RNS Number : 2573E
Prospect Epicure J-REIT Val Fd PLC
25 September 2008
25 September 2008
Prospect Epicure J-REIT Value Fund plc
Interim results for the six months period to 30 June 2008
Prospect Epicure J-REIT Value Fund plc ("the Fund" or "the Company"), the AIM listed fund established to invest in undervalued Japanese
real estate through J-REITS, announces interim results for the six months to 30 June 2008.
Highlights
* Placing of 30 million new shares at 44.31 pence per share raising �13.29 million before expenses in May 2008
* NAV per share of 35.96p as at 30 June 2008, down 50.5% in sterling terms in the six months period as a result of the fall in
investment values exacerbated by portfolio gearing
* Loss after tax of �12.25 million largely due to realised losses of �14.91 million on disposal of J-REITs to lower gearing *
* Continuing strong dividend yield from underlying J-REITs
* Decision on interim dividend pending in the light of turbulent credit and equity market conditions
* These results do not take into account the Unrealised Changes in Fair Values of the underlying J-REITs; the Company now recognises
unrealised movements in fair value of investments held through equity in the Balance Sheet
David von Simson, Chairman of the Company, commented: "The J-REIT sector continues to be adversely affected by the global negative
market sentiment and the lack of financing facilities available in the Tokyo real estate market.
"There are, however, some grounds for optimism notwithstanding the current environment. The Board believes that the strategy of
shareholder activism, which the Investment Adviser is intensifying, will bring benefits. We continue to note the resilience of the Japanese
real estate market. We also note the strong underlying yields and significant discounts to NAV at which our J-REIT holdings are trading.
Mergers and acquisitions involving J-REITS are now a real possibility. These factors encourage us to a belief in more positive developments
going forward."
For further information
Prospect Epicure J-Reit Value Fund - +41 (0) (22) 908 1190
Leonard O'Brien
M:Communications - +44 (0) 20 7153 1269 Panmure Gordon - +44 (0) 20 7459 3600
Tim Draper Richard Gray
Marylene Guernier Andrew Potts
Chairman's Statement
I am pleased to present the Company's interim results for the period to 30 June 2008.
World markets have continued to suffer from the prolonged fallout of the credit contraction that began in August 2007.
Our portfolio is based around two value drivers. The first is that the REITs in which we are invested enjoy, in many cases, double digit
dividend yields in yen, which in historical terms may be regarded as an aberration. The second is that they are trading at very significant
discounts to book value which, we suspect, will in the fullness of time be arbitraged out.
These value drivers continue to give the Board confidence in the long term strategy being pursued. In the short term however, we
continue to suffer from strong headwinds resulting from three factors. The first is that the Company is invested in less liquid REITs, and
as foreigners have been motivated for liquidity or other reasons to retreat from the market for the time being, our portfolio valuations
have suffered disproportionately, not least as a result of the Company's use of gearing. The second relates to negative investor sentiment
surrounding the commercial and residential property sectors worldwide. The third is that assets that are undervalued by historic or
objective standards have become more commonplace in recent months as global uncertainties lead to a flight to cash, and investors are
therefore for the time being spoiled for choice.
Whilst these difficult conditions may be expected to continue for twelve months or so, the Board maintains its fundamental value
strategy, in believing that the assets in which we are invested will show their true worth as derived from their high actual earnings yield
and solid asset underpinning.
Share Placement
The Company completed in May 2008 the placing of 30 million new shares at 44.31 pence per share raising �13.29 million before expenses.
Results
Results for the period show a loss after tax of �12.25 million, which is largely due to realised losses of �14.91 million on the
disposal of J-REITs in order to lower gearing. Dividend income remains stable at �4.29 million.
The above results do not take into account the Unrealised Changes in Fair Values of the underlying J-REITs; the Company now recognises
unrealised movements in fair value of investments held through equity in the Balance Sheet (see note 2.2).
The Reserve for Unrealised Losses as at 30 June 2008 amounted to �57.40 million, an increase of �28.43 million in the period.
The Net Asset Value ("NAV") as at 30 June 2008 was 35.96p per share based upon 131 million shares in issue at that date. The NAV per
share has fallen by 50.5% in sterling terms in the six months ended 30 June 2008 as a result of the fall in investment values exacerbated by
our portfolio being geared. Over the same period the fall in the TSE J-REIT index in sterling terms amounts to some 22.2%.
Dividend
As more fully set out in the Company's Admission Document, the target dividend yield was 7 per cent of the 100 pence placing price. This
was to have been derived from J-REIT dividend income and realised gains.
There are no realised or unrealised gains from the portfolio. However there continues to be a strong dividend flow from the underlying
J-REITs which has been received by the Company, with further such income to be received in October and in the coming months. The Board is
fully committed to distributing these receipts to shareholders by way of dividend. It is however mindful of the exceptionally turbulent
conditions prevailing in the international credit markets at the time of writing, and the hopefully temporary concerns that this raises in
respect of the continued global availability of credit. Accordingly the Board proposes to maintain for the time being its ability to manage
the Company's level of gearing in a manner that is prudent in evolving market conditions and is awaiting some clarity on these issues before
declaring an interim dividend.
Commentary and Outlook
We remain very disappointed with the performance in NAV, which has continued to fall since 30 June 2008 to its current level of 28.91
pence at time of writing. The J-REIT sector continues to be adversely affected by the global negative market sentiment and the lack of
financing facilities available in the Tokyo real estate market.
However, as more fully described in the Report of the Manager and Investment Adviser, there are some grounds for optimism
notwithstanding the current environment. The Board believes that the strategy of shareholder activism, which the Investment Adviser is
intensifying, will bring benefits. We continue to note the resilience of the Japanese real estate market. We also note the strong underlying
yields and significant discounts to NAV at which our J-REIT holdings are trading. Mergers and acquisitions involving J-REITS are now a real
possibility. These factors encourage us to a belief in more positive developments going forward.
David von Simson
Chairman
24 September 2008
Report of the Manager and Investment Adviser
Fund Description
Prospect Epicure J-REIT Value Fund plc was established to capitalise on attractive investment opportunities within the Japanese real
estate investment trust (J-REIT) market. The Fund is actively managed in order to capture valuation discrepancies, in particular discounts
to NAV, identified by the Investment Adviser. The fund typically invests in listed securities, but is also permitted to invest a proportion
of its assets in unlisted securities expected to list within twelve months, in addition to securities that have ceased to be listed. The
target dividend yield is seven percent, and the target IRR in excess of twenty percent per annum.
Half year review
The TSE J-REIT index fell 22.2% in sterling terms for the half, as risk appetite for real estate assets continues to contract globally
and the fund experienced volatility undoubtedly related to global credit markets.
Investors in J-REITS may wonder why the index has performed so poorly in light of reports that Japanese financial institutions have
largely avoided exposure to sub prime loans in the US. Reports have consistently noted that Japanese property, particularly the central
Tokyo commercial and office sectors, has remained buoyant with until very recently, reports of higher transacted prices for direct property
and higher asking rents for existing sites. While the set of circumstances between the US and Japanese housing and lending markets has been
different, the effects, particularly for small cap residential developers and J-REITS, have been virtually identical.
The US sub prime mess has been caused by excess leverage and contracting credit, resulting in weakening real estate prices and the
inability to refinance debt. In Japan, the inability of the J-REITS to raise fresh equity in the capital markets from Q3 2007 has led to the
chain of transactions in the property sector backing up. Many condominium developers, for example, began projects two years ago on the
premise that completed buildings would be sold into J-REITS. As J-REITS can no longer acquire these properties, the developers have been
forced to take this inventory on their balance sheets. The past several months have seen many developers forced to write down the value of
these assets, and in select cases, realise losses.
On the financing front, a number of foreign lenders have exited the Tokyo real estate market, largely due to directives from head
office. This has created a financing gap in the Tokyo real estate market, as many of the borrowers which had been doing business with these
foreign lenders currently lack the requisite relationships to immediately secure similar financing terms from the domestic financial
institutions. The result of these two circumstances is weakening prices among new built-for-sale residential assets, particularly condos,
and widespread concern over difficulty re-financing existing property loans for selected J-REITS. What is known in industry terms as the
"flow" business-purchases of new projects by J-REITS-has virtually ground to a halt. According to Macquarie Securities, acquisitions by
residential J-REITS have fallen 64% compared to the six months to June last year.
Compounding matters is the seeming inability of the Japanese banks to properly price credit risk. For example, larger J-REITS with well
known sponsors have ready access to financing. Some smaller real estate developers, however, have been forced to turn to non-bank financials
for loans, anecdotally paying 9% for loans from non traditional lenders. This lack of a middle ground in the credit market is one of the
reasons for the disparity in yields and discounts in assets of the large groups versus the small ones, and office versus residential
property.
Nonetheless, this disparity may seem a bit extreme when one considers J-REITS have healthy balance sheets, with average loan to value
ratios of 50% versus 80-90% for private funds. According to Nikkei Veritas, the aggregate debt of all 42 J-REITS with terms ending March
2009 is Y946bn ($8.9bn), which represents just 1.5% of the total loans of the domestic bank to the real estate industry. Bank loans to the
real estate industry have without question been tightening, but one has to question if the banks are not being unduly cautious.
Some J-REITS are responding to these conditions by de-leveraging and waiting for credit and risk conditions to normalise. The good news
is prices in the direct property market seem to be holding their value, as a number of disposed properties have sold at premiums to book
value. An example would be found in FC REIT 8975, one of the Fund's core holdings. FC have taken down the loan to value from approximately
50% to 28% in the course of the last few quarters. The last three properties disposed in June actually sold at 10% premiums to book value,
lending credence to our view that the underlying property market remains sound. Due to FC's active steps to reduce refinancing risk, this
particular J-REIT was one of the Fund's better performers in the first half of the year.
There has been some concern expressed regarding the refinancing risk of the J-REITS, especially in light of the increase in bankruptcies
in the construction and property development sectors. Although it is undeniable that some financial institutions are requiring slightly
higher refinancing rates, we think the J-REITS carry a much lower risk profile. One reason is the average debt structure. Overall, the
average loan to value for the Fund's holdings remains steady at about 50%. This compares favourably to typical Japanese construction and
real estate development companies, which generally carry debt levels of 80%. Second is the vested interest the Japanese authorities have in
seeing the J-REITS succeed as an investment class. In addition to providing liquidity to the direct property market, the J-REITS are seen as
vital income producing vehicles for Japan's ageing population, and a much needed stopgap for what will assuredly be shortfalls in the state
run pension scheme. There is no denying that the banks have taken a stricter view in lending to the developers, resulting in the bankruptcies of condo builders Zephyr and Urban. However, under
the administrative guidance of the FSA, the banks have adopted a more conciliatory attitude in lending to the J-REITS, and we see little
risk in any of the J-REITS being pushed into insolvency.
Gearing
In an effort to mitigate the Fund's volatility in what is a challenging environment for real estate related equity, we reduced the
portfolio gearing from an average of 100% at the beginning of the year to 75% by mid year.
Top 5 Holdings
The Fund specialises in residential apartment J-REITS. The top five holdings are Mid-Reit (3227), TGR (8963), Crescendo (8966), Prospect
Residential (8969), and FC (8975). These holdings have an average dividend yield of 10%, and trade at a discount to net asset value of
23.7%. The average debt level, or loan to value, is 42.8%. All three valuation metrics are more attractive than the sector averages. The
majority of the properties held in these J-REITS are in Tokyo. In light of recent concerns over availability of funding for real estate,
particularly those J-REITS which must rely on short term loans, investors should be aware the average duration for the top holdings' loan
agreements is 1.45 years.
Outlook: Shareholders are beginning to matter
The six month period saw some encouraging signs from various sources, including government agencies and corporate management, that
returns and accountability to shareholders are becoming more prominent in Japan. Taro Aso, a favourite with the Japanese for election as the
next prime minister, said the country needs more competition in key industries like banking and construction, which, in turn would lead to
consolidation. Aso also noted Japan's strongest companies lie in the most unregulated sectors.
Japan's Pension Fund Association last year adopted a policy of opposing director reappointments at firms whose return on equity has
remained below 8% for three consecutive years, unless management can provide sufficient explanations or make satisfactory proposals. A
recent Nikkei survey found that some 46% of the 1,579 non-financial firms that close their books in March and hold shareholder meetings this
month posted below 8% RoEs for a third consecutive year. The pension association voted against some 39% of director reappointment proposals
at general shareholder meetings in June 2007.
After decades of silence, Japan's big institutional shareholders are increasingly demanding performance and accountability, exercising
the greatest pressure to date on Japanese companies to improve their corporate governance. This is a change from normal practice, where,
historically, Japanese institutional shareholders unanimously supported management decisions. The lack of pressure from shareholders has
been cited as one of the reasons why management has paid less attention to shareholder interests in the past focusing instead on the needs
of customers, employees and other stakeholders.
Stop the Insanity
The last successful J-REIT IPO took place in October 2007, with the listing of the Industrial & Infrastructure Fund. The failed IPOs of
AIG and Able at the end of 2007 were a clear indication that the conditions in the credit and property markets were deteriorating markedly.
This was not enough to forestall Daiwa House J-REIT from attempting an IPO nor IIF from attempting a secondary offering in June. Both failed
on an embarrassing scale.
Einstein famously defined insanity as repeating the same action while expecting a different outcome. Could the chronic inability to
raise funds in the public markets serve as the much needed catalyst to change the behaviour of both the issuers and the regulators?
Regulators becoming the targets of activism
Mergers and acquisitions involving J-REITS, considered virtually impossible as recently as last year, are now achievable. Foreign funds,
investment banks and legal advisors in the field all agree that the authorities are realising the need for consolidation, privatisation and
mergers and acquisitions in the J-REIT sector. There are a large number of potential buyers with sufficient cash resources to take over
J-REITs. The missing piece in the equation, regulatory acquiescence, has been due to the intransigence of both the Tokyo Stock Exchange and
the Financial Services Agency (FSA), but evidently change is afoot.
The FSA has recently conceded that it would support J-REIT acquisitions as long as they are expected to help bolster the market. A
senior official of the agency was quoted as saying "We encourage foreign firms when they come to consult us (about their plans to acquire a
J-REIT)."
The TSE has long been seen as opposing J-REITs being taken private, but has apparently changed its stance. Last year the manager of a
listed J-REIT was denied the right to privatise his vehicle. However in a U-turn, a TSE official recently declared in an article in the
newspaper Nikkei Veritas "Previously, we didn't want to reduce the number of listed J-REITS. But we may have to accept it in order to
revitalise the market." In other words, the authorities seem to have finally come to terms with the reality that the J-REIT market has to
first shrink in order to grow.
Prospect seeks an active role in generating shareholder returns. The weakness in the property developer and J-REIT sectors are linked,
and we are pursuing dual strategies in an effort to realise underlying value. As J-REITS have been unable to raise acquisition funds in the
capital markets, the property developers have been forced to take write downs and losses on unsold inventory. The property sector will
consolidate, be it through bankruptcy, a process which has already begun, or through mergers. On 19 August, Azel and Gro-bels, two firms in
which Prospect is the largest shareholder, announced their intention to merge. We envision the J-REIT market will bottom with the
announcement of a shareholder vote for taking private one of the deeply discounted trusts. The current significant discounts to NAV are a
reflection of investor scepticism that the underlying value can be realised. We expect this process to begin in the coming months. Although
the FSA and TSE have clearly changed their stance on allowing J-REITs to be taken private, there are still concerns over the treatment of minority shareholders of unlisted securities. We expect the
details of this hurdle to be worked out by the end of the year, and the process of taking them private to begin shortly thereafter.
Leonard O'Brien Curtis Freeze
Epicure Managers Japan Limited Prospect Asset Management, Inc.
Manager Investment Adviser
24 September 2008 24 September 2008
Consolidated Income Statement
(unaudited)
Note For the period from For the period from
1 January 2008 to 30 3 November 2006
June 2008 (date of
incorporation) to 30
June 2007
�'000 �'000
Income
Interest income 148 58
Dividend income 4,292 5,487
Realised (loss)/gain on (14,913) 16,292
disposal of available-for-sale
financial assets
Total net (expense)/investment (10,473) 21,837
income
Expenses
Manager's fees 7.2 656 7,984
Audit and professional fees 43 20
Other expenses 7 348 435
Total operating expenses 1,047 8,439
(Loss)/profit before financing (11,520) 13,398
Interest expense 5 (426) (502)
(Loss)/profit before tax (11,946) 12,896
Income tax expense 11 (300) (384)
Retained (loss)/profit for the (12,246) 12,512
period
Basic (loss)/earnings per 9 (11.62) 12.39
share (pence)
Fully diluted (loss)/earnings 9 (11.62) 12.24
per share (pence)
The accompanying Notes form an integral part of these consolidated financial statements
Consolidated Balance Sheet
Note (Unaudited) (Audited)
At 30 June At 31
2008 December
2007
�'000 �'000
Non-current assets
Available-for-sale financial assets 4 71,859 122,785
Total non-current assets 71,859 122,785
Current assets
Other receivables and prepayments 2,602 2,328
Cash at bank 5,695 4,833
Total current assets 8,297 7,161
Total assets 80,156 129,946
Issued share capital 8 1,310 1,010
Share premium 12,629 -
Retained earnings 87,029 102,810
Revaluation reserve (57,396) (28,967)
Foreign currency translation reserve 3,541 (1,488)
Total equity 47,113 73,365
Interest bearing loans and borrowings 5 32,546 55,960
Other creditors and accrued expenses 497 621
Total current liabilities 33,043 56,581
Total liabilities 33,043 56,581
Total equity & liabilities 80,156 129,946
The accompanying Notes form an integral part of these consolidated financial statements
Consolidated Statement of Changes in Equity
(unaudited)
Share Capital Share Premium Foreign Currency Retained Earnings Revaluation Reserves 30 June 2008
30 June 2007
Translation Reserve
�'000 �'000 �'000 �'000 �'000 �'000
�'000
Balance at 1 January 2008 1,010 - (1,488) 102,810 (28,967) 73,365
-
Proceeds from shares issued 300 12,993 - - - 13,293
101,000
Share issue expenses - (364) - - - (364)
(3,651)
Foreign exchange translation - - 5,029 - 5,029
(11,991)
differences
Net change in fair value of - - - - (28,429) (28,429)
34,477
available-for-sale financial
assets
Dividends paid - - - (3,535) - (3,535)
-
Retained (loss)/profit for the - - - (12,246) - (12,246)
12,512
period
Balance at 30 June 2008 1,310 12,629 3,541 87,029 (57,396) 47,113
132,347
The accompanying Notes form an integral part of these consolidated financial statements
Consolidated Cash Flow Statement
(unaudited)
Note For the period 1 For the period from
January 2008 to 30 3 November 2006
June 2008 (date of
incorporation) to 30
June 2007
�'000 �'000
Cash flows from operating
activities
Group (loss)/profit before tax (11,946) 12,896
Adjustments for:
Financial expense/(income) 10,473 (21,837)
Operating loss before changes (1,473) (8,941)
in working capital
Decrease/(increase) in trade 8 (14)
and other receivables
(Decrease)/increase in trade (153) 8,108
and other payables
Cash used in operations (1,618) (847)
Dividends received 3,845 1,201
Interest received 148 58
Net cash generated from 2,375 412
operating activities
Investing activities
Purchase of financial assets (8,425) (280,782)
Proceeds from sale of 24,531 67,297
investments
Net cash generated from/(used 16,106 (213,485)
in) investing activities
Financing activities
Proceeds from the issue of 13,293 101,000
shares
Share issue costs (364) (3,651)
(Repayment of)/proceeds from (26,741) 114,960
bank borrowings
Dividends paid (3,535) -
Net cash (used in)/generated (17,347) 212,309
from financing activities
Net increase/(decrease) in 1,134 (764)
cash and cash equivalents
Effects of exchange rate (272) 1,185
changes on cash and cash
equivalents
Cash and cash equivalents at 1 4,833 -
January 2008
Cash and cash equivalents at 5,695 421
30 June 2008
The accompanying Notes form an integral part of these consolidated financial statements
Notes to the Interim Consolidated Financial Statements
1 The Company
Prospect Epicure J-REIT Value Fund plc (the "Company") was incorporated and registered in the Isle of Man under the Isle of Man
Companies Act 1931-2004 on 3 November 2006 as a public company with registered number 118230C.
As a result of a further fund raising in May 2008 30,000,000 Ordinary Shares were issued at a placing price of 44.31p per Share. The
Shares were admitted to trading on the AIM market of the London Stock Exchange ("AIM") on 9 May 2008.
2 Accounting Policies
The interim consolidated financial statements of the Company for the period ended 30 June 2008 comprise the Company and its subsidiaries
(together referred to as the "Group"). The interim consolidated financial statements are unaudited.
2.1 Basis of presentation
These consolidated interim financial statements have been prepared in accordance with IAS34 Interim Financial Reporting. They do not
include all of the financial information required for full annual financial statements. The financial statements have been prepared under
the historic cost convention, as modified by the revaluation of available-for-sale financial assets.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires the Board of Directors to exercise its judgement in the process of applying the Company's accounting policies. The financial
statements do not contain any critical accounting estimates.
2.2 Available-for-sale financial assets
The Group has designated its investments in J-REITs as available-for-sale financial assets. They are included in non-current assets
unless management intends to dispose of the investment within 12 months of the balance sheet date.
The Group invests in J-REITs which are stated at fair value, which is based on quoted market prices. The quoted market price used for
financial assets held by the Group is the current bid price ruling at the period end without regard to selling prices. Fair value movements
are recognised in equity, with gains and losses recycled to profit or loss on disposal.
Purchases and sales of investments are recognised on trade date - the date on which the Group commits to purchase or sell the asset.
Investments are initially recorded at fair value.
2.3 Segment reporting
The company has one segment focusing on maximising total returns through investing in J-REITs in Japan. No additional disclosure is
included in relation to segment reporting, as the Company's activities are limited to one business and geographic segment.
2.4 Dividends
Dividends are recognised as a liability in the year in which they are declared and approved.
3 Net Asset Value per Share
The net asset value per share as at 30 June 2008 is 35.96p based on 131,000,000 ordinary shares in issue as at that date. (31 December
2007: 72.64p per share based on 101,000,000 ordinary shares)
4 Available-for-sale financial assets
Security name Number �'000
Premier Investment Company 10 23
Crescendo Investment Corporation 12,747 15,285
LCP Investment Corporation 4,699 4,592
Mid Reit Inc 5,162 8,431
Lasalle Japan 3,172 2,785
Re-Plus Residential Invest Mentinc 859 742
Advance Residence Investment Corporation 240 410
Nippon Hotel Fund Investment Corporation 1,078 1,644
Prospect Residential Investment Corporation 3,075 3,745
Japan Single-Residence REIT 7,720 8,747
FC Residential Investment Corporation 8,134 14,784
TGR Investment Inc 8,444 7,374
Creed Office (REIT) 1,978 1,756
New City Residence 1,511 1,541
71,859
30 June 2008 31 December 2007
�'000 �'000
Available-for-sale financial assets - at cost 122,727 153,076
Unrealised loss (57,396) (28,967)
Difference on foreign exchange 6,528 (1,324)
Available-for-sale financial assets - fair 71,859 122,785
value
5 Interest-bearing loans and borrowings
30 June 2008 31 December 2007
�'000 �'000
Secured bank borrowings 32,546 55,960
The subsidiaries each have a facility with NikkoCitigroup to allow them to borrow Japanese Yen up to the value of the J-REITs held by
them. The effective interest rate on this facility is base rate plus 0.25%, which is the equivalent of 0.8825% as at 30 June 2008. The bank
borrowings are repayable on demand.
6 Related Party Transactions
Parties are considered to be related if one party has the ability to control the other party or to exercise significant influence over
the other party in making financial or operational decisions.
The Manager, Epicure Managers Japan Limited, is a related party by virtue of its ability to make operational decisions for the Company
and through common directors. The director of the Manager is Silex Management Limited, of which L O'Brien and B Padgett are directors. Silex
Management Limited is ultimately owned by Principle Capital Holdings SA, of which L O'Brien and B Padgett are directors and minority
shareholders.
Richard Bolton is managing director and a shareholder of Galileo Fund Services Limited (the Administrator) and is also a director of
Principle Capital Holdings SA.
David von Simson holds 100,000 Ordinary shares and 20,000 warrants in the Company.
Save as disclosed above, none of the Directors had any interest during the period in any material contract for the provision of services
which was significant to the business of the Company.
Responsibility and administration fees paid to Silex Management Limited during the period ended 30 June 2008 amounted to �65,156.
7 Charges and Fees
7.1 Nominated Adviser
As nominated adviser to the Company for the purposes of the AIM Rules, the Nominated Adviser was entitled to receive an annual fee of
�40,000 payable twice yearly in advance. From 1 January 2008 this fee has been amended to an annual fee of �60,000 payable twice yearly in
advance.
Advisory fees paid to the Nominated Adviser for the period ending 30 June 2008 amounted to �35,250 (30 June 2007: �23,500).
7.2 Manager's fees
In accordance with the terms of the placing, the Manager was paid a project fee of 3% of the gross proceeds of the initial Placing and
2.5% of the secondary Placing and was responsible for paying the Placing Agent and the Distribution Adviser for their services. Fees paid
for the period ending 30 June 2008 amounted to �332,325 (30 June 2007: �3,030,000) and have been charged to equity as a share issue
expense.
Annual fees
The Manager is entitled to an annual management fee of 1% of the Gross Asset Value of the Company payable quarterly in arrears. Annual
management fees for the period ended 30 June 2008 amounted to �655,837 (30 June 2007: �1,414,698).
Performance fees
The Manager is entitled to a performance fee in certain circumstances. This fee is payable in reference to the increase in Adjusted NAV
per Ordinary Share (using the NAV per Ordinary Share on Admission as the initial reference point) over the course of a performance period.
The first performance period began on Admission and ended on 31 December 2007; each subsequent performance period is a period of one
financial year. The Manager will become entitled to a performance fee in respect of a performance period only if two tests are met.
First a performance test must be met. The performance test is calculated as to the amount by which the Adjusted NAV per Ordinary Share
at the end of the relevant period exceeds an amount equal to the Placing Price, increased at a rate of 8 per cent. per annum up to the end
of the relevant performance period.
The second test to be met (a high watermark test) is that the Adjusted NAV per Ordinary Share at the end of the relevant period is
higher than the highest previously recorded Adjusted NAV per Ordinary Share at the end of a performance period in relation to which a
performance fee was last earned (or if no performance fee has been earned since Admission, must be higher than the Placing Price).
If the performance test is met, and the high watermark exceeded, the performance fee will be an amount equal to 20 per cent. of the
increase in the Adjusted NAV per Ordinary Share multiplied by the time weighted average of the Ordinary Shares in issue, in each case since
the performance period in respect of which a performance fee was last earned (or since Admission if no performance fee has yet been
earned).
Performance fees accrued but not payable during the period ended 30 June 2008 amounted to �nil (30 June 2007: �6,569,364).
7.3 Custodian fees
The Custodian was entitled to receive fees calculated as 3 basis point per annum of the gross asset value of the Company, subject to a
minimum monthly fee of �1,300. From 1 April 2007, this fee has been amended to a fixed monthly fee of �1,300.
Custodian fees for the period ending 30 June 2008 amounted to �8,060 (30 June 2007: �22,112).
7.4 Administrator and Registrar fees
The Administrator is entitled to receive a fee of 15 basis points per annum of the net asset value of the Company between �0 and �50
million, 10 basis points of the net asset value of the company between �50 and �100 million and 7.5 basis points of the net asset value of
the Company in excess of �100 million, subject to a minimum monthly fee of �7,500, payable quarterly in arrears.
The Administrator shall assist in the preparation of the financial statements of the Company for which it shall receive a fee of �1,500
per set.
The Administrator shall provide general secretarial services to the Company for which it shall receive a minimum annual fee of �4,000.
The Administrator may utilise the services of a CREST accredited registrar for the purposes of settling share transactions through
CREST. The cost of this service will be borne by the Company. It is anticipated that the cost will be in the region of �6,000 per annum
subject to the number of CREST settled transactions undertaken.
Administration fees paid for the period ending 30 June 2008 amounted to �70,739 (30 June 2007: �97,637), secretarial fees were �2,175
(30 June 2007: �2,791), financial statement preparation fees were �1,500 (30 June 2007: �1,500) and CREST accredited registrar fees were
�2,250 (30 June 2007: �2,249).
Fees in respect of work undertaken on the Company's subsidiaries are payable to Asiaciti Management Pte Ltd and Silex Management Limited
of �44,965 and �65,157 respectively (30 June 2007: �76,622 and �33,335 respectively)
7.5 Other operating expenses
The costs associated with maintaining the Company's subsidiaries, to include the costs of incorporation and third party service
providers shall be chargeable to each subsidiary.
8 Share Capital
Share capital
Ordinary Shares of 1p each Number �'000
In issue at the start of the period 101,000,000 1,010
Issued during the period 30,000,000 300
In issue at 30 June 2008 131,000,000 1,310
Warrants
20.2 million warrants were issued pursuant to the initial Placing (one warrant for every five ordinary shares). The warrants entitle the
holder to subscribe for one Ordinary Share of 1p each in the Company in cash in the period from the date of Admission up to 1 March 2010, at
a price of 110p per Share payable in full on subscription.
9 (Loss)/Earnings per Share
Basic and Fully diluted
Basic and fully diluted (loss)/earnings per share is calculated by dividing the (loss)/profit for the period attributable to equity
holders of the Company by the weighted average number of ordinary shares in issue during the period.
Period ended 30 June Period ended 30 June 2007
2008
(Loss)/profit attributable to (12,246) 12,512
equity holders of the Company
(�000)
Weighted average number of 105,344 101,000
ordinary shares in issue
(thousands)
Basic (loss)/earnings per (11.62) 12.39
share (pence per share)
Fully diluted (loss)/earnings (11.62) 12.24
per share (pence per share)
For the period ended 30 June 2008 there is no difference between basic and fully diluted loss per share as the exercise of the warrants
would be anti-dilutive.
The difference between basic and fully diluted earnings per share in the period ended 30 June 2007 results from the assumption that
dilutive warrants were exercised.
10 Directors' Remuneration
The maximum amount of remuneration payable to the Directors permitted under the Articles of Association is �200,000 per annum. The
Directors are each entitled to receive reimbursement of any expenses incurred in relation to their appointment. Total fees and expenses paid
to the Directors for the period ended 30 June 2008 amounted to �72,655 (30 June 2007: �69,826) and insurance expenses amounted to �11,219
(30 June 2007: �19,493).
11 Taxation
Japanese taxation
Distributions paid by listed J-REITs to the subsidiaries are subject to 7 per cent. withholding tax, although this rate is anticipated
to increase to 15 per cent. in 2009. Withholding tax for the period ending 30 June 2008 amounted to �300,449 (30 June 2007: �384,110) and
has been included in income tax expense in the Income Statement.
12 Dividends
During the period ended 31 December 2007 an interim dividend of 3 pence per share and totalling �3,030,000 was recommended and paid. A
final dividend of 3.5 pence per share and totalling �3,535,000 was proposed and approved for payment at the Annual General Meeting held on 2
May 2008. The final dividend was paid on 30 May 2008.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DZLFLVKBBBBE
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