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 €63 million
- Property portfolio valued at €146 million as at 31 December 2009
- Dividend of 15.77 € cents per share in respect of the 2009 financial year, an improvement of 7.1% over 2008
- Five year loan facility of €113.5 million secured with KBC Bank Ireland to re-finance ERP Braila and the acquisition of two further properties
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 € cents per share for the year ended 31 December 2009 (2008: 14.72 € cents). In view of this the Board recommends a further dividend of 8.11 € cents per share, which brings the total dividend for the 2009 financial year to 15.77 € 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 €8,270,884 (2008: €6,315,183). 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 €1,543,992 (2008: €498,656) include JSE listing costs of €905,048 (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 €286,211 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 €855,754.
Trade and other payables of €6,027,605 include €2,924,753 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 €3,396,479 include €1,699,843 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 €1,811,011 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 €1,892,383 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 €153,059, 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 €575,253 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 €855,754 to reflect a net reduction in the value of financial instruments held for interest rate hedging purposes.
- A deferred tax expense of €2,114,061. 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 €2,722,255. Distributable earnings for the financial year amount to €5,164,378. This figure is arrived at by adjusting the accounting profit with the non-cashflow items discussed above, by recognising an expense of €117,288 in relation to the amortisation of option premiums paid in respect of financial instruments, by the reversal of listing expenses and acquisition fees of €905,048 and €286,211, respectively, by the recognition of accrued interest of €170,721 from participants in the Investment Advisor share incentive scheme (which interest is recovered from dividend payments to participants) and aggregate adjustments of €547,821 required in respect of share issues that took place cum dividend during the financial year.
NAV per share has improved to €1.95 (2008: €1.92) and Adjusted NAV per share is €1.97 (2008: €1.98). 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 €145,965,096 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 €89,768,452 (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 €43,996,642 (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 €2.4 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 €12,200,000 (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 €113.5 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 €63 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 €12,276,543 of cash at the end of the 2009 financial year (of which €10,949,088 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 €6,824,800 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 amount € | Outstanding amount € | Available for drawdown | Interest rate | Hedge |
| NEPI Bucharest One SRL | 6,200,000 | 6,200,000 | – | 1 month Euribor +4.5% | |
| 1,100,000 | 372,000 | 728,000 | 1 month Euribor +4.5% Euribor | 1 month capped at 3% | |
| NEPI Bucharest Two Srl | 5,800,000 | 5,800,000 | – | 1 month Euribor +1.9% | 1 month Euribor |
| 1,024,800 | 230,200 | 679,400 | 1 month Euribor +1.9% | capped at 4.7% | |
| General Investment SRL | 15,000,000 | 12,555,978 | – | Fixed at 6.23% | |
| Premium Portfolio | 13,995,000 | 13,869,401 | – | Fixed at 5.17% | |
| ERPs | 113,500,000 | 40,000,000 | * | 3M Euribor + 3.0% | 3 month Euribor capped at 3% for amount of € 40 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 €800,000 per year. In addition, following the sale of the Constanta property, €2 million will become available to make a repayment to the bank. As a result, the outstanding loan will decrease to approximately €10.5 million.
ERP Braila loan
A binding term sheet for a total loan amount of €113,500,000 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 €40 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 coverage ratio | 1.80 | 2.00 | 2.20 | 2.20 | 2.20 |
The Group has made cash security deposits in an amount of €895,000 and €402,952 in relation to the vendor finance in Germany and the Raiffeisen Portfolio loan respectively. In relation to the Flanco Portfolio and Rasnov 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 € cents per share paid by the Company, the Board has recommended a year-end dividend of 8.11 € cents per share, bringing the total recommended dividend to 15.77 € 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 December 2009
| Note | Group 31 Dec 09 (€) | Group 31 Dec 08 (€) | |
| 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 profit or loss | 1,090,954 | 5,002 | |
| Current assets | 15,673,022 | 6,190,203 | |
| Trade and other receivables | 3,396,479 12,276,543 |
1,771,356 | |
| 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 holders | 72,719,463 | 51,397,909 | |
| 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 through profit or loss | 1,081,710 | 575,303 | |
| 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 shares | 10 | 1.97 | 1.98 |
Statement of comprehensive income for the year ended 31 December 2009
| Note | Group 31 Dec 09 (€) | Group 31 Dec 08 (€) | |
| Net rental and related income | 8,270,884 | 6,315,183 | |
| Contractual rental income and expense recoveries | 10,708,873 | 7,713,486 | |
| 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 property | 575,253 | (1,671,077) | |
| 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 share (€ cents) | 8 | 9.26 | 5.48 |
| Diluted weighted average earnings per share (€ cents) | 8 | 8.82 | 5.33 |
| Distributable earnings per share (€ cents) | 8 | 15.77 | 14.72 |
| Headline earnings per share (€ cents) | 9 | 13.30 | 7.76 |
| Diluted headline earnings per share (€ cents) | 9 | 12.67 | 7.54 |
Statement of Changes in Equity for the period ended 31 December 2009
| Share capital (€) | Share premium (€) | Share based payments reserve (€) | Currency translation reserves (€) | Retained earning (€) | Total (€) | |
| Opening balance 1 January 2009 | 267,950 | 52,487,190 | 81,841 | (757,686) | (681,386) | 51,397,909 |
| Transactions with owners | 118,297 | 24,244,554 | 153,059 | – | (4,024,228) | 20,491,682 |
| – issue of shares | 118,297 | 24,263,927 | – | – | – | 24,382,224 |
| – issue cost recognised to equity | – | (19,373) | – | – | – | (19,373) |
| – share based payment reserve | – | – | 153,059 | – | – | 153,059 |
| – dividend distribution | – | – | – | – | (4,024,228) | (4,024,228) |
| Total comprehensive income | – | – | – | (1,892,383) | 2,722,255 | 829,872 |
| – other comprehensive income | – | – | – | (1,892,383) | – | (1,892,383) |
| – profit for the year | – | – | – | – | 2,722,255 | 2,722,255 |
| Balance at 31 December 2009 | 386,247 | 76,731,744 | 234,900 | (2,650,069) | (1,983,359) | 72,719,463 |
Statement of cash flows for the year ended 31 Dec 2009
| Group 31 Dec 09 (€) | Group 31 Dec 08 (€) | |
| 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 capital | 6,056,167 | 5,245,390 |
| (Increase) in trade and other receivables | (1,624,979) | (1,219,480) |
| Increase/(decrease) in trade and other payables | 160,123 | (430,680) |
| 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 cash acquired | (6,023,701) | (27,198,062) |
| 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 equivalents | (236,434) | 85,636 |
| 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 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 31 Dec 09 (€) | Group 31 Dec 08 (€) | |
| 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 business combination | – | 6,514,666 |
| 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 €5,809,000.
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 (€0.01/share) | Share premium (€) | |
| Authorised on 23 August 2007 | ||
| 150,000,000 ordinary shares of €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 €2.02667/share | 54,276 | 10,945,724 |
| Issued 2,815,000 ordinary shares at €2.1713/share | 28,151 | 6,084,120 |
| Issued 3,587,148 ordinary shares at €2.10/share | 35,870 | 7,234,083 |
| 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 €2.10 each during the financial year.
The Group is entitled to interest of €170,721 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 issued pursuant to the scheme | 28 Oct 09 | 16 Sept 09 |
|---|---|---|
| Fair value at grant date (per share) | €0.78 | €0.79 |
| Share price at grant date | €2.20 | €2.20 |
| Weighted average exercise price | €2.1 | €2.1 |
| 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 bond) | 3.3500% | 3.3500% |
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 €113 million, €40 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 €28,119,800. Of that amount, €1,407,400 was available for draw-down as at 31 December 2009. A loan from EuroHypo AG for an amount of €15,000,000 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 €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 €7.6m respectively at 3% for the amount of €7.3 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 €40 million detailed above. As of 31 December 2009, the fair value of the derivative financial instruments amounted to €1,090,954.
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 €853,281 for a period of five years. Of this amount, €250,000 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 one year (€) | Due within two to five years (€) | Due after five years (€) |
|---|---|---|---|
| Alpha Bank Romania S.A. revolving credit facilities | – | 12,526,192 | – |
| 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 loan | 366,831 | – | – |
| Accrued interest on Eurohypo AG loan | 193,766 | – | – |
| 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 31 Dec 09 (€) | Group 31 Dec 08 (€) | |
| 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 expenses | 749,082 | 245,055 |
| 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 rent | 478,750 | 18,654 |
| 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 € 2,722,255 (31 December 2008: €1,469,350) 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 €2,722,255 (31 December 2008: €1,469,350) 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 €3,008,088 for the last six months of the year (31 December 2008: €2,039,323) and the number of shares in issue at 31 December 2009.
| Group 31 Dec 09 (€) | Group 31 Dec 08 (€) | |
| 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 year | 3,008,088 | 2,039,323 |
| Number of shares entitled to distribution (shares in issue 40,657,668 less 3,578,148 – See Note 7) | 37,070,515 | 28,150,000 |
| Distributable earnings per share for the six months ended 31 December 2009 (€ cents) | 8.11 | 7.24 |
| 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 (€ cents) | 15.77 | 14.72 |
Weighted average number of shares (excluding the share incentive scheme shares) for basic earnings per share purposes:
| Date | Event | Number of shares | % of period | Weighted average |
|---|---|---|---|---|
| 01/01/2009 | existing shares | 26,795,000 | 71% | 18,992,060 |
| 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:
| Date | Event | Number of shares | % of period | Weighted average |
|---|---|---|---|---|
| 01/01/2009 | existing shares | 28,150,000 | 71% | 19,952,473 |
| 16/09/2009 | share issue | 31,008,214 | 9% | 2,896,372 |
| 20/10/2009 | share issue | 40,022,995 | 2% | 879,626 |
| 28/10/2009 | share issue | 40,657,663 | 18% | 7,148,600 |
| 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 €4,039,384 (31 December 2008: €3,920,746) 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 €4,039,384 (31 December 2008: €3,920,746) 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).
[table-wrap bordered=”true” striped=”true”]
| Reconciliation of earnings to headline earnings | Group 31 Dec 09 (€) | Group 31 Dec 08(€) |
|---|---|---|
| Profit after tax | 2,722,255 | 1,469,350 |
| Changes in currency translation reserve of foreign subsidiaries | 1,892,382 | 780,319 |
| Fair value adjustment of investment property | (575,253) | 1,671,077 |
| Headline earnings | 4,039,384 | 3,920,746 |
10. Net asset value per share
| Group 31 Dec 09 (€) | Group 31 Dec 08 (€) | |
| Adjusted net asset value | 80,070,467 | 55,834,728 |
| Net asset value per the statement of financial position | 72,719,463 | 51,397,909 |
| Value of shares issued in respect of the share incentive scheme | 4,377,494 | 2,953,900 |
| 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 shares) | 1.95 | 1.92 |
| Adjusted net asset value per share (40,657,663 shares) | 1.97 | 1.98 |
| Date | Event | Number of shares | % of period | Weighted Average |
|---|---|---|---|---|
| 01/01/2008 | existing shares | 26,795,000 | 43.01% | 11,525,521 |
| 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.
