Interim Results
Fabian Romania Limited
28 September 2007
28 September 2007
Fabian Romania Limited (FAB.LN)
Interim results for the six months ended 30 June 2007
Fabian Romania Limited, the AIM quoted dedicated Romanian real estate investor
announces its unaudited interim results for the six months ended 30 June 2007.
Highlights
• Net Asset Value per share of the Company of €1.548. An increase of 14 per
cent. over the €1.356 as at 31 December 2006, as determined in accordance
with its Articles of Association.
• Nine investments executed or committed, totalling 62,850 square metres ("
sqm") of lettable office space in Bucharest together with 443 residential
apartments (Fabian's proportional share).
• Lakeview building consent granted and area increased. Post the period end
the Lakeview office joint venture development with AIG/Lincoln received its
full consents and the scheme is now estimated to have a net lettable office
area of 24,100 sqm and 427 parking spaces, above the investment manager's
initial expectations.
• New Town strong forward sales and under construction at fixed price
contract. The construction contract has been agreed with Mivan Kier for the
Group's New Town residential scheme. Sales commenced in July with a first
release of 119 apartments. To date, 124 apartments have been reserved
comprising nearly all of the first release and a number from an initial 50
of the second release now for sale.
• Two investments committing a total of €24.9 million were executed during
the half year. The Group's share of the market valuations of these
investments (before deferred income tax liabilities) was €30.6 million at 30
June 2007 before deducting the outstanding non-recourse bank financing of
€15.0 million. On gross assets, this represents an uplift of 23 per cent.
from the original investment.
• Three further investments announced, committing approximately €22 million
in aggregate, which will equate to approximately €15 million in equity post
debt drawdown; these investments are not included in the 30 June 2007
valuation.
• These five investments are expected to require around €21million of equity
(after refinancing). As at 30 June 2007, the Directors estimate the Group
has approximately €17 million left to invest.
• Further yield convergence for the Group's fully let office buildings to
7.0 and 7.1 per cent. as at 30 June 2007.
• The investment manager believes office market rents in Bucharest have
increased by approximately €2 sqm/month apparent by the end of June.
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
Chairman's Statement
It gives me great pleasure to report Fabian Romania's first set of interim
results as an AIM listed company.
During this period, considerable progress was made in converting five deals from
the strong pipeline. These announced transactions commit around €21 million of
the December 2006 equity fundraising proceeds.
The Net Asset Value per share (determined in accordance with the Articles of
Association) rose a very healthy 14 per cent. to €1.548 in the first six months
of 2007.
We are pleased to report the positive progress of the two development sites
acquired in 2006, with New Town now well into both construction and sales and
Lakeview now fully permitted and set to begin construction early in the 2008.
The Banu Antonache and Cascades buildings remain fully let and their valuations
have outperformed our expectations, benefiting from the tight office market in
Bucharest, as did the Baneasa Business Center acquired at the end of the period.
Cash balances of around €29 million as at 30 June 2007 provide us with
significant scope for further investments and approaching €17 million of equity
to allocate after allowing for existing commitments.
We have a very strong and capable management team and are taking advantage of
our growing experience and market reputation to capitalise on opportunities in
the exciting Romanian real estate market.
We look forward with confidence to creating further value for shareholders
through the portfolio of existing investments and the attractive pipeline.
Jaroslav Kinach
Chairman
Fabian Romania Limited
Investment Manager's Report to Fabian Romania
To the shareholders of Fabian Romania,
Fabian Romania Limited, the AIM quoted dedicated Romanian real estate investor
announces its Net Asset Value ("NAV") per share (determined in accordance with
the Articles of Association) as at 30 June 2007 was €1.548 per share. This
represents a rise of 14 per cent. from the 31 December 2006 NAV of €1.356 per
share. The NAV per share calculated under IFRS, before any disclosed
adjustments, was up almost 5 per cent. to €1.245 in the first six months of
2007.
Fabian Romania ("Fabian", "Fabian Romania" or the "Company", together with all
its subsidiaries and joint ventures the "Group") invests in the Romanian real
estate market seeking attractive absolute returns for shareholders. The
investment strategy of the Group is to purchase both income producing office
buildings and retail freeholds as well as to seek further co-investment
development projects in the office, retail and residential sub-sectors of the
market. To date Group investments made and announced have numbered nine, eight
in the Bucharest area and one in Timisaora, with collectively a proportional
share in 62,850 sqm of net lettable office space and 443 apartments.
The Company is reviewing matters which may assist it in addressing the current
share price which is trading at a discount to NAV per share.
Property Portfolio announced at 30 June 2007
Share- NLA
Properties Description Location holding Sqm Status
2006 investments
Banu Office investment Floreasca 100% 4,400 Fully let
Cascades Office investment Buzesti 100% 4,300 Fully let
New Town Residential development JV Dristorului 50% 72,000 Selling & in
construction
Lakeview * Office development JV Barbu Vacarescu 50% 24,100 Building permit
received
2007 investments
Timisoara ** Residential development JV Timisoara 50% 35,000 Land acquired
Baneasa Center Office investment Bucaresti-Ploiesti 100% 9,600 Fully let
Cubic *** Office forward purchase Pipera 100% 27,000 Under construction
2007 announced
Evocenter Office investment Pipera 100% 3,000 50% pre-let &
occupied
Romana * Office development Dacia Blvd 100% 2,500 Building permit
received
Proportional sub-totals
Office space 62,850
Residential area 53,500
Note:
* Building permit received since 30 June 2007
**Land and Net Lettable Area ("NLA") sqm increased since 30 June 2007
*** Closed since 30 June 2007, shareholding represents final commitment
Developments
The Company started the period having raised €38.1 million net of expenses
pursuant to its listing on the AIM market on 15 December 2006. The other assets
of the company at the start of the period comprised the four core investments
acquired during 2006. The first half of the year has been highly active
involving negotiations with vendors, extensive due diligence on a large number
of potential investments and five new acquisitions either closed or agreed. In
addition, much further work was undertaken negotiating leasing contracts,
publishing the 2006 annual reports and accounts and arranging financing. Fabian
announced and completed the acquisition of both the Baneasa Business Center and
a 50 per cent. stake in a residential land plot in the City of Timisoara. The
Company also announced that it had entered into agreements to: acquire a plot of
land in central Bucharest for a turn-key office building, purchase the Evocentre
office building in North Bucharest and to forward purchase the Cubic Center
office building in the Pipera district of Bucharest once completed. Post June, a
fixed price contract was agreed with Mivan Kier for the New Town residential
development. The sales launch occurred in July. The Lakeview office development
joint venture with AIG/Lincoln achieved final building consent in early
September. The major highlights for the Company during the period are as
follows.
Sales update at New Town
During the first half of 2007, much time was committed to working with the
Company's joint venture partner, Mivan Ltd, to secure a fixed price contract
with Mivan Kier Ltd for the construction of the New Town residential scheme. New
Town is a scheme of 72,000 sqm above ground involving the construction of 636
apartments targeted at Bucharest's emerging middle class. The scheme was granted
final building consent at the start of April 2007. Subsequently, the Company
announced in July 2007 that its joint venture development company, Phoenix Park
SRL, has agreed a fixed price build contract with Mivan Kier.
In tandem with the discussions with Mivan Kier, the finishing touches were
being put in place with Mivan for the sales launch. A sales and marketing suite
was created by Mivan in central Bucharest and a full launch started in mid July
2007. The first release comprised 119 apartments with an average selling price
of €1,219 per sqm followed by the first 50 apartments from the second release,
priced 10 per cent. higher. To date, 124 apartments have now been reserved with
parking. City wide newspaper and radio advertising has been taken to support
the releases and sales are going well.
DTZ Echinox ("DTZ"), the Company's valuers, have given a land valuation, as at
30 June 2007, of €27.9 million of which 50 per cent. is owned by Fabian. The
Company currently forecasts project completion to be achieved by the end of
2009.
Building consent granted at Lake View
Since 30 June 2007, the Company is pleased to announce that building consent has
been granted for the Lakeview co-investment office development project with AIG/
Lincoln. This was the last planning hurdle before detailed construction
tendering could commence. The consent allows for a building of 26,125 sqm above
ground with a net lettable area of 24,100 sqm. The amount of net lettable office
space is higher than the investment manager initially expected. The below ground
constructed area is estimated to be approximately 14,875 sqm including
approximately 427 parking spaces. Ground works are expected to commence in the
first quarter next year with completion of the project estimated to be during
the third quarter of 2009.
The Company's share of the land valuation within the NAV remains the same as at
31 December 2006 of some €8.3 million. This figure was itself unchanged from the
calculation last conducted on the 30 September 2006. For the NAV calculation for
the quarter ending 30 September 2007, DTZ will be asked to reappraise the value
of the scheme in light of the building consent now achieved and market
developments in general.
The Baneasa Business Center
On 18 June 2007, the Company was pleased to announce that it had entered into an
agreement to purchase the Baneasa Business Center office building from the
Austrian developer Immoconsult Leasinggesellschaft m.b.H. The transaction value
was €23.9 million. As at 30 June 2007, the building was valued by DTZ at €27.6
million. This represents a satisfactory gain of 15 per cent. over the purchase
price agreed in late 2006.
The building is a Class A office building comprising 9,600 sqm of net lettable
area. It is located in the rapidly emerging office district of North Bucharest.
The building hosts a range of multinational tenants including Wrigley, Colgate,
Fresenius, Cargill and Volksbank thereby meeting the targeted tenant profile of
the Company. The average lease length is around three years with a variety of
reversionary leases at rents between €12 per sqm/month to €16 per sqm/month.
The acquisition gives the Group further exposure to a high quality office
building located in the heart of the emerging business district of North
Bucharest. The investment manager believes there is rising demand for space by
both existing multinational tenants seeking to expand and new multinational
tenants entering Romania. The investment manager is confident that as leases
come up for renewal, upward revisions in rents per square metre per month are
achievable.
The gain in the value of the property of some €3.7 million can be explained by
two factors. Firstly, the purchase yield used for the acquisition with
Immoconsult was 7.74 per cent. negotiated in the second half of last year. DTZ
used an up to date market yield of 7.1 per cent. as at 30 June 2007. On rents of
€1.85 million per annum at the time the commercial terms with Immoconsult were
first agreed, yield convergence from 7.74 per cent to 7.1 per cent has equated
to a gain of some €2.2 million. Secondly, since the commercial terms were
agreed, rents benefited from indexation to Eurozone inflation from 1 January
2007. The investment manager was able to secure for the Group's benefit, the
value of this indexation as well as other rental increases. Annualised rental
income as at 30 June 2007 amounted to €1.96 million per annum a gain of
€110,000. Capitalised, this increase in rents delivered a further €1.5 million
of value.
Since the half year end, the Group has drawn down on a debt facility with
Investkredit Bank AG to increase total borrowings secured against Baneasa to
almost €19.7 million at an interest rate of 6.28 per cent. fixed for three
years. This has resulted in a net equity in the company of approximately €4.2
million pre-revaluation. With a gain of €3.7 million since acquisition, the
Group will have achieved a highly satisfactory pro forma return on equity
invested of 88 per cent..
Timisoara
On 25 June 2007, the Company purchased a 50 per cent. interest in a residential
development site to build 250 apartments in Timisoara for €4.7 million. The
acquisition is structured through a development company that owns 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 office building to the Group in late 2005.
Since the end of the period, a neighbouring plot of 1,820 sqm was purchased by
the joint venture for €819k. This will allow a combined total of 35,000 sqm
approximately of residential development above ground, subject to planning
approval and building consents. The purchase price for both land plots including
acquisition expenses was approximately €5.7 million. This equates to around €445
per sqm for the land and €166 per built sqm over ground, assuming 35,000 sqm.
The development company has already secured and fully drawdown on a land finance
facility from Banca Romanesca for €3.6 million. Including near term working
capital needs, this leaves an initial net equity requirement of approximately €1
million for Fabian.
The acquisition is the Group's first purchase outside Bucharest. It gives Fabian
further exposure to the rising residential sector as well as to Timisoara. The
City 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 area is the focus of a
large amount of foreign direct investment in the manufacturing industry,
particularly from German and Italian companies. The investment manager believes
the city has attractive characteristics for supply of modern residential
apartments.
The land valuation for the initial plot of 1.1 hectares as at 30 June 2007 is
€5.9 million of which 50 per cent. is owned by Fabian. This represents a gain
ex-acquisition costs of some €1.2 million or 26 per cent.. The Company forecasts
the development to be completed by the end of 2010.
Cubic Center
On 30 April 2007, the Company announced that it had entered into an agreement to
purchase at practical completion the Cubic Center office building in the Pipera
district of North Bucharest. The building will be a Class A office building with
a gross area of approximately 44,000 sqm, 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, 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 Group, post the period end, paid a first instalment of €12.25 million upon
the developer securing full construction finance and building consent. At
practical completion of the building by the developer, the Group will pay the
final instalment based upon a forward purchase yield of 7.4 per cent. to 7.8 per
cent. applied to rents achieved. Based upon current rental estimates, the total
value of the transaction is estimated to be approximately €60 million. The total
equity requirement for the Group is estimated to be €12 million.
The agreement to forward purchase the Cubic Center office building gives the
Company exposure to a Class A office building in the Pipera district of
Bucharest secured at an attractive yield. Kendama is responsible for finding
tenants, managing the general contractor and financing the project thereby
minimising the Group's exposure to development risk.
EvoCenter
On 4 June 2007, the Company announced that it had reached agreement to purchase
the Evocenter office building in the Pipera / Voluntari district of Bucharest
for a forecast yield of 9 per cent.. The Group 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. Post the period end, they have taken
additional space leaving just the ground floor and mezzanine to be rented. 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 Group will meet the consideration of €4.9 million from its
own resources. Debt drawdown is anticipated to be shortly after closing which
will reduce the ongoing equity requirement to around €1 million.
Although the transaction size, involving around €1 million of equity, would
normally be too small for Fabian Romania, we decided to pursue the acquisition
for the Group due to the prospective yield on offer. As with the Banu Antonache
acquisition, the Group is taking letting risk. This enables the Group to
purchase modern buildings at a more attractive price as a compensation for the
risk. However, as current vacancy rates in the City are sub 3 per cent., the
letting risk as such is much reduced. In this instance, the letting risk has
been reduced further by the decision of Adama to rent two thirds of the space.
The transaction is expected to close in the second half of the year.
Romana
On 14 June 2007, the Company announced the acquisition of the Romana office
project. This will be the Fund's seventh office building or scheme in Bucharest.
The Romana office building will be built for Fabian Romania by Hil Construct 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 of 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 Group will pay the purchase price of
€7.6 million to Hil in 3 instalments; a first instalment of €2 million will be
made for the Group to acquire ownership of the land; a second instalment for
construction costs of approximately €3 million; and a final payment upon
practical completion of €2.6 million. Including non developer related costs, the
total purchase price is forecast to be €8 million. On assumed office rents of
€19 per sqm/month, the purchase price and total development costs equate to a
yield of 8.9 per cent.. Fabian Romania's equity requirement is expected to be
€2 million with debt finance to fund the balance. In August, the developer
secured the building permit. Other outstanding conditions, to be met prior to
completion, are on-going. Completion is expected during the second half of the
year.
The Economy
Romania continued to prosper during the quarter with GDP growth in 2007 now
expected to be 6.5 per cent. according to ING Bank and 6.3 per cent. in 2008.
This continues the trend for the country to be one of the fastest growing
economies in Europe. High real interest rates and a strengthening currency
against the Euro have driven down inflation from to an annualised rate of 4.9
per cent. on 31 December 2006 to 3.8 per cent. as at June 2007. On the back of
falling inflation, the NBR has cut interest rates to 7 per cent. where they are
forecast to remain for the rest of the year. The fiscal deficit is expected by
ING Bank to remain within the Maastricht criteria at 2.8 per cent. of GDP.
Mortgage rates in both local currency and in Euro have continued to fall with
introductory rates in Euro as low as 5.75 per cent. thereby providing further
support for the residential market.
The Property Market
The main trend to emerge during the period has been a marked upturn in office
rents. In the investment manager's opinion, prime rents per sqm in the City
centre have risen to €19-21 per sqm/month from €17-19 per sqm/month at the end
of 2006. The upward rise in rents has been driven by continuing low vacancy
rates of sub 3 per cent. as well as continued strong foreign direct investment
by new multinationals to Romania and by the expansion of existing
multinationals. The investment manager has experienced this directly with the
majority of tenants in the Baneasa Business Center office building seeking
additional space.
In terms of new supply of office space according to DTZ estimates, some 115,000
sqm of modern Class A was delivered in 2006 somewhat lower than the 180,000 sqm
of space that was forecast during the period. The shortfall was caused by
problems over land title, granting of some permits and other issues that
impacted the amount of announced space that was actually developed. The
investment manager believes that current forecasts of 300,000 sqm of new Class A
office space to be delivered to the market by the year end of 2007 remain
optimistic. Regardless, total modern stock in Bucharest will remain
substantially below commensurate levels in Warsaw, Prague and Budapest.
The office sub sector of the Romanian property market remained as the main focus
of Fabian and other investors' interest during the period. Yields have continued
to fall to close to 6.25 per cent. by the period end for prime buildings. Post
the half year end, GTC, an Israeli developer, sold its America House building in
August for a yield of 5.6 per cent. to the French pension fund Ixis. However, as
rents in the building average €19 per sqm/month the effective yield is over 6
per cent. assuming future rents of around €21 per sqm/month for its location on
Victoria Square. The investment manager anticipates that yields will fall
further in the second half of the year driven by strong interest upon the part
of foreign investment funds. Forward purchase yields are around 7.25 - 8.00 per
cent. depending on the location.
In retail, similar trends are apparent as in the office market. Strong growth in
retail sales and real incomes is driving the demand for retail space by both
high street retailers and by hypermarkets in both Bucharest and the regional
cities. Nearly all cities with more than 100,000 inhabitants have at least one
shopping centre project planned. Both the Real group and the Spar chain entered
Romania for the first time in 2006 and along with Auchan and Carrefour, continue
to seek new hypermarket locations outside Bucharest from developers. Asking
yields for investment transactions continue to fall to sub 7 per cent. For
forward purchases, yields are approximately 7.25 per cent.
The residential sector continues to perform well on the back of rising real
incomes, increased mortgage volumes and falling interest rates. Residential
sales prices per square metre continue to rise. Reliable statistics are hard to
find but prices per square metre appear to be rising in double digits. Whilst a
number of new residential schemes have been announced, particularly by Spanish
developers, it takes time to convert such schemes from the drawing board to the
construction stage. In the meantime, the shortage of supply of new apartments
for sale has meant continued inflation for old style Communist apartments. Sale
prices of up to €900 per sqm are reported to have been achieved compared to
€1,250 per sqm for new build in comparable parts of Bucharest. The investment
manager believes this gap to be artificially low.
Other activity and outlook
As at 30 June 2007, approximately €21 million of equity (after refinancing) from
the €38.1 million of net proceeds from the AIM listing has been earmarked for
investment in the five transactions either executed or announced in the quarter.
This leaves approximately €17 million of equity to commit to further investments
post completion of the investments announced to the end of June.
The conditions for office co-investment developments continue to improve. The
office and retail leasing markets continue to favour the developer and though
visibility is difficult, the office rental market appears well supported until
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. The benefits
to the developer from rising rents and falling yields continue to more than
offset construction inflation.
As stated in the 2006 annual reports and accounts, 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 or through co-development
opportunities. Exciting opportunities continue to be pursued through
participation in office co-investment developments and through the forward
purchase of office buildings for delivery over the next twelve months where the
taking of letting risk by the Company is compensated by attractive prices.
In residential, the demand for new middle income housing has, if anything,
accelerated during the year to date, driven by the 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 between 7.25 - 8.00
per cent. To date, the Group 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 Group, the Romanian property
market and Romania in general as attractive for remainder of the current year.
Mark Holdsworth
Fabian Capital Limited
28 September 2007
Finance Report
Operating revenues of €1.108 million represent a full six months contribution
from the Banu Antonache and Cascades investment properties.
Similarly the €2.3 million fair value adjustment relates to these two properties
and a 0.4 per cent. reduction in yields to 7.0 per cent. in the period.
Negative goodwill recognised of €1.558 million relates to the Baneasa Business
Center acquired on the last day in the period under deal terms struck in July
2006.
Investment manager fees to €698k increased through the larger scale of funds
under management and growth in net assets. Legal and professional fees includes
both lawyers and agents fees and increased significantly due to the investment
activity progressed. Currently all costs for transactions announced but not
closed as well as others in the pipeline have been expensed.
Bank interest of €693k arose from the significant cash balances held on
short-term money market deposits and overnight deposits for smaller working
capital balances throughout the period.
This resulted in retained earnings in the six months to 30 June 2007 of €2.9
million, implying a healthy €0.06 per share.
Based on the consolidated interim financial statements prepared under IFRS and
the Group's accounting policies as set out in the 2006 annual report, Fabian's
total assets are €101.1 million and total liabilities are €37.8 million.
Investment properties increased through the first time consolidation of Baneasa
Business Center and revaluation uplift of Banu Antonache and Cascades.
As mentioned in the 2006 annual report, the long term loans receivable and long
term borrowings both show a significant reduction (effectively removing a
technical grossing up of assets and liabilities) as almost €33.1 million of
loans and accrued interest receivable and almost €33.2 million of loans and
accrued interest payable routed through The Netherlands was assigned from a
third party, Moulen Beleggingen BV into a new in-house subsidiary, Fabian
Finance BV as a progression following admission to AIM and the increased scale
of activities.
The loans receivable balance comprises the initial €5 million secured loan to
the Cubic Center together with the accrued interest prior to completing the
first stage of the forward purchase and a temporary reduction in Lakeview to
around €1.2 million post land finance drawdown but prior to construction
commencing.
The investment in joint ventures remains primarily New Town.
Inventories and other assets rose due in part to the first time consolidation of
the Baneasa Business Center. Loans receivable within current assets includes the
€1 million loan to the Coltex Invest Construct joint venture for the Timisoara
residential development and this is likely to be extended as the project design,
planning and budget progress.
Long term borrowings represents bank debt of nearly €32.0 million secured on the
three investment properties.
Deferred tax has increased significantly from the uplift in fair values,
particularly from the acquisition of the Baneasa Business Center (almost €2.5
million).
Accordingly the shareholders equity or net assets of Fabian Romania Group under
IFRS as at 30 June 2007 were €63.3 million, representing €1.245 per share a 4.7
per cent. increase from €1.189 per share at 31 December 2006.
Net Asset Value
The published NAV as summarised below was calculated according to the Company's
Articles of Association and incorporates the values determines by the Company's
valuers, DTZ, acting through the Red Book methodology of the Royal Institute of
Chartered Surveyors, which exclude future development profits.
30 June 2007 30 June 2007 30 June 2007
Market Value Bank (debt) Net Worth Original Investment
€m €m €m €m
Cascades 15.1 (9.4) 5.7 12.2
Banu 15.6 (9.1) 6.5 12.3
New Town * (^) 15.8 (1.9) 13.9 5.8
Lakeview * 8.3 (5.3) 3.0 5.4
Cubic Centre 5.0 - 5.0 5.0
Baneasa Business Center 27.6 (13.2) 14.4 23.9
Timisoara * 3.0 (1.8) 1.2 1.0
Net Cash 29.4
Other assets/(liabilities) ** (0.4)
Sub-total 90.4 (40.8) 78.7 65.5
Shares (#)
50,831,130
NAVPS (€)
1.548
* represents Fabian's share of the development, and in the case of Lakeview,
after post-acquisition debt financing drawdown
** includes deposits on Evocenter & Romana plus deferred tax liabilities added
back
(^) includes development WIP financed by bank debt
Portfolio Mix
Based on the net worth at 30 June 2007 (as set out in the NAV table above) the
portfolio may be presented in three categories: income producing 34 per cent.;
development 29 per cent.; and cash and other 37 per cent..
If the same categories are applied to the current estimates of total equity
commitments (net of refinancings before disposals, income or revaluations),
assuming all executed and announced investments progress as planned, the
following split is achieved: Income producing 20 per cent.; development 50 per
cent.; and cash and other 30 per cent..
Graham Atkinson
Fabian Capital Limited
Condensed consolidated income statement (unaudited)
For the six months ended 30 June 2007
Note Six months Six months Year ended
ended ended 31 December
30 June 2007 30 June 2006 2006
€'000 €'000 €'000
Total operating revenues 1,108 586 1,451
Fair value movement on investment properties 4 2,300 2,000 3,600
Negative goodwill on acquisition of subsidiary 3, 12 1,558 - -
Expenses
Goodwill impairment 3 - 1,007 1,007
Investment management fees 698 267 588
Legal and professional fees 934 378 662
Other operating expenses 608 637 546
Cost of issuing shares - - 400
Total operating expenses 2,240 2,289 3,203
Profit from operating activities 2,726 297 1,848
Loan interest revenues 258 671 1,767
Loan interest expense (627) (800) (2,262)
Foreign exchange movement (105) (23) 56
Bank interest 693 51 137
Other financial costs - (7) -
Net financing income / (expenses) 219 (108) (302)
Share of profit/(loss) of joint ventures using the equity 183 - (202)
method of accounting
Profit before taxation 3,128 189 1,345
Corporate income tax expense (23) (30) (525)
Deferred income tax (216) (281) 565
Net profit/(loss) for the year/periods attributable to 2,889 (122) 1,385
equity holders of Fabian Romania Limited
Basic and diluted earnings per share (€) 0.06 (0.57) 0.06
As at 30 June 2007, 30 June 2006 and 31 December 2006 there is no difference
between basic and diluted earnings per share.
Consolidated statement of changes in equity (unaudited)
For the six month ended 30 June 2007
Retained
Share Capital Share Premium Earnings Total
€'000 €'000 €'000 €'000
As at 31 December 2006 1 59,737 679 60,417
Profit for the period - - 2,889 2,889
Balance at 30 June 2007 1 59,737 3,568 63,306
For the six months to 30 June 2006
Retained
Share Capital Share Premium Earnings Total
€'000 €'000 €'000 €'000
As at 31 December 2005 1 21,201 (706) 20,495.
Loss for the period - - (121) (121)
Balance at 30 June 2006 1 21,201 (827) 20,374
For the year ended 31 December 2006
Retained
Share Capital Share Premium Earnings Total
€'000 €'000 €'000 €'000
As at 1 January 2006 1 21,201 (706) 20,496.
Profit for the year - - 1,385 1,385
-
Issue of share capital - 40,000 - 40,000
Cost of shares issued - (1,464) - (1,464)
Balance at 31 December 2006 1 59,737 679 60,417
Condensed consolidated balance sheet (unaudited)
As at 30 June 2007
Note 30 June 30 June 31 December
2007 2006 2006
€'000 €'000 €'000
ASSETS
Non-current assets
Investment properties 4 58,300 26,800 28,400
Property, plant and equipment 14 3 11
Loan receivables 5 6,260 24,999 36,102
Investment in joint ventures 7 5,738 - 5,749
Deferred tax assets 151 - 71
Set up costs - 112 -
70,463 51,914 70,333
Current assets
Inventories and other assets 731 367 373
Loan receivables 1,032 718 1,770
Bank interest receivable 53 3 52
Cash and cash equivalents 28,827 2,665 42,196
30,643 3,753 44,391
Total assets 101,106 55,667 114,724
SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
Share capital 8 1 - 1
Share premium account 8 59,737 21,201 59,737
Retained earnings 3,568 (827) 679
Total equity attributable to shareholders of the company 63,306 20,374 60,417
Non-current liabilities
Long-term borrowings 9 31,983 31,682 50,361
Deferred tax liabilities 4,589 2,405 1,776
Rental and lease guarantees 271 158 205
Total non-current liabilities 36,843 34,245 52,342
Current liabilities
Current income tax liabilities and other taxes 85 30 369
Other liabilities and payables 872 1,018 1,596
Total current liabilities 957 1,048 1,965
Total equity and liabilities 101,106 55,667 114,724
Condensed consolidated cash flow statement (unaudited)
For the six months ended 30 June 2007
Note Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December 2006
€'000 €'000 €'000
Operating activities
Net cash flow from operating activities 10 (1,103) (319) 426
Investing activities
Acquisition of subsidiary investments (10,340) (7,515) (7,5145)
Investing in non-current assets (100) (209) -
Investment in joint venture undertakings - - (5,750)
Loans advanced (6,573) (11,177) (24,130)
Loan repayments received 4,727 - 1,850
Interest received 1,067 61. 150
Acquisition of property and equipment (5) - (218)
Net cash outflow from investing activities (11,224) (18,840) (35,613)
Financing activities
Proceeds from borrowings - 17,967 35,837
Loan repayments (122) (4,626) (5,058))
Interest paid (369) (104) (712)
Proceeds from share issue - 334 40,359.
Expenses in relation to share issue (551) - (1,297)
Net cash (outflow)/inflow from financing (1,042) 13,571 69,129
activities
Net (decrease)/ increase in cash and cash (13,369) (5,588) 33,942
equivalents
Cash and cash equivalents at start of period/year 42,196 8,254 8,254
Cash and cash equivalents at end of period/year 28,827 2,665 42,196
Notes to the consolidated interim financial statements (unaudited)
For the six months ended 30 June 2007
1. Reporting entity
Fabian Romania Limited (the "Company") is a company domiciled in Jersey. The
condensed consolidated interim financial statements as at and the six months
ended 30 June 2007 comprise the Company and its subsidiaries (together the
"Group") and the Group's interest in joint ventures.
The consolidated financial statements of the Group as at and for the year ended
31 December 2006 are available on the Company's website www.fabiancapital.com.
The shares of the Company were admitted to trading on the AIM market of the
London Stock Exchange ("AIM") on 15 December 2006.
2. Accounting policies
These condensed consolidated interim financial statements have been prepared in
accordance with International Financial Reporting Standard (IFRS) 34 Interim
Financial Reporting. They do not include all of the information required for
full annual financial statements and should be read in conjunction with the
consolidated financial statements of the Group as at and for the year ended 31
December 2006.
The accounting policies applied by the Group in these condensed consolidated
financial statements are the same as those applied by the Group in its
consolidated financial statements as at and for the year ended 31 December 2006.
The condensed consolidated interim financial statements are presented in Euro
(€) rounded to the nearest thousand.
3. Goodwill
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December
2006
€'000 €'000 €'000
(Negative) / Positive goodwill arising upon acquisition (1,558) 1,007 1,007
Recognition / (Impairment) of goodwill 1,558 (1,007) (1,007)
- - -
The excess of acquired interest in the net fair value of the purchased
identifiable assets, liabilities and contingent liabilities over cost ("negative
goodwill") in the period relates to the Fabian Four S.R.L. acquisition of
Baneasa Center S.R.L., as further set out in Note 12.
The directors consider that the goodwill arising upon acquisition of the
subsidiaries should be fully recognised / impaired. This is because all the
future expected value from the property is already being recognised as part of
the fair value of the investment property as at acquisition and as at the
balance sheet date.
4. Investment properties
As at As at As at
30 June 2007 30 June 2006 31 Dec 2006
€'000 €'000 €'000
Brought forward 28,400 12,491 12,491
Additions due to business combinations 27,600 12,100 12,100
Revaluation (fair value movement) 2,300 2,000 3,600
Cost to completion - 209 209
58,300 26,800 28,400
At 30 June 2007, the fair value of the investment properties is based on a
valuation performed by the appointed independent valuer, DTZ Echinox. 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.
5. Loan receivables
As at As at As at
30 June 2007 30 June 2006 31 Dec 2006
€'000 €'000 €'000
Moulen Beleggingen BV - 24,998 30,749
Cubic Center Development S.R.L. 5,061 - -
AIG/Lincoln Lakeview S.a.r.L 1,199 - 5,353
6,260 24,998 36,102
The following loan advances and assignments were made during the six months
ended 30 June 2007.
On 27 April 2007, Fabian Five S.R.L. entered into a commitment to purchase the
Cubic Center Development S.R.L. ("Cubic") on completion of the Cubic office
development. On the same day a secured loan of €5 million was made by Fabian
Five S.R.L. to the target. Interest is to be accrued at 7 per cent. per annum.
The loan and interest is repayable in full in four years.
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. The terms and
conditions of the loans remain unaltered from those reported at 31 December
2006. Total loan and interest receivables owing from Moulen in this assignment
were €30,749k and €2,349k respectively.
The shareholder loan receivable from AIG/Lincoln Lakeview S.a.r.L shows a net
decrease over the period. During the period a bank financing facility was
secured to deliver the development project. A tranche was drawn against the
land value and the proceeds used to temporarily pay down the initial shareholder
loans subject to undertakings that these shareholder loans would be made
available again as required for the development project.
6. Investment in Group companies
The subsidiaries of Fabian Romania 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 Finance BV Netherlands 100% Finance 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
Fabian Five S.R.L. Romania 100% Holding Company
Fabian Six S.R.L. Romania 100% Holding Company
Romulex Technology Construct S.R.L. Romania 100% Leasing of owned or rented
properties
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
Baneasa Center S.R.L. Romania 100% Leasing of owned or rented
properties
7. Investments in joint ventures
The Group has the following investments in joint ventures:
Ownership
Country of As at As at As at
incorporation 30 Jun 2007 30 Jun 2006 31 Dec 2006
Phoenix Park S.R.L. Romania 50% - 50%
AIG/Lincoln Lakeview S.a.r.L Luxembourg 50% - 50%
Coltex Invest Construct S.R.L. Romania 50% - -
On 20 June 2007, Cardeka Holdings Limited concluded a share transfer agreement
for a 50 per cent. shareholding in Coltex Invest Construct S.R.L. ("Coltex") and
a shareholder loan of €1 million.
The Group has a 50% interest in joint ventures Phoenix Park S.R.L., AIG/Lincoln
Lakeview S.a.r.L and Coltex Invest Construct S.R.L. whose principal activities
are investment in property. Summary unaudited financial information for equity
accounted investees, not adjusted for the percentage ownership held by the Group
is presented below:
As at Six months to
30 Jun 2007 30 Jun 2007
Current Non-Current Current Non-Current
Assets Assets Total Assets Liabilities Liabilities Revenue Expenses
€'000 €'000 €'000 €'000 €'000 €'000 €'000
Phoenix Park 530 15,279 15,809 1,535 3,714 2 (24)
S.R.L.
AIG/Lincoln 1,641 10,600 12,241 352 13,157 - (500)
Lakeview
S.a.r.L
Coltex Invest 1,637 5,110 6,747 3,126 3,600 - (10)
Construct
S.R.L.
The revenue and expense items for Coltex represent the period from the date of
acquiring an interest on 20 June 2007 to the period end on 30 June 2007.
8. Share capital and premium
As at As at As at
30 Jun 2007 30 Jun 2006 31 Dec 2006
€ € €
Authorised share capital
20 management shares of €1.00 each - 20 -
80 voting shares of €1.00 each - 80 -
10,000,000 investment shares of €0.001 each - 10,000 -
1,000,000,000 investment shares of €0.00001 each 10,000 - 10,000
10,000 10,100 10,000
As at As at As at
30 Jun 2007 30 Jun 2006 31 Dec 2006
€ € €
Issued and fully paid up
20 management shares of €1.00 each - 20 -
80 voting shares of €1.00 each - 80 -
- 100 -
Issued and fully paid up
212,015 investment shares of €0.001 each - 212 -
50,831,130 investment shares of €0.00001 each 508 - 508
Total issued 508 312 508
On 15 December 2006 the Company became listed on AIM. The Company raised
€40,000,000 (before expenses) through the issue of 29,629,630 new ordinary
shares at €1.35 per share.
Prior to the 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:
Voting Management Investment Ordinary Total Shares
Shares Shares Shares Shares
Reconciliation of movement in
number of shares outstanding
Number of shares brought forward as
at 1 Jan 2006 & 1 Jul 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 Dec 2006 & 30 Jun 2007 - - - 50,831,130 50,831,130
As at As at As at
30 Jun 2007 30 Jun 2006 31 Dec 2006
€'000 €'000 €'000
Share premium
212,015 investment shares issued at a
premium of €99.999 each 21,201 21,201 21,201
29,629,630 placement shares of €1.34999 40,000 - 40,000
each
Cost of placement (1,464) - (1,464)
Total Share Premium 59,737 21,201 59,737
9. Long-term borrowings
As at As at As at
30 June 2007 30 June 2006 31 Dec 2006
€ € €
Loan from Moulen Beleggingen BV - 24,999 32,351
Loan from Investkredit Bank AG 31,983 6,683 18,010
31,983 31,682 50,361
The following loans and borrowings were assigned during the six months ended 30
June 2007.
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. The terms and
conditions of the loans remain unaltered from those reported at 31 December
2006. Total loan and interest liabilities owed to Moulen in this assignment were
€30,749k and €2,437k respectively.
On 28 June 2007, Baneasa Center S.R.L. became 100 per cent. owned and the
existing loan from Investkredit Bank AG was consolidated, see 'Note 12.
Acquisition of subsidiaries'. This loan was refinanced after the period end, see
'Note 13. Subsequent events'.
10. Net cash flow from operating activities
Reconciliation of operating profit from continuing operations to net cash flow
from operating activities:
Six months ended Six months ended Year ended
30 June 2007 30 June 2006 31 December
2006
€'000 €'000 €'000
Operating profit for the year/period 2,726 297 1,848
Adjustments for:
Revaluation gains on properties (2,300) (2,000) (3,600)
Goodwill impairment (1,558) 1,007 1,007
Corporate income tax paid (328) (178) (213)
Other non-cash items 66 84 199
Changes in working capital 291 470 1185
Net cash flow from operating activities (1,103) (319) 426
11. Related party transactions
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 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.
Investment management fees are payable quarterly in advance. The fee for the
period 1 January 2007 to 30 June 2007 amounted to €698,046 (1 January 2006 to 30
June 2006: €266,573).
Fees paid to JTC Fund Services Limited, the Group's administrators, amounted to
€118,021 for the period from 1 January 2007 to 30 June 2007 (1 January 2006 to
30 June 2006: €57,705) 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 paid in the period were €30,000 (six months to
30 June 2006: € Nil).
Joint Venture Agreements
On 20 June 2007, Cardeka Holdings Limited completed a share transfer agreement
for a 50 per cent. investment in Coltex Invest Construct S.R.L., a Company
domiciled in Romania. This investee was established for the purpose of
developing and selling real estate residential projects. A loan of €1 million
until 31 December 2007 with interest at 6 per cent. per annum was made pursuant
to a Loan Agreement of the same date.
12. Acquisition of subsidiaries
On 29 June 2007, Fabian Four S.R.L. acquired 100 per cent. of the share capital
of Baneasa Center S.R.L. for cash consideration of €11.704 million. The
acquisition note is set out below. The excess in fair value over costs ("
Negative goodwill") recognised of €1.558 million relates to the reduction in
yields and indexation of rental income during the time elapsing between striking
deal terms struck in July 2006 and closing. This transaction has been accounted
for using the purchase method of accounting.
Fair value
Book Value adjustment Fair Value
€'000 €'000 €'000
Net assets acquired
Investment property 12,019 15,581 27,600
Trade and other receivables 101 - 101
Cash and cash equivalents 1,364 - 1,364
Trade and other payables (95) - (94)
Bank loans (13,215) - (13,215)
Deferred tax liabilities - (2,493) (2,493)
Total net assets 174 13,088 13,262
Excess in fair value over costs (1,558)
Total consideration 11,704
Satisfied by cash 11,704
Net cash flow arising on acquisition
Cash consideration 11,704
Cash and cash equivalent acquired (1,364)
10,340
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 16 May 2007, Fabian Romania Limited purchased Topares Investments BV
("Topares") for €24,000. The company contained €18,000 cash and was deemed to
be acquired at fair value. 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. for a net consideration of €88,172.
On 30 May 2007, Fabian Six S.R.L. entered into a binding commitment to purchase
C.H.F. Investitii S.R.L. for €4.9 million 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. Completion is expected during the
second half of 2007.
13. Subsequent events
On 18 July 2007, Baneasa Center S.R.L. made a drawdown of €19.68 million under
the terms of a new facility with Investkredit Bank AG. The majority of the
proceeds (€13.215 million) were used to repay an existing loan from Investkredit
Bank AG. As a condition of the new loan an interest rate swap was contracted to
fix the Euribor borrowing cost at 4.78 per cent per annum until 30 June 2010.
The new loan has a further spread of 150 basis points bringing the initial fixed
interest rate to 6.28 per cent. par annum. The interest and capital repayments
are made at calendar quarter ends.
On 18 July 2007, Coltex Invest Construct S.R.L. acquired certain plots of land
totalling 1,820 sqm for a consideration of €819k.
Pursuant to the commitment entered into on 27 April 2006 by Fabian Five S.R.L.
to purchase the Cubic Center Development S.R.L. ("Cubic") on completion of the
Cubic office development. A payment of €7.255 million was committed on 4
September 2007 for a 49 per cent. shareholding in Cubic following successful
completion of certain outstanding conditions including fully committed bank
financing sufficient for the fixed price construction contract. This brings the
total commitment to the project to €12.255 million.
14. Net Asset Value
The Net Asset Value ("NAV") and Net Asset Value per Share ("NAVPS") published
quarterly per the Articles of Association uses certain figures which are not
recognised within the accounts under IFRS. The reconciling differences (between
the accounts and NAV and NAVPS) include, inter alia, (i) the Group's
professional valuer, DTZ Echinox, determines the land values for development
projects semi-annually; (ii) deferred tax in relation to the investment property
revaluations which is not expected to crystallise (as set out in the 2006 Annual
Report); (iii) proportional share of cash and bank debt within joint ventures.
The table below sets out joint venture information used within the NAV and NAVPS
as at 30 June 2007 prior to adjusting for percentage ownership.
DTZ land value as at Bank debt as at
30 June 2007 30 June 2007
Joint Venture project: €m €m
Phoenix Park S.R.L. 27.9 3.8
AIG/Lincoln Lakeview S.a.r.L. 16.6 10.6
Coltex Invest Construct S.R.L. 5.9 3.6
Availability of interim report
Copies of the Interim report will be available to the public free of charge from
the office of the Company's investment manager at Fabian Capital Limted, 52
Berkeley Square, London W1J 5BT. A copy of the Interim statement will also be
made available on the Group's website, www.fabianromania.com.
The directors of Fabian accept responsibility for the information contained in
this announcement. To the best of the knowledge and belief of the directors of
Fabian (who have taken all reasonable care to ensure that such is the case) the
information contained in this announcement is in accordance with the facts and
does not omit anything likely to affect the import of such information.
This information is provided by RNS
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