RNS Number:3200E
North Real Estate Opportunities Fd
24 September 2007
24 September 2007
North Real Estate Opportunities Fund Limited
Audited Results for the 8.5 month period 14 July 2006 to 31 March 2007
North Real Estate Opportunities Fund Limited (the "Company"/''NREOF'), 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 audited results for the 8.5 month period 14 July 2006 to 31 March 2007.
Highlights
Financial
* Admitted to AIM in August 2006, raising gross proceeds of Euro100m at a price
of Euro1.00 per Ordinary share.
* Audited Adjusted NAV per share as of 31 March 2007 of Euro1.083.
* 12.7% increase in the Adjusted NAV since the Company's admission to AIM on
16 August 2006 after allowing for one-off Company listing costs of Euro3.9m.
* Adjusted NAV figures include the third party independent Property
Valuation Report of the European Retail Park Sibiu as of 31 January 2007
undertaken by Jones Lang LaSalle.
* The valuation report at 30 September 2007 will include the company's
increased property portfolio.
Operational
* Since the Company's listing in August 2006, it has invested or committed
to invest substantially all of the initial net equity proceeds of Euro96m.
* The 4,000 sqm extension currently under construction at the European
Retail Park Sibiu, Romania has been fully pre-leased to strong international
retailers and upon completion will bring the net rental yield of the project
to over 8.0%.
* Construction of the Suceava Shopping City, Romania is progressing
according to schedule and on budget with the opening planned for April 2008,
with lease terms agreed with approximately 68% of its tenants.
* The Company's first project in the Ukraine was commenced in July with the
acquisition of the site for the development of the Riviera Shopping City in
Odessa, a hypermarket-anchored retail park and shopping centre with a Phase
1 of some 75,000 sqm of built area.
* The Company has secured a number of further developments and acquisitions
in Romania and Ukraine, providing a stable platform for continued growth.
John Edward Southgate-Sayers, Chairman said:
"This has been a highly successful period for the business during which we have
substantially invested the capital raised at IPO, creating a strong platform for
further NAV growth. In addition, the Company has a significant pipeline of
compelling transactions."
Further Enquiries
North Real Estate Opportunities Fund Ltd +44 (0)20 7535 4000
Robert Provine
Oriel Securities Limited (Nominated Adviser) +44 (0)20 7710 7600
Tom Durie
Luke Webster
Cardew Group +44 (0)20 7930 0777
Tim Robertson
Shan Shan Willenbrock
David Roach
Chairman's Statement
Introduction
North 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, has made significant progress in the 8.5
month period from 14 July 2006 to 31 March 2007, generating an Audited Adjusted
NAV per share of Euro1.083 as of 31 March 2007.
Company's objective
The Company invests primarily in the commercial property markets of Central and
Eastern Europe. The Company's primary markets of operation are Romania, Ukraine
and Moldova. Its investment objective is to provide investors with a high level
of risk adjusted total returns derived principally from rental income and
capital appreciation from the acquisition, development and active asset
management of its retail and mixed-use property investments.
Financial performance
NREOF is pleased to announce to its shareholders an increase in its audited
Adjusted Net Asset Value ("Adjusted NAV") as of 31 March 2007 along with an
update on the Company's positive trading progress.
The audited Adjusted NAV per share as of 31 March 2007 is Euro1.083, reflecting an
increase of 12.7% in the Company's first 7.5 months of trading, since its
listing on AIM on 16 August 2006.
These audited consolidated financial statements cover the period to 31 March
2007, and the results show a profit after valuation uplift and deferred tax of
Euro2.5m. This includes net interest receivable and rental income for 4.5 months
from the first asset acquisition. The Net Asset Value ("NAV") per share is
Euro0.986 incorporating a deferred tax liability.
The Group's deferred tax liability calculation of Euro9.2m has been prepared on a
full provision basis as required by International Accounting Standard 12 Income
Taxes. We consider it is unlikely that this theoretical liability will
crystallise in full because it takes no account of the way in which the Group
may realise gains in the future. In particular, when companies rather than
properties are sold, previously provided deferred tax provisions may not result
in actual liabilities.
Properties held at 31 March 2007 are shown in the balance sheet at valuation.
The properties were independently valued by Jones Lang LaSalle on 31 January
2007.
Further information on the Group's operations is set out in the Manager's
Report.
Accounting practices
The Company has adopted International Financial Reporting Standards (IFRS) and
has prepared audited consolidated financial statements for this first period of
operations. The accounts have been prepared by the Company's Guernsey based
Administrators, Mourant Guernsey Limited. The Company's reporting currency is
Euros.
Dividend
The Board has declared that the Company will not pay an interim dividend in its
initial period of operations, reflecting a period of set up costs and initial
investments.
Shareholder communication
The Manager has launched a website, www.abcapproperty.com, which is constantly
upgraded for enhanced communication with its shareholders and other interested
parties.
Transactions after period end
Change of Manager
On 9 July the Company announced to the London Stock Exchange, the acquisition of
its management contract by Absolute Capital Management Holdings Limited
("ACMH") from North Asset Management International Limited "North".
ACMH is a specialist fund management company focused on delivering investment
returns through the management of absolute return funds. It is listed on the
AIM market of the London Stock Exchange and manages 12 funds and has some Euro3.25
billion under management.
ACMH is committed to supporting the continued rapid growth of NREOF including
its plans for an additional capital raising to fund further asset management
initiatives on the Company's existing properties and the acquisition and
development of a further pipeline of transactions in Ukraine and Romania.
The Manager, Absolute Capital Management Property Limited, lead by Robert
Provine and Magnus Lofgren has strengthened its team with the appointment of
Graeme Daniel as financial director.
Change of Accounting Reference Date
The Board announced on 19 July the change of the Company's accounting year end
from 31 July to 30 September with immediate effect. The next period's results
to be audited will be for the 14 months ending 30 September 2007.
The Board of Directors has further resolved that going forward the Adjusted NAV
and NAV will be reported twice annually, 31 March and 30 September, with the
year end figures being fully audited and the interim figures being reviewed in
accordance with ISRE (UK and Ireland) 2410, the Auditing Practices Board
Standard for conducting Interim Reviews, by the Company's auditor, Ernst &
Young LLP.
Change of name
The Board of NREOF has announced proposals to change the Company name to
Absolute Real Estate Opportunities Fund Limited in due course.
Prospects
As of September 2007, the Company has invested substantially all of its equity
proceeds in the development and acquisition of international quality retail
properties in its core markets of Romania, Ukraine and Moldova, in line with its
original business plan.
At 31 March 2007 the Company's investment properties were represented by the
single completed investment in the European Retail Park Sibiu with the remainder
of the initial listing equity proceeds utilised for deposits securing
investments and in cash holdings. In the period since 31 March 2007, the Company
has successfully converted the majority of its cash holdings into investment and
development transactions.
During this period since 31 March 2007, the Company has made good progress on
development projects in Sibiu, Suceava, Odessa and Chisinau as important
development and asset management milestones are achieved. These projects, in
conjunction with a further pipeline of compelling transactions should provide a
stable platform for strong growth in the Company's NAV. The Company continues to
consider funding options, including a capital raising, to finance these
developments.
John Edward Southgate-Sayers
Chairman
Manager's Report
Led by fund managers Magnus Lofgren and Robert Provine and supported by the
international platform of Absolute Capital Management ("Absolute"), NREOF
implements a focused strategy of creating institutional quality retail and mixed
use property assets in leading primary and secondary cities in Central and
Eastern Europe with a particular focus on Romania, Ukraine and Moldova. As
announced on 9 July 2007, Magnus and Robert, along with their property team from
North Asset Management joined Absolute in conjunction with their taking over the
Management Contract for NREOF.
Absolute's strong global asset management business spans equities, debt and
private equity providing the Company with a strong manager and partner with long
experience and strong relationships across NREOF's core Central and Eastern
European target markets.
Since its listing in August 2006, the Company has committed substantially all of
its original Euro96m equity capital (net of listing costs) to projects, and has
invested approximately Euro90m of those proceeds, significantly ahead of its
original business plan.
The first full 7.5 months of trading, to 31 March 2007, represented a period of
intense deal origination and due diligence for the Company, which laid the
foundation for the following period up to the date of this report, which has
been a period of consistent execution, development and asset management. The
Adjusted NAV of Euro1.083, at 31 March 2007, achieved during this preparatory
period, has placed the Company in a strong position to realise robust asset
value growth through the next six months, during which a number of core
development, asset management and acquisition milestones should be achieved.
The anticipated strong growth in asset value since the period ending 31 March
2007 has been generated primarily by (i) the completion of 100% of the
pre-leasing for the 4,000 sqm extension of the European Retail Park Sibiu, which
is being implemented at approximately a 20% yield on cost, (ii) the on-time
achievement of the core development milestones of the 50,000 sqm Suceava
Shopping City and (iii) completion of NREOF's first Ukraine transaction, the
acquisition of the 185,000 sqm development site of the Odessa Riviera Shopping
City, a 100,000 sqm hypermarket and DIY-anchored retail park and shopping
centre.
The Company will undertake third party valuations on the portfolio of property
assets at the new year end of 30 September 2007. Based upon preliminary third
party valuations carried out during the period between 31 March 2007 and the
date of this announcement, it is expected that these re-valuations will result
in a significant uplift in the Company's Adjusted NAV..
Since 31 March 2007 the Company has also secured a number of new transactions
which, subject to completion, should create further substantial asset value
growth over the next 6 months and beyond, including the off-market acquisition
of a Romanian retail park and shopping centre portfolio anchored by leading
international tenants, the acquisition of NREOF's second Ukrainian retail park
development site in an important secondary city with strong support from
international anchor tenants, and the completion of the assembly of three retail
and mixed-use development sites in Chisinau, Moldova.
The general market conditions of decreasing market investment yields and
increasing costs of borrowing have continued over the period and are
increasingly making development more attractive than more debt-sensitive,
leveraged investment acquisitions. These market realities re-enforce the
Company's strategy of pursuing its development programme in Romania, Ukraine and
Moldova and focusing on investment acquisitions only where substantial asset
management initiatives have been identified (extensions, refurbishments and
re-positionings) which will materially increase rental yields within 12 months
of purchase.
Looking forward, the Manager is confident that the transactions completed to
date will meet or exceed the Company's annualised return targets, and believe
that the pipeline of further development projects in Ukraine will substantially
outperform these targets. It is in support of securing a number of fully
identified further development and investment transactions, primarily in
Ukraine, that the Manager wishes to come to the shareholders in early fourth
quarter to discuss raising additional funding. This funding will be only the
minimum required over the following six months to acquire the sites and fund
pre-development works for these projects.
Transaction Overviews
European Retail Park Sibiu, Romania
NREOF acquired the European Retail Park, Sibiu in November of 2006 for Euro83m with
a current aggregate equity investment, after bank refinancing in May 2007, of
some Euro18m. The Real Hypermarket (Metro Group) anchored retail park includes
several large international and regional retailers including Baumax, Media
Galaxy and Mobilia. The 47,000 sqm scheme is the city's only Class-A shopping
mall and is currently being extended by 4,000 sqm which will entail a further
Euro2.2m investment. The property is currently managed by Cushman Wakefield and has
approximately 96% occupancy with all vacancy covered by a rental guarantee from
the vendor.
Since acquiring the property, NREOF has fully pre-leased a 4,000 sqm extension
to leading international retailers, Hervis, Deichman, Takko and New Yorker. The
extension is currently under construction and will be completed in fourth
quarter of this year. NREOF has also initiated plans for a 5,000 sqm leisure
area including a multiplex cinema and multi-lane bowling alley following strong
interest from a successful regional leisure operator / tenant.
The un-leveraged rental yield of the project upon completion of the extension
will be in excess of 8.0%.
Suceava Shopping City, Suceava, Romania
The Company secured an investment in the development of Suceava Shopping City in
November 2006, with a Euro5m loan advanced to the JV company, secured by a mortgage
on the project site. The 50,000 sqm retail park is anchored by a Carrefour
Hypermarket along with several other prominent "big-box" retailers including
Baumax, Media Galaxy and Mobexpert as well as a 10,000 sqm shopping mall. Lease
terms have been agreed with approximately 65% of the tenants, with notable
retailers including Benetton, Leonardo, Deichmann and Kenvelo.
The development is progressing on schedule for completion in April 2008 and will
entail a Euro68m total investment including an equity investment of approximately
Euro18m by NREOF, of which Euro17.5m was invested in July 2007 on completion of the
Company's acquisition of a 50% interest in the project company.
Upon completion the project is projected to generate an un-leveraged rental
yield in excess of 8.5%.
Riviera Shopping City, Odessa, Ukraine
The Company announced its first transaction in Ukraine in July 2007, with the
acquisition of an 185,000 sqm site and the launch of the 100,000 sqm development
of the Riviera Shopping City, Odessa's first internationally anchor-tenanted
destination shopping centre. The development which is on the eastern edge of
Odessa known as the "Odessa Riviera", is an attractive and highly sought after
residential area consisting of both luxury villas and sea-side gated communities
and adjoining the city's highest density residential neighbourhood.
Including the acquisition of the entire site, phase 1 will have total
development cost (acquisition, construction and finance) of some Euro75 million, of
which it is estimated that up to Euro25 million will be equity funded of which Euro19m
has been funded to date. Phase 1 is planned to commence construction in 1st
quarter 2008 with staged delivery in 4th quarter 2008 and 1st quarter 2009. The
project is budgeted to generate a yield on cost in excess of 12% and should be
strongly accretive to the Company's returns.
Moldova Retail and Mixed Use Development Sites, Chisinau, Republic of Moldova
In conjunction with a local partner, the Company 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 Company is also currently assembling two
further potential out-of-town retail park sites on prominent motorway locations
on the periphery of Chisinau. These are capable of accommodating retail park
projects similar to those currently being undertaken by the Company in Romania.
The Company's total equity investment to date in the Moldovan projects is
approximately Euro12.5m.
Further developments and acquisitions in Romania and Ukraine
The Company has identified a further pipeline of compelling yield enhancing
retail development projects and investment acquisitions in line with NREOF's
investment objectives. These include a portfolio of internationally anchor
tenanted retail park projects secured in Romania with an equity requirement of
some Euro55m (of which Euro15m has already been placed as a refundable deposit to
secure the projects), the Company's second Ukrainian retail park development
site secured by a refundable deposit, the further extension of its existing
Romanian assets and a portfolio of retail development sites identified in
Ukraine requiring an equity investment of just over Euro100m.
The full programme will utilise the remaining equity capital in the Company and
proceeds from the refinancing of any existing assets. In addition, the Company
continues to review other capital raising options to fund this and other fully
specified pipeline developments which it will be discussing directly with
shareholders in conjunction with the release of these Results.
Robert Provine Magnus Lofgren
Fund Manger Fund Manager
CONSOLIDATED INCOME STATEMENT
For the period from 14 July 2006 (date of incorporation) to 31 March 2007
NOTE Euro
INCOME
Gross rental income 1,326,954
Related income 718,104
Property operating expenses (889,056)
________________________________________________________________________
Net rental and related income 1,156,002
========================================================================
Changes in fair value of investment
property 9 3,991,139
========================================================================
EXPENSES
Investment manager's fees (1,751,812)
Legal and professional fees (545,328)
Accounting and administration expenses (314,373)
Auditors' remuneration (172,658)
Directors' fees and expenses (68,886)
Sundry expenses (22,822)
________________________________________________________________________
(2,875,879)
________________________________________________________________________
Operating profit 2,271,262
========================================================================
NET FINANCING INCOME
Bank interest income 915,995
Other interest income 308,400
Finance costs (740,512)
Net foreign exchange gain 1,839,468
________________________________________________________________________
Net financing income 2,323,351
========================================================================
PROFIT BEFORE TAXATION 4,594,613
Taxation - current 4 (420,543)
Taxation - deferred (1,687,712)
________________________________________________________________________
Total taxation (2,108,255)
Profit for the period attributable to
Equity Holders 2,486,358
========================================================================
Basic and diluted earnings per ordinary
share 5 0.025
========================================================================
All items in the above statement derive from continuing operations.
There are no gains or losses other than those listed above. The accompanying
notes on pages 22 to 36 form an integral part of these financial statements.
CONSOLIDATED BALANCE SHEET
As at 31 March 2007
ASSETS NOTE Euro
Non-current assets
Investment property 9 95,800,000
Other fixed assets 10 37,752
________________________________________________________________________
Total non current assets 95,837,752
========================================================================
CURRENT ASSETS
Trade and other receivables 11 21,651,052
Cash and cash equivalents 34,524,984
________________________________________________________________________
Total current assets 56,176,036
========================================================================
Total assets 152,013,788
========================================================================
EQUITY
Capital and reserves attributable to
equity holders of the company
Share capital 16 1,000,000
Share Premium/Distributable reserve 17 95,096,507
Retained earnings 2,486,358
________________________________________________________________________
Total equity 98,582,865
========================================================================
LIABILITIES
Non - Current liabilities
Deferred income tax 9,213,915
________________________________________________________________________
Total liabilities 9,213,915
========================================================================
Current liabilities
Trade and other payables 14 7,864,284
Current income tax 473,827
Interest bearing bank loans 13 35,878,897
________________________________________________________________________
Total liabilities 44,217,008
========================================================================
Total equity and liabilities 152,013,788
________________________________________________________________________
The financial statements were approved and authorised for issue by the Board of
Directors on 17 September 2007 and signed on its behalf by J.E.Southgate Sayers
and Dr R..Brown.
The accompanying notes on pages 22 to 36 form an integral part of these
financial statements.
CONSOLIDATED CASH FLOW STATEMENT
For the period from 14 July 2006 (date of incorporation) to 31 March 2007
NOTE Euro
________________________________________________________________________
Cash flow from operating activities 15 3,408,219
========================================================================
INVESTING ACTIVITIES
Purchase of investment property (83,100,218)
Capital expenditure (1,182,440)
Purchase of property, plant and equipment (37,752)
Interest received 1,224,394
Loans advanced (17,022,111)
________________________________________________________________________
Net cash outflow from investing activities (100,118,127)
========================================================================
FINANCING ACTIVITIES
Proceeds from the issue of shares 100,000,000
Issue costs (3,903,493)
Drawdown of bank loan 35,878,897
Interest paid (740,512)
________________________________________________________________________
Net cash inflow from financing activities 131,234,892
========================================================================
Increase in cash and cash equivalents 34,524,984
=======================================================================
Cash and cash equivalents at start of period -
________________________________________________________________________
Cash and cash equivalents at 31 March 2007 34,524,984
========================================================================
The accompanying notes on pages 22 to 36 form an integral part of these
financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period from 14 July 2006 (date of incorporation) to 31 March 2007
Share Share Distributable Retained Total
Capital Premium Reserve Earnings
(Note 16) (Note 17) (Note 17)
Group Euro Euro Euro Euro Euro
Share capital 1,000,000 - - - 1,000,000
Share premium
on issue - 99,000,000 - - 99,000,000
Cancellation of
share premium - (95,000,000) 95,000,000 - -
Placing fees
and formation
costs - (3,903,493) - - (3,903,493)
Unrealised gain
on revaluation
of investment
properties - - - 3,991,139 3,991,139
Net loss for
the period - - - (1,504,781) (1,504,781)
______________________________________________________________________________
At 31 March
2007 1,000,000 96,507 95,000,000 2,486,358 98,582,865
==============================================================================
NOTES TO THE 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 of the London Stock Exchange.
The Company invests in commercial property in Central and Eastern Europe which
is held through its subsidiary companies. The consolidated financial statements
of the Company for the period ended 31 March 2007 comprise the financial
statements of the Company and its subsidiaries (together referred to as the
"Group").
2. SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies, all of which have been applied
consistently throughout the period, is set out below.
a. Basis of accounting
The interim financial statements of the Group have been prepared in accordance
with International Financial Reporting Standards ("IFRS"), which comprise
standards and interpretations approved by the International Accounting Standards
Board ("IASB"), and International Accounting Standards and Standards
Interpretations Committee interpretations approved by the International
Accounting Standards Committee ("IASC") that remain in effect, and to the extent
that they have been adopted by the European Union.
The financial statements have been prepared on the historical cost basis, except
for the revaluation of investment properties. The principal accounting policies
adopted are set out below.
As this is the first period of operation there are no comparative figures.
New standards and interpretations not applied
IASB and IFRIC have issued the following standards and interpretations
with an effective date after the date of these financial statements:
International Accounting Standards (IAS/IFRS) Effective date
IAS 1 (revised) Presentation of Financial Statements (revised) 1 January 2007
IFRS 7 Financial Instruments: Disclosure 1 January 2007
IFRS 8 Operating Segments 1 January 2008
International Financial Interpretations Committee (IFRIC)
IFRIC 10 Interim Financial Reporting and Impairment 1 Nov 2006
IFRIC 11 IFRS 2 - Group and Treasury Share Transactions 1 March 2007
IFRIC 12 Service Concession Arrangements 1 January 2008
The Directors have chosen not to early adopt the above standards and
interpretations effective after the period end but they do not
anticipate that they would have a material impact on the Group's
financial statements in the period of initial application.
Upon adoption of IFRS 7, the Group will have to disclose additional
information about its financial instruments, their significance and the nature
and extent of risks that they give rise to.
More specifically the Group will need to disclose the fair value of
its financial instruments and its risk exposure in greater detail. There will be
no effect on reported income or net assets.
b. Basis of consolidation
Subsidiaries are those entities, including special purpose entities, controlled
by the Company. 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 Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings drawn up to 31 March 2007. The results
of the subsidiary undertakings are accounted for in the Consolidated Income
Statement from the effective date of acquisition.
Acquired companies have been included in the consolidated financial statements
using the purchase method of accounting when, and only when, the transaction can
be identified as a business combination. When determining if an acquisition
qualifies as a business combination or not, management consider if the
transaction includes the acquisition of supporting infrastructure, employees,
service provider agreements and major input and output processes, as well as
active lease agreements.
The cost of investment in a subsidiary is eliminated against the Group's share
in net assets at the date of acquisition. All intercompany receivables,
payables, income and expenses are eliminated. Subsidiaries are fully
consolidated from the date of acquisition, being the date on which the Group
obtains control, and will continue to be consolidated until the date that such
control ceases.
c. Foreign currency translation
The functional and presentational currency is the Euro. Transactions in
currencies other than the functional currency are recorded using the exchange
rate at the transaction date. Foreign currency assets and liabilities are
translated at the rate at the balance sheet date. Gains and losses are reported
in the income statement.
d. Revenue recognition
Interest receivable is included in the financial statements on an accruals
basis. Rental income from investment property leased out under operating leases
is recognised in the consolidated income statement on a straight-line basis over
the term of the lease.When the Group provides incentives to its customers, the
cost of incentives is recognised over the lease-term, on a straight-line basis,
as a reduction of rental revenue. Revenue from rendering services is recognised
on an accruals basis over the period to which the services relate.
e. Expenses
Expenses are accounted for on an accruals basis and include those of the
Administrators, the Manager and the Directors and are charged through the income
statement in the period in which these are incurred. The costs associated with
acquiring investment property are capitalised with the cost of the investment in
accordance with IAS 40 Investment Property.
f. Formation and placing expenses
Formation and placing expenses include the costs arising from the incorporation
of the Company, the offer of subscription and admission. These include set up
costs, legal and accounting fees and other initial expenses. Placing expenses
are the expenses incurred in the raising of share capital and are deducted from
equity proceeds.
g. Taxation
The Company has obtained exempt company status in Guernsey under the terms of
the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and accordingly is
subject to an annual fee, currently #600. The Directors intend to conduct the
Group's affairs such that it continues to remain eligible for exemption. No
charge to Guernsey taxation arises on capital gains.
i) Income taxes
The Group is subject to income taxes in different jurisdictions. Significant
estimates are required in determining the worldwide provision for income taxes
and our local administrators have been engaged to provide us with these
estimates. Local taxation payable in the jurisdictions in which the Company
operates is charged to the income statement as it arises. The tax currently
payable is based on the taxable profit of the year for the local companies.
Taxable profit differs from net profit as reported in the income statement
because it excludes certain items of income and expense that may not be taxable
or deductible in the local jurisdiction. The group's liability for current tax
is calculated using prevailing tax rates.
ii) Deferred taxation
The Company structure is designed in a way that future disposals of investment
property will be achieved through sale of the corporate entity which owns such
investment property rather than the sale of the underlying property, and where
that structure is in place at the balance sheet date, then deferred taxation is
measured at the tax rate that is applicable to a sale of the corporate entity.
Deferred income tax is provided using the balance sheet liability method.
Deferred income tax is recognised on all temporary differences arising between
the tax bases of assets and liabilities and their carrying amounts in the
financial statements except:
(i) where the temporary difference arises from the initial recognition of
goodwill or of an asset or liability in a transaction that is not a business
combination that at the time of the transaction affects neither accounting nor
taxable profit or loss;
(ii) in respect of taxable temporary differences associated with investments in
subsidiaries, associates and joint ventures, where the timing of the reversal of
the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future; and
(iii) deferred tax assets are only recognised to the extent that it is
probable that taxable profit will be available against which the deductible
temporary differences, carried forward tax credits or tax losses can be
utilised.
Deferred income tax assets and liabilities are measured on an undiscounted basis
at the tax rates that are expected to apply to the year when the related asset
is realised or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the balance sheet date.
h. Dividends
Interim dividends are recognised in the period in which they are paid. Final
dividends are recognised once they are approved by shareholders.
i. Investment properties
Investment properties are those which are held to earn rental income and/or
capital appreciation. They are initially recognised at cost, being the fair
value of consideration given, including the transaction costs associated with
the property. Subsequent to initial recognition, investment properties are
stated at fair value and will be re-valued at least annually by independent
valuers, calculated in accordance with IAS40 Investment Property and the
practice statements of the RICS Appraisal and Valuation Manual 5th Edition,
adapted as necessary to reflect individual market considerations and practices.
Gains or losses arising from revaluation of investment property to fair value
are included in the income statement for the period in which they arise.
j. Financial instruments
Financial assets and financial liabilities are recognised in the Group's balance
sheet when the Group becomes party to the contractual provisions of the
instrument. The Group shall offset financial assets and financial liabilities if
the Group has a legally enforceable right to set off the recognised amounts and
interests and intends to settle on a net basis. The Group holds cash and liquid
resources as well as having debtors and creditors that arise directly from its
operations.
k. Trade and other receivables
Trade and other receivables do not carry any interest and are short-term in
nature and are accordingly stated at their nominal value as reduced by
appropriate allowances for estimated irrecoverable amounts. Trade and other
receivables are measured at initial recognition at their invoiced value
inclusive of any value added taxes that may be applicable.
l. Trade and other payables
Trade and other payables are not interest-bearing and are stated at their
nominal value. Trade and other payables are recognised and carried at their
invoiced value inclusive of any value added taxes that may be applicable.
m. Cash and cash equivalents
Cash in banks and short term deposits that are held to maturity are carried at
cost. Cash and cash equivalents consist of cash in hand and short term deposits
in banks with an original maturity of three months or less.
n. Interest bearing bank loans and borrowings
All bank loans and borrowings are initially recognised at cost, being fair value
of the consideration received, less issue costs where applicable. After initial
recognition, all interest-bearing loans and borrowings are subsequently measured
at amortised cost using the effective interest method. Amortised cost is
calculated by taking into account any discount or premium on settlement.
o. Share capital
Ordinary shares are classed as equity. External costs directly attributable to
the issue of the shares are shown in equity as a deduction, from the proceeds.
p. Property, plant and equipment
Property, plant and equipment is stated at historical cost less subsequent
depreciation and impairment.
Depreciation on property, plant and equipment is calculated using the
straight-line method to allocate their cost less estimated residual values over
their estimated useful lives, as follows :
Property, plant and equipment 4-5 years
The assets' residual values and useful lives are reviewed and adjusted, if
appropriate, at each balance sheet date.
3. SEGMENTAL REPORTING
The Directors are of the opinion that the Group is engaged in a single segment
of business being retail property investment business. It operates in a single
geographical segment (Eastern Europe) and the properties are let to commercial/
retail entities.
4. TAXATION
The Company's Romanian subsidiary is subject to its jurisdiction's income tax on
income arising on the investment property, after the deduction of debt financing
costs, allowable expenses and capital allowances.
The fair value adjustment of the investment property results in a temporary
difference between the carrying value of the property and its tax basis. The
Company recognises deferred tax liabilities of Euro9,213,915 (of which Euro7,526,203
is due to pre-acquisition differences) for the investment property situated in
Sibiu, Romania. The Directors believe that there will be no discount made to the
selling price of the shares for any potential deferred tax related to the
underlying investment properties that might accrue to future buyers if they were
to sell the properties directly.
Euro
Current tax 420,543
Deferred tax 1,687,712
_________
2,108,255
=========
The current income tax charge represents tax charges on profit arising in
Romania at a corporate income tax rate of 16%. The effective rate of income tax
is lower than the standard rate of corporation tax in Romania as a result of the
following:
Euro
Profit before tax in Romania 2,261,895
Tax calculated at the rate of corporate tax in Romania 361,903
at 16%
Expenses not deductible for tax purposes 347,331
Income not subject to tax (reserve fund of 5% of (113,095)
profits up to max of 20%)
Utilisation of tax losses carried forward (175,596)
_________
Total tax expense for the year 420,543
=========
5. BASIC AND DILUTED EARNINGS PER SHARE
The basic and diluted earnings per Ordinary Share are based on the net profit
for the period of Euro 2,486,358 and on 100,000,000 Ordinary Shares, being the
weighted average number of shares in issue during the period.
There are no dilutive interests as at 31 March 2007.
6. NET ASSET VALUE PER SHARE
The Net Asset Value per share is based on shareholders' equity at the period end
as follows :
Net Assets (Euro '000) 98,583
Number of ordinary shares at 31 March 2007 (000's) 100,000
Net Asset Value per share Euro0.9858
The Adjusted Net Asset Value per share is based on the shareholders' equity
excluding the effect of deferred tax liability :
Adjusted Net Assets (Euro '000) 108,297
Number of ordinary shares at 31 March 2007 (000's) 100,000
Adjusted Net Asset Value per share Euro1.0830
Reconciliation between NAV and Adjusted NAV Euro ('000)
Net Assets 98,583
Add back deferred tax provision 9,214
Add back provision for Manager's performance fee 500
________
Adjusted Net Assets 108,297
========
7. DIVIDENDS
No dividends have been declared or paid to date.
8. SUBSIDIARIES
The Directors consider that to give full particulars of all subsidiary
undertakings would lead to excessive length. The following information relates
to those wholly owned subsidiaries whose results or financial position, in the
opinion of the Directors, principally affected the figures of the Group at 31
March 2007
NREOF ERP SRL (Romania) NREOF Finance BV (Netherlands)
NREOF Leopold SARL (Luxembourg) Beheersmatschappij Strijbos BV (Netherlands)
NREOF Holding SARL (Luxembourg) Retail Land East SRL (Moldova)
Retail Land West SRL (Moldova)
These companies are 100% controlled within the group, the ultimate parent being
North Real Estate Opportunities Fund Limited.
9. INVESTMENT PROPERTY
Euro
Acquisition during the period at cost 84,282,658
Deferred tax thereon 7,526,203
Fair value adjustment in the period 3,991,139
__________
Investment property at fair value 95,800,000
==========
The fair value of the Group's investment property at 31 March 2007 has been
arrived at on an open market value basis, carried out by Jones Lang LaSalle,
independent valuers, in accordance with the requirements of the Appraisal and
Valuation Manual, 5th Edition published by the Royal Institution of Chartered
Surveyors.
Open market value deemed to be fair 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 cashflow of the
future rental income streams and a reversionary value discounted to a present
value estimate. It also includes an assessment of the recent open market sales
and investments within the Central and Eastern European regions.
INVESTMENT PROPERTY Euro
Acquisition cost 83,100,218
Capital expenditure during the period 1,182,440
Total cost 84,282,658
Deferred tax thereon 7,526,203
Fair value uplift 3,991,139
__________
Market value 95,800,000
==========
10. PROPERTY, PLANT AND EQUIPMENT
Euro
COST
At 14 July 2006 -
Additions during the period 37,752
Disposals -
__________
At 31 March 2007 37,752
==========
DEPRECIATION
At 14 July 2006 -
Depreciation charge -
Disposals -
__________
At 31 March 2007 -
==========
NET BOOK VALUE
At 14 July 2006 -
==========
At 31 March 2007 37,752
==========
11. TRADE AND OTHER RECEIVABLES
Euro
Trade and other receivables 1,906,817
Deferred acquisition costs 101,771
Prepayments and other accrued income 582,052
Loans receivable 17,187,508
Tax receivable 1,872,894
__________
Total 21,651,052
==========
Loans receivable represents advances made and deposits for purchases of land in
Moldova of Euro12m that are secured on title of the land, and in Romania of Euro 5m.
The loans are advanced for a maximum period of 12 months and bear interest
ranging from 5% to 6%.
In the opinion of the directors, all trade and other receivables are recoverable
at their stated value.
12. CASH AND CASH EQUIVALENTS
At the balance sheet date, the Group held Euro9m on overnight deposit.
The fair value of short-term deposits approximates to the carrying amount due to
the short maturity of these financial instruments. The remainder of the cash and
cash equivalents represent cash deposits.
13. INTEREST BEARING BANK LOANS
Euro
Bank loans
Borrowings repayable : on demand or within
one year 35,878,897
__________
Total 35,878,897
==========
An initial loan of Euro24 million was purchased along with the acquisition of the
European Retail Park, Sibiu. Subsequent to an increase in the loan facility in
December 2006 to Euro36 million, a further drawdown of Euro12m was made, with the
entire loan maturing on 31 December 2007. Total amount drawn as of 31 March 2007
was Euro35,878,897 excluding fees and represents an interest only loan.
Interest is payable quarterly at 3 month EURIBOR plus a margin of 2%.
The Loan is secured with a first rank mortgage over the real estate property,
i.e. the Retail Park, a general pledge on the subsidiary's entire assets and its
issued shares.
Covenants include interest cover of 125%, loan to value of 78%. In addition,
property related covenants include de minimis terms for any new lease
agreements. In the period to 31 March 2007 the covenants had been complied with.
14. TRADE AND OTHER PAYABLES
Euro
Trade creditors 1,137,426
Accruals and other payables 1,782,457
Other creditors 4,944,401
__________
Total 7,864,284
==========
15. CASHFLOW FROM OPERATING ACTIVITIES
Euro
Operating profit from continuing operations 2,271,262
Adjustments for changes in -
Changes in fair value on investment property (3,991,139)
Increase in debtors (4,628,941)
Increase in creditors 8,338,112
Foreign exchange gain 1,839,468
Taxation paid (420,543)
__________
Total 3,408,219
==========
16. SHARE CAPITAL
No. of shares Euro
Authorised
Ordinary shares of Euro 0.01 each 250,000,000 2,500,000
___________ __________
Called up, allotted and fully paid
Ordinary shares of Euro 0.01 each 100,000,000 1,000,000
___________ __________
The Company has only one class of ordinary shares which carry no right to fixed
income.
17. SHARE PREMIUM/DISTRIBUTABLE RESERVE
The share premium arose on the issue of the ordinary shares and represents the
difference between the net asset value (share price) of Euro1 at which the shares
were issued, and the par value of one cent (Euro0.01). Issue costs amounting to
Euro3.9m have been written off against the share premium account.
In accordance with the listing prospectus and under the Companies (Guernsey) Law
1994, an application was made to the Royal Court of Guernsey to have the share
premium cancelled and re-designated as a distributable reserve.
18. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the
other party or exercise significant influence over the other party in making
financial or operational decisions. North Asset Management was the Investment
Adviser to the Company under the terms of the Investment Advisory Agreement and
is thus considered a related party of the Company for the period.
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
The directors of the Company received fees for their services and further
details are provided in the directors' report. The total charge to the income
statement during the period of Euro68,886 comprises fees due to the directors of
both the Company and the Group's subsidiaries.
Management Fee
The Manager, under its contractual service contract with the Company, will
receive a quarterly management fee (exclusive of any applicable taxes) equal to
1/4 of 2 per cent of the gross proceeds of the Placing (and any further issues
of Shares). During the period Euro918k has been paid to the Manager and Euro333k is
accrued at the period end.
Performance Fee
The Manager shall also be entitled to a performance fee in respect of each
Property Investment made by the Company equal to 20 per cent of the Realised
Profits attributable to such Property Investment on its realisation, on the
basis that NREOF achieves an annualised return on Adjusted NAV of 10%. No
properties have been disposed of during the period but on the basis of the
Adjusted NAV achieved in the period and the likelihood of the current investment
property being disposed of in the future, a provision of Euro500k for the Manager's
performance fee has been made in these financial statements.
Under the Company's Articles of Association the performance fee attributable to
the Manager is calculated before any provision for deferred tax and any accrued
provision in respect of this performance fee (namely, Adjusted NAV)"
19. OPERATING LEASE COMMITMENTS
Arising from the Group's existing investment property, total operating lease
revenue receivable has been committed for the following periods :
Lease period Less than 1 year 2 - 5 years 5 + years
Tenant commitments Euro5,649k Euro23,910k Euro29,613k
20. BUSINESS ACQUISITION
On the 24th November 2006, the Group made its first acquisition in Romania, a
47,000 square metre European Retail Park in Sibiu for approximately Euro 83
million, comprising Euro24m exisiting debt purchased and the remainder satisfied by
cash.
The 100% acquisition of Belrom Srl which developed the Retail Park, was financed
through existing cash balances and bank debt as mentioned above.
The price paid reflects the fair value of the rental income yield of the
property, hence the costs and fair values of the assets and liabilities are
deemed equal. No goodwill has arisen on the acquisition.
21. CONTINGENCIES
At 31 March 2007 the Group had no contingent liabilities or assets.
Pursuant to the Share Purchase Agreement for the acquisition of the European
Retail Park in Romania, the previous vendor has paid the subsidiary Euro796 k for
amounts related to vacant units as part of the rental guarantee. This has been
treated as a reduction in the purchase price paid by the Group for the property.
22. COMMITMENTS
At 31 March 2007 the Group had no committed expenditure.
During the period since 31 March 2007, the Group has secured further investments
and made deposits for which further expenditure is envisaged.
23. EVENTS AFTER THE BALANCE SHEET DATE
Financing
The Group has refinanced its loans in May borrowing an additional Euro30.5m,
whereby the original loan agreement for Euro36m was amended and restated. The
interest payments are based on 3 month EURIBOR plus a reduced margin of 1.75
percent per annum. The maturity date has been extended to 30 May 2012.
In addition, in May the Romanian subsidiary has entered into an interest rate
swap agreement effectively fixing the interest rate at 4.305%.
Acquisitions:
Ukraine
In July 2007 the Company has exchanged on its first transaction in
Ukraine with the acquisition of a 185,000 sqm site and the launch of
the 100,000 sqm development of Riviera Shopping City, Odessa's first
internationally anchor-tenanted destination shopping centre. This is
achieved via the purchase of a newly set-up company owning the land
asset.
Romania
The Company completed its acquisition of a 50% share interest in the
Suceava Shopping City development company, Priceton Investments and
Real Estate Development Srl ("Priceton"), in July 2007. The 50,000 sqm
Carrefour-anchored retail park and shopping centre is scheduled to
open in April 2008. In conjunction with the acquisition, the Company
refinanced its Euro5m loan to Priceton which secured the Company's
deposit in the transaction.
The Company has placed a Euro15m deposit to secure the acquisition of a
portfolio of retail investments in Romania to be completed in the 4th
quarter 2007 and 1st quarter 2008.
24. TREASURY POLICIES AND FINANCIAL RISK MANAGEMENT
Treasury policies
The objective of the Group's treasury policies is to manage the Group's
financial risk, secure cost effective funding for the Group's operations and to
minimise the adverse effects of fluctuations in the financial markets on the
value of the Group's financial assets and liabilities on reported profitability
and on cashflows of the Group.
The Group finances its activities with a combination of equity and bank loans.
Other financial assets and liabilities, such as trade debtors and creditors,
arise directly from the Group's operating activities. The Group may also enter
into derivative transactions, principally interest rate swaps, to manage the
interest rate risk arising from the Group's operations and its sources of
finance. No derivatives were in place during the period. The Group does not
trade in financial instruments. The main risks associated with the Group's
financial assets and liabilities are set out below, together with the policies
currently applied by the Board for their management. Derivative instruments may
be used to change the economic characteristics of financial instruments in
accordance with the Group's treasury policies.
The Group is exposed to market risk, interest rate risk, credit risk, liquidity
risk and currency risk arising from the financial instruments it holds.
The risk management policies employed by the Group to manage these risks are
discussed below.
Market risk
The Group's exposure to market price risk is comprised mainly of movements in
the value of the Group's investment in property. Property and property related
assets are inherently difficult to value due to the individual nature of each
property. As a result, valuations are subject to uncertainty. There is no
assurance that the estimates resulting from the valuation process would reflect
the actual sales price even where sale occurs shortly after the valuation date
however there is no intention to sell any of the properties at the date of the
report.
Rental income and the market value for properties are generally affected by
overall conditions in the local economy, such as growth in gross domestic
product, employment trends, inflation and changes in interest rates. Changes in
gross domestic product may also impact employment levels, which in turn may
impact the demand for premises. Furthermore, movements in interest rates may
also affect the cost of financing for real estate companies.
Both rental income and property values may also be affected by other factors
specific to the real estate market, such as competition from other property
owners, the perceptions of prospective tenants of the attractiveness,
convenience and safety of properties, the inability to collect rents because of
the bankruptcy or the insolvency of tenants or otherwise, the periodic need to
renovate, repair and release space and the cost thereof, the costs of
maintenance and insurance, and increased operating costs.
The Directors monitor market value by having independent valuations carried out
annually.
Interest rate risk
The Group's policy is to manage its cost of borrowing using a mix of fixed and
variable rate debt. At 31 March 2007 all debt was floating. Since the period
end, the bank debt has been refinanced to a fixed rate loan . Most fixed rate
interest-bearing debt is not exposed to cashflow interest rate risk as there is
no opportunity for the Group to enjoy a reduction in borrowing costs in markets
where rates are falling. In addition, the fair value risk of fixed rate
borrowing means that the Group is exposed to unplanned costs should debt be
restructured or repaid early. In contrast, whilst floating rate borrowings are
not exposed to changes in fair value, the Group is exposed to cashflow risks as
costs increase if market interest rates rise.
The interest rate profile of the Group at 31 March 2007 was as follows:
Assets on Weighted
which no average
Fixed Variable interest is interest rate
Total rate rate received per annum
Euro'000 Euro'000 Euro'000 Euro'000 %
Financial assets
Investment 95,800 - - 95,800 -
properties
Other fixed assets 38 - - 38 -
Receivables 21,651 17,187 - 4,464 -
Cash and cash
equivalents 34,525 - 34,525 - 3.5
__________________________________________________________
Total assets as per
balance sheet 152,014 17,187 34,525 100,302 3.5
==========================================================
Liabilities Weighted
on which no average
Fixed Variable interest is interest rate
Total rate rate paid per annum
Euro'000 Euro'000 Euro'000 Euro'000 %
Financial liabilities
Bank loans 35,879 - 35,879 - 5.6
Payables 7,864 - - 7,864 -
Deferred taxes 9,214 - - 9,214 -
Current taxes 474 - - 474 -
__________________________________________________________
Total liabilities as
per balance sheet 53,431 - 35,879 17,552 5.6
==========================================================
The value of assets at the balance sheet date exposed to interest rate risk is
Euro35,879k relating to bank loans repayable within 1 year.
Credit risk
Credit risk arises when a failure by counterparties to discharge their
obligations could reduce the amount of future cashflows from financial assets on
hand at the balance sheet date. In the event of a default by an occupational
tenant, the Group will suffer a rental shortfall and incur additional costs,
including legal expenses in maintaining, insuring and re-letting the property
until it is re-let. The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the balance sheet which at the period
end amounted to Euro18,740k. Management does not expect any counterparty to fail to
meet its obligations.
Liquidity risk
The Group's objective is to maintain a balance between continuity of funding and
flexibility through the use of bank loans secured on the Group's properties. The
terms of the Group's borrowings (see note 13) entitle the lender to require
early repayment should the Group breach any of the covenants placed on it by KBC
Bank Deutschland AG.
Currency risk
Currency risk is the risk that the value of financial instruments will fluctuate
due to changes in foreign exchange rates. Currency risk arises when the future
commercial transactions and recognised assets and liabilities are denominated in
a currency that is not the Group's reporting currency. The Group is exposed to
foreign exchange risk arising from various currency exposures primarily with
respect to Romanian RON and Moldovan MDL. The Group's management monitors the
exchange rate fluctuations on an on-going basis.
Fair value estimation
The fair values of the Group's financial assets and liabilities were materially
the same as their carrying amounts on the balance sheet date.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR DFLFLDKBZBBZ
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