Collins Stewart and Elysium. On 27 October 2006 the Board agreed, in the interests of continuity and to minimise any disruption to the Company's activities, to novate to Elysium the Management Agreement, Administration Agreement and Investment Advisory Agreement previously held with CSFM. The terms of the new Management Agreement, Administration Agreement and Investment Advisory Agreement remain unchanged from those with CSFM. All of the previous fee arrangements for these services and the roles of CSPFM as Property Manager and Active Property Investments Limited as Investment Adviser remain unaffected by these changes. 3. Other operating expenses 27 February 2006 to 30 September 2006 £'000 Directors' fees 50 Custodian and settlement fees 5 Auditors' remuneration 16 Nominated advisor fees 8 Nominated broker fees 8 Registrar fees 6 Loss on foreign currency exchange 78 Other expenses 32 ---------- 203 ---------- 4. Earnings per share The loss, in pence per Ordinary Share, is based on a loss of £38,000 and on a weighted average number of 20,000,000 Ordinary Shares in issue. There is no difference between the basic and diluted earnings per share. 5. Freehold investment property Freehold Investment Properties £'000 Purchases at cost 1,604 Movement in unrealised appreciation - ---------- At 30 September 2006 1,604 ---------- See note 1(j) regarding the classification, recognition, measurement and derecognition of investment properties. In the opinion of the Directors and the Property Manager the fair value of the properties held at the period end is the same as their cost.. 6. Share Capital 30 September 2006 £'000 Authorised: 200,000,000 Ordinary Shares of 1p each 2,000 ------------ Issued and fully paid: 20,000,000 Ordinary Shares of 1p each 200 ------------ On 23 March 2006, the Company raised gross proceeds of £20 million through the issue of 20,000,000 Ordinary Shares of 1p each at 100p each. All the Ordinary Shares were admitted to trading on the Alternative Investment Market ("AIM") of the London Stock Exchange on 23 March 2006. On 23 March 2006, as stated in the Admission Document, the Company cancelled all of its share premium account (as approved by the Royal Court of Guernsey on 24 March 2006), transferring it to a distributable reserve. By written resolution on 13 March 2006 the Company resolved to authorise it to utilise the distributable reserves to buy back up to 14.99% of the Ordinary Shares issued at the Placing for cancellation. No shares were purchased for cancellation during the period. 7. Net asset value per Ordinary Share The net asset value, in pence per Ordinary Share, is based on the net assets attributable to equity shareholders of £19,053,000 and on 20,000,000 Ordinary Shares in issue at the end of the period. 8. Risk warnings Please refer to the Admission Document for details of the risk warnings. For further information please contact: Elysium Fund Management LimitedNo. 1 Le TruchotSt Peter PortGuernseyGY1 3JX Tel: +44 1481 731 987Fax: +44 1481 720 [email protected] This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Eastern European Property