Final Results
Fabian Romania Property Fund Ltd
29 June 2007
29 June 2007
Fabian Romania Property Fund Limited (FAB.LN)
Final results for the year ended 31 December 2006
Fabian Romania Property Fund Limited ('Fabian', 'Fabian Romania' or the
'Company'), the AIM quoted dedicated Romanian real estate investor announces its
results for the year ended 31 December 2006.
Highlights
• Executed four investments, committing a total of €35.6 million. The
Company's share of the market valuations of these investments (before deferred
income tax liabilities) was €46.7 million at 31 December 2006, before deducting
the outstanding non-recourse bank financing of €18.6 million
• Raised €40 million and admitted to AIM in December 2006 as the only
investment fund quoted on AIM dedicated solely to the Romanian real estate
sector
• As of 31 December 2006, after taking into account the net proceeds of
the fundraising of €38.1 million, the Net Asset Value ('NAV') per share of the
Company as determined in accordance with its Articles of Association was €1.356
(at 31 December 2005: €0.996 ) an increase of 36 per cent. over the year
• An additional amount of €34.9 million has been committed to five new
projects in April and June 2007, resulting in total capital commitments of €70.5
million to nine investments, with approximately 73,000 square metres ('sqm') of
lettable office space in Bucharest secured together with over 885 residential
apartments
Jaroslav Kinach, Chairman of the Company, commented:
'These results, coupled with the quality of Fabian's projects, reflect an
outstanding year and demonstrate the Company's ability to create value for its
shareholders. I am confident of further progress in the year ahead.'
Mark Holdsworth, Managing Director of Fabian Capital Limited, the Company's
investment manager commented:
'With total capital commitments of over €70 million across nine investments as
of the end of June 2007, Fabian Romania has become a well regarded investor in
the Bucharest real estate market. This has opened up interesting opportunities
for the Company, in a range of real estate sectors and regions across Romania.'
Contacts:
Fabian Romania Property Fund Limited
Jaroslav Kinach Tel: +44 20 7499 9988
Fabian Capital Limited
Mark Holdsworth Tel: +44 20 7499 9988
Shore Capital - Broker to Fabian
Dru Danford Tel: +44 20 7408 4090
Deloitte Corporate Finance - Nominated Adviser to Fabian
Jonathan Hinton Tel: +44 20 7936 3000
Notes to Editors
Fabian Romania Property Fund Limited is an experienced and well-known investor
in the Bucharest and wider Romanian real estate market and is quoted on AIM.
Fabian seeks to generate attractive total returns for its shareholders through a
portfolio of income producing buildings, co-development projects with
experienced partners and land investments. Fabian receives investment advice
from Fabian Capital Limited (the 'Investment Manager'), an independent
investment management firm that specialises in Romanian real estate investments
advice. (Fabian Capital does not carry out any regulated activities in the UK.)
Milestones
• Summer 2005 - Fabian raises €21.2 million capital
• December 2005 - Banu Antonache building purchased unlet for €12.3
million, fully let in August 2006 with an implied yield of 9.2 per cent.
• April 2006 - Cascades building purchased for €12.2 million at a yield
of 8.4 per cent.
• July 2006 - New Town residential development co-investment with Mivan
for over 635 apartments entered into for €5.75 million
• September 2006 - €5.3 million committed to land purchase within a
joint venture for 23,000 square metres ('sqm') Lakeview office development with
AIG/Lincoln
• December 2006 -Fundraising of €40 million (before expenses) raised at
€1.35 per share and Admission to AIM
• April 2007 - Cubic Centre forward purchase of 26,000 sqm office
building agreed and €12.25 million committed subject to certain conditions
• June 2007 - Evocenter building acquired for €4.9 million with 50 per
cent. of the space let and an estimated yield of 9 per cent.
• June 2007 - Dacia Boulevard turnkey office development acquired for €8
million
• June 2007 - Baneasa Business Centre office building purchased for
€23.9 million at an implied yield of 7.7 per cent. and €11.7 million committed
prior to refinancing
• June 2007 - 50 per cent. interest in a €4.7 million residential
development site in Timisoara to build around 250 apartments over 30,000 sqm
with Coltex
Chairman's Statement
It gives me great pleasure to present the first set of annual results for Fabian
Romania since AIM admission.
Fabian has demonstrated an impressive performance during its first full year of
operation. Over the past 12 months, the Company has established itself as an
experienced and well known investor in the Romanian real estate market.
Fabian Romania's total investments as of 31 December 2006 amounted to €35.6
million in four projects, namely two fully let office investments, Banu
Antonache and Cascades, and two joint ventures, the New Town residential
development and the Lakeview office development. The valuation of these
investments increased to €46.7 million before considering the gearing benefits
to equity resulting from the €18.6 million of bank debt refinancing completed
during the period.
The published end of year NAV per share was €1.356 (at 31 December 2005: €0.996)
and under IFRS was €1.189 (at 31 December 2005: €0.955), as expected somewhat
lower than the first figure due to certain differences in the treatment of
deferred tax and the way in which NAV is calculated for the purpose of the
Company's Articles of Association.
The investment of the proceeds of the Company's €40 million fundraising in
December 2006 is well under way with an additional €34.9 million committed to
the five new projects announced since 31 December 2006.
The above results coupled with the quality of Fabian's projects reflect an
outstanding year and demonstrate the Investment Manager's ability to help the
Company create value for its shareholders and maintain a high-profile position
within the Romanian real estate sector. The Company is delivering on its stated
strategy assisted by Romania's accession to the EU from 1 January 2007 and the
resulting favourable EU convergence trends and compelling supply/demand
dynamics.
With significant progress on the exciting investment pipeline, I am confident
that Fabian Romania will continue its high level of investment activity and
success rate during 2007, while in parallel progressing the asset management and
development of the existing projects, seeking to create significant value for
shareholders.
Jaroslav Kinach
Chairman
Fabian Romania Property Fund Limited
Investment Manager's Report to Fabian Romania
To the shareholders of Fabian Romania,
In 2006, Fabian Romania had a good year to achieve a gain in net asset value per
share of 36 per cent. or €9.7 million. We believe the encouraging progress in
this first full year augurs well for continuing the growth in shareholders'
funds.
My aim in writing this report is to give you both the information you need to
estimate Fabian Romania's value and the detail behind the front line numbers.
After a period of intensive due diligence on a wide variety of potential
investments in the second half of 2005, we began January 2006 having purchased
one office building and contracted to purchase a second. 2006 has been a year of
intensive activity in due diligence, acquisitions, negotiating leasing
contracts, securing excellent property managers and financing. We completed the
acquisition of Cascades, leased out Banu Antonache, secured debt financing
packages for both Cascades and Banu Antonache, entered into a residential joint
venture with Mivan Limited and purchased a land plot alongside AIG/Lincoln for
the development of a Class A office building. In September, we started the
process to raise further funds in conjunction with an AIM listing. Admission to
AIM became effective on 15 December, when approximately €40 million was raised
before expenses. By the end of the year, Fabian Romania owned a total of 9,500
sqm of fully let office space, a fifty per cent. share in a 23,000 sqm net
lettable office development project and a 50 per cent. stake in a 76,000 sqm
residential development.
Before we set out in detail the Company's investment activities, we provide a
brief review of Romania's political and economic developments over the year.
EU Accession
The most momentous event in Romania since the collapse of the Communist regime
in 1990 was its accession to the EU which occurred just after the year end on 1
January 2007. Throughout 2006, the President, Trian Basescu and Prime Minister,
Calin Tariceanu, worked tirelessly to meet the EU's final acquis communitaire
which they did towards the year-end. Economically, accession is important as it
will release substantial structural assistance funds along with financial
support for the agricultural sector. According to ING Bank estimates, in 2007,
excluding agriculture, structural assistance funds are expected to amount to 1.5
per cent. of GDP rising to 2.0 per cent. in 2008. Cumulatively, some €17.3
billion is expected to come to Romania between 2007-2013 ex agriculture. More
importantly still and as was the case with Poland, EU funds and know-how will
provide the impetus behind the construction of the country's first national
motorway network and other infrastructure projects. If like us, shareholders
have had to travel around the country on the existing dilapidated A roads, they
will know how important the motorway network promises to be for both individuals
and businesses.
The Economy
Romania continued to prosper during 2006 on the back of a strong consumption
boom, investment growth and exports. GDP grew by 7.7 per cent. making it one of
the fastest growing economies in Europe. High real interest rates and a
strengthening currency against the Euro drove down inflation from 8.6 per cent.
at year end 2005 to 4.9 per cent. on 31 December 2006. The average for the year
came in at 6.6 per cent.. On the back of falling inflation, domestic interest
rates fell to 8.75 per cent. by the year end. The fiscal deficit has remained
well within the Maastricht criteria at -1.7 per cent. of GDP. The only
indicator not in the robustly healthy category was the current account deficit
which increased to 10.3 per cent. of GDP from 8.6 per cent. in 2005. Though a
cause for concern, the deficit is funded mostly by high levels of foreign direct
investment (FDI). During the year, FDI amounted to €11.5bn, an increase of 80
per cent. over 2005. The current account plus FDI as a percentage of GDP stood
at just -0.9 per cent. of GDP during the year. Of particular note for the
property market, real wages grew by an impressive 27 per cent. which is
particularly good news for retailers and vendors of residential apartments.
Domestic currency mortgages fell in line with falling interest rates.
The Property Market
The office sub sector of the Romanian property market remained as the main focus
of our and other investors' interest during 2006. Trends observed during 2005
continued into 2006. Yields for prime office buildings started the year at
around 8.00 per cent. and finished the year at 7.5 per cent. according to
property agents DTZ. The market remained a sellers' one as institutional
investors continued to chase prices higher taking advantage of the large gap
between yields and Euro interest rates.
The importance of this 'yield gap' cannot be understated when looking at a
property market. We have calculated that, at the start of the year, three months
Euribor interest rates plus the country spread stood at around 4.75 per cent.
giving a margin of 325 basis points between the cost of debt and property yields
at 8.0 per cent.. By the year end as interest rates rose and yields contracted,
we estimate this margin to have fallen to 200 basis points
According to statistics from DTZ, some 180,000 sqm of new Class A office space
were added to the market during the year. This was up from the 130,000 sqm
delivered in 2005. Although this might appear a large jump, Bucharest's total
amount of Class A space stood at 750,000 sqm at 31 December, which is half the
amount existing in Prague and Budapest and one third of the amount in Warsaw.
Increased confidence on the part of domestic companies plus continued strong
investment from foreign multinationals saw nearly all of the increased space
taken up. Vacancy rates at the year end continued to remain sub 3 per cent..
This has underpinned rents which remained at €16-19 per sqm per calendar month
('sqm/month') although the Company managed to achieve rents of €21 sqm/month
when leasing out the Banu Antonache building in June.
New office developments continued to be announced by developers during the year,
particularly in the Pipera district of North East Bucharest. Here, plans tend to
be for back office buildings to reflect the slightly out of town nature of the
area as well as growing demand from multinationals for large back office floor
plates. The lack of good city centre and central north sites has held back
developments of true A class schemes though a number are planned. Local agents
estimate that as few as 50 per cent. of all office schemes announced actually
move through the permitting phase to construction. Whilst the volume of new
office space delivered onto the market will rise in 2007, the difficulties
developers face in navigating the Byzantine planning system along with issues on
title will continue to act as a barrier to entry for many developers.
In retail, 2006 saw the announcement of a large number of retail shopping
centres and hypermarkets to be developed both in Bucharest and the regional
cities. During the year, only two modern shopping centres continued to serve a
population of two million. By year end, a further six schemes had been announced
for the capital. In the regions, only three shopping centres serve a population
of twenty million. Soaring retail sales on the back of strong growth in real
incomes has fuelled the demand for retail space by both food retailers, banks
and non food retailers. This in turn is driving rents for both the limited
number of high street sites and shopping centre space. Shopping centres coming
up for leasing along with gallery space in hypermarkets are all being fully
leased prior to practical completion.
Due to the very limited number of finished shopping centres, there were very few
investment transactions during the year meaning yields for retail transactions
are hard to ascertain. However, they appeared to have fallen to around 7.25 per
cent. by the year end.
In the offering memorandum in May 2005, the directors of the Company forecast
that Bucharest would see the emergence of a strong and increasingly affluent
middle class who wanted to move out of their communist era apartments into new
build. Coming on the back of legislation in 2003 enabling banks to offer
mortgages, further banking privatization and rising Euro and local currency
interest rates, 2006 was a strong year for the residential sector. Developers
moved to address the demand by announcing a number of residential schemes aimed
at the emerging middle class. Apartment sizes will generally be around 100 sqm
selling for between €1,050 per sqm at the low end to €2,000 per sqm at the high
end. The shortage of new build available in the market has driven up prices for
communist era apartments to around €600-800 per sqm by the year end.
Investment Strategy
The investment strategy of the Company is to purchase both income producing
office buildings and retail freeholds as well as to seek further co-investment
projects in the office, retail and residential sub-sectors of the market. To
date the Company has focussed on investments in the Bucharest area, however
given the fast moving nature of emerging property markets, it is the Investment
Manager's view that the Company should remain dynamic in both anticipating and
reacting to new profit opportunities wherever they might arise in Romania.
The ethos of the Investment Manager is focussed on absolute returns, the
Investment Manager will not advise the Company to engage in projects simply to
invest available cash. The Company should only purchase buildings or
development projects where the forecast returns on shareholders' equity to be
deployed in the project match high return on equity and internal rate of return
hurdles. The directors of the Investment Manager have made significant personal
investments in the Company in support of their belief in its investment
strategy. We only recommend to the board of the Company transactions where the
aim is to make acceptably attractive returns.
Acquisitions
Pursuant to this strategy, the Company made three acquisitions in Bucharest
during the year. The Cascades office building on Buzesti Street which had been
presented to investors as a pipeline project at the time of the first
fundraising in 2005 was purchased in April. A 50 per cent. stake alongside Mivan
was acquired in the New Town residential project in East Bucharest and another
50 per cent. interest in the Lake View office development in North Bucharest was
purchased alongside AIG/Lincoln. Since the Company's admission to AIM in
December 2006 and post the year end, the Company has also entered into
agreements to forward purchase the Cubic centre office building in the Pipera
district of Bucharest, purchase both the Baneasa and the Evocentre office
buildings in North Bucharest. The Company has also entered into agreement to
acquire a plot of land in central Bucharest for a turn-key office building and a
50 per cent stake in a plot in the City of Timisoara in Western Romania for
residential development.
Cascades
The Company signed a share purchase agreement to purchase the Cascades office
building in November 2005. This was after a series of long drawn out
negotiations with the vendor that stretched back to March 2005. The transaction
was successfully closed in April 2006. The price paid by the fund was €12.2
million, giving a headline yield of 8.7 per cent..
Cascades is a high quality office building in a prime location. It was completed
in October 2004 and comprises around 4,300 sqm of lettable space with 24
underground car parking spaces. The building is fully let to an excellent set of
tenants, namely Pro Credit Bank (backed by the IFC and the German Government),
Aviva PLC, SC Rompetrol, HBO Romania and the Taiwan Trade Delegation. It is
located just off Victoria Square in the heart of the City's new central business
district.
The purchase was initially funded 100 per cent. by the fund's equity. In July
2006, we drew down €9.6 million of debt to reduce the fund's equity to €2.6
million and since then, the investment has performed well. As at 31 December,
the building was valued at €13.8 million based on a yield of 7.4 per cent. After
the deduction of debt and other liabilities of €9.5 million, the resultant
equity was valued at €4.3 million or 65 per cent. up from the level in July.
When the Company originally negotiated the share purchase agreement in November
2005, Buzesti Street was very much the emerging business district of the city.
As the city has continued to expand to the north since 2005, Buzesti Street's
relative location in the city has correspondingly continued to rise in
prominence. We expect Cascades to continue to perform well in 2007.
New Town
As with the Cascades acquisition, it took us some considerable time to finalise
the purchase of a stake in the New Town residential project. We had initially
agreed terms with Mivan back in October 2005. We were therefore very pleased
when agreement was finally reached in July 2006 to take a 50 per cent. stake in
Mivan's residential scheme in east Bucharest.
The Company paid €5.75 million for 50 per cent. of the development. Mivan are
the joint venture partner in the project as well as the development manager of
the scheme through their local subsidiary, Ropotamo SRL. The development will
involve the construction of over 635 residential apartments over two phases. The
plot is 22,000 sqm in size situated close to a nearby metro station. The
apartments will be in the region of 100 sqm per unit and are targeted at middle
income families.
Mivan are a UK developer based in County Antrim. They have been involved in
Romania since 2000, when they initiated a construction joint venture with Kier.
Previously, they have undertaken a number of developments across emerging
markets including the construction of over 100,000 apartments in Hong Kong and
Malaysia. As well as developing the New Town scheme, they are also developing a
number of shopping centres across Romania.
Participation in the New Town scheme has given the Company exposure to the fast
growing residential market. As the directors of the Company have written in both
the original offering memorandum and the AIM admission document, we believe that
exposure to the emerging Romanian middle class, through the housing market, is
in the Company's interests. General economic growth and rising personal
disposable incomes should lead to upwards pressure on sale prices per square
metre given the limited supply of new residential developments focused on middle
income Romanians.
At year end, we are pleased to report that our 50 per cent. stake in the scheme
was valued at €9.95 representing a €4.2 million or 73 per cent. gain on the
initial investment. Since the year end, final negotiations are nearing
completion on the construction contract. Once this has been signed, the first
apartments for sale will be released onto the market. Full building consent has
been granted and ground work has nearly finished with some €5 million spent on
site to date. The first tranche of the loan with HVB has now been drawn down.
Selling prices have risen significantly since acquisition and although build
costs have also risen, margins are expected to be in line with initial our
expectations. We see residential construction projects as a useful hedge against
future construction cost inflation as rising wages are also reflected in higher
consumer spending.
Lake View
In September, the Company acquired its first office co-development project in
Bucharest. The Company purchased a 50 per cent. stake in the company which owns
a 5,048 sqm land plot in central north Bucharest. Initially, the Company was
able to secure exclusivity over the plot which gave us the time to find a
development partner for the Company. After a small tender was conducted with the
excellent assistance of DTZ, we chose AIG/Lincoln to partner the Company in the
acquisition. AIG/Lincoln is the European real estate development arm of the
joint venture between AIG and Lincoln Properties, both of the United States.
The development will involve the construction of a Class A office building of
26,000 sqm gross built area above ground. AIG/Lincoln will act as developer on
the project. The Company signed joint venture, development and construction
management agreements with AIG/Lincoln to this effect. The site came with
outline planning consent (PUZ) but required detailed planning (PUD) and
construction consents from local planners.
The Company invested €5.3 million for a 50 per cent. stake in the development
company, BVB SRL through the Luxemburg based joint venture company, AIG/Lincoln
Lakeview. Since the acquisition, we have been pleased with the progress of the
New Town project. As of 31 December 2006, the Company's stake in the scheme was
valued at €8.3 million representing a gain of €3.0 million or 56 per cent. on
the purchase price.
The purchase of the Lake View site is in line with the Company's strategy of
seeking to enhance returns by co-investing in development projects. As with the
New Town acquisition, the Company mitigates risks by partnering with experienced
development partners in high quality sites. All specifications, budgets and
property related advisors require the unanimous consent of both partners as do
all subsequent changes. Throughout the year and into 2007, the office rental
market has remained extremely tight. Vacancy rates remain below 3 per cent. and
for Class A space are practically zero. At the end of the year, the total stock
of Class A space was 750,000 sqm according to DTZ which remains under half the
comparable level of both Prague and Budapest.
Since the year end, AIG/Lincoln has continued to drive forward the development.
The PUD has been achieved and the application for building consent is in the
process of being lodged with the city authorities. This consent is expected
over the summer with building work forecast to commence soon after. In order to
pre-let the building, Colliers have been appointed to exclusively represent the
joint venture and a number of tenants have been contacted with a view to
pre-lets. The building is expected to be delivered in the third quarter of 2009.
Many thanks are due to the excellent AIG/Lincoln team and in particular, to Sven
Lemmes and Lance Bosman.
Banu Antonache
The Company had acquired Banu Antonache in December 2005 from the developer with
just one tenant in place. We took the view at the time that with vacancy rates
in the market so low, Fabian should purchase the building taking on board the
rental risk. The downside to this strategy was that if the rents that would be
achieved failed to meet expectations (set at €17 sqm/month worst case) then the
acquisition would have turned out to have been rather expensive. We did not view
this as likely at the time because of the continuing shortage of Class A office
space in the city.
During the year, we successfully rented out the building to a selection of
multinational tenants including Garanti Bank from Turkey, General Motors and
Amway from the U.S. DTZ from the UK, Summa and BNP Paribas from France. As with
Cascades, all leases are set in Euros, indexed to Eurozone CPI and are set for
five years. In addition, Trend bar signed for the restaurant space on the Ground
floor on a ten year lease.
Rents achieved for an individual floor have ranged from the €18 sqm/month,
achieved by the developer, to €19 sqm/month achieved since January 2006. In July
2006, we decided to split in two the last floor to be let, thereby reducing the
lettable area per tenant from approximately 800 sqm to 400 sqm. As a result, we
achieved rents of €21 sqm/month for the fourth floor. These rents combined with
a rent of €23 sqm/month achieved for the restaurant space mean that the initial
purchase yield was a very pleasing 9.3 per cent.. Throughout the letting
process, we dealt with all the major property agents in the market and built up
some considerable experience ourselves as to how the whole office leasing market
actually functions in Bucharest. During the current year, this experience has
been very valuable to us as we seek to advise the Company on further
acquisitions.
At the year end, the building was valued by DTZ at €14.6 million, a rise of 19
per cent. over the headline purchase price, ex acquisition costs. After
subtracting the outstanding debt from a €9.1 million facility drawn down from
Investkredit Bank, the net asset value for Banu Antonache stood at €5.5 million.
This represents a 83 per cent. return on the original equity invested, post debt
drawdown, of €3.0 million. Since the year end, Banu Antonache continues to
perform in line with expectations.
Net Asset Value
In NAV terms, the gain over the year per share amounted to a very satisfactory
€0.360 per share over the company's 31 December 2005 NAV per share of €0.9962,
equating to a gain of 36 per cent..
The published NAV per share of €1.356 was calculated as at 31 December 2006
according to the Company's Articles of Association and the results are
summarised below.
31 Dec'06 31 Dec'06 31 Dec'06 31 Dec'05
Initial Cost of Market Value Bank (debt) Net worth Net worth
investment
€m €m €m €m €m
Cascades 12.2 13.8 (9.5) 4.3
Banu 12.3 14.6 (9.1) 5.5 12.5
New Town (50 per cent.) 5.75 9.95 10.00
Lakeview (50 per cent.) 5.3 8.3 8.3
Cash 42.2 8.3
Other assets/(liabilities) ** (3.1) (0.9)
Deferred tax added back 1.8 1.2
Sub-total 35.6 46.7 (18.6) 68.9
21.1
Shares (#) 50,831,130 212,015
NAVPS (€) *
1.356 0.996
Growth in 2006 36 %
* 2005 comparator adjusted for 100:1 share split in conjunction with admission to AIM
** 2005 figure adjusted for rounding
However, the reported NAV per share figures do not truly reflect the Company's
actual pace of growth due to the timing of the successful AIM fundraising of €40
million at €1.35 per share in December 2006 which effectively diluted the uplift
after placing costs of €1.9 million. As at 31 December 2006, the €35.6 million
already invested created a total NAV of €46.7 million. After adjusting for the
€18.6 million bank debt refinancing and excluding the proceeds from the December
fundraising, the NAV per share is approximately €1.455, corresponding to an
uplift of over 46 per cent. in the year.
Cubic, Baneasa, Romana, Evocentre and Timisoara
Following the year end, the Investment Manager has moved fast to assist the
Company in investing the proceeds from its fund-raising in December. Five
transactions have been entered into and remain subject to final closing.
The Cubic Centre will be a Class A office building with a gross area of
approximately 44,000 square metres, located in north Bucharest. The building is
being developed by Kendama, an experienced local developer in Romania.
Construction has commenced and completion is anticipated in the second quarter
of 2009. Upon completion of construction, the building will provide a net
lettable office area of 26,000 sqm over 12 floors, together with 533 car spaces.
The building is located in a prominent location in the Pipera district and is
likely to attract international tenants seeking Class A office space. The
Company will pay a first instalment of €12.25 million, of which €5 million has
already been paid in the form of a secured loan. At practical completion of the
building by the developer, the Company will pay the final instalment based upon
a forward purchase yield of 7.4 per cent. - 7.8 per cent. applied to rents
achieved. Based upon current rental estimates, the total value of the
transaction is estimated to be approximately of €60 million. The total equity
requirement for the Company is estimated to be €12 million.
The Company has entered into an agreement to purchase the Baneasa Centre office
building from Immoconsult Leasinggesellschaft m.b.H, with a transaction value of
€23.9 million. Once refinanced, Fabian Romania's net equity investment will be
€5 million. The annual rental income is approximately €1.85 million per annum.
The building provides 9,600 sqm of lettable space and is fully let to fourteen
international tenants, including Wrigley, Colgate, Fresenius, Cargill and
Volksbank. There are a variety of reversionary leases at rents between €12 per
sqm to €16 per sqm. Overground and underground parking facilities provide for
132 vehicles. Concurrent with signing the acquisition Fabian Romania has
concluded debt financing with the vendor's parent company Investkredit Bank, via
a debt facility amounting to 80 per cent of the building's acquisition cost.
The Romana office project is a turnkey agreement with Hil Construct for Fabian
Romania to purchase its sixth office project in central Bucharest for a
prospective purchase yield of 8.9 per cent. Completion is conditional on the
attainment of the final building permit which is currently expected at the end
of August 2007. The Romana office building will be built for Fabian Romania on a
centrally located site on Dacia Boulevard. The building will be built to Class A
specifications with a gross area of approximately 3,000 sqm. The project
management will be undertaken by Globus, an experienced local developer in
Romania. Construction is due to commence in the fourth quarter 2007 with
completion anticipated in the third quarter of 2009. Upon completion, the
building will provide a net lettable office area of around 2,480 sqm over 7
floors, together with 40 car parking spaces. The building is in a prominent
position with views over Plaza Romana and is likely to attract international
tenants seeking Class A office space. The Company will pay the purchase price of
€7.6 million to Hil in 3 instalments; a first instalment of €2.0 million will be
made for the company to acquire ownership of the land; a second instalment for
construction costs of approximately €3.0 million; and a final payment upon
practical completion of €2.6 million in the form of a bank guarantee. Including
non developer related costs, the total purchase price is forecast to be €8.0
million. Fabian Romania's equity requirement is expected to be €2 million with
debt finance to fund the balance.
The Company has also has reached agreement to purchase the Evocenter office
building in the Pipera / Voluntari district of Bucharest for a forecast yield of
9 per cent. The Company had initially proposed to purchase the building empty,
thereby taking the letting risk. However, during the due diligence process, the
Adama Group from Israel, the developer, signed a lease taking half of the
available space. The building will be completed in summer 2007 to a Class A
standard and comprises 3,000 sqm of net lettable area, 18 covered car parking
spaces and ancillary parking close by. The Company will meet the consideration
of €4.9 million from its own resources. Debt drawdown is anticipated to be
during the third quarter 2007 which will reduce the ongoing equity requirement
to around €1 million.
At the end of June, the Company entered into an agreement to purchase a 50 per
cent. interest in a residential development site to build 250 apartments in
Timisoara for €4.7 million. The acquisition will be structured through a
development company owning a 1.1 hectare site in north Timisoara. The equity
consideration amounts to approximately €1 million. The land has urban zoning
approval to build over 250 apartments (subject to building permits) comprising
over 30,000 sqm of residential development space. Coltex, the co-shareholder
holding the other 50 per cent. interest, has entered into a partnership
agreement with Fabian. Coltex will also be the development manager and has a
known track record, having developed and sold the successful Banu Antonache
building to the Company in late 2005. Timisoara is Romania's third largest city
with a population of over 300,000 and is located in the West close to the
Hungarian border. The Investment Manager believes the city has attractive
characteristics for supply of modern residential apartments. The purchase price
for the land including acquisition expenses was €4.7 million. This equates to
around €427 per square metre for the land and €157 per built square metre
overground, assuming 30,000 sqm. The development company has already secured and
fully drawdown on a land finance facility from Banca Romaneasca for €3.6
million. Including near term working capital needs, this leaves an initial net
equity requirement of approximately €1 million for Fabian.
Future Valuation
This report should make it easier for shareholders and prospective shareholders
to value Fabian Romania. As a company that purchases both fully let buildings
and takes development risk through co-investment development projects, the
Company is set to earn enhanced returns over and above those achieved by other
Eastern European property companies that purely buy income producing buildings.
The Company's valuers, DTZ, acting through the Red Book methodology of the Royal
Institute of Chartered Surveyors, exclude future development profits when
calculating the Company's net asset value. It is for both the readers of this
report and shareholders to decide the valuation of the Company on the AIM market
and specifically, what amount of the net present value of those future
development profits should be included in today's share price.
We have set out some key financial numbers below on the Company's income
producing buildings owned at the year end. Investors will be able to calculate
the value of these buildings by applying their own yield calculations to the net
operating income of Banu Antonache and Cascades. The following table sets out
key operating data for Banu Antonache and Cascades as at 31 March 2007 for the
present year.
Investments (as at 31 March 2007) Banu Antonache Cascades
Independent valuation per DTZ
Market valuation (€'000) 15,200 14,700
Core Yield assumed ( per cent.) 7.20 per cent. 7.20 per cent.
Implied NOI (€''000) 1,094 1,058
Operating statistics (annualised)
Net lettable area (sqm) 4,395 4,300
Gross rental revenue (€'000pa) 1,144 1,100
Office space let (sqm) 3,788 3,742
Average rent (€pcm/sqm) 19.2 18.5
Office rent roll (€'000pa) 871 831
Restaurant/retail rental revenue (€'000pa) 154 171
Other rental revenue incl. parking (€'000pa) 119 98
Vacancy space ( per cent.) 0 per cent. 0 per cent.
Average lease length (years) 4.1 5.0
Parking spaces (no.) 85 46
Mortgage Debt (€'000)
Principal 9,056.6 9,424.9
Annualised interest 550.6 568.0
Principal repayments in 2007 250.1 245.3
Remaining 2007 principal repayments 187.9 183.8
As soon as the construction contract is agreed for New Town and the building
permit is agreed for Lakeview, we shall publish our development assumptions for
the two projects. Investors will then be able to make an easier calculation of
the value today of the two schemes' future development profits, Once the
acquisitions announced since the year end have closed, we shall also be
publishing further numbers to shareholders on these acquisitions.
Cost control
During the year and since year end, we have continued to focus on the costs to
the Company of doing business. We always strive to negotiate firmly with service
providers and counterparts in order for the Company to save costs where
appropriate. A small example of this is the annual report. The first quote for a
glossy report with full colour typesetting was €25,500. Given we have 66
registered shareholders, this amounted to you each paying €386 per report. As it
happens, by sending the printers a simple PDF, total costs have come in at just
under €8,000.
Publicity
The Investment Manager believes that the access which it currently enjoys to off
market property transactions is a critical source of competitive advantage for
Fabian Romania. To this end, the Investment Manager spends a lot of time
cultivating contacts with the Romanian press to ensure good publicity for the
Company and that all transactions are fully written up across Romania's business
and property media. This publicity in turn leads to a growing number of direct
calls from land and property vendors seeking to sell assets or conduct joint
ventures. Not only does the Company frequently get access to these off market
transactions before anybody else but if completed successfully, acquisition fees
with agents are saved. As I write and as an example, Fabian Romania was
mentioned ten times since 1 May in Ziarul Financiar, the Romanian equivalent of
the Financial Times.
Other activity and outlook
Throughout the year to 31 December 2006 the Investment Manager looked at over
100 potential investments. Many were turned down either due to legal or
technical problems or simply because advantageous terms could not be agreed with
the vendor. Since the year end, yields have continued to fall in the office sub
sector and according to DTZ as this report goes to print, are expected to end
2007 at around 6.25 per cent. The Investment Manager no longer regards fully let
offices at yields below 7 per cent. as attractive either on an absolute basis or
relative to the opportunities available in Romania in other sub-sectors of the
market and through co-development opportunities given the Company's focus on
high returns on equity. This is especially the case in a rising interest rate
environment. Given the post year end increases in Euro zone interest rates, it
is hard to justify acquisitions at yields of sub 7 per cent. given the Company's
high return on investment targets.
Exciting opportunities continue to be pursued through participation in office
and residential co-investment developments and through the purchase of fully let
buildings in the retail and logistics sub sectors. In offices, the Investment
Manager believes co-investment development projects offer enhanced returns
through exposure to development margins, as well as providing the Company with
pre-emption rights over its joint venture partner's stake, thereby securing
further investment opportunities for the Company at a lower transaction cost.
The leasing market continues to favour the developer and though visibility is
difficult, the rental market appears well supported till at least the middle of
2009. Even then, Bucharest will still have substantially less Class A space than
either Prague or Budapest in today's terms.
In residential, the demand for new middle income housing is, if anything,
accelerating since the year end driven by the strong growth of real incomes.
Sale price inflation acts as a useful natural hedge against construction price
inflation. In addition, economic growth in the large regional cities means that
for the first time, households and first time buyers outside Bucharest can now
afford to purchase new build apartments. The Investment Manager is looking at a
number of opportunities in the regional cities to this end as well as a
continued focus on Bucharest.
In retail and logistics, yields for fully let buildings or for forward purchases
of buildings once let continue to offer attractive yields of over 7 per cent..
To date, the Company has not purchased any such assets. This is in large part
due to their scarcity value, their large unit price relative to the size of
Fabian Romania and legal title issues. However, the Investment Manager is
looking at a number of opportunities in both of these sub-sectors.
Economically, the country has continued to prosper since its accession to the
European Union. According to economists' forecasts, growth looks set to be above
6 per cent again for the year and inflation to fall close to 4 per cent by the
year end.
The Investment Manager regards the outlook for the Company, the Romanian
property market and Romania in general as attractive for the current year.
Mark Holdsworth
Fabian Capital Limited
Finance Report on the Company
In its first full year of trading, Fabian Romania has recorded strong financial
results. At the end of 2006 the Company had made investments of €35.6million on
which it had raised bank debt of €18.9 million and held cash balances of €42.2m
from a total of €59.3 million of net equity raised as of 31 December 2006,
namely the €21.2 million raised via an initial fundraising in mid-2005 and the
further €40.0 million in December 2006 (less €1.9 million of placing costs) on
the Company's admission to AIM.
Financial Results
The Company's operating revenues of €1.45 million for the year to 31 December
2006 comprise both rental income from the two office properties for part of the
year (net of a partial void cost underrecovery of service charge whilst Banu
Antonache was leased out). The fair value adjustments of €3.6 million relate to
the two income producing office properties.
Under IFRS, the goodwill on acquisition of investment properties has been fully
impaired as the fair value accounting adopted fully recognises the future
expected value. Legal and professional fees include advisers' fees for
assistance in relation to due diligence, acquisitions, structuring and loan
financing.
The share of loss of joint ventures relates to the Lakeview acquisition costs
and is considered appropriate recognition given the remaining land payment
commitment in 2007.
In accounting terms, the net profit for the year was €1.4 million, implying
earnings per share equal to of €0.06.
Based on the consolidated financial statements of the Company as at 31 December
2006 prepared under IFRS, Fabian's total assets are €114.7 million (which
comprise investment property, property, investment in joint ventures, loans
receivable, plant & equipment and current assets) and total liabilities are
€54.3 million.
The valuation of the Company's investment property portfolio at 31 December 2006
(comprising of Banu Antonache and Cascades) was undertaken by DTZ. This
valuation was performed on the basis of market value. The fair market value of
these investments as at 31 December 2006 has been valued by DTZ at €28.4
million. After adjusting for bank debt of approximately €18.6 million, the
Fund's share of these investments represents €9.8 million versus an investment
of €5.6 million. This represents an uplift of €4.2 million or 75 per cent. of
invested equity.
The investment in joint ventures figure of €5.7 million represents the cost of
the New Town investment through the 50 per cent. shareholding in the development
company Phoenix Park SRL.
Loans receivable comprise €5.4 million of shareholder loans to the AIG/Lincoln
Lakeview Sa rL joint venture and €30.7m from Moulen Beleggingen BV ('Moulen')
which are further mentioned below.
Current assets are €44.4 million. This figure includes a cash balance of €42.2
million.
Total liabilities are €54.3 million, of which €1.8 million includes deferred
income tax liabilities, €18.6 million consists of secured bank loans, €30.7
million consists of loans to Moulen (which are mentioned below) and €1.4 million
comprises other payables.
Accordingly, the accounting net assets of the Company under IFRS as at 31
December 2006 were €60.4 million.
The consolidated financial statements have been audited by KPMG Channel Islands
Limited who were appointed on 5 February 2007.
Valuation
With investments in four projects as at 31 December 2006, namely Banu Antonache,
Cascades, New Town and Lakeview, Fabian has witnessed an uplift in market
valuations since acquisition of these projects over 2006 of approximately €10.9
million, driven primarily by:
• significant reduction in market yields applied to the Bucharest Class
A office market to 7.4 per cent. at the year end which benefited the carrying
value of Banu Antonache and Cascades; and
• acquiring 50 per cent. stakes in JVs owning development land sites in
attractive areas of Bucharest, which have benefited from land price
appreciation when revalued for lending purposes.
It should also be noted that the reported deferred tax of €1.8 million is
primarily based on the current fair market value of the investment properties
and which is only applicable to asset sales. These deferred income tax
liabilities are not expected to become payable as, in the event of a property
sale, this will be effected through the sale of the shares of the relevant
holding SPV and not the property itself. As such, the Investment Manager adds
back the deferred tax in calculating the NAV in order to report a more
representative figure of the value which may be realised.
The valuations for the New Town and Lakeview joint ventures have been adopted
for NAV purposes by the Directors based upon the land values attributed within
the loan facilities secured. These have not been applied to the IFRS accounts
to ensure compliance with IFRS.
Finance and Capital Structure
The Company's loan to value ratio is intended to be kept high to provide
enhanced total equity returns to shareholders.
At the year end there were cash balances of €42.2 million benefiting from the
€40.0 million gross proceeds from the share issue at the time of admission to
AIM on 15 December 2006 and two bank loans from Investkredit secured on the Banu
Antonache and Cascades properties with €9.1 million and €9.5 million outstanding
respectively.
Since the year end, construction finance facilities have been secured and
drawndown on New Town joint venture and a finance facility secured and land
finance drawndown on Lakeview joint venture.
The Investment Manager will continue to review all options for gearing up the
balance sheet, in an effort to optimise the Company's capital structure and
enhance shareholder returns.
The financing structure through Moulen in Holland led to loan assets of €30.7
million and also loan liabilities of €30.7 million as at 31 December 2006.
Since the year end these loans have been assigned to a new subsidiary of the
Company in the Netherlands, Fabian Finance BV. This removes any potential
credit risk associated with the Company's former exposure to Moulen and will in
future remove the €30.7 million grossing up effect of the balance sheet loan
assets and liabilities of the Group.
Tax
Fabian's tax structure aims to minimise tax payable across the Group, however
during the year tax was payable by the Romanian companies holding the income
producing properties. Whilst this tax cannot be totally mitigated the charge
was larger than anticipated due to delay in completing the mergers of the
holding companies. This led to some interest expense deductions being
disallowed and also taxable interest income being recognized on upstream loans
recycling the debt proceeds, both of which are to be addressed in the current
year. Another contributory factor arose as a consequence of the Romanian fiscal
requirement that tax is payable on unrealised translational foreign exchange
gains. These arose in the local currency financial statements of the Romanian
property-owning vehicles on the Euro denominated loans, as a consequence of the
Romanian Lei strengthening considerably relative to the Euro. Fabian is seeking
advice on whether this can be effectively mitigated in future.
Graham Atkinson
Fabian Capital Limited
Corporate Governance Statement
Compliance
The Company recognises the importance of the principles of good corporate
governance. As an AIM quoted company, Fabian is not required to follow the
provisions of the Combined Code on Corporate Governance effective from June 2006
(the 'Code'). Nonetheless, the Company seeks to comply, where appropriate for a
company of its size and nature, with the principles referred to in section 1 of
the Code and the guidelines published by the Quoted Companies Alliance. The
statement set out below describes how the principles identified in section 1 of
the Code and those guidelines are applied by the Company.
Board Constitution and Procedures
All of Fabian's eight directors are non-executive directors. Of these, Mark
Holdsworth is also a director of the Investment Manager and five are directors
of the JTC Group, the parent company of Fabian's administrator. These
relationships prevent them from being considered as independent under the
criteria set out in the Code and the guidelines referred to above.
The Board is responsible for acquisitions, partnerships, divestments, major
capital commitments and focuses upon the Company's long-term objectives,
strategic direction and dividend policy. The Directors have access to the advice
and services of the Investment Manager and the company's administrator and the
Directors are able to take independent professional advice in the furtherance of
their duties if necessary. The Directors receive training and advice on their
responsibilities as appropriate. All Directors will submit themselves for
re-election at least once every three years.
Board Committees
The Board has delegated clearly defined powers to its Audit Committee. This
comprises at least two Directors and will be responsible for ensuring that the
financial performance of the Company is properly reported and monitored. The
committee reviews the Company's annual and interim accounts, results,
announcements, internal control systems and procedures and accounting policies.
In view of the nature of the Company as a Jersey investment fund, the Board
decided at the time of the Company's admission to AIM not to establish
remuneration or nomination committees.
Communication with Investors
Fabian places a great deal of importance on communication with its institutional
and private shareholders and responds quickly to all queries received. There is
regular dialogue with institutional shareholders as well as general
presentations after the issue of preliminary results. All shareholders are given
at least 21 days' notice of the company's Annual General Meeting each year, at
which Directors are introduced and available for questions.
Internal Control
Fabian's control systems are the responsibility of the Board. The Board oversees
a system of internal financial controls whose objective is to safeguard group
assets, ensure proper accounting records are maintained, and that the financial
information generated is reliable. Risks to the business are considered on an
ongoing basis by the Board. Identified risks are prioritised and agreed
programmes of minimisation or elimination are monitored as is the ongoing risk
profile.
The Board has considered it inappropriate to establish an internal audit
function given the size of the Group. This decision will be kept under review as
the operations of the Group develop.
Directors' report
For the year ended 31 December 2006
The directors present their report to the members together with the consolidated
financial statements and auditors' report for the year from 1 January 2006 to 31
December 2006
Incorporation
The Company was incorporated in Jersey, Channel Islands on 20 April 2005.
Activities and results
The principal activity of the Group is that of investing in Romanian property
via a Cypriot Holding Company and four Romanian companies and the advancing of
loans to enable such investments to be made. The Group also has two joint
venture interests at the year-end. The results of the Group are set out in the
consolidated income statement.
Dividends
The directors are unable to recommend the payment of a dividend for the year
(2005: € Nil).
Directors
The directors of the Company who held office during the year, and subsequently,
were:-
Jaroslav Kinach (Chairman) (Appointed 16 February 2007)
Mark Benedict Holdsworth
Nigel Anthony Le Quesne
Stephen Anthony Burnett
Mark Houslop (Appointed 31 January 2007)
Nigel Charles Syvret
Philip Henry Burgin
Giles Ballantine (Appointed 20 April 2005, resigned 29 September 2006)
Misu Negritoiu (Appointed 20 April 2005, resigned 7 July 2006)
Antony Hillman (Appointed 19 January 2007)
Secretary
The secretary of the Company is JTC Management Limited, who was appointed on 22
April 2005.
Independent auditors
All of the current directors have taken all the steps that they ought to have
taken to make themselves aware of any information needed by the Company's
auditors for the purposes of their audit and to establish that the auditors are
aware of that information. The directors are not aware of any relevant audit
information of which the auditors are unaware.
The auditors, KPMG Channel Islands Limited, replaced BDO Alto Limited on 5
February 2007 and have expressed their willingness to continue in office.
By order of the Board Registered office
Elizabeth House
9 Castle Street
St Helier
For and on behalf of Jersey
JTC Management Limited JE2 3RT
Secretary
Directors' responsibilities statement
For the year ended 31 December 2006
The directors are responsible for preparing the financial statements in
accordance with applicable law and International Financial Reporting Standards.
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period. In preparing
these financial statements the directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
- prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and Company will continue in
business.
The directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply with
the Companies (Jersey) Law 1991. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the prevention
and detection of fraud and any other irregularities.
Independent auditors' report to the members of Fabian Romania Property Fund
Limited
We have audited the group and company financial statements (the 'financial
statements') of Fabian Romania Property Fund Limited for the year ended 31
December 2006 which comprise the Consolidated Income Statement, the Consolidated
and Company Balance Sheets, the Consolidated Cash Flow Statement, the
Consolidated Statement of Changes in Equity and the related notes. These
financial statements have been prepared under the accounting policies set out
therein.
This report is made solely to the company's members, as a body, in accordance
with Article 110 of the Companies (Jersey) Law 1991. Our audit work has been
undertaken so that we might state to the company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As described in the Statement of Directors' Responsibilities, the company's
directors are responsible for preparation of the financial statements in
accordance with applicable law and International Financial Reporting Standards.
Our responsibility is to audit the financial statements in accordance with the
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with the Companies
(Jersey) Law 1991. We also report to you if, in our opinion, the company has
not kept proper accounting records or if we have not received all the
information and explanations we require for our audit.
We read the Chairman's Statement, the Investment Manager's Report, the Finance
Report, the Corporate Governance Statement and the Directors' Report
accompanying the financial statements and consider the implications for our
report if we become aware of any apparent misstatements within it.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the group's and company's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements:
• give a true and fair view, in accordance with International Financial
Reporting Standards, of the state of the group's and company's affairs as at 31
December 2006 and of the group's profit for the year then ended; and
• have been properly prepared in accordance with the Companies (Jersey)
Law 1991.
KPMG Chanel Islands Limited
Chartered Accountants
27 June 2007
Notes:
a. The maintenance and integrity of the Fabian Romania
Property Fund Limited's website is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes that may have
occurred to the financial statements or audit report since they were initially
presented on the website.
b. Legislation in Jersey governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
Consolidated income statement
For the year ended 31 December 2006
Note
01.01.06 to 20.04.05 to
31.12.06 31.12.05
€ €
Continuing operations
Operational revenues 4 1,450,910 -
Total operating revenues 1,450,910 -
Fair value adjustment investment properties 6 3,600,000 -
Expenses
Amortisation of set up costs 126,648 22,350
Goodwill impairment 1,006,563 517,124
Investment management fees 588,038 152,219
Legal and professional fees 662,284 28,557
Other operating expenses 5 418,640 99,912
Cost of issuing shares 400,329 -
Total operating expenses 3,202,502 820,162
Profit/(loss) from operating expenses 1,848,408 (820,162)
Loan interest revenues 1,767,286 46,759
Loan interest expense (2,262,033) (47,273)
Foreign exchange movement 56,095 (5,656)
Bank interest 136,886 121,685
Net financing costs (301,766) 115,515
Share of loss of joint ventures using the equity method of accounting (201,776) -
Profit/(loss) before taxation 1,344,866 (704,647)
Corporate income tax expense 14 (524,984) (974)
Deferred income tax 14 564,870 -
Net profit/(loss) for the year/period attributable to equity holders
of Fabian Romania Property Fund Limited
1,384,752 (705,621)
Basic earnings per share 20 0.06 (3.33)
As at 31 December 2005 and 31 December 2006, there is no difference between
basic and diluted earnings per share.
The loss of the Company for the year ended 31 December 2006 is €136,850 (period
ended 31 December 2005: €83,378).
Consolidated statement of changes in equity
For the year ended 31 December 2006
Note Share Capital Share Premium Retained Total
Earnings
€ € € €
As at 1 January 2006 312 21,201,288 (705,621) 20,495,979
Profit for the year - - 1,384,752 1,384,752
-
Issue of share capital 196 39,999,705 - 39,999,901
Cost of share issue 12 - (1,464,154) - (1,464,154)
Balance at 31 December 2006 508 59,736,839 679,131 60,416,478
For the period from 20 April 2005 to 31 December 2005
Share Capital Share Premium Retained Total
Earnings
€ € € €
Issue of share capital 312 21,201,288 - 21,201,600
Loss for the period - - (705,621) (705,621)
Balance at 31 December 2005 312 21,201,288 (705,621) 20,495,979
Consolidated and Company balance sheet
As at year ended 31 December 2006
Note Group as at 31 Company as at 31 Group as at 31 Company as at 31
Dec 06 Dec 06 Dec 05 Dec 05
€ € € €
ASSETS
Non-current assets
Investment properties 6 28,400,000 - 12,490,756 -
Property, plant and equipment 10,700 - 2,970 -
Loans receivable 7 36,102,387 17,536,827 13,822,167 14,022,167
Investment in subsidiaries 8 - 39,094 - 1,733
Investment in joint ventures 9 5,748,812 6,250 - -
Deferred tax 14 70,674 - - -
Set up costs - - 126,648 126,648
70,332,573 17,582,171 26,442,541 14,150,548
Current assets
Inventories 2,049 - - -
Other receivables 371,167 41,052 1,144,878 420,588
Loan receivable - Cardeka - 11,297 - 8,285
Loan interest receivable 10 1,769,892 1,159,661 46,759 -
Bank interest receivable 52,029 52,029 13,569 -
Cash at bank 42,196,171 41,035,342 8,253,787 6,558,887
44,391,308 42,299,381 9,458,993 6,987,760
Total assets 114,723,881 59,881,552 35,901,534 21,138,308
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Share capital 11 508 508 312 312
Share premium account 12 59,736,839 59,736,839 21,201,288 21,201,288
Retained earnings 679,131 (620,558) (705,621) (83,378)
Total equity 60,416,478 59,116,789 20,495,979 21,118,222
Non-current liabilities
Long-term borrowings 13 50,360,943 - 13,822,671 -
Deferred income tax 14 1,776,288 - 1,243,166 -
Other non-current liabilities 205,065 - - -
Total non-current liabilities 52,342,296 - 15,065,837 -
Current liabilities
Current income tax liabilities and 369,454 - 178,375 -
other taxes
Other liabilities and payables 15 1,595,653 764,763 161,343 20,086
Total current liabilities 1,965,107 764,763 339,718 20,086
Total equity and liabilities 114,723,881 59,881,552 35,901,534 21,138,308
The financial statements were approved and authorised for issue on behalf of the
board of directors on 27 June 2007 and signed on its behalf by
Mark Holdsworth Nigel Syvret
Director Director
Consolidated cash flow statement
For the year ended 31 December 2006
Note Group Group
01.01.06 to 20.04.06 to
31.12.06 31.12.05
€ €
Operating activities
Net cash flow from operating activities 16 426,232 (1,242,168)
Net cash outflow from operating activities 426,232 (1,242,168)
Investing activities
Acquisition of subsidiary investments (7,514,723) (11,298,179)
Investment in joint venture undertakings (5,750,000) -
Loans advanced (24,130,220) (13,822,167)
Loan repayments received 1,850,000 -
Interest received 150,025 108,115
Acquisition of property and equipment (218,456) -
Net cash outflow from investing activities (35,613,374) (25,012,231)
Financing activities
Set up costs - (148,998)
Proceeds from borrowings 35,836,622 13,822,671
Loan repayments (5,057,526) -
Interest paid (711,846) (7,987)
Proceeds from shares issued 40,359,000 20,842,500
Expenses in relation to share issue (1,296,724) -
Net cash inflow from financing activities 69,129,526 34,508,186
Net increase in cash and cash equivalents 33,942,384 8,253,787
Cash and cash equivalents at start of year/period 8,253,787 -
Cash and cash equivalents at end of year/period 42,196,171 8,253,787
Notes to the accounts
For the year ended 31 December 2006
1. Incorporation and principal activities
Fabian Romania Property Fund Limited (the 'Company') is a Company domiciled in
Jersey. The address of the Company's registered office is Elizabeth House, 9
Castle Street, St Helier, Jersey. The consolidated financial statements of the
Company as at and for the year ended 31 December 2006 comprise the Company and
its subsidiaries (the 'Group') and the Group's interest in joint ventures. The
Group invests in Romanian property.
2. Basis of Preparation
The consolidated financial statements and Company balance sheet have been
prepared in accordance with International Financial Reporting Standards (IFRSs
and IFRIC interpretations) issued by the International Accounting Standards
Board (IASB). These financial statements have been prepared on the historical
cost basis, except for investment properties which are measured at fair value.
The preparation of financial statements requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to the
accounting estimates are recognised in the period in which the estimate is
revised and in any future periods affected. In particular, information about
significant areas of estimation uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amount
recognised in the financial statements is described in note 7 'Investment
property'.
3. Principal accounting policies
The principal accounting policies adopted in the preparation of these financial
statements are set out below. These policies have been consistently applied to
all years presented in these financial statements unless otherwise stated.
The following new standard has been issued but is not effective for 2006 and has
not been adopted:- IFRS 7 'Financial instruments; and the related amendment to
IAS 1 on capital disclosures'
The standard requires disclosures about the significance of financial
instruments for an entity's financial position and performance. IFRS 7 requires
information about the extent to which the entity is exposed to risks arising
from financial instruments, and a description of management's objectives,
policies and processes for managing those risks
Consolidation
Subsidiaries are entities controlled by the Group. Control exists when the
Group has the power, either directly or indirectly, to govern the financial and
operating policies of another entity or business so as to obtain benefits from
its activities. The consolidated financial statements present the results of the
Company and its subsidiaries as if they formed a single entity. Intercompany
transactions and balances between Group companies are therefore eliminated in
full.
Business combinations
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the consolidated balance sheet,
the acquiree's identifiable assets, liabilities and contingent liabilities are
initially recognised at their fair values at the acquisition date. The results
of acquired operations are included in the consolidated income statement from
the date on which control is obtained.
Goodwill
Goodwill represents the excess of the cost of a business combination over the
interest in the fair value of identifiable assets, liabilities and contingent
liabilities acquired. Cost comprises the fair values of assets given,
liabilities assumed and equity instruments issued, plus any direct costs of
acquisition. Goodwill is capitalised as an intangible asset and is reviewed
annually for impairment. Where goodwill is not recoverable any impairment is
immediately recognised in the income statement. Wherever negative goodwill
arises it is recognised immediately through the income statement.
Joint ventures
Joint ventures are those entities over whose activities the Group has joint
control, established by contractual agreement and requiring unanimous consent
for strategic financial or operating decisions. The consolidated financial
statements include the Group's share of the total recognised gains and losses of
jointly controlled entities on an equity accounted basis after adjustments to
align accounting policies. When the Group's share of losses exceeds its
interest in an equity accounted investee, the carrying amount of that interest
(including any long-term investments) is reduced to nil and the recognition of
further losses is discontinued except to the extent that the Group has an
obligation or has made payments on behalf of the investee.
Investment property
Property held for long-term rental yields or for capital appreciation or both is
classified as an investment property and the provisions of IAS 40, 'Investment
Property' apply.
Investment property comprises freehold land and freehold buildings. Investment
property is measured initially at its fair value and changes in fair value are
presented in the income statement.
Investment property under development
Property that is being constructed or developed for future use as investment
property is classified as investment property under development and stated at
cost until construction is complete, at which time it is reclassified and
subsequently accounted for as investment property. At the date of transfer, the
difference between fair value and cost is recorded as income in the consolidated
income statement.
All costs directly associated with the purchase and construction of a property,
and all subsequent capital expenditures for the development qualifying as
acquisition costs, are capitalised.
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated
depreciation and impairment losses. Cost includes expenditures that are directly
attributable to the acquisition of the asset.
When parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items (major components) of property,
plant and equipment.
Depreciation is charged on a straight-line basis so as to write off the cost of
property, plant and equipment to their residual value over the expected useful
lives. Depreciation is recognised in 'other operating expenses' The estimated
useful lives are as follows:
Furniture and office equipment 5 - 15 years
The cost of replacing part of an item of property, plant and equipment is
recognised in the carrying amount of the item if it is probable that the future
economic benefits embodied within the part will flow to the Company and its
costs can be measured reliably. The costs of day-to-day servicing of property,
plant and equipment are recognised in the income statement as incurred.
Property, plant and equipment has not been disaggregated into classes as per IAS
1 'Presentation of Financial Statements' as disaggregation is not deemed
significant.
Cash and cash equivalents
Cash and cash equivalents comprises cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less, and bank overdrafts.
Taxation
Income tax expense comprises current and deferred tax. Income tax expense is
recognised in the income statement except to the extent that it relates to items
recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates enacted or substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years.
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However,
the deferred income tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using tax rates (and
laws) that have been enacted or substantially enacted by the balance sheet date
and are expected to apply when the related deferred income tax asset is realised
or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries and associates, except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.
Foreign exchange
(i) Functional and presentation currency
The Group operates in Romania, whose economy is considered to have exited the
hyperinflation period starting 2004.
Management have assessed that the functional currency of the Group is the Euro
due to the fact that sources of finance are denominated in Euro, revenue is
denominated in Euro, investing costs are denominated in Euro and management uses
Euro-based reports to monitor the Group's financial performance. Therefore the
management have elected to prepare the Group's financial statements in Euro.
(ii) Transactions and balances
Transactions undertaken in foreign currencies are translated to the functional
currency of the Group at the exchange rate ruling on the date of the
transaction. Monetary assets and liabilities denominated in foreign currencies
are translated to Euros at the rate ruling on the balance sheet date.
Non-monetary assets denominated in foreign currencies are translated to Euros at
the rate ruling on the date of acquisition. Profits and losses on exchange are
taken directly to equity.
(iii) Overseas operations
On consolidation, the results of overseas operations are translated into Euros
at rates approximating to those ruling when the transactions took place. All
assets and liabilities of overseas operations are translated at the rate ruling
at the balance sheet date. Exchange differences recognised in the income
statement of Group entities' separate financial statements on the translation of
long-term monetary items forming part of the Group's net investment in the
overseas operation concerned are reclassified to the foreign exchange reserve if
the item is denominated in the functional currency of the Group or the overseas
operation concerned.
Financial assets
The Group classifies its financial assets into one of the following categories,
depending on the purpose for which the asset was acquired. Financial assets are
recognised when the Group becomes party to the contractual obligations of the
instrument. The Group's accounting policy for each category is as follows:
(i) Loans receivable
Loans receivable are recorded initially at fair value and subsequently accounted
for at amortised cost using the effective interest rate method which ensures
that any income over the period to repayment is recognised at a constant rate on
the balance of the loan receivable carried in the balance sheet.
(ii) Trade and other receivables
Trade and other receivables are recognised at fair value on initial recognition.
Appropriate allowances for estimated irrecoverable amounts are recognised in
profit or loss when there is objective evidence that the asset is impaired.
(iii) Equity instruments
Equity instruments comprise ordinary share capital. Equity instruments issued
by the Group are recorded at the proceeds received. Those costs directly
attributable to the issuing of equity instruments are taken to the share premium
account.
Financial liabilities
(i) Bank borrowings
These liabilities are initially recognised at the amount advanced net of any
transaction costs attributable to the issue of the instrument. Such interest
bearing liabilities are subsequently measured at amortised cost using the
effective interest method, which ensures that any interest expense over the
period to repayment is recognised at a constant rate on the balance of the
liability carried in the balance sheet.
Operating income and expenditure
All operating income and expenditure is accounted for on an accruals basis.
Rental income
Revenue includes gross rental income, service charge and management charges
earned from investment property. The Group rental contracts expire between five
and ten years and are structured as operating leases. The majority of contracts
require fixed minimum lease payments and are dominated in Euros. Rental income
from investment property leased out under operating leases is recognised in the
income statement on a straight-line basis over the term of the lease. Lease
incentives are recognised as an integral part of the total rental income.
Service and management charges are recognised on a gross basis in the accounting
period in which the services are rendered. When the Group is acting as an agent,
the commission rather than gross income is recorded as revenue.
Segmental reporting
Additional disclosures with regard to segmental reporting is not provided as all
Group activity is conducted in Romania in relation to investment property.
Further disclosure by geographical and business segment is therefore not
required
4. Operational revenues
01.01.06 to 20.04.05 to
31.12.06 31.12.05
€ €
Rental income 1,564,327 -
Service charge expenses (533,327) -
Revenue from service charges 419,910 -
1,450,910 -
5. Other operating expenses
01.01.06 to 20.04.05 to
31.12.06 31.12.05
€ €
Property costs - 12,085
Administrative costs 113,065 39,061
Auditors' fees 77,120 5,086
Accountancy fees 22,220 -
Directors' fees 23,012 -
Bank charges 3,298 -
Exempt company fee 882 -
Other operating expenses 179,043 43,680
418,640 99,912
6. Investment property
Group as at 31 Company as at 31 Group as at 31 Company as at
Dec 06 Dec 06 Dec 05 31 Dec 05
€ € € €
Brought forward 12,490,756 - - -
Additions due to business combinations 12,100,000 - 12,490,756 -
Revaluation (fair value adjustment) 3,600,000 - - -
Cost to completion 209,244 - - -
28,400,000 - 12,490,756 -
At 31 December 2006 the fair value of the investment properties is based on a
valuation performed by an independent valuer, DTZ Echinoix. The valuation
method applied is the capitalisation of rental income based on the rents payable
under the existing lease agreements and average market rental values.
7. Loans receivable
Group as at 31 Company as at 31 Group as at 31 Company as at
Dec 06 Dec 06 Dec 05 31 Dec 05
€ € € €
Moulen Beleggingen BV 30,748,887 11,972,167 13,822,167 13,822,167
Cardeka Holdings Limited - 211,160 - 200,000
AIG/Lincoln Lakeview S.a.r.L 5,353,500 5,353,500 - -
36,102,387 17,536,827 13,822,167 14,022,167
Loans receivable at 31 December 2006 includes two loans of equal amounts of
€4,800,000 which were granted by Cascade Consulting Romania S.R.L. and Cascade
Imobiliare Consult S.R.L. to Moulen Beleggingen BV. The agreements were
concluded on 1 July 2006.
Loans receivable at 31 December 2006 also include a loan of €9,450,000 of which
€9,176,720 has been granted by Romulex Technology S.R.L. to Moulen Beleggingen
BV following an agreement concluded in March 2006.
Loans receivable at 31 December 2006 further includes a facility of €29,600,000
of which €11,972,167 has been granted by the Company to Moulen Beleggingen BV.
The loans described above bear an interest rate of 5.75% per annum (6.75% until
1 July 2006) and are repayable in one instalment not earlier than 31 December
2009.
8. Investment in Group companies
The subsidiaries of Fabian Romania Property Fund Limited, all of which have been
included in these financial statements, are as follows:
Name Country of Proportion of Activity
incorporation ownership
Cardeka Holdings Limited Cyprus 100% Holding Company
Fabian One S.R.L. Romania 100% Holding Company
Fabian Two S.R.L. Romania 100% Holding Company
Fabian Three S.R.L. Romania 100% Holding Company
Fabian Four S.R.L. Romania 100% Holding Company
Cascade Consulting Romania S.R.L. Romania 100% Leasing of owned or rented
properties
Cascade Imobiliare Consult S.R.L. Romania 100% Leasing of owned or rented
properties
Romulex Technology Construct S.R.L. Romania 100% Leasing of owned or rented
properties
Group as at 31 Company as at 31 Group as at 31 Company as at 31
Dec 06 Dec 06 Dec 05 Dec 05
€ € € €
Cardeka Holdings Limited - 1,715 - 1,715
Cascade Imobiliare Consult S.R.L. - 37,360 - -
Fabian One S.R.L. - 6 - 6
Fabian Two S.R.L. - 6 - 6
Fabian Three S.R.L. - 6 - 6
Fabian Four S.R.L. - 1 - -
- 39,094 - 1,733
The Company owns 100% of the issued share capital and voting rights of Cardeka
Holdings Limited, an investment holding Company incorporated in Cyprus and
stated at cost. In the opinion of the directors, the value of the investment is
not less than cost.
The Company owns 1% of the issued share capital of Fabian One S.R.L., an
investment holding Company incorporated in Romania and stated at cost. In the
opinion of the directors, the value of the investment is not less than cost.
The Company owns 1% of the issued share capital of Fabian Two S.R.L., an
investment holding Company incorporated in Romania and stated at cost. In the
opinion of the directors, the value of the investment is not less than cost.
The Company owns 1% of the issued share capital of Fabian Three S.R.L., an
investment holding Company incorporated in Romania and stated at cost. In the
opinion of the directors, the value of the investment is not less than cost.
The Company owns 1% of the issued share capital of Fabian Four S.R.L., an
investment holding Company incorporated in Romania and stated at cost. In the
opinion of the directors, the value of the investment is not less than cost.
The Company owns 0.9% of the issued share capital of Cascade Imobiliare Consult
S.R.L., a property leasing Company incorporated in Romania and stated at cost.
In the opinion of the directors, the value of the investment is not less than
cost.
9. Investments in joint ventures
The Group has the following investments in joint ventures:
Ownership
Country of incorporation Group as at 31 Company as at 31
Dec 05 Dec 05
€ €
AIG/Lincoln Lakeview S.a.r.L Luxembourg 50% -
Phoenix Park S.R.L. Romania 50% -
The Group has a 50% interest in joint ventures AIG/Lincoln Lakeview S.a.r.L and
Phoenix Park S.R.L., whose principal activities are investment in property.
Summary financial information for equity accounted investees, not adjusted for
the percentage ownership held by the Group is presented below:
Non-Current Non-Current
Current Assets Current Liabilities
Assets Liabilities
Total Assets Revenue Expenses
€ € € € € € €
Phoenix Park 413,140 12,885,258 13,298,398 2,716,064 - - 2,366
S.R.L.
AIG/Lincoln
Lakeview
S.a.r.L 431,802 10,600,000 11,031,802 1,249,173 10,694,766 48,609 973,246
844,942 23,485,258 24,330,200 3,965,237 10,694,766 48,609 975,612
10. Loan interest receivable
Group as at 31 Company as at 31 Group as at 31 Company as at 31
Dec 06 Dec 06 Dec 05 Dec 05
€ € € €
Moulen Beleggingen BV 1,553,304 943,073 46,759 -
AIG/Lincoln Lakeview S.a.r.L 216,588 216,588 - -
1,769,892 1,159,661 46,759 -
11. Share capital
Group as at 31 Company as at Group as at Company as at 31
Dec 06 31 Dec 06 31 Dec 05 Dec 05
€ € € €
Authorised
20 management shares of €1.00 each - - 20 20
80 voting shares of €1.00 each - - 80 80
1,000,000,000 investment shares of €0.00001 10,000 10,000 10,000 10,000
each
10,000 10,000 10,100 10,100
Group as at 31 Company as at Group as at Company as at 31
Dec 06 31 Dec 06 31 Dec 05 Dec 05
€ € € €
Issued and not paid up
20 management shares of €1.00 each - - 20 20
80 voting shares of €1.00 each - - 80 80
- - 100 100
Issued and fully paid up
212,015 investment shares of €0.001 each - - 212 212
50,831,130 investment shares of €0.00001 each 508 508 - -
Total issued 508 508 312 312
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company.
On 15 December 2006 the Group became listed on the Alternative Investment
Market. The Group raised €40,000,000 (before expenses) through the issue of
29,629,630 new ordinary shares at €1.35 per share.
Prior to AIM listing, a resolution was passed on the 1 November 2006, for all
management and voting shares to be transferred to the Company for their par
value and dissolved. It was also decided that every existing investment share
be sub-divided into 100 ordinary shares with a par value of €0.00001 each.
A reconciliation is provided below:
Reconciliation of number of shares outstanding at the beginning and end of the
year:
Voting Management Investment Ordinary Shares Total Shares
Shares Shares Shares
Number of shares brought forward as
at 1 Jan 2006 80 20 212,015 - 212,115
Redemption of voting and management
shares (80) (20) - - (100)
Conversion of investment shares to
ordinary shares - - (212,015) 21,201,500 20,989,485
Issue of ordinary shares - - - 29,629,630 29,629,630
Number of shares carried forward as
at 31 December 2006 - - - 50,831,130 50,831,130
12. Share premium
Group as at 31 Company as at 31 Group as at 31 Company as at 31
Dec 06 Dec 06 Dec 05 Dec 05
€ € € €
212,015 investment shares issued at a
premium of €99.999 each 21,201,288 21,201,288 21,201,288 21,201,288
29,629,630 placement shares of €1.34999 39,999,705 39,999,705 - -
each
Cost of placement (1,464,154) (1,464,154) - -
Total Share Premium 59,736,839 59,736,839 21,201,288 21,201,288
The share premium account is a disclosure account only and does not have any
rights attached.
13. Long-term borrowings
Group as at 31 Company as at 31 Group as at 31 Company as at 31
Dec 06 Dec 06 Dec 05 Dec 05
€ € € €
Loan from Moulen Beleggingen BV 30,749,066 - 13,822,671 -
Loan from Investkredit Bank AG 18,010,179 - - -
Interest on loan from Moulen Beleggingen 1,601,698 - - -
BV
50,360,943 - 13,822,671 -
14. Taxation
The Company is an 'exempt company' for Jersey tax purposes so that its liability
to Jersey taxation is limited to a flat fee, currently levied at £600 sterling
per annum.
Tax on profits of the Group arising in Romania are computed using the tax rate
of 16% (2005: 16%), both for current and deferred tax.
15. Other liabilities and payables
Group as at 31 Company as at 31 Group as at Company as at 31
Dec 06 Dec 06 31 Dec 05 Dec 05
€ € € €
Investment in Fabian Four S.R.L. - 1 - -
Accounts payable and accrued expenses 788,142 758,512 100,485 -
Short term borrowing 458,295 - 40,773 -
Deferred revenues 56,919 - - -
Other liabilities and payables - - 20,085 20,086
Amounts payable in respect of AIG Lincoln - -
Lakeview S.a.r.L 200,588 6,250
Trade payables 91,709 - - -
1,595,653 764,763 161,343 20,086
16. Net cash flow from operating activities
Reconciliation of operating profit/(loss) from continuing operations to net cash
flow from operating activities:
01.01.06 to 20.04.05 to
31.12.06 31.12.05
€ €
Operating profit/(loss) for the year/period 1,848,408 (820,162)
Adjustments for:
Amortisation 126,648 22,350
Revaluation gains on properties (3,600,000) -
Goodwill impairment 1,006,563 517,124
Corporate income tax paid (213,017) -
Other non-cash items 71,240 (3,530)
Depreciation 1,469 -
Changes in working capital:
Other payables 756,807 (368,645)
Other receivables 428,114 (589,305)
Net cash flow from operating activities 426,232 (1,242,168)
17. Related party transactions
For the purposes of these financial statements, a related party is an entity or
entities who are able to exercise significant influence directly or indirectly
on the Group's operations. Transactions between the Company and its
subsidiaries, which are related parties, have been eliminated on consolidation
and are not disclosed in this note, however they are presented in the notes to
the accounts which present Company only balances as well as those of the Group.
There is an investment management agreement between the ultimate parent of the
Group and Fabian Capital Limited for the day to day management of the Group.
Mark Holdsworth is a director of both the Fabian Romania Property Fund Limited
and Fabian Capital Limited.
The principal related party transactions which were carried out during the
period are:
An investment management fee is payable to the investment manager, Fabian
Capital Limited. Prior to AIM admission on 15 December 2006 the fee was
calculated upon the basis of 2.5% p.a. of the Net Asset Value of the Fund.
Since admission to AIM the fee is calculated as 2% of Net Asset Value.
Investment management fees are payable quarterly in advance. The fee for the
period 1 January 2006 to 31 December 2006 amounted to €588,038 (period 20 April
2005 to 31 Dec 2005: €152,219).
Fees paid to JTC Fund Services Limited, the Group's administrators, amounted to
€103,505 for the period from 1 January 2006 to 31 December 2006 (period 20 April
2005 to 31 Dec 2005: €30,411) and have been charged to the income statement.
Stephen Burnett and Nigel Le Quesne are directors of both the Company and Jersey
Trust Company. Directors' fees for the year were €22,220 (2005: € Nil).
Joint Venture Agreements
During the year the Group acquired a 50% investment in Phoenix Park S.R.L, a
Company domiciled in Romania. This investee was established for the purpose of
developing and selling real estate residential projects. The purchase price as
per the Share Transfer Agreement amounted to €5,750,000, which was financed
entirely by means of a loan from Moulen Beleggingen BV, a Dutch company. The
share transfer was effective on 28 July 2006.
During the year the Group acquired a 50% investment in AIG/Lincoln Lakeview
S.a.r.L, a Company domiciled in Luxembourg. This investee was established for
the purpose of developing and selling real estate residential projects. The
shares were subscribed at a cost of €12,500 to each of the joint ventures. On 7
September 2006 the Group lent €5,125,000 to the Joint Ventures. Subsequent
advances have been made and a repayment of the loan was made to the Group on 19
March 2007. Amounts outstanding to the Group at the time of issuing the
financial statements were €516,300.
18. Acquisition of subsidiaries
Year ended 31 December 2006
On 31 March 2006, Fabian One S.R.L acquired 100% of the issued share capital of
Cascade Consulting Romania S.R.L. and 99.1% of Cascade Imobiliare Consult S.R.L.
for cash consideration of €7,514,723. This transaction has been accounted for
using the purchase method of accounting.
Book Value Fair value Fair Value
adjustment
€ € €
Net assets acquired
Property, plant and equipment 6,637,431 5,462,569 12,100,000
Deferred tax asset 4,553 - 4,553
Trade and other receivables 17,668 - 17,668
Cash and cash equivalents 95,023 - 95,023
Trade and other payables (81,092) - (81,092)
Bank loans (4,625,990) - (4,625,990)
Deferred tax liabilities - (874,011) (874,011)
Total net assets 2,047,593 4,588,558 6,636,151
Net assets attributable to minority interests (32,969)
Net assets acquired by Fabian One S.R.L. 6,603,182
Goodwill 1,006,563
Total consideration 7,609,745
Satisfied by cash 7,609,745
Net cash flow arising on acquisition
Cash consideration 7,609,745
Cash and cash equivalent acquired (95,023)
7,514,722
Minority interest of 0.9% in Cascade Imobiliare Consult S.R.L. was acquired by
Fabian Romania Property Fund Limited on 31 March 2006. As a result these
financial statements do not include a minority interest because 100% of the
share capital is owned by the Group.
The acquisition of 0.9% of Cascade Imobiliare Consult S.R.L. was accounted for
by Fabian Romania Property Fund Limited as an investment, which was eliminated
against the minority interest shown in Fabian One S.R.L..
Year ended 31 December 2005
On 13 December 2005, Fabian Two S.R.L. acquired 100% of the issued share capital
of Romulex Technology Construct S.R.L. for cash consideration of €11,713,930.
This transaction has been accounted for using the purchase method of accounting.
Book Value Fair value adjustment Fair Value
€ € €
Net assets acquired
Investment property 4,721,036 7,769,720 12,490,756
Equipment 3,014 - 3,014
Trade and other receivables 196,473 - 196,473
Cash and cash equivalents 415,753 - 415,753
Trade payables (488,660) - (488,660)
Tax liabilities (177,364) - (177,364)
Deferred tax liabilities - (1,243,166) (1,243,166)
Total net assets 4,670,252 6,526,554 11,196,806
Goodwill 517,124
Total consideration 11,713,930
Satisfied by cash 11,713,930
Net cash flow arising on acquisition
Cash consideration 11,713,930
Cash and cash equivalents acquired (415,753)
11,298,177
On 22 December 2006 the Group purchased the entire share capital of Fabian Four
S.R.L. for €60. The net assets of Fabian Four S.R.L. on this date amounted to
€60.
19. Ultimate controlling party
In the directors' opinion, there is no controlling party.
20. Earnings per share
The calculation of basic and diluted earnings per share at 31 December 2006 was
based on the profit attributable to ordinary shareholders of €1,384,752 (2005:
€705,261 loss) and a weighted average number of shares of 22,581,510 (2005:
212,115) calculated as follows:
Note Group Group
2006 2005
Brought forward at 1 January 212,115 -
Effect of shares issued April 2005 - 212,115
Effect on calculation of converting investment shares to 14 20,989,385 -
ordinary shares and dissolving management and investment
shares
Effect on shares issued December 2006 14 1,380,010 -
Balance as at 31 December 22,581,510 212,115
21 Subsequent events
As at 10 March 2007, Romulex Technology Construct S.R.L. merged with Fabian Two
S.R.L..
On 15 January 2007 the Group acquired 100% of the ordinary share capital of
Fabian Five S.R.L..The net assets of Fabian Five S.R.L. on this date amounted to
€60.
On 15 January 2007 the Group acquired 100% of the ordinary share capital of
Fabian Six S.R.L.. The net assets of Fabian Six S.R.L. on this date amounted to
€60.
On 27 April 2006 Fabian Five S.R.L. entered into a commitment to purchase the
Cubic Centre Development S.R.L. on completion of the Cubic office development.
A secured loan of €5 million was made by Fabian Five S.R.L. to the target. A
further €7.255 million is expected to be committed before the end of 2007,
subject to certain conditions.
On 30 May 2007, Fabian Six S.R.L. entered into a binding commitment to purchase
C.H.F. Investitii S.R.L. for €4,900,000 on completion of the Evocenter One
office development in Pipera. Completion is expected during the second half of
2007.
On 8 June 2007, Cardeka Holdings Limited entered into an agreement to purchase
Marcomto Holdings Limited ('Marcomto') subject to certain conditions for €4.6
million and a subsidiary of Marcomto entered into a €3.0 million construction
contract to deliver an office building.
On 13 June 2007, Fabian Four S.R.L. entered into an agreement to purchase
Baneasa Center S.R.L. for a €11.7 million together with a new €19.68 million
debt facility to allow refinancing at completion.
On 16 May 2007, Fabian Romania Property Fund Limited purchased Topares
Investments BV ('Topares') for €24,000. The name of Topares was subsequently
changed to Fabian Finance BV. On 15 June 2007, a loan assignment agreement was
entered into between a number of the Fabian Group companies and Moulen
Bellingengen BV ('Moulen') transferring the relevant Moulen assets and
liabilities to Fabian Finance BV.
On 20 June 2007, Cardeka Holdings Limited concluded a share transfer agreement
to acquire 50 per cent. of Coltex Invest Construct SRL and a shareholder loan of
€1 million.
This information is provided by RNS
The company news service from the London Stock Exchange