27th Jul 2005 07:00
Black Sea Property Fund Limited27 July 2005 For Immediate Release 27 July 2005 The Black Sea Property Fund Limited Valuation Announcement for the 15 weeks ended 30/06/2005 New Contract Boosts Value of Assets The Black Sea Property Fund, which specialises in the financing and sale of "off-plan" luxury holiday apartments in Bulgaria, is pleased to announce asuccessful first quarter following its flotation on the Alternative InvestmentMarket in March 2005. The closed-end fund is managed by Development CapitalManagement (Jersey) Limited. • Successful AIM flotation in March 2005, issue fully subscribed, raising £50 million • Net present value of the Fund (pre-tax) as at 30/06/05 estimated at £69.1m (27.5p per share) • Option agreement secured over 1,200 luxury holiday apartments in Byala (Bulgaria) in addition to the options over 1,300 apartments secured at launch • Promising deal-flow reported • Bulgarian economy growing strongly. EU accession on track. Tourism ahead again The Chairman of the Fund, Melville Trimble, said:- "I am delighted with the progress of the Fund. A major new contract was signedduring the period and all existing contracts are proceeding on schedule andaccording to plan. The current net present value of the Fund is an indication ofits potential. The Manager is at various stages of negotiation on a number ofother investments and further announcements may be expected throughout theremainder of the year." For more information, please contact: Development Capital Management 020 7399 4270Roger Hornett, Tom Pridmore Buchanan Communications 020 7466 5000Isabel Podda Collins Stewart 020 7523 8000Helen Goldsmith Overview Tourism continues to grow and residential property prices for the holiday marketremain firm and demand high. Bulgaria continues on track as far as EU accessionis concerned, whilst the economy is performing strongly with all major variablesunder control. The recent election result is unlikely to disrupt either. Theconcession for the Varna International and Bourgas airports upgrade was awardedto the Copenhagen Airport Authority, subject to enquiry following the usualindustry objections. The decision is expected to stand, which is considered goodnews for the low cost carriers and tourist volumes. Valuation Colliers International have externally valued the projects under option inaccordance with the Royal Institute of Chartered Surveyors' valuationmethodology on an "as built condition, open market comparative" basis, assumingno increase from current "average" price levels in the specific locations inwhich the Fund has invested. Using these valuations in a standard discounted cash flow model and discountingthe existing projects back by 11% per annum (a figure representing the cost ofcapital plus an assumed risk premium) over their expected lifetime, produces anet present value for the projects of £25.1m (before tax), equivalent to 10.0pper share. When added to the existing net assets (mainly cash and fixedinterest securities) of £44.0m (17.5p per share) this results in a net presentvalue for the Fund of £69.1m (27.5p per share). The total value of the existing projects on a non-discounted basis (before tax),when added to the existing net assets, is £78.0m (31.1p per share). The Manager considers this to be a fair reflection of the value of the Fund andits potential at this early stage. Major contract concluded during the quarter As previously announced, during the period under review the Fund concluded amajor new contract with Byala Beach Tours ("BBT") securing the option to acquire1,200 luxury holiday apartments as part of a new 2,400 apartment holiday complexto be constructed at Byala, some 30 minutes drive from Varna Internationalairport. The Byala beach area is an undeveloped coastal region with classic seaviews and is considered ideal for the purposes of the Fund. Under the terms of the deal, upon exercise of its option the Fund will pay afixed price of Eu450 per sq.m. (excl. VAT) against a current market price,estimated by Colliers International, of Eu1,000 (excl. VAT) a discount ofapproximately 55%. A 35% deposit will be paid on exercising the option at a costto the Fund of Eu12.6m (excl. VAT). On the sale of the properties, the Fund willtake the first slice of profit equivalent to the size of its initial deposit andshare any balance with BBT 60%/40% in BBT's favour. This is on better terms thanprevious deals, where the Fund is entitled to receive a 30% share of the profitover and above the initial 100% return. The Fund has to date committed under options deposits totalling Eu22m (excl.VAT) of the Eu64m raised on flotation, net of launch costs. This representsapproximately 2,500 apartments in 4 different locations on the Black Sea coast.Based on the above Colliers valuations, these apartments under option would havean "as built", open market value of approximately Eu215m. The Bulgarian Economy After 5.8% real GDP growth in 2004, the economy has got off to a good start thisyear, despite: • a slowdown in growth Worldwide; • a further pick-up in energy prices; and • a revival in the fortunes of the US dollar. First quarter 2005 GDP growth was an impressive 6.0% (year-on-year), withconsumer and capital investment spending again to the fore. In May industrialproduction ploughed ahead, rising 9.9% year on year, with retail sales up 10.4%for the month compared to a year ago, as employment and real wages bothimproved. According to the latest official statistics inflation, as measured by the CPI,fell back to 4.6% year-on-year in May from 5.1% in April, before moving back to5.1% again in June, mostly a function of the rise in oil prices. A slowing ofproducer price inflation however indicates a further improvement at the consumerlevel in the months to come. The budget remains in balance and total debt to GDPis currently expected to be down to 30% by the year end (60.4% end 2003). The 3.1% year-on-year increase in tourists to Bulgaria in the first five monthsof the year and the 8.1% increase in tourist revenues over the same period toEu284.0m continues to suggest the market for holiday apartments will remainstrong. Given the scarcity of suitable holiday accommodation the Managerbelieves the Fund remains well placed to benefit from such demand. Parliamentary Elections The June 25th elections produced the well-telegraphed defeat for thecentre-right SNMII party led by Simeon of Saxe-Coburg, the outgoing PM, whoseshare of the vote dropped to 22.08%. The Socialist BSP also did less well than the final opinion polls suggested,gaining 34.2% of the popular vote, indicating the formation of a BSP ledcoalition, with the Turkish minority MRF party again proving to be the "King-makers" having secured 14.2% of the vote. The 240 seat, single chamber Parliament will see 82 seats go to the BSP, 53 toSNMII and 34 to the MRF. Other right wing parties, some newly formed, took muchof the vote from the governing coalition. The turnout was just 45%, unusuallylow for a new democracy. A proposed coalition of the BSP and MRF failed yesterday to garner sufficientsupport from Parliament to form a minority government. Further negotiationsbetween the various parties will follow with a view to establishing agovernment. EU Accession All political parties are committed to EU accession, thus the colour ofgovernment will make little difference to economic or foreign policy. TheManager is of the view that, barring unforeseen circumstances, and inconsideration of the signing of the Accession Treaty on 25th April last, it isunlikely that the "No" votes in Europe and the political uncertainties thatthese have created, will harm Bulgaria's EU ambitions. There may be a delay inaccession to 2008 but any other decision would damage EU credibility on the onehand and risk discontent amongst last year's new Eastern bloc entrants on theother. Outlook As a result of what the Manager considers to be its "first mover advantage",generally accepted level of expertise and strong team on the ground, it isdealing with a considerable number of land-owners and is currently analysing indetail 10 firm proposals, relating to approximately 150,000 sq.m. ofdevelopments (equivalent to 2,300 apartments assuming an average size of 70sq.m.). This would indicate the Fund could be fully invested ahead of initialexpectations of 18 months from launch. The designs of the current portfolio of 2,500 apartments under option arecurrently being finalised. The Manager anticipates commencing sales of selected apartments "off-plan" inOctober 2005. The Manager has added to staffing levels in its Bulgarian office to keep pacewith the increasing deal-flow. Negotiations are well advanced on a number ofprojects and the Fund hopes to be able to make further announcements during theremainder of the year. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
BKSA.L