| Fri 5 Feb 2010, 11:00 | | NEP - New Europe Property Investments plc - Preliminary results for the year |
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NEP
NEP
NEP - New Europe Property Investments plc - Preliminary results for the year
ended 31 December 2009
New Europe Property Investments plc
(Incorporated and registered in the Isle of Man with registered number 001211V)
(Registered as an external company with limited liability under the laws of
South Africa, registration number 2009/000025/10)
AIM share code: NEPI
JSE share code: NEP
ISIN Code: IM00B23XCH02
("NEPI" or "the Company")
Preliminary results for the year ended 31 December 2009.
New Europe Property Investments plc ("NEPI" or the "Company"), the holding
company of a group of companies (the "Group") that forms a closed-ended property
income fund, announces its preliminary results for the year ended 31 December
2009.
HIGHLIGHTS
- Acquired European Retail Park Braila ("ERP Braila") for Euro63 million
- Property portfolio valued at Euro146 million as at 31 December 2009
- Dividend of 15.77 Euro cents per share in respect of the 2009 financial
year, an improvement of 7.1% over 2008
- Five year loan facility of Euro113.5 million secured with KBC Bank Ireland
to re-finance ERP Braila and the acquisition of two further properties
5 February 2010
CHAIRMAN`S REPORT
General
New Europe Property Investments plc`s ("the Company", "NEPI" or, where the
statements refer also to the Company`s subsidiaries, "the Group") audited
consolidated financial statements for the financial year ended on 31 December
2009 are included in this report.
The Group continued to perform well in a difficult environment due to a prudent
strategy adopted before the onset of the global recession that was in full swing
during 2009. Financial performance was further supported by the completion of
the first in a series of planned acquisitions that are being pursued by the
Group. There is an acute shortage of equity in the Romanian market and due to
its balance sheet flexibility and shareholder support the Company is well
positioned to take further advantage of the investment opportunities that this
offers.
During 2009 the Company decided to focus mainly on retail opportunities in
Romania. The Group pursued several retail investment opportunities during the
year, agreed commercial terms in relation to four investments and substantially
completed its due diligence in relation to three of these opportunities. One
acquisition was concluded during the financial period covered by this report and
a sale and purchase agreement has been entered into with regards to a second
acquisition, which is still subject to certain conditions precedent, after the
financial year end but before the release of this report. In relation to the
third opportunity management is continuing negotiations in an attempt to resolve
certain concerns identified during the due diligence process. The Group has
explored and has made progress in relation to further investment opportunities.
More details are provided in the Combined Directors` and Investment Advisor`s
Report.
The Company completed a secondary listing of its shares on the Alternative
Exchange ("AltX") of the JSE Limited ("JSE") in South Africa and also
successfully completed a wider placement of shares during the financial year.
This significantly improved the depth of the shareholder base and liquidity in
the trading of the Company`s shares. The Company will pursue a listing on the
Main Board of the JSE during the 2010 financial year after completion of certain
further acquisitions that are currently underway.
The Board of Directors was strengthened by the appointment of three new
Directors, all of whom are property experts with many years of experience
relevant to the Group`s business. In addition, the Board of Directors formed an
investment committee to assist the Board with matters relating to the investment
process and portfolio construction.
Dividends
The Group produced strong results, generating distributable earnings of 15.77
Euro cents per share for the year ended 31 December 2009 (2008: 14.72 Euro
cents). In view of this the Board recommends a further dividend of 8.11 Euro
cents per share, which brings the total dividend for the 2009 financial year to
15.77 Euro cents per share. This is an increase of 7.1% over the 2008 dividend
in Euro. The salient dates in respect of the final dividend are presented in
the Combined Directors` and Investment Advisor`s Report.
Prospects
The Company is well positioned to continue to take advantage of investment
opportunities in its markets and is set to continue expanding its retail asset
base in Romania during 2010.
COMBINED DIRECTORS` AND INVESTMENT ADVISORS` REPORT
The Company`s strategy is to provide investors with a long term investment
opportunity with stable Euro based investment returns derived from commercial
property. The Company`s investment portfolio will focus initially on Romania,
but later also on other Central and Eastern European countries that are recent
entrants of the EU or are considered to be on the accession path. In line with
this strategy, the Group invested in prior periods primarily in the high quality
office, retail and industrial property market in Romania. The Group also
acquired an interest in six investment properties located in Germany in joint
venture. The investment strategy was biased in favour of long term leases with
strong corporate covenants and conservative gearing.
Given the extraordinary events that have unfolded in the global macro-economic
environment in the latter half of 2008, the Group positioned itself to take
advantage of the investment opportunities that arose from this and explored a
number of acquisition opportunities during 2009.
The Group decided to focus on the acquisition of dominant or potentially
dominant operating retail assets anchored by international and national
retailers with long term lease agreements, primarily from vendors with which
NEPI wishes to form mutually beneficial long term relationships and has decided
to increase its gearing to range between 50% and 60% as in conjunction with
these acquisitions. One such acquisition was completed during the financial
period from BelRom Real Estate ("BelRom"), with the acquisition of the ERP
Braila. Further acquisitions will be completed in 2010 and are discussed in
more detail below.
NEPI performed well during the 2009 financial year with 7.1% year-on-year growth
in distributable earnings, despite the downturn in the economic cycle. The
Company is pursuing further growth in distributable earnings in respect of the
2010 financial year. NAV per share has improved and Adjusted NAV per share has
remained stable.
Operational performance
The outstanding weighted average lease duration was approximately 6.6 years as
at 31 December 2009 (2008: 6.6 years). Net rental and related income increased
to Euro8,270,884 (2008: Euro6,315,183). The increase in net rental and related
income is mostly as the result of the acquisition of ERP Braila, effective on 1
September 2009 which had a longer average lease duration that the portfolio that
was in place as at 31 December 2008.
Administrative expenses of Euro1,543,992 (2008: Euro498,656) include JSE listing
costs of Euro905,048 (classified as finance costs in the 2009 interim results)
and costs incurred in exploring an aborted transaction in relation to Carpathian
plc.
The finance expense included Euro286,211 in relation to acquisition costs (in
accordance with revised IFRS 3 such costs are to be expensed beginning with 1
January 2009) and fair value adjustments in relation to financial instruments of
Euro855,754.
Trade and other payables of Euro6,027,605 include Euro2,924,753 of advances and
tenant deposits, as well as payables in relation to the completion of the Staer
premises in ERP Braila.
Trade and other receivables of Euro3,396,479 include Euro1,699,843 from the
vendor in relation to the Raiffeisen portfolio. This receivable is fully
secured and the remaining receivables have been provided for on a conservative
basis.
Financial Results
Non-cash items that affect the Group`s consolidated income statement for the
year and that are reversed for purposes of calculating distributable income
include:
An unrealised foreign exchange gain of Euro1,811,011 that results from the
weakening in the Romanian Leu. In accordance with IFRS the Company`s Romanian
subsidiaries prepare their financial accounts in Leu with the result that a
movement in the value of the currency gives rise to movements in the recorded
Leu value of assets and liabilities of the subsidiaries that are consolidated.
This is partially offset by the negative currency translation reserve movement
of Euro1,892,383 recorded in the balance sheet and the statement of
comprehensive income for the period (resulting from the translation or
consolidation of the equity recorded by the Company`s Romanian subsidiaries in
Leu). In substance, the Group`s income is Euro denominated, as are its
expenses, assets and liabilities and the currency adjustments are therefore
reversed when calculating distributions.
A share based payment expense of Euro153,059, resulting from the treatment of
the Investment Advisor share incentive scheme as an option scheme in accordance
with IFRS.
A positive net fair value adjustment of Euro575,253 to reflect a net improvement
in the open market values of the Group`s properties based on valuations obtained
from DTZ Equinox Consulting S.R.L. and Dr. Lubke GmbH.
A negative fair value adjustment of Euro855,754 to reflect a net reduction in
the value of financial instruments held for interest rate hedging purposes.
A deferred tax expense of Euro2,114,061. The deferred tax expense accounts for
the tax that would be incurred should the assets be disposed of by the Romanian
subsidiaries. Given that, for tax purposes, the historical values of properties
are carried in Romanian Leu while the property market values are expressed in
Euro terms, a depreciation of the Leu leads to an increase in deferred tax which
explains also the increase in deferred tax during the year.
The combination of the above mentioned adjustments lead to a net accounting
profit for the year of Euro2,722,255. Distributable earnings for the financial
year amount to Euro5,164,378. This figure is arrived at by adjusting the
accounting profit with the non-cashflow items discussed above, by recognising an
expense of Euro117,288 in relation to the amortisation of option premiums paid
in respect of financial instruments, by the reversal of listing expenses and
acquisition fees of Euro905,048 and Euro286,211, respectively, by the
recognition of accrued interest of Euro170,721 from participants in the
Investment Advisor share incentive scheme (which interest is recovered from
dividend payments to participants) and aggregate adjustments of Euro547,821
required in respect of share issues that took place cum dividend during the
financial year.
NAV per share has improved to Euro1.95 (2008: Euro1.92) and Adjusted NAV per
share is Euro1.97 (2008: Euro1.98). Adjusted NAV per share is calculated by
adding to the net asset value of the Group the value of the loans extended to
participants in the Investment Advisor share incentive scheme, as well as adding
back deferred tax and deducting goodwill. The result is divided by all of the
shares issued by the Company (including the Investment Advisor share incentive
scheme shares that are treated as treasury shares for accounting purposes).
Portfolio details and performance
The Group`s property portfolio consists of 30 retail, office and industrial
properties of which 24 are located in Romania and the remainder in Germany (for
Germany only NEPI`s 50% interest in the portfolio was accounted for). The
portfolio was valued at Euro145,965,096 and had a rentable area of approximately
140,000 square meters as at 31 December 2009. The Romanian portfolio was valued
by DTZ Echinox Consulting S.R.L., and the German portfolio was valued by Dr.
Lubke GmbH. The Group`s policy is to revalue its portfolio on an annual basis.
The retail portfolio
The retail portfolio consists of 10 assets, with a total area of 68,600 square
meters valued at Euro89,768,452 (or 61.5% of the total portfolio).
The bulk of the retail assets consist of ERP Braila, a 53,000 square meter
retail center, acquired in 2009, which is anchored by Carrefour (the largest
hypermarket operator in Romania and the second largest retailer in the world),
Bricostore (the second largest DIY operator in Romania and part of the French
Bresson group) and Staer (a Romanian national furniture retailer). The retail
center also contains a galleria with a number of multi-national tenants
including New Yorker, Takko, Deichman, Reserved and Sephora. ERP Braila is
located on the exit towards Bucharest from Braila, a city with a population of
210,000. It has been established as the main shopping destination in the Braila
region which includes Galati, a city with a population of 300,000, located at
approximately 15 km from Braila.
The Flanco portfolio, acquired in 2007, contains 4 Romanian retail assets. The
first is a street retail unit located on the main street of Iasi (a city of
300,000 people) rented to Piraeus Bank (a large Greek banking group), the second
a street retail unit located on the main street in Bacau (a city of 180,000
people) rented to Banca Comerciala Romana (Romania`s largest banking group
controlled by Erste Bank Group) and the third is a street retail unit located in
the center of Bucharest - approximately half of the property is rented to KFC
and the other half to Aura Gaming. The fourth property is a 3,400 square meter
retail-box located next to the largest retail center in Brasov (a city of
285,000 people) and is leased to Flanco - a Romanian white goods retailer.
The Group`s German portfolio, acquired in 2008, includes 5 retail assets, namely
a small retail center in Eilenbourg anchored by REWE, Deichman and Takko, a DIY
store in Bruckmuehl operated by Josef Schneider Gmbh (Hagebaumarkt), a street
retail unit in Frankfurt occupied by Netto supermarket and two other small
retail centers in Leipzig and Moelln anchored by REWE (supermarket) and Norma
(supermarket), respectively.
Despite the prevailing adverse economic conditions, the retail assets in the
portfolio performed well. The ERP Braila in particular continued to attract new
tenants and increased daily customer visits and it offers additional expansion
opportunities through the addition of a big box retailer and the completion of
the entertainment area with a cinema and/or other attractions. The premises
of Staer, a key tenant, were completed during November 2009. Revenue
performance in relation to the ERP Braila was in line with the Board`s
expectations and further international retailers are expected to become tenants
during the 2010 financial year.
Where management is expecting defaults in 2010, pro-active action has been taken
by initiating discussions with replacement tenants.
The office portfolio
The office portfolio consists of 19 properties with a total area of 48,400
square meters valued at Euro43,996,642 (or 30.1% of the total). One of the
properties is located in Munich, Germany and rented to medical practitioners,
while the other 18 properties are part of the Raiffeisen portfolio acquired in
2008 and are located in the central areas of 18 Romanian cities. The Romanian
subsidiary of the Raiffeisen banking group is the largest tenant in the
portfolio occupying 26,246 square meters of the portfolio until 2014. The
Raiffeisen banking group is the second largest banking group in Austria and is
forecast to generate an operational profit of Euro2.4 billion in 2009. The
remainder of the rented space is occupied by smaller tenants. The property in
Constanta (6,697 square meters) is in the process of being sold to the vendor as
the result of the exercise of a put option by the Group.
The industrial portfolio
The Group has one industrial property of 23,000 square meters acquired in 2007
in Rasnov, Romania. As at 31 December 2009, the property was valued at
Euro12,200,000 (or 8.4% of the total). The property is rented to Picanol Group,
an international group specialising in the development, production and sales of
weaving machines and technology for the textile industry and Dexion Hi-Lo
Storage Solutions, which is now part of the Constructor Group, a leading pan-
European manufacturer and provider of industrial and commercial storage
solutions.
Investments
In June 2009 the Group entered into a binding memorandum of understanding for
the phased acquisition of three retail parks from BelRom, an investment
consortium of private investors. The Group aimed to conclude these acquisitions
by the end of 2009. By October 2009 the Group had obtained a Euro113.5 million
re-financing facility from KBC Bank for the purpose of re-financing the existing
loans in the BelRom portfolio and concluded the acquisition of ERP Braila for a
total consideration Euro63 million. Thereafter, a detailed due diligence
commenced in relation to ERP Focsani, following which, management is continuing
negotiations with BelRom in an attempt to resolve certain concerns identified
during the due diligence process. Further announcements will be made once terms
have been negotiated with the vendors.
After year end, the Group entered into a sale and purchase agreement for the
part acquisition of a dominant retail park, with a call option on the remainder
of the retail park. The anchor tenant is an international hypermarket chain.
The transaction is subject to a number of conditions precedent, which are
expected to be fulfilled by the end of February 2010. If the transaction
successfully completes, it will take effect as of 1 January 2010. The
transaction will be earnings enhancing. Further announcements on this
transaction will be made in due course.
The Group is continuing to explore further investment and acquisition
opportunities in Romania and is conducting various negotiations that are at
different stages of advancement. The Group is not at liberty to disclose
further details at present due to confidentiality undertakings made to the
potential vendors.
Debt position and cash resources
The Group had Euro12,276,543 of cash at the end of the 2009 financial year (of
which Euro10,949,088 was unencumbered). The Company meets all of its debt
covenants. NEPI`s overall loan to value ratio on 31 December 2009 was 46% when
adjusted for cash at hand (36% as at December 2008). The increase is due to the
KBC loan in relation to the ERP Braila acquisition. The first substantial debt
repayment of Euro6,824,800 is due in April 2011. However, this particular debt
repayment is expected to be readily re-financeable, given the relative low loan
to value ratio of the debt relative to the underlying asset.
Details of bank loans are set out in the table below.
Borrower Facility Outstanding Available Interest rate
Amount amount for Hedge
Euro Euro drawdown
Euro
Nepi 6,200,000 6,200,000 - 1 month Euribor
Bucharest +4.5%
One SRL
1,100,000 372,000 728,000 1 month Euribor 1 month
+4.5% Euribor
capped at
3%
Nepi 5,800,000 5,800,000 - 1 month Euribor
Bucharest +1.9% 1 month
Two SRL Euribor
1,024,800 230,200 679,400 1 month Euribor capped at
+1.9% 4.7%
General 15,000,000 12,555,978 - Fixed at 6.23%
Investment
SRL
Premium 13,995,000 13,869,401 - Fixed at 5.17%
Portfolio
3 month
ERPs 113,500,000 40,000,000 * 3M Euribor + Euribor
3.0% capped at
3% for
amount of
Euro40
million
* the balance of the ERP Braila loan is available for the Focsani and Bacau
acquisitions.
General Investment loan (Raiffeisen portfolio)
The loan is repayable at a rate of approximately Euro800,000 per year. In
addition, following the sale of the Constanta property, Euro2 million will
become available to make a repayment to the bank. As a result, the outstanding
loan will decrease to approximately Euro10.5 million.
ERP Braila loan
A binding term sheet for a total loan amount of Euro113,500,000 was executed
with KBC Bank Ireland to re-finance the ERP Braila and two other acquisitions
from BelRom. Currently the ERP Braila is financed with a Euro40 million
development loan that will be repaid from the KBC facility once the loan
documentation is finalised. The KBC Bank Ireland facility has a 2 year grace
period on repayment of the loan principal, after which 16% of the principal has
to be repaid in equal annual instalments until maturity in December 2014. The
KBC Bank Ireland facility is secured with a holding company guarantee (from
NEPI) which covers a portion of interest and principal due under the loan. The
loan will be cross-collateralised among the three investment assets and will
have the following covenants on a portfolio basis:
Year 1 Year 2 Year 3 Year 4 Year 5
Loan to value ratio 69% 69% 62% 56% 50%
Interest service 1.80 2.00 2.20 2.20 2.20
coverage ratio
The Group has made cash security deposits in an amount of Euro895,000 and
Euro402,952 in relation to the vendor finance in Germany and the Raiffeisen
Portfolio loan respectively. In relation to the Flanco Portfolio and Ra?nov
Industrial Facility loans, the Group needs to maintain a cash security deposit
equivalent to 3 months` interest expense.
The Group is confident that it will continue to meet all covenants applicable to
its outstanding loans and that loans will be re-financed at maturity, where
necessary.
Market overview
Following nine years during which Romania was one of the best performers in
Europe in terms of GDP growth (including 7.3% growth in 2008, the highest in the
European Union), the economy was hit hard in 2009. It appears that there is a
delayed effect in the economic cycle between Romania and the larger economies in
Western Europe. As a result GDP contracted by 7.4% in the first 3 quarters of
2009.
Foreign demand for exports increased in November compared to the same month of
2008. The IMF expects a GDP contraction of 7% in 2009 and GDP growth of 1.3%
in 2010 for Romania, with GDP growth set to resume longer term expectations in
excess of 4.5% per annum from 2011. Other forecasts are somewhat more upbeat
regarding GDP growth in Romania for 2010, forecasting growth of up to 2.3% in
relation to 2010.
Declining tenant demand in all segments of the property market led to increased
vacancy and downward pressure on rental levels. Rental renegotiations were
widespread, especially in the first half of 2009. A large number of small
retailers had to downsize their networks while a number of successful
international retailers seized the opportunity to enter into well-established
trading properties previously inaccessible because of the lack of available
space and higher rental levels.
Retail sales in 2009 declined significantly in comparison to 2008. The retail
sales market in 2010 is expected to remain difficult and on par with 2009.
Longer term prospects remain positive and retails sales are forecasted to grow
robustly in Romania over the course of the next decade and outperform most
countries in Central Europe (with the exception of Poland) and virtually all of
Western Europe. Many larger Romanian cities remain under supplied with modern
property infrastructure especially in the retail segment of the market.
The economic downturn has generated unique investment opportunities that the
Group will continue to pursue in the coming months. Banks in Romania are
reluctant to provide new loans (lending margins were increased, ranging from 4%
to 5% over the base rate) and equity providers and investors are in low supply.
Transactional activity was low in 2009; NEPI`s acquisition of ERP Braila was the
largest property acquisition in Romania during 2009. Property owners and
developers are often over-leveraged and banks have imposed cash sweeps in many
cases. This resulted in developers and property owners being strapped for cash.
There seems to be no immediate resolution for these market players.
The German market was also subject to downward pressure on rents, although less
acutely than in Romania. These pressures were caused by increasing vacancy,
delayed completion of developments and general economic slowdown. Transaction
volumes were low compared to previous years, however the yields for prime assets
appear to have stabilised close to the historical levels. The demand for
secondary assets continues to remain sluggish.
Dividend
With consideration to the 2009 interim dividend of 7.66 Euro cents per share
paid by the Company, the Board has recommended a year-end dividend of 8.11 Euro
cents per share, bringing the total recommended dividend to 15.77 Euro cents per
share in respect of the 2009 financial year. Shareholders will be asked to
approve the declaration of the final dividend in the annual general meeting that
is set for 3 March 2010. The salient dates for the dividend are set out below.
Last day to trade (JSE Limited) Friday 19, February 2010
Ex-dividend date (JSE Limited) Monday, 22 February 2010
Ex-dividend date (AIM) Wednesday, 24 February 2010
Record date Wednesday, 26 February 2010
Annual General Meeting Wednesday, 3 March 2010
Payment date Friday, 5 March 2010
No dematerialisation or rematerialisation of share certificates, nor transfer of
shares between registers in the Isle of Man and South Africa will take place
between Monday, 22 February 2010 and Friday, 26 February 2010, both dates
inclusive.
Shareholders on the South African sub-register will receive dividends in South
African Rand, based on the exchange rate to be obtained by the Company on or
about 12 February 2010. A further announcement in this respect will be made by
the latest 12 February 2010.
Prospects
NEPI is well positioned in its markets and intends to continue to pursue
attractive acquisition opportunities of dominant or potentially dominant
operating commercial assets anchored by international and national retailers
with long term lease agreements in Romania in 2010. The acquisitions should
lead to further growth in its distributions to shareholders and to establish
NEPI as a significant player in the Romanian retail market.
Statement of financial position
as at 31 Dec 2009
Note Group Group
31 Dec 09 31 Dec 08
Euro Euro
ASSETS
Non-current assets 151,470,854 87,533,635
Investment property 3 145,965,096 85,142,170
Investment property at fair value 139,222,255 78,627,504
Investment property under development 6,742,841 6,514,666
Goodwill 4,414,804 2,386,463
Investments in subsidiaries - -
Loans to subsidiaries - -
Financial assets at fair value through 1,090,954 5,002
profit or loss
Current assets 15,673,022 6,190,203
Trade and other receivables 3,396,479 1,771,356
12,276,543
Cash and cash equivalents 12,276,543 4,418,847
TOTAL ASSETS 167,143,876 93,723,838
EQUITY AND LIABILITIES
Total equity attributable to equity 72,719,463 51,397,909
holders
Share capital 4 386,247 267,950
Share premium 4 76,731,744 52,487,190
Share based payment reserve 5 234,900 81,841
Currency translation reserve (2,650,069) (757,686)
Accumulated (loss) (1,983,359) (681,386)
Non-current liabilities 86,440,422 37,195,489
Loans and borrowings 6 77,970,398 32,750,804
Financial liabilities at fair value 1,081,710 575,303
through profit or loss
Deferred tax liabilities 7,388,314 3,869,382
Current liabilities 7,983,991 5,130,440
Trade and other payables 7 6,027,605 3,268,082
Loans and borrowings 6 1,956,386 1,862,358
TOTAL EQUITY AND LIABILITIES 167,143,876 93,723,838
NAV per share 10 1.95 1.92
Adjusted NAV per share (40,657,663 1.97 1.98
shares) 10
Statement of comprehensive income
for the year ended 31 Dec 2009
Note Group Group
31 Dec 09 31 Dec 08
Euro Euro
Net rental and related income 8,270,884 6,315,183
Contractual rental income and expense 10,708,873 7,713,486
recoveries
Property operating expenses (2,437,989) (1,398,303)
Share based payments (153,059) (81,841)
Investment advisory fees (670,725) (571,137)
Administrative expenses (1,543,992) (498,656)
Foreign exchange gain 1,811,011 1,144,227
Fair value adjustment on investment 575,253 (1,671,077)
property
Profit before net finance (expense) 8,289,372 4,636,699
Finance income 261,512 275,930
Finance expense (3,707,436) (2,239,250)
Net finance (expense) (3,445,924) (1,963,320)
Profit before tax 4,843,448 2,673,379
Tax (2,121,193) (1,204,029)
Profit after tax 2,722,255 1,469,350
Basic weighted average earnings per 8 9.26 5.48
share (Euro cents)
Diluted weighted average earnings per 8 8.82 5.33
share (Euro cents)
Distributable earnings per share (Euro 8 15.77 14.72
cents)
Headline earnings per share (Euro 9 13.30 7.76
cents)
9 12.67 7.54
Diluted headline earnings per share
(Euro cents)
Statement of Changes in Equity for the period ended 31 December 2009
Share Share Share Currency
based translation
payments
capital premium reserve reserves
Euro Euro Euro Euro
Opening balance 1 January 267,950 52,487,190 81,841 (757,686)
2009
Transactions with owners 118,297 24,244,554 153,059 -
- Issue of shares 118,297 24,263,927 - -
- issue cost recognised to - (19,373) - -
equity
- share based payment reserve - - 153,059 -
- dividend distribution - - - -
Total comprehensive income - - - (1,892,383)
- other comprehensive income - - - (1,892,383)
- profit for the year - - - -
Balance at 31 December 2009 386,247 76,731,744 234,900 (2,650,069)
Retained Total
earnings
Euro Euro
Opening balance 1 January 2009 (681,386) 51,397,909
Transactions with owners (4,024,228) 20,491,682
- Issue of shares - 24,382,224
- issue cost recognised to equity - (19,373)
- share based payment reserve - 153,059
- dividend distribution (4,024,228) (4,024,228)
Total comprehensive income 2,722,255 829,872
- other comprehensive income - (1,892,383)
- profit for the year 2,722,255 2,722,255
Balance at 31 December 2009 (1,983,359) 72,719,463
Statement of cash flows for the year ended 31 Dec 2009
Group Group
31 Dec 09 31 Dec 08
Euro Euro
OPERATING ACTIVITIES
Profit after tax 2,722,255 1,469,350
Adjustments for:
Share based payments 153,059 81,841
Fair value adjustments on investment property (575,253) 1,671,077
Net finance expense 3,445,924 1,963,320
Foreign exchange gain (1,811,011) (1,144,227)
Corporate tax charge and deferred tax 2,121,193 1,204,029
Operating profit before changes in working 6,056,167 5,245,390
capital
(Increase) in trade and other receivables (1,624,979) (1,219,480)
Increase/(decrease) in trade and other 160,123 (430,680)
payables
Interest paid (2,240,009) (839,299)
Interest received 261,512 275,930
Cash flows from operating activities 2,612,814 3,031,861
INVESTING ACTIVITIES
Acquisition of investment property (745,781) (22,465,661)
Payments for acquisition of subsidiaries less (6,023,701) (27,198,062)
cash acquired
Transaction cost of business acquisition (286,211) -
Cash flows from investing activities (7,055,693) (49,663,723)
FINANCING ACTIVITIES
Proceeds from share issuance 17,092,896 -
Proceeds from bank borrowings 8,819,278 21,047,301
Repayment of borrowings (7,915,638) (1,177,853)
Premiums paid on acquisition of derivatives (1,435,299) (129,000)
Payment of dividends (4,024,228) (2,426,482)
Cash flows from financing activities 12,537,009 17,313,966
Net increase/(decrease) in cash and cash
equivalents 8,094,130 (29,317,896)
Cash and cash equivalents brought forward 4,418,847 33,651,107
Translation effect on cash and cash (236,434) 85,636
equivalents
Cash and cash equivalents carried forward 12,276,543 4,418,847
Notes to the annual financial statements
For the period ended 31 December 2009
1. General
New Europe Property Investments plc is a company incorporated in the Isle of Man
on 23 July 2007. The Company has a primary listing on the AIM market of the
London Stock Exchange and secondary listing on AltX of the JSE Limited.
2. Accounting policies
The financial statements have been prepared in accordance with applicable Isle
of Man law and International Financial Reporting Standards (IFRS). The principal
accounting policies applied in the preparation of the financial information set
out in this announcement are set out in the Company`s full financial statements
for the period ended 31 December 2009.
3. Investment property
Group Group
31 Dec 09 31 Dec 08
Euro Euro
Movement in investment property is as follows:
Carrying value at beginning of year 85,142,170 21,718,364
Additions from business combination 59,464,936 36,473,582
Assets under development acquired through - 6,514,666
business combination
Additions 782,737 22,106,635
Fair value adjustment 575,253 (1,671,077)
Carrying value at end of year 145,965,096 85,142,170
Investment property is carried at fair value which is assessed on an annual
basis. The Group obtained annual independent appraisal reports from DTZ Echinox
Consulting S.R.L. and Dr Lubke GmbH which are members of RICS (Royal Institution
of Chartered Surveyors). The fair value of investment property is based on the
year end appraisal reports except for the property located in Constanta for
which the put option value is deemed to be the fair value. The Group has the
right to sell the Constanta property back to the seller (i.e. has a put option
in relation to the Constanta building). It is expected that the sale will be
concluded during the 2010 financial year at a price of Euro5,809,000.
A fair value adjustment was made in accordance with the Group accounting
policies to assess fair values on an annual basis.
The current book value of assets under development includes two buildings under
refurbishment in Constanta and Brasov, part of the portfolio held by General
Investment S.R.L.
The Group`s investment properties at the end of the reporting period included
retail, office and industrial properties and an immaterial amount of residential
property in Germany.
4. Share capital and share premium
Share capital Share
premium
Euro
Euro0.01/shar
e
Authorised on 23 August 2007
150,000,000 ordinary shares of Euro 0.01 each - -
Issued as of 01 January 2009 267,950 52,487,190
Issued during the year
Issued 5,427,633 ordinary shares at Euro 54,276 10,945,724
2.02667/share
Issued 2,815,000 ordinary shares at Euro 28,151 6,084,120
2.1713 /share
Issued 3,587,148 ordinary shares Euro 35,870 7,234,083
2.10/share
Listing cost - (19,373)
Carried forward as at 31 December 2009 386,247 76,731,744
The issued share capital figure presented excludes shares issued in terms of the
Investment Advisor share incentive scheme set out in note 10.
The ordinary shares carry the right to vote at general meetings, the right to
dividends and the right to the surplus assets of the Group on a winding-up.
The ordinary shares carry pre-emption rights as well as transfer rights as
indicated in the Company`s Admission Document published at the time of admission
to the AIM Market of the London Stock Exchange.
5. Share based payments
On 6 June 2008 the Group implemented a share incentive scheme that entitles key
individuals and their nominated entities to acquire shares in the Company.
The purpose of the scheme is to align the interests of directors and key
individuals of the Investment Advisor with those of shareholders of the Company.
This is achieved by the Company making loans available to allow shares to be
purchased by participants in the scheme, the repayment of which can be made in
part out of the dividends payable in relation to the shares.
20 percent of the shares initially subscribed for by each participant vest
annually.
The Company offers each participant the immediate right to subscribe for the
relevant number of shares at their then market value together with a loan to
fund such subscription. Each loan carries interest at the weighted average rate
at which the Company is able to borrow money from its bankers. Each loan is
repayable in full together with interest ten years after its relevant
subscription date, but can be repaid earlier.
The Company`s recourse against each participant is limited to the shares issued
in terms of the scheme. The Company has security interests over the shares held
in the scheme by each participant. The security interests secure the repayment
of all principal and interest in respect of each loan made by the Company to
each participant under the scheme.
Pending repayment of the loan in respect of the shares subscribed for by a
participant, the dividends on such shares will be applied towards payment of
interest on that loan. If the dividend amount on the shares exceeds the amount
required for the interest payment then the excess will be paid to the
participant otherwise the shortfall will be paid by the participant to the
Company.
The Group has accounted for the scheme as a share option scheme.
677,882 new shares were issued as part of the share based payments scheme at a
price of Euro2.10 each during the financial year.
The Group is entitled to interest of Euro170,721 in respect of the loans granted
to participants using the Group`s weighted average cost of debt capital. The
interest will be settled from dividend distributions and was not accrued in the
statement of comprehensive income.
Assumptions used in relation to the shares 28 Oct 09 16 Sept 09
issued pursuant to the scheme
Euro0.78 Euro0.79
Fair value at grant date (per share)
Share price at grant date Euro2.20 Euro2.20
Weighted average exercise price Euro2.1 Euro2.1
Expected volatility (weighted average) 35% 35%
Expected dividend 2.5% 2.5%
Option life 5 years 5 years
Risk free interest rate (based on government 3.3500% 3.3500%
bond)
6. Loans and borrowings
As part of the ERP Braila acquisition NEPI agreed an acquisition debt funding
facility from KBC Bank Ireland plc ("KBC Bank") for an amount of Euro113
million, Euro40 million of which will be used to pay down existing debt on ERP
Braila. The facility is repayable at the end of the 2014, with capital
amortisation starting in the 2011. The existing loan agreement expired on the 15
January 2010. However, the Company entered into a binding term sheet with KBC
Bank. The loan covenants are in agreement with this term sheet.
The Group contracted bank loan facility agreements with Nord LB Bank and Alpha
Bank Romania S.A. for an aggregate amount of Euro28,119,800. Of that amount,
Euro1,407,400 was available for draw-down as at 31 December 2009. A loan from
EuroHypo AG for an amount of Euro15,000,000 has been taken over as a result of
the acquisition of General Investment S.R.L. and General Building Management
S.R.L, effective with 1 January 2008.
The facility agreements concluded with Nord LB Bank bear interest at a fixed
rate of 5.17% as a result of a interest rate swap concluded with Nord LB Bank.
As of 31 December 2009 the fair value of the interest rate swap amounted to Euro
1,081,710.
The facility agreements in relation to the Flanco portfolio and Rasnov
Industrial Facility which were concluded with Alpha Bank Romania S.A. bear
interest at a floating rate of one month Euribor plus 1.9% p.a. and 4.5%,
respectively. The Group has capped its Euribor base interest rate at 4.7% for
the amount of Euro7.6m respectively at 3% for the amount of Euro7.3 million by
purchasing two derivative financial instruments related to a floating interest
rate loan facilities concluded with Alpha Bank Romania S.A.
The facility agreements concluded with KBC Bank bear interest at a floating rate
of three month Euribor plus 3% p.a. The Group has capped its Euribor base
interest rate at 3% in respect of the Euro40 million detailed above.
As of 31 December 2009, the fair value of the derivative financial instruments
amounted to Euro1,090,954.
The loan from EuroHypo AG bears interest at a fixed rate of 6.20% per annum.
In addition to the bank loans, the Group also obtained financing from the
vendors of the German portfolio amounting to Euro853,281 for a period of five
years. Of this amount, Euro250,000 bears interest at a fixed interest rate of
6% p.a. while the balance does not attract interest.
The repayment profile of the Group`s outstanding loans is set out in the table
below.
Loans and borrowings Due within Due within Due after
one year two to five five years
Euro years Euro
Euro
Alpha Bank Romania S.A. - 12,526,192 -
revolving credit facilities
Nord LB Bank loan 228,678 1,025,657 12,615,066
EuroHypo AG 1,167,111 11,388,868 -
Vendor finance - 859,289 -
KBC Bank loan - 39,555,326
Accrued interest on Nord LB Bank 366,831 - -
loan
Accrued interest on Eurohypo AG 193,766 - -
loan
Total 1,956,386 65,355,332 12,615,066
As a result of the loan contract concluded with EuroHypo AG, first ranking
security interests were created over the real estate properties of General
Investment S.R.L. in favour of EuroHypo AG together with a prohibition to sell,
encumber or lease the real estate properties, through mortgage agreements
concluded for each individual property. In addition the following security
agreements have been concluded in relation to the loan:
- Pledge agreement over the bank accounts of General Investment S.R.L.;
- General security agreement over the assets owned by General Investment
S.R.L.;
- Assignment of rental receivable to EuroHypo AG; and
- Personal guarantee agreement between EuroHypo AG (as lender) and the
Company (as first guarantor).
Covenants
Debt service ratio minimum of 120%; and
Loan to value ratio maximum of 70%.
The Alpha Bank Romania S.A. loans have been secured as follows:
- Mortgage over the land and building located in Rasnov and the land and
buildings in the Flanco portfolio;
- Pledge agreement over the bank accounts of NEPI Bucharest One S.R.L. and
NEPI Bucharest Two S.R.L opened with Alpha Bank Romania S.A.;
- Real movable security over the shares of NEPI Bucharest One S.R.L. and NEPI
Bucharest Two S.R.L; and
- Corporate guarantee issued by the Company.
Covenants
- Loan to value ratio maximum of 60% in respect of Nepi Bucharest Two S.R.L;
and
- Loan to value ratio maximum of 65% in respect of Nepi Bucharest One S.R.L.
The ERP Braila loan has been secured as follows:
Loan to value ratio of a maximum of 69% (from the commencement of the loan
agreement to the end on the second anniversary thereof), 62% (in respect of the
third anniversary of the loan agreement), 59% (in respect of the fourth
anniversary of the loan agreement) and 50% (at all times thereafter).
The interest cover ratio shall not be less than 1.80 times (from the
commencement of the loan agreement to the end of the first anniversary thereof),
2.00 times (in respect of the second anniversary of the loan agreement) and 2.20
times (at all times thereafter)
7. Trade and other payables
Group Group
31 Dec 09 31 Dec 08
Euro Euro
Payable for assets under construction 450,130 344,730
Property related payables 884,128 109,109
Advances from tenants 1,070,789 771,235
Administrative and secretarial accrued 749,082 245,055
expenses
Accrued management fee 540,762 220,591
Taxes and other related liabilities - -
Tenants deposits 1,853,964 1,558,708
Payments received in advance other than 478,750 18,654
rent
Accrued expenses - -
Total 6,027,605 3,268,082
8. Earnings, diluted earnings and distributable earnings per share
The calculation of basic earnings per share for the year ended 31 December 2009
was based on the profit attributable to ordinary equity holders of Euro
2,722,255 (31 December 2008: Euro1,469,350) and the weighted average number of
29,397,896 (31 December 2008: 26,795,000) ordinary shares in issue during the
year (excluding the share incentive scheme shares).
The calculation of diluted earnings per share for the year ended 31 December
2009 was based on the profit attributable to ordinary equity holders of Euro
2,722,255 (31 December 2008: Euro1,469,350) and the weighted average number of
30,877,071 (31 December 2008: 27,568,206) ordinary shares in issue during the
year (including the share incentive scheme shares).The calculation of
distributable earnings per share was based on profit after tax, adjusted as
shown in the table below, to arrive at the distributable earnings of
Euro3,008,088 for the last six months of the year (31 December 2008:
Euro2,039,323) and the number of shares in issue at 31 December 2009.
Group Group
31 Dec 09 31 Dec 08
Euro Euro
Profit after tax 2,722,255 1,469,350
Unrealised foreign exchange (gain) (1,811,011) (1,144,227)
Realised foreign exchange losses (87,000) -
Listing expenses 905,048 -
Acquisition fees 286,211 -
Share based payment fair value 153,059 81,841
Accrued interest on share based payments 170,721 100,807
Fair value adjustment (575,253) 1,671,077
Financial assets at fair value 855,754 699,301
Amortisation of the financial assets (117,288) (24,963)
Deferred tax expense 2,114,061 1,204,029
Share issue cum distribution - 87,728
Issue cum distribution 547,821 -
Interim distribution (2,156,290) (2,105,620)
Distributable earnings for the second half of the 3,008,088 2,039,323
year
Number of shares entitled to distribution 37,070,515 28,150,000
(shares in issue 40,657,668 less 3,578,148 - See
Note 7)
Distributable earnings per share for the six 8.11 7.24
months ended 31 December 2009 (Euro cents)
Interim dividend per share declared 7.66 7.48
Distributable earnings for the year 5,164,378 4,144,943
Distributable earnings per share for the year 15.77 14.72
(Euro cents)
Weighted average number of shares (excluding the share incentive scheme shares)
for basic earnings per share purposes:
Number Weighted
of shares average
Date Event % of period
01/01/2009 existing 26,795,000 71% 18,992,060
shares
16/09/2009 share issue 29,610,000 9% 2,765,769
20/10/2009 share issue 38,624,781 2% 848,896
28/10/2009 share issue 38,624,781 18% 6,791,170
31/12/2009 year end 29,397,896
Weighted average number of shares (including the share incentive scheme shares)
for diluted earnings per share purposes:
Number Weighted
of average
shares
Date Event % of period
01/01/2009 existing 28,150,0 71% 19,952,473
shares 00
16/09/2009 share issue 31,008,2 9% 2,896,372
14
20/10/2009 share issue 40,022,9 2% 879,626
95
28/10/2009 share issue 40,657,6 18% 7,148,600
63
31/12/2009 year end 30,877,071
9. Headline earnings and diluted headline earnings per share
The calculation of headline earnings per share for the year ended 31 December
2009 was based on headline earnings of Euro4,039,384 (31 December 2008:
Euro3,920,746) and the weighted average of 29,397,896 ordinary shares in issue
during the year excluding the share incentive scheme shares (31 December 2008:
26,795,000 ordinary shares). The calculation of diluted headline earnings per
share for the year ended 31 December 2009 was based on headline earnings of
Euro4,039,384 (31 December 2008: Euro3,920,746) and the weighted average of
30,877,071 ordinary shares in issue during the year including the share
incentive scheme shares (31 December 2009: 27,568,206 ordinary shares).
Reconciliation of earnings to headline Group Group
earnings 31 Dec 09 31 Dec 08
Euro Euro
Profit after tax 2,722,255 1,469,350
Changes in currency translation reserve of 1,892,382 780,319
foreign subsidiaries
Fair value adjustment of investment (575,253) 1,671,077
property
Headline earnings 4,039,384 3,920,746
10. Net asset value per share
Group Group
31 Dec 09 31 Dec 08
Euro Euro
Adjusted net asset value 80,070,467 55,834,728
Net asset value per the statement of 72,719,463 51,397,909
financial position
Value of shares issued in respect of the 4,377,494 2,953,900
share incentive scheme
Deferred tax 7,388,314 3,869,382
Goodwill (4,414,804) (2,386,463)
Number of shares in issue at end of year 40,657,663 28,150,000
Net asset value per share (38,624,771 1.95 1.92
shares)
Adjusted net asset value per share 1.97 1.98
(40,657,663 shares)
Number Weighted
Date Event of shares % of Average
period
01/01/2008 existing 26,795,000 43.01% 11,525,521
shares
06/06/2008 share issue* 28,150,000 56.99% 16,042,685
31/12/2008 period end 27,568,206
* 1,355,000 shares were issued as part of the share option scheme and are
accounted for as treasury shares.
11. Subsequent events
The Company`s negotiation to acquire certain retail assets in Romania advanced
to signing a sale and purchase agreement on 3 February 2010, which is still
subject to certain conditions precedent.
12. Extract from the Group`s financial statements
The financial information presented in this preliminary announcement does not
constitute statutory accounts. The information has however been extracted from
the Group`s financial statements for the year ended 31 December 2009 which were
approved by the Board on 4 February 2010 and on which the Group`s auditors have
given an unqualified opinion.
5 February 2010
For further information please contact:
New Europe Property Investments plc +40 74 432 8882
Martin Slabbert
Smith & Williamson Corporate Finance Limited +44 20 7131 4000
Azhic Basirov
South African sponsor +27 11 283 0042
Java Capital (Proprietary) Limited
Date: 05/02/2010 11:00:02 Produced by the JSE SENS Department.
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