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Condensed Consolidated Unaudited Financial Statements for the Six Months Ended 30 June 2011

30 Jun 2011

DIRECTORS’ COMMENTARY

1 DISTRIBUTABLE EARNINGS

The Group has achieved consolidated distributable earnings of 9.77 euro cents per share and accordingly, the Board declared an interim dividend of 9.77 euro cents per share in respect of the six month period ended 30 June 2011. This strong performance represents a 17% increase over the 8.35 euro cents per share distributed for the comparable prior interim period.

2 OTHER HIGHLIGHTS

On 20 June 2011, the Company was admitted to trading on the regulated market of the Bucharest Stock Exchange. The Bucharest Stock Exchange is a regulated European market that makes the Company’s shares accessible to Romanian investors, including Romanian institutional investors. Although the Romanian institutions do not have high levels of capital under management yet, this is expected to significantly change over time. Further, the regulated nature of the Bucharest Stock Exchange paves the way for a potential listing on a major European exchange.

In June 2011, the Company raised euro28.8 million through a private placement that was heavily oversubscribed. The proceeds will be used to fund the Group’s investment and development pipeline. This private placement extended the Company’s shareholder base.

Liquidity in the trading of the Company’s shares has further improved during this period.

3 PROPERTY ACQUISITIONS AND DEVELOPMENT

As reported in the 2010 Annual Report following the year-end, the Group has acquired land adjacent to Carrefour Property’s operating property in Ploiesti and has reached preliminary agreement with Carrefour Property to redevelop the combined properties into a 50,000 m2 regional shopping centre. Since then Carrefour Property’s board has approved the transaction and significant progress has been made in securing bank financing and agreeing pre-leases with tenants.

The Group also acquired land adjacent to its retail asset in Brasov that borders a Carrefour hypermarket. The combined property is being redeveloped into a 5,300 m2 strip mall. Tenants have been secured and the re-development is under way. During the period, the Group exercised its option to acquire a 7,000 m2 underperforming galleria linked to Retail Park Auchan Pitesti that will be redeveloped into a value centre. As a significant step in the redevelopment plan, the Group concluded an agreement with Auchan to extend the hypermarket area by a further 3,500 m2, of which 1,042 m2 is related to the acquired galleria.

This extension will result in this hypermarket being one of the largest in Romania outside of the capital city. It is expected that this will strengthen Auchan’s leading position in the Pitesti area and contribute to the re-generation of the galleria.

The Group finalised and opened the first phase of the extension of Promenada Mall Braila consisting of a 10 screen Cinema City complex and a large entertainment area including an ice rink (Cinema City is the largest cinema operator in Central and Eastern Europe). Further extensions and re-configurations are ongoing and are expected to include the addition of several large international fashion retailers.

In June 2011, the Group finalised the refurbishment of the Brasov office building and is currently in negotiations with three potential tenants to lease the refurbished property.

4 DEBT

In April 2011, the Group repaid the euro6.8 million Alpha Bank loan facility that was due for repayment and replaced this in June 2011 with a euro9.5 million revolving facility from Unicredit Bank. The new revolving facility carries an interest rate of 1 month Euribor plus 3.0% and matures on 31 May 2012 when, at the Group’s option, the facility is convertible into a term loan repayable on 31 December 2014. The new facility remains undrawn.

5 PROSPECTS

NEPI’s property portfolio continues to perform well supported by the length of its lease profile and tenants with strong corporate covenants. The Group is actively pursuing further acquisition and investment opportunities and is in negotiations to conclude three transactions, which include a sizeable office acquisition, a land acquisition and a joint venture shopping centre development.

By order of the Board

Martin Slabbert
Chief executive officer

Victor Semionov
Financial director

10 August 2011

CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
30 Jun 11
Audited
31 Dec 10
Unaudited
30 Jun 10
ASSETS
Non-current assets 345 483 741 328 991 707 211 084 981
Investment property 321 839 207 313 755 281 196 914 767
Investment property at fair value 307 077 251 300 899 292 189 752 881
Investment property under development 14 761 956 12 855 989 7 161 886
Goodwill 13 849 887 13 849 887 12 790 551
Financial assets at fair value through profit or loss 3 706 983 1 386 539 1 379 663
Loans 6 087 664
Current assets 39 578 986 31 185 529 27 932 073
Trade and other receivables 4 139 975 7 338 247 4 465 634
Cash and cash equivalents 35 439 011 23 847 282 23 466 439
Total assets 385 062 727 360 177 236 239 017 054
EQUITY AND LIABILITIES
Total equity attributable to equity holders 190 900 189 155 087 026 114 862 261
Share capital 808 328 712 686 562 686
Share premium 188 019 113 159 308 324 119 042 233
Share based payment reserve 7 179 934 759 550 542 246
Currency translation reserve (3 108 678) (2 964 825) (3 318 045)
Accumulated loss (1 998 508) (2 728 709) (1 966 859)
Total liabilities 194 162 538 205 090 210 124 154 793
Non-current liabilities 181 677 497 185 374 433 116 257 774
Interest bearing borrowings 165 139 885 168 564 379 105 223 417
Deferred tax liabilities 15 586 362 15 586 362 9 952 647
Financial liabilities at fair value through profit or loss 951 250 1 223 692 1 081 710
Current liabilities 12 485 041 19 715 777 7 897 019
Trade and other payables 5 143 621 7 656 857 6 335 216
Loans and borrowings 5 114 911 9 847 153 1 561 803
Tenant deposits 2 226 509 2 211 767
Total equity and liabilities 385 062 727 360 177 236 239 017 054
Net asset value per share 2.30 2.18 2.04
Adjusted net asset value per share 2.33 2.22 2.03

CONSOLIDATED STATEMENT OF INCOME
Unaudited
30 Jun 11
Audited
31 Dec 10
Unaudited
30 Jun 10
Net rental and related income 11 996 800 16 224 196 7 797 115
Contractual rental income and expense recoveries 16 184 734 21 269 338 10 126 772
Property operating expenses (4 187 934) (5 045 142) (2 329 657)
Share based payments (440 384) (524 650) (307 346)
Foreign exchange gain 227 552 178 175 421 927
Investment advisory fees (703 323) (679 627)
Administrative expenses (813 007) (1 991 478) (461 517)
Fair value adjustment on investment property 1 111 927
Profit before net finance expense 10 970 961 14 294 847 6 770 552
Net finance expense (3 809 261) (5 906 809) (3 827 037)
Finance income 143 453 581 765 196 896
Finance expense (3 952 714) (6 488 574) (4 023 933)
Profit before tax 7 161 700 8 388 038 2 943 515
Tax (1 476 694) (9 813)
Profit for the period attributable to equity holders 7 161 700 6 911 344 2 933 702
Weighted average number of shares in issue 75 963 602 52 388 748 47 255 904
Diluted weighted average number of shares in issue 81 628 632 56 334 549 49 444 271
Basic weighted average earnings per share (euro cents) 9.43 13.19 6.21
Diluted weighted average earnings per share (euro cents) 8.77 12.27 5.93
Distributable earnings per share (euro cents) 9.77 17.61 8.35
Headline earnings per share (euro cents) 9.43 11.07 7.62
Diluted headline earnings per share (euro cents) 8.77 10.29 7.28

ABRIDGED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited
30 Jun 11
Audited
31 Dec 10
Unaudited
30 Jun 10
Cash flows from operating activities* 8 755 571 3 335 524 1 872 019
Cash flows from financing activities 11 708 126 53 813 129 18 346 688
Cash flows from investing activities (8 955 636) (45 441 330) (8 697 486)
Net increase in cash and cash equivalents 11 508 061 11 707 323 11 521 221
Cash and cash equivalents brought forward 23 847 282 12 276 543 12 276 543
Translation effect on cash and cash equivalents 83 668 (136 584) (331 325)
Cash and cash equivalents carried forward 35 439 011 23 847 282 23 466 439
* Includes interest paid on bank borrowings in amount of euro 3 947 973 for the six months ended 30 June 2011, euro5 542 335 for the year ended 31 December 2010 and euro 2 989 403 for the six months ended 30 June 2010.

RECONCILIATION OF PROFIT FOR THE PERIOD TO DISTRIBUTABLE EARNINGS
Unaudited
30 Jun 11
Audited
31 Dec 10
Unaudited
30 Jun 10
Profit for the period attributable to equity holders 7 161 700 6 911 344 2 933 702
Unrealised foreign exchange loss (227 552) (178 175) (421 927)
Acquisition fees 831 369 332 839
Share based payment fair value 440 384 524 650 307 346
Accrued interest on share based payments 338 206 491 064 133 639
Fair value adjustment (1 111 927)
Financial assets at fair value 23 166 836 397 701 291
Amortisation of the financial assets (464 722) (426 032) (159 600)
Deferred tax expense 1 460 883
Share issue cum distribution 1 022 551 2 325 443 1 042 706
Distributable earnings for the period 8 293 733 11 665 016 4 869 996
Number of shares entitled to distribution 84 910 831 73 346 586 58 346 586
Distributable earnings per share for the period (euro cents) 9.77 17.61 8.35
First interim dividend (euro cents) 9.77 8.35 8.35
Second interim dividend (euro cents) 9.26

STATEMENT OF OTHER COMPREHENSIVE INCOME
Unaudited
30 Jun 11
Audited
31 Dec 10
Unaudited
30 Jun 10
Profit for the period attributable to equity holders 7 161 700 6 911 344 2 933 702
Other comprehensive income – currency translation differences (143 853) (314 756) (667 976)
Total comprehensive income for the period 7 017 847 6 596 588 2 265 726

RECONCILIATION OF PROFIT FOR THE PERIOD TO HEADLINE EARNINGS
Unaudited
30 Jun 11
Audited
31 Dec 10
Unaudited
30 Jun 10
Profit for the period attributable to equity holders 7 161 700 6 911 344 2 933 702
Changes in currency translation reserve of foreign subsidiaries 667 976
Fair value adjustment of investment property (1 111 927)
Headline earnings 7 161 700 5 799 417 3 601 678

RECONCILIATION OF NET ASSET VALUE TO ADJUSTED NET ASSET VALUE
Unaudited
30 Jun 11
Audited
31 Dec 10
Unaudited
30 Jun 10
Adjusted net asset value 206 385 100 170 571 937 125 772 793
Net asset value per the statement of financial position 190 900 189 155 087 026 114 862 261
Loans in respect of the share purchase scheme 13 748 436 13 748 436 13 748 436
Deferred tax 15 586 362 15 586 362 9 952 647
Goodwill (13 849 887) (13 849 887) (12 790 551)
Net asset value per share 2.30 2.18 2.04
Adjusted net asset value per share 2.33 2.22 2.03
Number of shares for net asset value per share purposes 82 832 949 71 268 704 56 268 704
Number of shares for adjusted net asset value per share purposes 88 497 979 76 933 734 61 933 734

STATEMENT OF CHANGES IN EQUITY
Group unaudited Share capital Share premium Share based payments reserve Currency translation reserve Accumulated loss Total
Opening balance 1 January 2010 386 247 76 731 744 234 900 (2 650 069) (1 983 359) 72 719 463
Transactions with owners 176 439 42 310 489 307 346 (2 917 202) 39 877 072
– issue of shares 176 439 42 532 625 42 709 064
– issue cost recognised to equity (222 136) (222 136)
– share based payment reserve 307 346 307 346
– dividend distribution (2 917 202) (2 917 202)
Total comprehensive income (667 976) 2 933 702 2 265 726
– other comprehensive income (667 976) (667 976)
– profit for the period 2 933 702 2 933 702
Balance at 30 June 2010 562 686 119 042 233 542 246 (3 318 045) (1 966 859) 114 862 261
Opening balance 1 July 2010 562 686 119 042 233 542 246 (3 318 045) (1 966 859) 114 862 261
Transactions with owners 150 000 40 266 091 217 304 (4 739 492) 35 893 903
– issue of shares 150 000 40 417 268 40 567 268
– issue cost recognised to equity (151 177) (151 177)
– share based payment reserve 217 304 217 304
– dividend distribution (4 739 492) (4 739 492)
Total comprehensive income 353 220 3 977 642 4 330 862
– other comprehensive income 353 220 353 220
– profit for the period 3 977 642 3 977 642
Balance at 31 December 2010 712 686 159 308 324 759 550 (2 964 825) (2 728 709) 155 087 026
Opening balance 1 January 2011 712 686 159 308 324 759 550 (2 964 825) (2 728 709) 155 087 026
Transactions with owners 95 642 28 710 789 6 420 384 (6 431 499) 28 795 316
– issue of shares 95 642 28 734 126 28 829 768
– issue cost recognised to equity (23 337) (23 337)
– share based payment reserve 6 420 384 6 420 384
– dividend distribution (6 431 499) (6 431 499)
Total comprehensive income (143 853) 7 161 700 7 017 847
– other comprehensive income (143 853) (143 853)
– profit for the period 7 161 700 7 161 700
Balance at 30 June 2011 808 328 188 019 113 7 179 934 (3 108 678) (1 998 508) 190 900 189

BANK LOANS AND BORROWINGS AS AT 30 JUNE 2011
Group unaudited Facility amount Outstanding amount Available for drawdown Interest rate Hedge
NEPI Bucharest One SRL 6 200 000 6 200 000 1M Euribor+4.5% 1M Euribor capped at 2.25%
General Investment SRL 15 000 000 10 892 282 Fixed at 6.23%
NEPI Bucharest Two and Unique Delamode SRL 9 500 000 9 500 000 1M Euribor+3% 1M Euribor capped at 2.25%
Premium Portfolio 13 995 000 13 448 858 Fixed at 5.17%
Promenada Mall 40 000 000 40 000 000 3M Euribor+3.0% 3M Euribor capped at 2.25%
Retail Park Auchan Pitesti 28 813 000 28 813 000 1M Euribor+4.0% 1M Euribor capped at 2.25%
Floreasca Business Park 77 000 000 70 269 270 3M Euribor+2.5% 3M Euribor capped at 2.00%
Total 190 508 000 169 623 410 9 500 000

BANK LOANS REPAYMENT PROFILE
Borrower 2011 2012 2013 2014 2015 Total
Euro Euro Euro Euro Euro Euro
NEPI Bucharest One SRL 6 200 000 6 200 000
General Investment SRL 508 422 1 064 641 1 137 283 8 181 936 10 892 282
NEPI Bucharest Two and/or Unique Delamode SRL
Premium Portfolio 117 943 241 105 334 550 12 755 260 13 448 858
Promenada Mall 2 155 653 2 155 654 35 688 693 40 000 000
Retail Park Auchan Pitesti 2 204 195 1 887 251 2 247 414 22 474 140 28 813 000
Floreasca Business Park 2 484 875 4 399 692 63 384 703 70 269 270
Total 3 111 240 10 065 286 75 099 441 58 873 303 22 474 140 169 623 410

LEASE EXPIRY PROFILE
Year Total based on rental income Total based on rented area
2011 0.2% 1.0%
2012 4.2% 1.9%
2013 4.2% 6.9%
2014 17.4% 14.3%
2015 21.4% 16.2%
2016 4.2% 3.9%
2017 4.6% 3.4%
2018 3.3% 1.6%
2019 1.2% 1.1%
>=2020 39.3% 49.7%
Total 100% 100%

SEGMENTAL ANALYSIS
Unaudited Audited Unaudited
30 Jun 11 31 Dec 10 30 Jun 10
Contractual rental income and expense recoveries
Retail 7 437 887 13 636 990 7 108 561
Industrial 906 069 1 376 030 594 417
Office 7 840 778 6 256 318 2 423 794
Total 16 184 734 21 269 338 10 126 772
Profit before net finance expense
Retail 6 232 174 16 902 869 5 317 544
Industrial 775 367 961 679 474 707
Office 4 989 415 (430 901) 1 815 713
Corporate (1 025 995) (3 138 800) (837 412)
Total 10 970 961 14 294 847 6 770 552

 

NOTES TO THE CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

BASIS OF PREPARATION

The condensed unaudited consolidated financial statements have been prepared in accordance with the recognition and measurement criteria of the International Financial Reporting Standards (IFRS), its interpretations adopted by the International Accounting Standard Board (IASB), the presentation and the disclosure requirements of IAS 34 Interim Financial Reporting and the Listing Requirements of the JSE. The accounting policies adopted are consistent with those of the prior year. These condensed consolidated interim financial results have not been reviewed or reported on by the Company’s auditor.

INVESTMENT PROPERTY

Investment property are those held either to earn rental income or for capital appreciation or both. After initial recognition investment property are measured at fair value. Fair value is determined annually by external independent professional valuators with appropriate and recognised professional qualifications and recent experience in the location and category of property being valued.

PAYMENT OF INTERIM DIVIDEND

The board has approved and notice is hereby given of a dividend per share of 9.77 euro cents for the six months ended 30 June 2011. The salient dates for the dividend are set out below:

Last day to trade (JSE) Friday, 2 September 2011
Ex-dividend date (JSE) Monday, 5 September 2011
Ex-dividend date (AIM and BVB) Wednesday, 7 September 2011
Record date Friday, 9 September 2011
Payment date Monday, 12 September 2011

No dematerialisation or rematerialisation of share certificates, nor transfer of shares between sub-registers in the Isle of Man, South Africa and Romania will take place between Monday, 5 September 2011 and Friday, 9 September 2011.

Shareholders on the South African sub-register will receive dividends in South African cents of 99.79078 per share, based on an exchange rate of 10.2140 South African Rand per euro.