TIDMAREO
RNS Number : 0750I
Argo Real Estate Opportunities Fd
28 June 2013
Argo Real Estate Opportunities Fund Limited
Interim Results
Argo Real Estate Opportunities Fd
28 June 2013
Argo Real Estate Opportunities Fund Limited
(the "Company"/ "AREOF" / "Group")
Interim Results for the 6 months ended 31 March 2013
Argo Real Estate Opportunities Fund Limited, the closed-ended
investment company formed for the purpose of investing primarily in
the commercial property markets of Central and Eastern Europe,
today announces its interim results for the 6 months ended 31 March
2013.
Key Points:
-- Adjusted NAV per share(1) of EUR0.1127 (30 September 2012
EUR0.1213).
-- NAV per share of EUR0.0947 (30 September 2012 EUR0.1039).
-- Losses in the period of EUR4.1m (31 March 2012 loss EUR4.9m)
which included losses on investment property values of EUR4.1m.
-- During the period the Group has not been able to meet full
debt service and as such breached the terms of the loans supporting
its Sibiu 1, Sibiu 2 and Oradea assets, together with the terms of
the Company loan from Proton Bank. Discussions with the relevant
lenders are ongoing while the Sibiu 2 default has been remedied
subsequent to the period end.
Notes:
(1)Adjusted NAV is calculated before any deferred tax
liability
Further information:
Argo Real Estate Opportunities
Fund Limited
David Clark, Chairman
Nominated Adviser and Broker +44 (0)1481 231101
finnCap Limited
Matthew Robinson
Henrik Persson +44 (0) 207 220 0500
CHAIRMAN'S STATEMENT
This report sets out the results for Argo Real Estate
Opportunities Fund Limited ("AREOF"/ "Company"/ "Group") covering
the 6 month period ended 31 March 2013 and discusses its progress
in the ongoing development and active asset management of its
retail and mixed-use commercial property investments in Central and
Eastern Europe.
Financial Performance
The NAV per share and Adjusted NAV per share as of 31 March 2013
are EUR0.0947 and EUR0.1127 (see Note 4) reflecting a decrease of
EUR0.0092 and EUR0.0086 respectively in the 6 month period since 30
September 2012. This decrease has arisen principally from the
decline in the market values of the Group's property assets where
the weakness of tenant income conditions and the lack of property
transactions has impacted the asset valuations notably in
Romania.
The financial statements for the period to 31 March 2013 show a
loss attributable to equity shareholders of EUR5.4m which includes
a net loss from fair value adjustment on investment properties of
EUR4.1m.
Dividend
The Board has resolved that the Company will not declare a
dividend for the period as it continues to utilise its resources to
maximise liquidity within the Company during the current turbulent
and hostile trading conditions.
Operating Activities
While macroeconomic conditions continue to improve, albeit
slowly, the uncertainties in Europe mean that the recovery in
markets where the Group operates remain subdued with little or no
growth in the underlying economies.
The continuing effect of low disposable incomes, the lack of
investment income and political uncertainties all combine to keep
retail sales depressed, particularly in Romania. In such
circumstances, the balance of negotiation interest still continues
to favour the tenant and the need for the landlord to continue to
provide continued rental concessions, albeit at a reducing level,
and/or fit-out contributions to attract stronger tenants, impacts
the project companies and the Group's cash flows.
The reduced level of cash flow, while being proactively managed,
has affected the Group's ability to meet all the payments due to
certain of the lending banks as when they fell due as more fully
explained below. This situation is being remedied by way of
discussions with the lending banks where these breaches of the
terms have occurred with a view to restructuring the loans to
better align the Group's cash flows to the loan commitments during
this subdued trading period. While the discussions with the
relevant banks are on-going to find an agreeable solution for both
parties, during this period the Group continues to enjoy the
support of its banks.
The Group has also been affected to a limited extent by the
financial crisis that occurred in Cyprus in April of this year, as
the Group has loan facilities where the lenders are Cypriot banks
that are subject to restructuring. In particular, Era Shopping Park
Iasi is supported by a loan facility from a syndicate of lending
banks which includes the Bank of Cyprus and this is likely to delay
and/or frustrate the Group's ability to draw down on the remaining
EUR17m of the loan facility needed to complete the Era Shopping
Park Iasi. In addition, the Bank of Cyprus is part of a syndicate
of lending banks to Era Shopping Park Oradea for which there are
on-going negotiations to restructure the loan terms. Laiki Popular
Bank, another Cypriot bank, is the sole lender to the Group's
Riviera Shopping City asset where discussions are in progress to
release surplus funds from the project company for use by the Group
in general. Laiki Popular Bank is also part of a syndicate of
lenders to Sibiu Shopping City.
Despite the challenging environment in Romania, the Company's
77,000 sqm Sibiu Shopping City maintains its dominant trading
position in the region. Following the completion of recent asset
management initiatives last year reconfiguring the space and
providing a new Mall entrance, occupancy is currently 92% but
tenant demand remains strong and vacant space is likely to be fully
filled in 2013.
The Company's 50,000 sqm Suceava Shopping City project continues
to face strong competition in its trading catchment area and
reduced consumer expenditure in the region and severe winter
weather conditions have impacted trading. Nonetheless, proactive
management of the centre is replacing weaker trading tenants with
stronger better covenant tenants with the aim of improving tenant
mix and improving customer traffic at the centre.
The 65,700 sqm Era Shopping Park, Oradea, anchored by leading
tenants Carrefour, Altex and Bricostore operates with the 16,000
sqm shopping mall completed in 2012 along with the 8,000 sqm
Mobexpert furniture store. While trading activity continues to show
year on year growth, competition remains strong from two competitor
centres and trading generally is mixed due to subdued consumer
expenditure. Furthermore, the Company's ability to attract new
tenants is restricted by the lack of fit-out funding while
negotiations for release of such facility are on-going with the
lending banks.
The 49,800 sqm Era Shopping Park, Iasi, anchored by leading
tenants Praktiker, Decathlon, Carrefour and Mobexpert suffers from
very strong competition in the region, particularly from a further
centre opened in 2012. While traffic and sales have declined from
last year, not helped by severe winter conditions, proactive
marketing and management is attracting new tenants. However, the
construction of the 28,000 sqm Mall extension is ready to proceed
but is subject to agreement on negotiations with the syndicated
lending banks to proceed with the further development facility.
The 83,000 sqm Riviera Shopping City, Odessa, includes a 14,000
sqm Obi DIY store along with key anchor tenants Real Hypermarket
(recently rebranded as Auchan Hypermarket), Inditex fashion brands
(Zara, Stradivarius, Bershka, Pull & Bear) as well as offering
a 12-lane City Bowling leisure complex and a nine-screen IMAX
multiplex cinema. The leasing strength of this asset has
continually improved since its opening in 2009 and the strong
tenant demand is reflected in the near current near 100% tenant
occupancy level. The completion of asset fashion gallery asset
management initiative in 2012 has further enhanced the
attractiveness of this centre to customers and tenants alike.
The Group's previously acquired land assets in Nikolaev, Ukraine
and also in and around Chisinau, Moldova, continue to be land
banked pending an improvement in current economic conditions that
would make development financially viable or a disposal can be
realized maximizing shareholder value.
Full details of all the projects entered into by the Company are
further explained in the Investment Manager's report.
Financing Facilities
The Group is currently in various stages of negotiation with
regard to restructuring and agreeing amended terms with its
existing Banks on several of its loans.
(i) Proton Bank loan interest due at the end of December 2012
could not be met resulting in a covenant breach of this loan and
discussions with the bank are ongoing while the Group seeks to
release surplus funds in its Ukraine project company, with the
agreement of its lending bank, for wider use by the Group.
(ii) Under the KBC Bank led loan arrangements on Sibiu Shopping
City, the Company was only able to part pay the loan amortisation
amounts that fell due in the period and as a result the loans of
the project companies for both Sibiu 1 and Sibiu 2 went into
default. In the case of the Sibiu 2 loan this was cured after the
period end with the payment of the Eur 1 million owing, however, in
respect of the Sibiu 1 loan that matures at the end of 2013,
discussions with the lenders are currently ongoing with the aim of
restructuring the debt and extending it beyond its maturity.
(iii) For both Era Shopping Parks in Oradea and Iasi discussions
for restructuring the loans with the syndicated banks of EFG, Bank
of Greece, Bank of Cyprus, Banca Romaneasca, in the former case to
better align the terms to current and anticipated cash flows and in
the latter case to permit the release of the balance of the
development facility to undertake the extension of the existing
mall, are ongoing. Both project loans are currently in breach of
certain of the loan terms and while the support of the lenders is
enjoyed, a conclusion to the restructuring discussions is being
delayed by the reorganization of the Cypriot lenders within the
syndicate, as referred to above.
Accounting Practices
The Group has continued to apply International Financial
Reporting Standards ("IFRS"), as endorsed for use in the European
Union, in the following unaudited condensed interim consolidated
financial statements. The Group's presentational currency is the
euro.
Shareholder Communication
The Investment Manager aims to keep shareholders and other
interested parties informed of developments through its website:
www.argocapitalproperty.com.
Outlook
Since the release of our previous financial statements earlier
this year there is a tentative calm in financial markets although
there are no clear signs of it yet feeding through into a
meaningful recovery for Eurozone economies. Until this happens,
Romania and Ukraine, AREOF's principal markets, are unlikely to
experience any significant pick up. According to the latest
forecasts from the International Monetary Fund, economic growth in
these countries will be anaemic at best in 2013 with Romania
experiencing a gain of less than 2% and Ukraine virtually none at
all. While this remains the case, the value of the Company's assets
in these countries is unlikely to enjoy any significant increase in
value.
Nevertheless, the Board is of the view that Romania and Ukraine
remain attractive destinations to invest over the long-term. In the
near term, the Company will remain focused on measures to maximize
cash flows at each of its individual assets and will invest in them
via selective and carefully budgeted asset management initiatives
that clearly have the potential to be value enhancing.
Recently, AREOF has become aware that certain parties have
expressed interest in buying portions of the debt facilities that
support certain of the Company's real estate parks. AREOF will
vigorously defend itself against any tactics that fail to respect
the full value of the Company's assets.
David Clark
Chairman
27 June 2013
INVESTMENT MANAGER'S REPORT
The Investment Manager implements a focused strategy on behalf
of AREOF to create an institutional quality retail property
portfolio in leading primary and secondary cities in Central and
Eastern Europe with a particular focus on Romania, Ukraine and
Moldova. The Manager continues to reposition the portfolio to take
advantage of a potential macroeconomic improvement in the region
through strong asset management. Despite the continued search for
low-cost acquisitions in the form of share swaps which could
increase the visibility of the portfolio to date this has not been
possible given that quality assets are still expensive with
valuations based on capitalisation rates around 8-9 per cent.
European economic conditions remain very subdued with little or
weak growth dominating throughout. In Romania, through the latter
part of 2012 the economy was near stagnant, albeit with weak
positive growth in GDP and while 2013 has shown little improvement,
the GDP growth was higher than expected. Other positive signs
include improving liquidity conditions resulting from lower rates
and in the context of a favourable inflation environment further
interest rate cuts should be expected. The challenges of
potentially weak export demand from a weak Europe, restricted
public spending (strong fiscal consolidation), the lack of funding
for infrastructure projects (low EU fund absorption) and political
uncertainty remain although there have not been many political
rumblings in the last few quarters.
Romanian retail continues to face challenges as most disposable
income is directed towards food items and primary need
expenditures. The effects of the limited availability of financing
is also keeping supply changes unchanged and very few operators or
potential operators in the market are willing to develop retail
schemes other than comparative small projects anchored by
hypermarkets. In general, capital market activity remains subdued
in Romania and developments have focused mostly in office and the
small retail projects.
Rental concessions to Romanian tenants continue to be necessary
to retain key tenants who have not been trading well and as a
result the Company's cash flow still remains weak requiring the
support from the project company banks. The Manager believes that
these discounts while decreasing will be necessary well into next
year.
In Ukraine the economy continues to be stagnant with GDP growth
near zero. Although valuations are attractive, the political and
macroeconomic environment is causing international investors to
exit. Investment activity also remains restricted due to the very
limited availability and high cost of debt financing, although
there are a few developments being undertaken especially in Kiev by
groups with sizeable equity to invest.
Debt facility discussions with the Fund's banks have dominated
throughout the period. The restructured terms of Suceava Shopping
City's Alpha Bank facility were completed extending it to November
2015 at a reduced rate of interest together with a cash sweep of
loan amortisation. In the period the full debt repayments on the
KBC Bank loans in respect of Sibiu Shopping City could not be met
when they fell due, however, the default on the Sibiu 2 syndicated
debt has since the period end been cured with full repayment of the
sum due and outstanding. Discussions with KBC on the restructuring
of the Sibiu 1 loan to remedy the default and also to extend the
facility beyond its maturity later in 2013 are currently ongoing.
At the end of 2012 the Group's liability for interest due on its
Proton Bank loan could not be met and discussions with the Bank are
similarly ongoing.
The banking distress suffered in Cyprus in April of this year
has affected the Group where the Bank of Cyprus and Laiki Popular
Bank are lenders to a number of the Fund's projects. This has
impacted the Group by delaying progress on the negotiations to
restructure the Oradea and Iasi project loans and also in getting
Laiki Popular Bank's agreement to release surplus available cash
from the successfully performing Riviera Shopping City, Ukraine
project for wider use within the Fund.
The 6 month period to 31 March 2013 has seen a EUR5.6m decrease
in the NAV attributable to equity holders resulting in a period end
NAV of EUR57.6m. The decline was largely due to the net write down
of Group asset values reflecting weak tenant income conditions and
the lack of property transaction activity particularly in Romania.
The Group obtained third party valuations from independent valuers
on the portfolio of its property assets as at 31 March 2013.
The key property asset effects on the NAV during the period
were:
- Suceava Shopping City: an increase in fair value of EUR2.7m,
- Sibiu Shopping City: a decrease in fair value of EUR4.0m,
- Era Shopping Park, Oradea: a decrease in fair value of EUR2.5m,
- Era Shopping Park, Iasi: a decrease in fair value of EUR1.0m, and
- Riviera Shopping City, Odessa: an increase in fair value of EUR0.7m.
Where the Group provides incentives to its customers, both in
terms of fit-out contributions or rental concessions, the cost of
these incentives is recognised over the lease term, on a straight
line basis, as an adjustment to rental revenue. Incentive
adjustments of EUR0.5m were added to rental income in the period to
31 March 2013 and accumulated incentives at the period end amounted
to EUR12.2m.
Under current market conditions the following risks continue to
exist for the Company:
(i) Although certain of the project subsidiary companies remain
cash flow positive the restrictive use of surplus funds which are
subject to lenders' approval for release means that at the present
time the negative situation of the Company continues. Further
equity or other infusion of cash is likely to be required later in
2013.
(ii) The weakness, competitive pressure and slowness of recovery
in the local retail environments causing existing tenants to
continue to request reductions in rent which in turn impacts the
level of the Group's income sufficient to service its debts on full
repayment basis without further bank concessions being agreed.
Transaction Overviews
European Retail Park Sibiu, Romania
AREOF's Sibiu Shopping City, was acquired in November 2006, and
through continued asset management remains the strongest centre
within the Romanian portfolio. Occupancy is 92% and as tenant
demand remains healthy, we are on target to reach full occupancy by
the end of the year.
The retail park was expanded both in 2007 and 2008, with a
number of extensions and reconfigurations The property is held
within two separate project companies and as such is known as
"Sibiu 1" & "Sibiu 2". An asset management initiative
connecting Sibiu 1 and 2 was carried out in 2011, however, the
contractor for the connection building entered insolvency in
December 2012 with some works remaining. These works now need to be
completed in order to formalise the completion and building
registration. Additional equity has been requested by the lenders
to part finance these costs. Since the opening the new Mall
entrance completed in 2012, customer footfall has increased by
approximately 8%.
Despite a weakening customer demand in the first quarter of 2013
throughout Romania, tenant demand for the centre remains strong.
The Manager has been replacing weaker tenants and improving the
tenant mix and ten new tenants have opened stores since October
2012. Negotiations have progressed with Decathlon with their store
opening anticipated for later this year.
An audit of all service charge costs across the portfolio has
identified a number of cost reductions for the centre which are
being implemented. Rental concessions now account for less than 3%
of gross rental income and we anticipate the majority of
concessions will fall away by early 2014. Auchan's takeover of the
Real supermarket store is expected in June, with rebranding of the
store scheduled for the autumn.
Negotiations are progressing with KBC for the refinancing of the
outstanding EUR57.7m debt facility for Sibiu 1 which expires in
November 2013. Various discussions and proposals have taken place
between the Manager and the Bank and we are awaiting their proposed
term sheet.
The remaining EUR25.4m investment loan from KBC, Investkredit
and Marfin/Laiki Bank expires in June 2016 and the delayed
amortisation payment of EUR1m that fell due at 31 March has since
been made to cure the default.
The market value of the property as at 31st March 2013 was
EUR77.1m on Sibiu 1, against a 30 September 2012 valuation of
EUR79.6m; and a valuation of EUR34.8m on Sibiu 2, against a
comparative September 2012 valuation of EUR35.5m.
Suceava Shopping City, Suceava, Romania
Trading performance of the 50,000 sqm centre over the period was
mixed with improved trading period traffic in the last quarter of
2012 followed by a year on year decline in sales in the first 3
months of 2013. This was partly due to the severe winter weather,
but also a reduction of consumer expenditure in the region. The
centre continues to face strong competition and surprisingly a
further retail project is planned within the vicinity. We have
issued a formal objection with the City authorities to their
building permit application. Despite strong competition for tenants
in the city the Manager has signed leases with 9 new tenants and
there are active negotiations with a further 5 potential tenants.
The Manager has also agreed terms with Decathlon for a 1,500 sqm
store, which will improve traffic circulation.
Rental discounts for local tenants will continue for 2013 and
the Manager is focused currently on strengthening the tenant mix
and improving collection rates. A number of operational cost
reductions for the property have been implemented and a strategy
for replacement of the electrical provider is being examined.
The three year EUR50m facility (EUR46.1moutstanding)with Alpha
Bank of Greece, has been restructured and extended to November
2015. The amortisation payments are being undertaken by a quarterly
cash sweep of surplus revenues.
The 31st March 2013 market value of the property has increased
to EUR64.6m from a 30 September 2012 valuation of EUR62.3m.
Era Shopping Park, Oradea, Romania
Era Shopping Park, Oradea comprises a 65,700 sqm retail park, on
the outskirts of the city, which opened Phase 1 in March 2009 with
leading anchor tenants Carrefour, Altex, and Bricostore. Phase 2,
which comprises the 16,000 sqm Mall, was completed in early spring
2012 and a Mobexpert furniture anchor of 8,000 sqm opened in May
2012. Phase 3 of approximately 4,000 sqm will be opened following
pre-leasing.
The full EUR62.3m construction facility from EFG, Banca
Romanesca, Bancpost and Bank of Cyprus (BoC) has been fully drawn,
but fulfillment of conditions for conversion to the investment
facility remains outstanding. Prior to the recent problems with
BoC, the Manager had almost finalized an agreement with the lending
banks to a rescheduling of payments and an interest rate reduction.
Completion was delayed as BoC were considering the potential sale
of the Romanian branch as part of a restructuring. All deposits and
administrative staff from BoC Romania have now been transferred to
Laiki Popular Bank, whilst the corporate Loans remain with the
Bucharest office. The Lenders syndicate has committed to finalise
the restructuring and revised term sheet is pending. Operational
payments continue to be made as usual.
Traffic has increased consistently year on year, however sales
have declined slightly during the first part of 2013. This is in
line with the general retail market throughout Romania, as consumer
confidence remains subdued. To counter weaker demand the Manager
has embarked on a number of attractive marketing and sales
promotion campaigns which have contributed to this increased
traffic.
The Era Home Centre area offers the largest selection of home
decoration and furnishings in the region and continues to perform
in line with tenants' expectations. As the standby loan facility
required for tenant fit out contributions remains blocked, no major
new leases have been signed. A number of agreed lettings can be
completed, when the standby facility is reopened. The Manager has
however signed leases with 9 tenants totaling 2,330 sqm, as no fit
out contribution was required.
The Manager has agreed with RDS to install photovoltaic panels
on the roof, which will reduce the electricity costs for the centre
by around 20%. Lenders' approval is awaited prior to installation
commencing in the summer.
The market value of the property was EUR77.2m at 31st March
2013, against a 30 September 2012 value of EUR79.3m.
Era Shopping Park, Iasi, Romania
Era Shopping Park, Iasi comprises some 49,800 sqm of retail park
of which Phase 1 of some 33,000 sqm comprising Carrefour, Praktiker
and the Gallery was completed in September 2008. The Gallery was
extended in September 2009 with the addition of an 8,000 sqm
Mobexpert furniture store and in May 2010 Decathlon purchased a 2.4
hectare site and constructed and opened their 3,000 sqm store.
The new Palas scheme in the city centre has continued to impact
all other existing centres since our last report. Traffic and sales
have declined year on year and the severe winter weather in January
and February also further impacted traffic. The Manager increased
marketing activities with a number of attractive events together
with sales promotions, which have improved the situation. Letting
activity remains active with a total of 7 new tenants signed since
October.
Construction of the 28,000 sqm Mall extension has been delayed
until the situation with Bank of Cyprus is resolved. The Mall
currently has all permits necessary and the works have been
tendered, however negotiations are on hold with contractors. The 8
hectares of surplus land is being marketed for sale or development.
Terms are agreed with BMW to lease 6,000 sq m of land to develop a
showroom, which is subject to approval from the lending banks.
Negotiations are on going with a petrol filling station and other
motor trade users.
A EUR77m development facility provided by EFG, Banca Romanesca,
Bancpost and Bank of Cyprus is in place for the construction
finance of the total project, of which EUR60m has been drawn to
date. The restructuring of the existing facility is delayed due to
the reorganisation of Bank of Cyprus. Upon finalisation of the
restructuring the current construction program is expected to
deliver Phase 1 of 15,000 sqm within 15 months and Phase 2 within
18 months.
Despite the financing delay the Manager has a number of active
negotiations with key anchor tenants for the Mall.
The market value of the property was EUR75.9m at 31st March 2013
against a 30 September 2012 value of EUR76.5m.
Riviera Shopping City, Odessa, Ukraine
The Company's 83,000 sqm Riviera Shopping City centre in Odessa
initially opened in October 2009 with key anchor tenants including
Obi DIY Store, Real Hypermarket, Inditex fashion brands Zara,
Stradivarius, Bershka, Pull & Bear and Oysho along with many
others. Subsequent phased completion of the development saw the
successful opening of the City Bowling and Leisure Complex along
with the Imax Multiplex Cinema.
At the end of 2012 Auchan Group acquired part of the business of
the Metro Group AG comprising 91 Real hypermarkets and 13 Shopping
Galleries in Eastern Europe, namely Russia, Ukraine, Poland and
Romania. In accordance with the terms of the deal Real Hypermarket
in Riviera was rebranded and Auchan Hypermarket opened at the end
of April. 40,000 customers attended at the opening and an increase
in footflow of around 20% occurred in April/May in comparison with
the respective months of 2012.
Attendance and retailer sales continue to exceed estimates
confirming the Company's development as an important and
sustainable regional retail destination. The footflow of the Mall
for 2013 has increased by 8% compared with the same period of
2012.
The leasing situation of the centre has continually improved
since completion and its attractiveness has led to strong demand
amongst retailers for space in the centre which has resulted in the
occupancy level being near 100%.
The asset management initiative creating an attractive fashion
gallery of 2,500 sqm opened in June 2012 in space previously
occupied by an underperforming tenant is currently 93% let.
Current financing arrangements consist of a EUR68m Marfin/Laiki
Bank investment facility. At the period end the outstanding
facility was EUR65.5m. The continued improving performance of the
centre as rental incomes improve and are added to through
management initiatives, means that the Company is able to fully
cover both interest and amortisation and the Manager is currently
in discussion with the Bank to agree to the release of surplus cash
resources from the project subsidiary for wider use within the
Fund.
The market value of the property was EUR106.5m asat 31 March
2013 against a 30 September 2012 value of EUR106.0m.
Nikolaev, Ukraine, Freehold Development Site
The 20 hectare freehold plot is located about 5 km's outside of
the city centre on the primary motorway from Odessa and near a
future intersection with the planned Nikolaev ring road.
While there are very few land transactions currently in the
region the Company seeks strategic opportunities to realise value
from this asset. It is felt that when market conditions improve
this site could accommodate a logistic warehouse park site
servicing this important port city or an out of town factory outlet
retail project.
The freehold land is in ownership of the Company and has a
market value of EUR0.61m at 31 March 2013 compared to a valuation
of EUR0.61m at 30 September 2012.
Moldova Retail and Mixed Use Development Sites, Chisinau,
Republic of Moldova
In conjunction with a local partner, the Group is completing the
assembly of a retail and mixed-use development site in the historic
city centre of Chisinau, the Republic of Moldova's capital. The
Group also owns two further potential out-of-town retail and
mixed-use sites on a prominent motorway to the airport locations on
the periphery of Chisinau.
The Investment Manager has entered into a commercial
relationship with a local partner for the exploitation of the
Company's land assets with the goal of realising equity proceeds
from these assets. The Investment Manager at the moment negotiates
to start implementation the development of the 1st phase of
residential/office premises.
The Moldovan assets' market values at 31 March 2013 totalled
EUR4.3m, compared to a valuation of EUR4.3m at 30 September
2012.
Outlook
The modest decline in the value of AREOF's assets reflects the
ongoing weakness of the markets in which the Company operates. This
is unlikely to change during the second half of 2013. As a
consequence, the Manager will remain focused on identifying cost
reductions across all assets, particularly those in Romania which
do not enjoy the local dominance of the Company's Odessa centre.
Rental discounts enjoyed by some tenants in Romania are likely to
remain largely in place although it is hoped that the Manager will
be able to start to phase them out during the later stages of the
year. Irrespective of this, cash flows and banking covenants across
all the Company's assets in Romania will remain under pressure.
The Manager expects the next 6 months to be dominated by
discussions with the banking syndicates that support the Group's
Sibiu 1, Iasi and Oradea assets. Furthermore, the Manager hopes to
have agreement from the project bank as to the release of surplus
cash generated by the Company's Riviera Shopping City centre in
Odessa for its wider use within AREOF. It should be noted that
these banking negotiations may be slowed by the ongoing
restructuring of BoC (a lender to the centres in Iasi and Oradea)
and Laiki Bank (sole lender to Riviera). Regarding the Company's
debt facility with Proton Bank, the Manager is in talks with the
lender aimed at concluding a remedy of the outstanding default.
Dennis Selinas Graeme Daniel
Fund Manager Finance Director
On behalf of Argo Capital Management Property Limited
27 June 2013
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the 6 months ended 31 March 2013
Note 6 months 6 months Year ended
to 31 March to 31 March 30 September
2013 2012 2012
(unaudited) (unaudited) (audited)
EUR'000 EUR'000 EUR'000
Continuing operations
Revenue 20,197 19,117 37,302
Property operating expenses (7,592) (6,962) (15,338)
Net rental and related income 12,605 12,155 21,964
-------------------------------------- ----- ------------- ------------- --------------
General expenses (1,934) (2,091) (4,473)
Net (loss)/gain from fair
value adjustment of investment
property 5 (4,056) (6,101) 571
Changes in fair value of
loans receivable 12 (56) (49)
Operating profit 6,627 3,907 18,013
-------------------------------------- ----- ------------- ------------- --------------
Finance Income 1,144 714 2,180
Finance Costs (11,089) (11,285) (23,084)
Finance costs - net (9,945) (10,571) (20,904)
-------------------------------------- ----- ------------- ------------- --------------
Foreign exchange (losses)/gains
on translation of foreign
operations (111) 349 (229)
Loss before tax (3,429) (6,315) (3,120)
-------------------------------------- ----- ------------- ------------- --------------
Income tax charge/(credit) (690) 1,417 (653)
Loss for the period (4,119) (4,898) (3,773)
-------------------------------------- ----- ------------- ------------- --------------
Foreign exchange (losses)/gains
on translation of foreign
operations (196) (86) 333
Total other comprehensive
loss (4,315) (4,984) (3,440)
-------------------------------------- ----- ------------- ------------- --------------
(Loss)/profit attributable
to :
Equity shareholders (5,413) (4,122) (2,878)
Non-controlling interest 1,294 (776) (895)
-------------------------------------- ----- ------------- ------------- --------------
(4,119) (4,898) (3,773)
-------------------------------------- ----- ------------- ------------- --------------
Total comprehensive (expense)/income
attributable to :
Equity shareholders (5,606) (4,205) (2,552)
Non-controlling interest 1,291 (779) (888)
-------------------------------------- ----- ------------- ------------- --------------
(4,315) (4,984) (3,440)
-------------------------------------- ----- ------------- ------------- --------------
Basic and diluted earnings
per share 3 (0.009) (0.007) (0.005)
-------------------------------------- ----- ------------- ------------- --------------
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2013
Note 31 March 31 March 30 September
2013 2012 2012
(unaudited) (unaudited) (audited)
EUR'000 EUR'000 EUR'000
ASSETS
Non-current assets
Investment properties 5 434,079 429,639 437,833
Property, plant and equipment 189 221 201
Trade and other receivables 11,488 7,089 10,249
Tax receivables 3,021 5,530 4,415
Loans receivable 6 1,056 969 1,050
Total non current assets 449,833 443,448 453,748
------------------------------- ----- ------------ ------------ -------------
Current assets
Trade and other receivables 7,007 9,919 6,954
Tax receivables 2,280 2,022 2,154
Loans receivable 6 9,230 9,230 9,230
Cash and cash equivalents 13,099 15,025 11,631
Total current assets 31,616 36,196 29,969
------------------------------- ----- ------------ ------------ -------------
Total assets 481,449 479,644 483,717
------------------------------- ----- ------------ ------------ -------------
EQUITY AND LIABILITIES
Equity attributable to
owners of the parent
company
Share capital 7 6,080 6,080 6,080
Share premium 7 18,159 18,159 18,159
Other reserve 95,096 95,096 95,096
Translation reserve (1,343) (1,559) (1,150)
Retained earnings (60,440) (56,271) (55,027)
------------------------------- ------------ ------------ -------------
Total equity attributable
to owners of the parent
company 57,552 61,505 63,158
Non-controlling interest 15,906 14,724 14,615
------------------------------- -----
Total equity 73,458 76,229 77,773
------------------------------- ----- ------------ ------------ -------------
LIABILITIES
Non-current liabilities
Loans and borrowings 138,855 217,513 283,707
Deriviative financial
instruments 1,783 2,295 2,506
Deferred income tax 13,576 10,824 12,892
Total non-current liabilities 154,214 230,632 299,105
------------------------------- ----- ------------ ------------ -------------
Current liabilities
Loans and borrowings 228,126 150,164 84,091
Trade and other payables 25,651 22,611 22,748
Current income tax - 8 -
Total current liabilities 253,777 172,783 106,839
------------------------------- ----- ------------ ------------ -------------
Total liabilities 407,991 403,415 405,944
------------------------------- ----- ------------ ------------ -------------
Total equity and liabilities 481,449 479,644 483,717
------------------------------- ----- ------------ ------------ -------------
The financial statements were approved and authorised for issue
by the Board of Directors on 27 June 2013 and signed on its behalf
by David Clark.
David Clark
Director and Chairman
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
As at 31 March 2013
Amount attributable to owners of the parent company
Share Share Other Translation Retained Non-controlling
Capital Premium Reserve Reserve Earnings Total interest Total
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
At 1 October
2011 6,080 18,159 95,096 (1,476) (52,149) 65,710 15,503 81,213
--------- ---------- --------- ------------ ------------- -------- ---------------- --------
Comprehensive
income:
Result for
the year - - - - (2,878) (2,878) (895) (3,773)
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
Other
comprehensive
income:
Foreign exchange
gains on
translation
of foreign
operations - - - 326 - 326 7 333
Total
comprehensive
income for
the period - - - 326 (2,878) (2,552) (888) (3,440)
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
At 30 September
2012 6,080 18,159 95,096 (1,150) (55,027) 63,158 14,615 77,773
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
Comprehensive
income:
Result for
the year - - - - (5,413) (5,413) 1,294 (4,119)
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
Other
comprehensive
income:
Foreign exchange
losses on
translation
of foreign
operations - - - (193) - (193) (3) (196)
Total
comprehensive
income for
the period - - - (193) (5,413) (5,606) 1,291 (4,315)
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
At 31 March
2013 6,080 18,159 95,096 (1,343) (60,440) 57,552 15,906 73,458
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
At 1 October
2011 6,080 18,159 95,096 (1,476) (52,149) 65,710 15,503 81,213
Comprehensive
income:
Result for
the year - - - - (4,122) (4,122) (776) (4,898)
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
Other
comprehensive
income:
Foreign exchange
losses on
translation
of foreign
operations - - - (83) - (83) (3) (86)
Total
comprehensive
income for
the period - - - (83) (4,122) (4,205) (779) (4,984)
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
At 31 March
2012 6,080 18,159 95,096 (1,559) (56,271) 61,505 14,724 76,229
----------------- --------- ---------- --------- ------------ ------------- -------- ---------------- --------
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the 6 months ended 31 March 2013
6 months 6 months Year ended
to 31 March to 31 March 30 September
Note 2013 2012 2012
(unaudited) (unaudited) (audited)
EUR'000 EUR'000 EUR'000
OPERATING ACTIVITIES
Loss for the period (4,119) (4,898) (3,773)
Adjustments for :
Depreciation 27 38 62
Changes in fair value of investment
property 5 4,056 6,101 (571)
Impairment of financial assets 6 (12) 56 49
Finance income (1,147) (714) (1,029)
Finance expense 11,206 11,345 21,896
Exchange translation movements (193) (86) 326
Taxation 690 (1,417) 653
Operating cash flows before movements
in working capital 10,508 10,425 17,613
Movements in working capital
:
(Increase)/decrease in operating
trade and other receivables (24) 99 317
Increase/(decrease) in operating
trade and other payables 1,787 (2,416) 845
Cash generated from operations 12,271 8,108 18,775
Interest received 411 346 745
Interest paid (7,982) (8,554) (20,430)
Taxation paid (54) (94) (16)
Cash generated from operating
activities 4,646 (194) (926)
INVESTING ACTIVITIES
Purchase of investment properties (301) (2,341) (3,998)
Purchase of property, plant and
equipment (15) (44) (48)
Loans advanced (4) (9) -
Cash flows from investing activities (320) (2,394) (4,046)
FINANCING ACTIVITIES
Drawdown of bank loans including
costs - 5,814 5,674
Drawdown of other loan borrowings 81 1,000 3,243
Bank loans repaid (2,784) (965) (4,414)
Cash flows from financing activities (2,703) 5,849 4,503
Increase/(decrease) in cash and
cash equivalents 1,623 3,261 (469)
Net foreign exchange losses on
cash and cash equivalents (155) (421) (85)
1,468 2,840 (554)
---------------------------------------- ------- ---------------------- ---------------------- ----------------
Cash and cash equivalents at
start of period 11,631 12,185 12,185
Cash and cash equivalents at
end of period 13,099 15,025 11,631
---------------------------------------- ------- ---------------------- ---------------------- ----------------
NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL
STATEMENTS
1. GENERAL INFORMATION
The Company is a limited liability, closed-ended investment
company incorporated in Guernsey. The shares of the Company have
been admitted to trading on the Alternative Investment Market (AIM)
of the London Stock Exchange.
The Company invests in commercial property in Central and
Eastern Europe which is held through its subsidiary companies. The
unaudited condensed interim consolidated financial statements of
the Company for the period ended 31 March 2013 comprise the
financial statements of the Company and its subsidiaries (together
referred to as the "Group").
2. SIGNIFICANT ACCOUNTING POLICIES
a. Basis of preparation
The principle accounting policies adopted in the preparation of
the unaudited condensed interim consolidated financial statements
are set out below.
The unaudited condensed interim consolidated financial
statements have been prepared using the recognition and measurement
principles of International Financial Reporting Standards (IFRS) as
adopted in the European Union.
These interim financial statements are unaudited but have been
reviewed by the auditors whose review report is set out below.
The same accounting policies, presentation and methods of
computation are followed in these interim consolidated financial
statements as those followed in the preparation of the Group's
annual financial statements for the year ended 30 September 2012
and which are expected to be applied for the consolidated financial
statements for the year ending 30 September 2013.
The report of the auditors on the financial statements for the
year ended 30 September 2012 was unqualified but did include
references to an emphasis of matter in respect of:
(a) the going concern of the Group which arose from its need for
further working capital in the foreseeable future together with the
breach of certain banking covenants and the possibility of further
loan covenant breaches given the current trading environment and
the effects it is having on rental income levels and future
property values, thus requiring the support of the lending banks
for the ongoing and future development of the Group.
(b) the valuations of investment properties which were based on
various assumptions and limiting conditions, many of which are
difficult to assess.
Going Concern
The unaudited condensed interim consolidated financial
statements have been prepared on a going concern basis which
assumes that the Group will be able to meet its liabilities as they
fall due, for the foreseeable future.
The outstanding breaches of certain loans, notably with Proton
Bank, KBC Bank (Sibiu 1) and the syndicate of banks EFG, Bank of
Greece, Bank of Cyprus and Bank Romaneasca (Era Oradea) for
non-payment of loan amounts falling due gives the right to the
lending banks to accelerate the repayment of the debt which if
effected would impact the going concern of the Group. However, the
Company is in on-going discussions with the banks concerned with a
view to reaching a consensual agreement or restructuring of these
debts.
The continued subdued trading conditions in the local markets in
which the Group operates requiring the continued need to grant
material tenant discounts has resulted in reduced project level
cash flows which the Investment Manager has sought, and continues
to seek, to alleviate by renegotiating where possible existing bank
loan facilities to minimise short term cash commitments whilst
rental income stabilises and tenant discounts can be phased
out.
While these actions have helped to improve the immediate and
future cash position, the cash flow forecasts prepared by the
Investment Manager for the next 12 months indicate that the Group
requires additional working capital for the foreseeable future;
this requirement is currently being provided by the Investment
Manager or funds advised by a fellow subsidiary of the Investment
Manager's parent company. Firstly, by its agreement to accept
extended payment terms of its management fee as and when it becomes
due to align settlement to the cash flow availability within the
Group; secondly, in providing a short term loan facility to assist
with specific bank funding needs and thirdly, by providing an
undertaking to provide additional working capital over the next 12
months, as and when this is required.
In order to meet the liabilities and those specifically falling
due to the Investment Manager's and/or its related companies'
provision of ongoing support to the Group, as well as to enhance
working capital, the Company is looking at a number of sources
including asset sales, additional or further restructuring of bank
borrowings and the issue of additional equity capital.
In reviewing the forecasts the Directors have taken into account
material risks and uncertainties, which in addition to those
outlined above regarding the successful conclusion to the Proton
Bank KBC Bank and the syndicate of banks EFG, Bank of Greece, Bank
of Cyprus and Bank Romaneasca discussions, also include the
following:
-- Certain surplus cash funds held in project subsidiary
companies required for use of the Group's working capital needs in
general requires the approval of the specific lending banks
financing these projects.
-- The continuing uncertain trading environment and its impact
on tenants and their ability to pay their contractual rent
obligations in a timely manner. With tenant negotiations ongoing
the continued downward pressure on rental income continues to
impact on certain bank loan covenants and this will require further
negotiation and ongoing support of the Group's lending banks.
-- The ability to attract key tenants and further lease
available tenant space is dependent on being able to provide
fit-out incentives which requires funding support by the existing
lending banks.
The above represents a material uncertainty which may cast
significant doubt on the Group's ability to continue as a going
concern. In the Directors' view discussions are continuing on the
above satisfactorily and they have therefore concluded that it is
appropriate to prepare these financial statements on a going
concern basis. The financial statements do not include the
adjustments that would result if the Group was unable to continue
as a going concern.
The condensed financial statements are presented in euros and
all values are rounded to the nearest thousand (EUR'000) except
when otherwise indicated.
The financial information summarised does not constitute
statutory accounts.
b. Basis of consolidation
The consolidated financial statements incorporate the results of
the Company and entities controlled by the Company (its
subsidiaries) made up to 31 March 2013. Control exists where the
Company has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain
benefits from its activities. All inter-company loan balances,
interest charges and investments are eliminated on
consolidation.
The financial statements of the subsidiaries are prepared for
the same reporting period as the Company. The accounting policies
are applied consistently throughout the Group.
3. EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the profit
attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year.
31 March 31 March 30 September
2013 2012 2012
EUR'000 EUR'000 EUR'000
Net loss attributable
to shareholders of the
parent (5,413) (4,122) (2,878)
number number number
Weighted average number
of ordinary shares in
issue 608,041,718 608,041,718 608,041,718
------------------ ------------------ ------------------
EUR EUR EUR
Basic earnings per share (0.009) (0.007) (0.005)
================== ================== ==================
The Company has no dilutive potential ordinary shares. The
diluted earnings per share are the same as the basic earnings per
share.
4. NET ASSET VALUE PER SHARE
The Net Asset Value per share is based on shareholders' equity
at the period end as follows:
31 March 31 March 30 September
2013 2012 2012
EUR'000 EUR'000 EUR'000
Net Asset Value 57,552 61,505 63,158
Add back deferred tax
provision attributable
to equity shareholders 10,960 8,519 10,622
Adjusted Net Assets 68,512 70,024 73,780
Number of ordinary shares
in issue 608 million 608 million 608 million
Net Asset Value per share EUR0.0947 EUR0.1012 EUR0.1039
================== ================== ==================
Adjusted Net Asset Value
per share EUR0.1127 EUR0.1152 EUR0.1213
================== ================== ==================
The adjustment added back to arrive at the Adjusted Net Asset
Value has been made to reflect the likely value of the Group given
that the deferred tax liability provided is unlikely to crystallise
in full as the Group is likely to dispose of the property holding
companies rather than the properties themselves.
5. INVESTMENT PROPERTY
31 March 31 March 30 September
2013 2012 2012
EUR'000 EUR'000 EUR'000
Fair value
At start of period 437,833 433,264 433,264
Capital expenditure during
the period 302 2,476 3,998
Fair value (write down)/uplift (4,056) (6,101) 571
At end of period 434,079 429,639 437,833
===================== ===================== =================
Adjustment from market
value to fair value
Market value 446,304 440,186 449,512
Adjustment for rent recognised
in advance (12,225) (10,547) (11,679)
At end of period 434,079 429,639 437,833
===================== ===================== =================
Suceava Sibiu Era Shopping Era Shopping Riviera
Shopping Shopping Park, Park, Shopping Iasi Chisinau Nikolaev
City City Oradea Iasi City Land Land Land Total
Location Romania Romania Romania Romania Ukraine Romania Moldova Ukraine
Commercial Commercial Commercial Commercial Commercial Development Development Development
Type of Asset retail retail retail retail retail land land land
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
Fair value at
1 October
2011 63,739 114,012 79,529 81,014 83,676 8,037 2,509 748 433,264
Capital
expenditure
on
construction
and
development - 455 1,955 -30 96 - - - 2,476
Net gain from
fair value
adjustments
of
investment
property (2,998) (1,974) (2,501) (2,080) 3,530 (78) - - (6,101)
Fair value at
31 March
2012 60,741 112,493 78,983 78,904 87,302 7,959 2,509 748 429,639
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Capital
expenditure
on
construction
and
development - 544 475 64 432 - 7 - 1,522
Net gain from
fair value
adjustments
of
investment
property 307 818 (1,826) (4,167) 12,489 (799) (16) (134) 6,672
Fair value at
30 September
2012 61,048 113,855 77,632 74,801 100,223 7,160 2,500 614 437,833
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Capital
expenditure
on
construction
and
development 1 200 61 31 9 - - - 302
Net gain from
fair value
adjustments
of
investment
property 2,756 (4,027) (2,516) (1,007) 738 - - - (4,056)
Fair value at
31 March
2013 63,805 110,028 75,177 73,825 100,970 7,160 2,500 614 434,079
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Adjustments
from market
value to fair
value
Market Value 62,517 114,082 80,053 80,098 92,220 7,959 2,509 748 440,186
Adjustment
for
rent
recognised
in advance (1,776) (1,589) (1,070) (1,194) (4,918) - - - (10,547)
Fair value at
31 March
2012 60,741 112,493 78,983 78,904 87,302 7,959 2,509 748 429,639
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Market Value 62,340 115,070 79,280 76,510 106,038 7,160 2,500 614 449,512
Adjustment
for
rent
recognised
in advance (1,292) (1,215) (1,648) (1,709) (5,815) - - - (11,679)
Fair value at
30 September
2012 61,048 113,855 77,632 74,801 100,223 7,160 2,500 614 437,833
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
Market Value 64,620 111,870 77,170 75,900 106,470 7,160 2,500 614 446,304
Adjustment
for
rent
recognised
in advance (815) (1,842) (1,993) (2,075) (5,500) - - - (12,225)
Fair value at
31 March
2013 63,805 110,028 75,177 73,825 100,970 7,160 2,500 614 434,079
----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
The market value of the Group's investment properties at 31
March 2013 has been arrived at on an open market value basis,
carried out by independent professionally qualified valuers,
Cushman & Wakefield, in accordance with the requirements of the
Appraisal and Valuation Manual, 8(th) Edition published by the
Royal Institution of Chartered Surveyors.
Open market value is determined by reference to market based
evidence, which is the amount for which the asset could be
exchanged between a knowledgeable willing buyer and seller, in an
arms' length transaction. The valuation methodology involves the
discounted cash flow of the future rental income streams and a
reversionary value discounted to a present value estimate. It also
includes an assessment of open market transactions within the
specific asset region.
The fair values of investment property at 31 March 2013, 31
March 2012 and 30 September 2012 have been adjusted from the
valuations reported by the external valuers for the effects of
tenant lease incentives incurred and accounted for in accordance
with IAS 17. As the investment property valuations take into
account all rental streams including lease incentives an adjustment
is made as the related tenant lease incentive asset is separately
disclosed as part of trade and other receivables.
6. LOANS RECEIVABLE
31 March 31 March 30 September
2013 2012 2012
EUR'000 EUR'000 EUR'000
Loans receivable 11,536 11,429 11,503
Less: provision for
impairment of loans
receivable (1,250) (1,230) (1,223)
Total 10,286 10,199 10,280
============== ============== =================
Non-current portion 1,056 969 1,050
Current portion 9,230 9,230 9,230
Loans receivable 10,286 10,199 10,280
============== ============== =================
The loans receivable comprise:
Moldova subsidiary loans receivablerepresenting advances and
related accrued interest for the purpose of purchases of two plots
of land in Moldova of EUR2.1m (2012: EUR2.3m). The loans are
secured on these land plots in a mortgage agreement. The Moldovan
loans bear interest at the rate of 6% and are repayable by November
2016. Valuations have been carried out by independent valuers,
Cushman & Wakefield, on the related land assets as a result of
which provision has been made of EUR1.3m (2011: EUR1.2m) for the
shortfall between the fair value of the secured land assets and the
loans receivable.
Cyprus subsidiary loan receivablerepresenting an amount of
EUR9.2m (2011: EUR9.2m held in Romanian subsidiary) that is
unsecured. This loan does not bear interest (2012: interest rate of
3 month Euribor plus a margin of 1.75%) and is repayable by July
2013.
7. SHARE CAPITAL AND PREMIUM
No. of Share Share Total
shares capital premium
millions EUR'000 EUR'000 EUR'000
At 31 March 2013 608 6,080 18,159 24,239
At 31 March 2012 608 6,080 18,159 24,239
At 30 September 2012 608 6,080 18,159 24,239
The total number of authorised shares is 1 billion (2012: 1
billion) with a par value of EUR0.01 each (2012: EUR0.01 each). All
issued shares are fully paid.
The Company has only one class of ordinary shares which carry no
right to fixed income.
8. RELATED PARTY TRANSACTIONS
The Group is managed by its Board of Directors, who as the only
management of the Company, received fees for their services. The
total charge to the income statement during the period of EUR0.04m
(2012: EUR0.06m) comprises fees and related expenses due to the
Directors of both the Company and the Group's subsidiaries,
including those outstanding at the period end.
Under an agreement with the Company, Argo Capital Management
Property Limited provides property investment advisory and property
management services to the Group, and is considered a related party
by way of its ability to control the other party or exercise
significant influence over the other party in making financial or
operational decisions. Furthermore, Argo Capital Management
Property Limited is a wholly owned subsidiary of Argo Group Limited
which through one of its subsidiaries manages Funds that acquired a
major interest in the shares of the Company arising from the issue
of new ordinary shares.
During the period the Company incurred management fees of EUR1
million (2012: EUR1 million) due to Argo Capital Management
Property Limitedof which EUR2.7 million (2012: EUR2.2 million) is
accrued or owing at the period end. To assist the cash flow of the
Group, the Manager has not sought settlement of management fees as
they have fallen but rather has conceded extended credit terms.
During the period Argo Special Situations Fund LP lent a further
EUR0.27 million to the Company by way of an additional advance
related to an existing loan agreement. Argo Special Situations Fund
LP is managed by Argo Capital Management Cyprus Limited which is a
wholly owned subsidiary of Argo Group Limited and as such is an
associate of the Manager. Argo Capital Management Cyprus Limited
has full discretionary control over Argo Special Situations Fund LP
and retains all voting rights over the investments in the
portfolio.
9. EVENTS AFTER THE BALANCE SHEET DATE
Bank Financing
Since the period end North Asset Management Sarl a subsidiary of
the Manager, Argo Capital Management Property Limited, has lent
EUR1.0 million to a subsidiary of the Group in order to cure the
event of default that occurred under the KBC loan agreement (Sibiu
2). The loan is repayable on demand and bears annual interest at
the rate of 12%.
INDEPENDENT REVIEW REPORT
Introduction
We have been engaged by the Argo Real Estate Opportunities Fund
Limited (referred to as the "company" and together with its
subsidiaries as "the Group") to review the unaudited condensed set
of financial statements in the interim report of the Group for the
six months ended 31 March 2013 which comprise the unaudited
consolidated statement of comprehensive income, unaudited
consolidated statement of financial position, unaudited
consolidated statement of changes in equity, unaudited consolidated
cash flow statement and the related explanatory notes to the
unaudited consolidated financial statements.
We have read the other information contained in the report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the unaudited
condensed set of consolidated financial statements.
Directors' responsibilities
The interim report is the responsibility of, and has been
approved, by the directors. The directors are responsible for
preparing the interim report in accordance with the rules of the
London Stock Exchange for companies trading securities on the
Alternative Investment Market (AIM).
As disclosed in note 1 of the condensed set of financial
statements for the six months ended 31 March 2013, the annual
financial statements of the Group are prepared in accordance with
IFRSs as adopted by the European Union. The unaudited condensed set
of financial statements included in the interim report has been
prepared in accordance with International Accounting Standard 34,
"Interim Financial Reporting", as adopted by the European
Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the unaudited condensed set of financial statements in the interim
report based on our review.
Our report has been prepared in accordance with the terms of our
engagement to assist the company in meeting the requirements of the
rules of the London Stock Exchange for companies trading securities
on AIM and for no other purpose. No person is entitled to rely on
this report unless such a person is a person entitled to rely upon
this report by virtue of and for the purpose of our terms of
engagement or has been expressly authorised to do so by our prior
written consent. Save as above, we do not accept responsibility for
this report to any other person or for any other purpose and we
hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity", issued by the Auditing Practices Board for use in
the United Kingdom and Ireland. A review of interim financial
information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially
less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the unaudited condensed set of financial
statements in the interim report for the six months ended 31 March
2013 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union, with the London Stock Exchange's AIM rules for companies and
other applicable legislation and regulations.
Emphasis of Matter
In arriving at our review conclusion, which is not qualified, we
draw your attention to the following matters:
a) Going Concern
We have considered the adequacy of the disclosures made by the
Directors in the Basis of Preparation note 2a concerning the
Group's ability to continue as a going concern. These disclosures
identify, amongst other factors, the reliance on the Investment
Manager or related companies to the Investment Manager to provide
continued financial support to the Group, the on-going support of
the lending banks where risks to a breach of terms is possible
under the current trading environment and the on-going support of
lending banks where loans are due to expire within the next twelve
months. These represent material uncertainties which may cast
significant doubt on the Group's ability to continue as a going
concern. The condensed set of financial statements in the interim
report does not include the adjustments that would result if the
Group was unable to continue as a going concern.
b) Valuation of investment properties
The valuation of the investment properties as disclosed in note
5 are based on various assumptions and limiting conditions, many of
which are difficult to assess. The jurisdictions in which the Group
is operating are severely affected by the global economic crisis
and any future estimated cash flows from such investments are
affected by judgments related to the recoveries of these
jurisdictions from the economic crisis. In the event that these
assumptions, judgements or limiting factors do not materialise as
expected, then the valuations contained in the financial statements
may not reflect the actual amounts realised. The impact of such
adjustments to the Group's financial results and position cannot be
readily quantified.
Baker Tilly CI Audit Limited
Chartered Accountants
St. Sampson, Guernsey
27 June 2013
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR UBABROWANUAR
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