EPH Issues Profit Warning for Half-Year 2011

Eastern Property Holdings Limited (EPH) /
EPH Issues Profit Warning for Half-Year 2011
. Processed and transmitted by Thomson Reuters ONE.
The issuer is solely responsible for the content of this announcement. 

Based on the preliminary review of the draft unaudited interim financial
accounts of Eastern Property Holdings (the "Company") as at, and for the six
month period ending 30 June 2011, the board of directors (the "Directors") of
the Company wish to inform the shareholders of the Company and potential
investors that the consolidated net loss after tax of the Company for the period
is expected to be approximately US$ 59 million, compared to a net loss of US$
3.4 million for the same period a year earlier. The net asset value ("NAV") of
the Company is expected to decrease by approximately US$ 49 million compared to
year-end 2010. NAV per share is expected to decrease from US$ 80.54 to
approximately US$ 69.00 per share.

Losses for the period are primarily attributable to two factors: fair value
adjustments on investment properties and foreign currency effects.


Fair Value Adjustments
The impact of lower appraised values for our real estate assets is reflected in
the Valuation Movements, Development Property Impairment, and Share of
Associate's Loss lines of the Company's income statement.

In prior years the Company used the Moscow branches of international property
consultants Knight Frank and DTZ to value its real estate assets. Starting 30
June 2011, valuations of all the Company's real estate assets are being done by
the Moscow branch of international consultant Jones Lang LaSalle ("JLL").

As stated in our previous financial statements, valuation of real estate assets,
especially in the case of development projects, involves a significant number of
assumptions and judgment calls by the valuers. These variables include, but are
are not limited to: future rent and sale price levels, amount of time needed to
rent or sell space, time needed to deliver new construction, construction costs,
best and highest use of an asset or space in an asset, and exchange rates.
Varying any of these factors can have a material impact on valuations, and
variations in a number of these factors at once can have a dramatic effect.

When possible, valuers make their assumptions based on available evidence. When
such evidence is lacking, which is often the case in the Russian market,
assumptions are based solely on the experience and judgment of the valuer.

  * Rental Properties (Berlin House, Geneva House, Petrovsky Fort, and
    Magistralnaya): The appraised value of this group of assets, which involves
    much less use of assumptions and estimates was consistent between
    appraisers, being up slightly in the first six months of 2011.

  * Scandinavia (103 hectare land site near St Petersburg): The land has been
    revalued by JLL at 30 June 2011 at approximately US$ 39 million, down from
    US$ 49.8 million at year-end 2010. In line with local market trends, JLL
    assumes the land will be sold as individual plots with utilities for owners
    to develop. There are local examples of such developments which have
    recently come to market and therefore underpin the valuation. This is a
    lower risk use of the land than the previous (DTZ) assumption, which was
    that a developer would sell finished homes in an elite residential
    community.

  * Arbat (two mixed-use, apartment/retail/office developments with parking in
    central Moscow): The Company's 50% stake in the developments has been valued
    by JLL using different estimates as to the rental value of retail space,
    sale price of parking spaces, and time of delivery. The appraised value of
    the projects (100%) using JLL's assumptions is approximately US$124 million,
    compared to DTZ's valuation of $152.28 million at 31 December 2010. Half of
    the US$28.30 million difference is attributed to EPH.

  * Inkonika (Moscow parking developments): The Company owns 50% of Inkonika, a
    parking developer in Moscow. The company is treated as an associate. The
    Company's share of this associate's loss for the first half of 2011 is
    approximately US$ 27 million. Inkonika's projects for which construction has
    been started have been revalued significantly downward due to the use of
    different assumptions as to how space will be allocated between hourly
    rental, monthly lease, and sale, and the projected occupancy rate.

    In particular, JLL uses different assumptions than DTZ when valuing
    Inkonika's largest unstarted project to construct approximately 1850 parking
    spaces on Sakharova Street in central Moscow. DTZ assumed that large blocks
    of parking spaces would be sold to neighboring commercial property owners at
    completion, as is common in high demand business districts in other cities.
    However, as there is no precedent for this in Moscow, JLL believes it is
    most prudent to assume a long marketing and sale period until local market
    data supports a different assumption. By assuming a long sale period and
    minimal hourly demand for space, the present value of this significant
    project is reduced to zero.



Currency Effect
Between end-December 2010 and end-June 2011, the Russian ruble ("RUB") gained
approximately 8% against the US dollar ("US$"). The Company's valuations,
leases, loans, and financial statements are in US$. Certain property operating
expenses, local taxes, and construction costs are generally denominated in RUB.
Ruble appreciation has had little impact on the profitability of the Company's
operations, but it has had a significant impact on net profit under IFRS for the
period. In a strong RUB environment, loans, including internal loans from the
parent company to subsidiaries, generate a foreign exchange profit, in that a
constant US$ debt could be repaid with less RUB. Assets, such as real estate
appraised in US$, have the opposite effect, in that an unchanged US$ value
converts to a lower amount of RUB. The net impact on the Company's net profit
for the period is a loss of approximately US$ 10 million.


Implications for Full Year 2011
The Directors believe that engaging a new valuer has had the effect of
generating two independent appraisals of the Company's assets in a short
timeframe, and with this one-off rebasing of carrying values, investors can take
comfort in there being a clear baseline supporting the underlying value of the
Company's assets.

The Company will continue to focus on minimizing the impact of exchange rate
movements on operations, but to the extent that such movements impact the
company only due to functional/reporting currency effects, the Company's
approach will be to inform shareholders and investors as early as possible, but
not to incur hedging costs.

Interim financial statements will be released on 24 September 2011, and
available on the Company's website: www.easternpropertyholdings.com at that
time.


*********
Eastern  Property  Holdings  Ltd.  is  an  SIX Swiss Exchange-listed real estate
development  and  investment  company  focusing  on  Russia.  The  company holds
interests   in   office,   residential,   retail   and  parking  properties  and
developments,  principally  in  Moscow  and  St.  Petersburg.  EPH is managed by
Valartis  International  Ltd.  a  wholly-owned  subsidiary of Valartis Group AG.
Additional  information on Eastern Property  Holdings is available by contacting
Terry Olin, Tel: [phone].

*********


 --- End of Message --- 

Eastern Property Holdings Limited (EPH)
Valartis Asset Management SA/Case Postale 3458 Geneva Switzerland

WKN: 250817;ISIN: VGG290991014;

Media Release (PDF): 


http://hugin.info/139905/R/1535444/468215.pdf




This announcement is distributed by Thomson Reuters on behalf of 
Thomson Reuters clients. The owner of this announcement warrants that: 
(i) the releases contained herein are protected by copyright and 
    other applicable laws; and 
(ii) they are solely responsible for the content, accuracy and 
     originality of the information contained therein. 
    
Source: Eastern Property Holdings Limited (EPH) via Thomson Reuters ONE

[HUG#1535444]