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You are here: Announcement

Thursday 30 June, 2011


RNS Number : 4117J
Argo Real Estate Opportunities Fd
30 June 2011
 



 

AIM code: AREO

30 June 2011

 

 

Argo Real Estate Opportunities Fund Limited

 

(the "Company"/ "AREOF" / "Group")

 

Interim Results for the period to 31 March 2011

 

 

Argo Real Estate Opportunities Fund Limited, the closed-ended investment company formed for the purpose of investing primarily in the commercial property markets of Central and Eastern Europe, today announces its interim results for the period to 31 March 2011.

 

 

Highlights:

 

§ Adjusted NAV per share¹ of €0.1197 (30 September 2010 €0.0875).

 

§ NAV per share of €0.1120 (30 September 2010 €0.0802).

 

§ Profits in the period of €10.8m (31 March 2010 losses €8.9m) including the gain arising from the appreciation of the investment property values of €9.6m.

 

§ The Company is currently implementing a major asset management initiative on its Sibiu Shopping City retail park to attract further leading international tenants and strengthen its income deriving from this asset.

 

§ Banking terms have been successfully renegotiated during the period with several of the asset lending banks whereby amortization and covenant holidays have been agreed to assist the Company while income and asset values recover in the region.

 

 

¹Adjusted NAV is calculated before any deferred tax liability

 

 

Further information:

 

Argo Real Estate Opportunities Fund Limited David Clark, Chairman

 

Nominated Adviser and Broker

+44 (0)1481 735 540

finnCap Limited 

Henrik Persson

Matthew Robinson

 

Joint Broker

Shore Capital Stockbrokers Limited

Edward Mansfield, Dru Danford

 

Financial Public Relations   

Bishopsgate Communications    

Laura Stevens, Giang Nguyen

argo@bishopsgatecommunications.com

+44 (0) 0207 220 0571

 

+44 (0) 207 408  4090  

 

+44 (0) 207 562 3350



ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED - 31 March 2011

CHAIRMAN'S STATEMENT 

 

This report sets out the results for Argo Real Estate Opportunities Fund Limited ("AREOF"/ "Company"/ "Group") covering the 6 month period ended 31 March 2011 and discusses its progress in the ongoing development and active asset management of its retail and mixed-use commercial property investments in Central and Eastern Europe.

 

Financial Performance

 

The NAV per share and Adjusted NAV per share as of 31 March 2011 are €0.1120 and €0.1197 (see Note 4) reflecting an increase of €0.0318 and €0.0322 respectively in the 6 month period since 30 September 2010. This increase has arisen principally from the appreciation of the Group's assets following the slow but steady beginning of the stabilisation process in global economic and financial markets.

 

The financial statements for the period to 31 March 2011 show a profit attributable to equity shareholders of €9.8m which includes a net gain from fair value adjustment on investment properties of €9.6m.

 

Dividend

 

The Board has resolved that the Company will not declare a dividend for the period as it continues to utilise its resources to maximise liquidity within the Company during the current turbulent and hostile trading conditions.

 

Operating Activities

 

The Group has operated over recent months in a particularly challenging and difficult environment in which regional and global property markets have remained weak along with the economic and financing background in general. Nonetheless, the last year has seen a degree of stabilisation when compared with the turmoil that had occurred in these markets in the previous period.

 

Tenants have continued to seek rental concessions which, while provided on a time limited basis, in practice reflect the lower level of sustainable market rents in the current economic climate. The lower level of such incomes continues to impact the Group's cash flow which, whilst being proactively managed, continues to put pressure on the Group's loan covenants. In the instances where covenant breaches have occurred, the effects of such trading environment difficulties have been fully recognised by the relevant banks who continue to fully support the Group's activities. Additionally, they have been willing to renegotiate time limited amortisation and covenant holidays.

 

Despite the difficult trading environment the Company's first investment in the 47,000 sqm Sibiu Shopping City, Romania along with its subsequent 30,000 sqm Phase 3 extension continues to trade with a 98% tenant occupancy, which is pleasing.

 

The first of a two part asset improvement project in Sibiu Shopping Centre in Romania is currently under implementation. The first part of the project includes a new gallery linking the Real and Carrefour hypermarkets together with the relocation of several tenants to make way for C&A and Kiabi to enter the fashion mall in September 2011. The second part of the project will be a new external entrance lobby for the mall which will also be delivered by September 2011.  A further third part to the project will be the build-out of a multiplex cinema leisure offering which is currently under negotiation.

 

The Company's other Romanian investment property, being the 50,000 sqm development undertaken on the Suceava Shopping City, has been similarly impacted by the difficult trading environment along with strong competition within the city. Yet, tenancy occupancy levels remain at 98%, which again is a strong result in this market.

 

The Company's first Ukrainian investment property, the 83,000 sqm Riviera Shopping City, Odessa, completed in phases throughout 2009/10 and includes a 14,000 sqm Obi DIY store,  key anchor tenants including Real Hypermarket, Inditex fashion brands (Zara, Stradivarius, Bershka, Pull & Bear) as well as offering a 12-lane City Bowling leisure complex and a nine-screen IMAX multiplex cinema. Since opening the centre has become an attractive and important regional retail destination, which is reflected in the current letting occupancy of 99%.

 

The Group's previously acquired land assets in Nikolaev, Ukraine and also in and around Chisinau, Moldova, continue to be land banked as development under current economic conditions is not financially viable. Nonetheless, opportunities continue to be sought and appraised in respect of these assets in order to maximize shareholder value.

 

Comprehensive details of all the projects entered into by the Company are further explained in the Investment Manager's report on page 7.

 

Financing Facilities                 

 

The Group has successfully renegotiated and agreed terms with its existing Banks on several of its loans.

 

Alpha Bank has agreed a time limited amortisation holiday and covenant waiver through to April 2012 in order to assist the reduced level of trading income cash flow from Suceava Shopping City to meet its loan obligations.

 

KBC has agreed a time limited amortisation holiday throughout 2011 and covenant waivers for a maximum period up to December 2012. This will provide development cash flow to allow the Group to undertake targeted asset management initiatives that would improve the future tenant cash flow at Sibiu Shopping City.

 

Proton Bank agreed to extend its loan facility that was originally to mature in December 2010 for a further 2 year period.

 

Accounting Practices               

 

The Group has continued to apply International Financial Reporting Standards ("IFRS"), as endorsed for use in the European Union, in the following unaudited consolidated financial statements. The Group's reporting currency is the euro.

 

Shareholder Communication

 

The Investment Manager aims to keep shareholders and other interested parties informed of developments through its website: www.argocapitalproperty.com.

 

Outlook

 

With early signs of recovery in the markets that the Group operates in, principally Central and Eastern Europe, the strength of the recovery has to date been weak and this has continued to impact the level of trading income. However, it is believed that whilst income levels have stabilised the slow but steady recovery will continue and begin to gather momentum towards the end of 2011 and into 2012.

 

Whilst the difficult regional trading environments continue to impact Group cash flow, the future ability of the Company to fund its working capital requirements is dependent on a number of material risks and uncertainties that have been considered by the Directors. This is comprehensively explained more fully in note 2 to the consolidated financial statements.

 

The Board continues to consider a number of ideas as to how the working capital needs of the Group can be fulfilled over the longer term to improve income, cash flow and develop project related initiatives. Possibilities include asset sales, further restructuring of bank borrowings, the raising of additional equity capital or the opportunity to align the Group's interests with a strategic partner.

 

David Clark

Chairman

 

29 June 2011

 

ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED - 31 March 2011

INVESTMENT MANAGER'S REPORT 

 

The Investment Manager implements a focused strategy on behalf of AREOF to create institutional quality retail property assets in leading primary and secondary cities in Central and Eastern Europe with a particular focus on Romania, Ukraine and Moldova.

 

Since its inception in August 2006, the Group has committed and invested all of its original €96m equity capital (net of listing costs) to projects, including the acquisition and subsequent extension of the 80,000 sqm Carrefour, Real and Baumaxx anchored European Retail Park Sibiu, the development of the 50,000 sqm Carrefour and Baumaxx anchored Suceava Shopping City and the construction of the 83,000 sqm Real and Obi anchored Riviera Shopping City in Odessa, Ukraine.

 

The 6 month period to 31 March 2011 has seen a continuation in overall stabilisation of the economic environment, with the number of retailer bankruptcies and new requests for rental concessions decreased, compared to the same period in 2010. Whilst the overall economic weakness remains, retail performance in Ukraine has improved more dramatically than in Romania. Ukraine's much lower level of modern retail shopping centre supply results in the recovery being much more noticeable. We anticipate the continued slow but steady recovery to remain in Ukraine through to the end of 2011 and for 2012, with Romania to begin to see the first signs of material economic improvement in the third and fourth quarters of 2011.

 

The rental concessions provided to date, which contractually are mostly time-limited, would appear in reality to largely reflect the new levels of sustainable rents for the properties. These rental concessions continue to have a negative impact on the cash flow of the Company and are detailed in the Transaction Overviews section. As stated in the previous report, it remains the view of the Investment Manager that the only viable way to increase income from the current levels, and in some cases to protect the rent which is currently passing, is through the implementation of targeted asset management initiatives which have been identified, pre-leased and are also detailed in the Transaction Overviews section. The first major initiative was commenced in February 2011 in Sibiu, with the connection of two phases of the project, creation of three new large units to be occupied by strong international retailers and the redesign and reconfiguration of the shopping centre entrance. Further asset management initiatives have been identified in Suceava and Odessa with financing to date being the key constraint to implementing such initiatives. These initiatives are, however, currently under construction in Sibiu. The Investment Manager is pursuing arrangements with the various lending banks to partially fund the abovementioned projects through amortisation holidays and other cash-generative concessions.

 

Other regional central European property continues to recover, led by Poland and the Czech Republic, whilst the Romanian and Ukrainian markets have yet to see any material improvement largely due to the continued risk-aversion from unleveraged buyers and the unavailability of sizeable debt packages for potential leveraged buyers. However, it is noted that opportunistic investors are returning to, and in some cases newly entering, the Romanian market which is a positive sign for the investment market and future investment yields. The anticipation is that this general improving trend, is following an Eastward progression, and will gather momentum in Romania over the next 12 to 18 months and Ukraine thereafter. Thus enabling a return of more institutional investor interest seeking high quality, well-conceived and tenanted schemes generating yields in excess of those found to the West.

 

The Company has successfully negotiated terms with its asset-lenders in Sibiu and Suceava which provide covenant and cash flow relief for a maximum period up to December 2012. This provides additional time for the assets to recover and enable various cash-generative asset management initiatives to complete.

 

The period has seen an improvement in the value of the Group's assets, resulting in an NAV attributable to equity holders as of 31 March 2011 of €34.7m.  The Group has obtained third party valuations from independent valuers on the portfolio of its property assets as at 31 March 2011, the results of which are reflected in the NAV, and shown in the consolidated financial statements.

 

The primary drivers of the NAV during the period were:

 

i)    the general stabilisation and modest improvement of the Company's markets of operation, and

ii)    the change in fair/market value of the Company's property assets as follows:

-  Sibiu Shopping City: an increase in value of €1.7m,

-  Sibiu Phase 3: the write down of €0.3m,

-  Suceava Shopping City: the write down of €0.4m of which the Group's share amounted to €0.2m,

-  Riviera Shopping City, Odessa: an increase in value of €8.6m,

-  Moldova related assets: an increase in value of €0.7m, and

-  Nikolaev asset: no change in the fair value.

                                                                                                     

In the current commercial environment, the Investment Manager continues to focus on the proactive asset management of the existing properties, management of existing cash flow and the sourcing of funding with a focus on implementing targeted asset management initiatives, in co-operation with our lending banks. Additionally, leveraging the strong retailer demand in the Odessa Riviera project by replacing under-performing, low-rent paying tenants, with stronger retailers on higher rents, remains a priority.

 

Under current market conditions the following risks continue to exist for the Company:

 

i)    Although the project subsidiary companies remain cash flow positive, principally as a result of lender concessions by way of amortisation holidays, the restrictive use of any surplus funds under the terms and conditions of these banking arrangements, means that the negative situation of the Company continues. Further equity or other infusion of cash in the second half of 2011 will be required;

ii)    the potential for a further deterioration in the investment market causing further decreases in capital values, although at current valuations, the Investment Manager does not anticipate the likelihood of further material write downs;

iii)   continued challenges in the local retail environments causing existing tenants to struggle and either go out of business or ask for reductions in rent reducing the Group's income. Again, it is anticipated that we would more likely see a continuation of the current concessions as opposed to deeper allowances being required;

iv)   the occurrence of one or more of the above eventualities creating the requirement of additional capital which would have to be met through a rights issue or other infusion of third party resources.

 

Despite the challenging environment the Company continues to analyse and pursue discrete asset and strategic disposal discussions with a view to pursuing any credible indications of interest.

 

Transaction Overviews

 

European Retail Park Sibiu, Romania

AREOF's initial investment in European Retail Park Sibiu, subsequently renamed Sibiu Shopping City, was made in November 2006, and the Company continues to actively manage this asset.

The retail park was expanded both in 2007 and 2008, with a number of extensions and reconfigurations (known as "Phases 2 and 3").

Specifically, since opening, Sibiu Shopping City has been extended by a total of 30,000 sqm and further fortified its position as the dominant and most successful shopping centre in central Romania. 

The Company is currently implementing an extensive asset management initiative for the property, which includes connecting the Carrefour and Real hypermarkets (Phase 1 & 3 connection), re-designing and expanding the mall entrance, and at a later stage, potentially adding a multiplex cinema. The first two initiatives will be completed by September 2011. We have made considerable progress in this area, having signed leases with leading international operators such as C&A, Kiabi and Domo. In addition, we successfully completed a partial funding of these initiatives with the KBC-led senior lending syndicate on the project in addition to a 1.3m euro loan from the Argo Group.

Current financing arrangements include €66.5m of debt from KBC Bank, fully swapped for five years along with a syndicated, five year investment loan of €27.8m from KBC, Investkredit and Marfin/Laiki Bank.

 

Similar to the financial year ending September 2010, we are continuing to endure the constrained market situation which required an extension of tenant lease discounts, which are, if annualised, some €1.6m in 2011 (for Phase 1, 2 & 3). We continue to proactively manage our tenant relationships to maintain the current level of occupancy, which is currently at 98%. We expect the remainder of 2011 to continue to be tough for retailers but believe that the economy will improve going into 2012.

 

We are continuing to improve on the collections of rental arrears, which peaked in 2010, via an active collection process. However, it is expected that rental collection will continue to be an area of concern, and the Company may need to rely on additional support towards retailers, in terms of discounts, to ensure rental collection rates remain in line with expectations. 

 

The fair/market value of the property as at 31 March 2011 was €78.2m (including €3m Asset Management Initiative) on Phase 1, against a 30 September 2010 valuation of €76.5m; and a 31 March 2011 valuation of €34.2m on Phase 3, against a 30 September 2010 valuation of €34.5m.

 

Suceava Shopping City, Suceava, Romania

 

The 50,000 sqm centre, which is the dominant shopping centre in the city, remains 98% let despite the significant amount of retail competition in the City.  Similar to 2010, current market conditions have required the Investment Manager to maintain the majority of temporary lease discounts for the shopping centre; however, this has enabled us to retain the high level of occupancy noted above. 

 

Rental discounts for 2011, if annualised, would total approximately €1m, and it is anticipated that this will not materially increase during the rest of the year.  Furthermore, the competitive position of the shopping centre has somewhat stabilised, as the retail market matures in Suceava and the centre continues to solidify its position against its direct competitors. However, the overall situation is very fluid and being proactively managed by DTZ with our direct and constant involvement.

 

The current plan remains: to continue stabilising the centre with the DTZ Centre Management team and begin to explore several asset management initiatives to build upon recent notable successes such as the opening of a 1,000 sqm fashion unit for New Yorker in the centre.

 

As strong, international retailers carry on evaluating openings in the city, management continues to assess assets within the preferred location.  Current negotiations are underway with C&A and other reputable retailers for achieving an even stronger tenant portfolio.

 

The project has in place a €50m three year facility with Alpha Bank of Greece.  The Company entered into an agreement with Alpha Bank in January 2011 to restructure the facility which waives its loancovenants and provides an 18 month amortization holiday. This enables the team to focus on effectively operating the centre in order to stabilize income and cash balances, with an expectation of returning to positive loan covenant status.

 

The 31 March 2011 fair/market value was €59.3m against a 30 September 2010 valuation of €59.7m.

 

Riviera Shopping City, Odessa, Ukraine

 

The Company successfully opened Phase 2 of the 83,000 sqm Riviera Shopping City in Odessa on 16 October 2009 featuring a 12,500 sqm Real Hypermarket, Inditex fashion brands Zara, Stradivarius, Bershka and Pull & Bear along with many others. Attendance and retailer sales have exceeded estimates providing comfort to the Company that this location is and will continue to develop as an important and sustainable regional retail destination.

 

Phase 1 of the centre opened in February 2009 with the launch of the 14,000 sqm Obi DIY Store and the third and final phase completed in 2010 with the successful opening of the City Bowling and Leisure Complex along with the Imax Multiplex Cinema.

 

The leasing situation has materially improved and the strong demand amongst retailers for space in the centre has brought the occupancy level to approximately 99%.

 

The Group has fully drawn the €68m Marfin construction facility, which in accordance with the original agreement, converted into a five year investment facility on 17 December 2009. The Company entered into a "stand-still" agreement on selected loan covenants with Marfin, which is reflected in the updated Investment Facility documentation and is in place until June 2011. Given the steadily improving performance of the centre as initial tenant incentives expire and rental income begins to stabilise, the Company forecasts that the property will be able to fully cover both interest and amortisation by the end of the stand-still period.

 

The fair/market value of the property of €87.8m as at 31 March 2011 compares to the 30 September 2010 value of €79.2m demonstrating the relative improvement in the Ukrainian market.

 

Nikolaev, Ukraine, Freehold Development Site

 

The 20 hectare freehold plot is located about 5 km's outside of the city centre on the primary motorway from Odessa and near a future intersection with the planned Nikolaev Ring Road.

 

The Company currently has no immediate development plans for this site, which in the future could accommodate a logistic warehouse park site servicing this important port city or an out of town factory outlet retail project.

 

The freehold land is in ownership of the Company with a fair/market value at 31 March 2011 of €1.0m.

 

Moldova Retail and Mixed Use Development Sites, Chisinau, Republic of Moldova

 

In conjunction with a local partner, the Group is completing the assembly of a retail and mixed-use development site in the historic city centre of Chisinau, the Republic of Moldova's capital.

 

The Group also owns two further potential out-of-town retail and mixed-use sites on prominent motorway locations on the periphery of Chisinau.

 

Although Moldova did successfully carry out parliamentary elections in November 2010, the new government has yet to appoint all of the key city and municipal officials which are critical to the planning and permitting process relating to land and buildings. The Investment Manager has entered into two commercial relationships with local partners for the exploitation of the Company's land assets with the goal of realising equity proceeds from the country over the next 12 months.

 

The Moldovan asset fair/market values as at 31 March 2011, totalled €3.2m against their 30 September 2010 fair/market values of €2.4m.

 

Proton Corporate Loan

 

The Company and Proton contracted a two year extension of the €25m facility, until December 2012, at terms similar to those previously in place. The completed loan documentation for this facility extended beyond the original 20 December maturity date as a result of which Proton agreed to provide a short-term extension facility of €0.9m.

 

Outlook

 

While the Investment Manager does not foresee significant change in terms of recovery of the economic environment in the region, the belief is that the bottom has been reached in terms of economic activity, property valuations and availability of financing. As such, the current asset valuations underpinning the Group's NAV should provide a base for capital value growth over future periods, some of which has already been realized in the Ukrainian asset.

 

The primary challenge remains running the Group on the reduced cash flow from the property assets which stresses both loan covenants and the Group level cash flow. As discussed above, arrangements have been agreed with the primary asset lenders, providing not only partial funding for the much needed income producing asset management initiatives, but also providing a period without covenant pressure to allow markets and rental income to more fully recover.

 

The Investment Manager's core focus over the coming 12 months will be on the effective utilization of the available cash flow to ensure continuing aggressive asset management of its properties, identification and execution of new sources of debt and equity capital, the effective servicing of its debt and the implementation of strategic initiatives that will provide additional income and strengthen the balance sheet of the Company.

 

 

 

 

Robert Provine                                                                        Graeme Daniel

Fund Manager                                                                         Finance Director

 

On behalf of Argo Capital Management Property Limited

 

29 June 2011

 

 

ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED - 31 March 2011

INDEPENDENT REVIEW REPORT

 

Independent review report to Argo Real Estate Opportunities Fund Limited

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2011 which comprises the consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated cash flow statement and the related explanatory notes 1-7.  We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the Directors.  The Directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the six months ended 31 March 2011 is not prepared, in all material respects, in accordance with the basis of preparation outlined in note 2 and in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

Emphasis of Matter - Going Concern

 

In arriving at our review conclusion, which is not qualified, we have considered the adequacy of the disclosures made by the Directors in the Basis of Preparation note 2 concerning the Group's ability to continue as a going concern.  These disclosures identify, amongst other factors, the reliance on the Investment Manager or related companies to the Investment Manager to provide continued financial support to the Group as well as the ongoing support of the lending banks where risks to a breach of terms is possible under the current trading environment. These represent material uncertainties which may cast significant doubt on the Group's ability to continue as a going concern.  The condensed set of financial statements in the interim report does not include the adjustments that would result if the Group was unable to continue as a going concern.

 

 

 

 

BDO Limited

Chartered Accountants

Place du Pré

Rue du Pré

St Peter Port

Guernsey

 

29 June 2011

 

ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the 6 months ended 31 March 2011

 

        


Note


6 months to   31 March 2011

6 months to   31 March 2010

Year ended          30 September 2010




(unaudited)

(unaudited)

(audited)




€'000

€'000

€'000

INCOME






Gross rental income



8,933

9,675

20,970

Related services income



3,049

2,980

5,757

Property operating expenses



(3,966)

(3,425)

(7,326)

Net rental and related income



8,016

9,230

19,401







Changes in fair value of investment property

5


9,569

(13,536)

(17,184)

Changes in fair value of financial assets

6


109

62

(39)

Changes in fair value of assets



9,678

(13,474)

(17,223)

EXPENSES






Investment manager's management fee



(1,000)

(1,000)

(2,000)

Legal and professional fees



(235)

(199)

(259)

Accounting and administration expenses



(299)

(250)

(518)

Auditors' remuneration



(94)

(97)

(188)

Directors' fees and expenses



(74)

(87)

(154)

Sundry expenses



(18)

(14)

(36)




(1,720)

(1,647)

(3,155)

Operating profit/(loss)



15,974

(5,891)

(977)

NET FINANCING (EXPENSE)/INCOME






Bank Interest Income



164

144

403

Loan Interest Income



130

622

840

Fair value gain/(loss) on swap contract



2,910

(266)

1,314

Finance costs



(8,153)

(6,752)

(14,784)

Net foreign exchange (loss)/gain



(411)

1,720

1,698

Net financing expense



(5,360)

(4,532)

(10,529)

PROFIT/(LOSS) BEFORE TAXATION



10,614

(10,423)

(11,506)







Taxation



136

1,573

1,280

PROFIT/(LOSS) FOR THE PERIOD



10,750

(8,850)

(10,226)













OTHER COMPREHENSIVE INCOME





Foreign exchange gains/(losses) on translation of foreign operations



80

(159)

(69)







Total other comprehensive income



80

(159)

(69)







TOTAL COMPREHENSIVE INCOME



10,830

(9,009)

(10,295)







 

All items in the above statement derive from continuing operations.

 

The accompanying notes are an integral part of this statement.

 

ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (continued)

For the 6 months ended 31 March 2011

 


Note


6 months to   31 March 2011

6 months to   31 March 2010

Year ended          30 September 2010




(unaudited)

(unaudited)

(audited)




€'000

€'000

€'000







Profit/(loss) attributable to :






Equity shareholders



9,802

(6,460)

(8,337)

Non-controlling interest



948

(2,390)

(1,889)




10,750

(8,850)

(10,226)







Total comprehensive income attributable to :






Equity shareholders



9,873

(6,641)

(8,416)

Non-controlling interest



957

(2,368)

(1,879)




10,830

(9,009)

(10,295)







Basic and diluted earnings per share

3


0.032

(0.023)

(0.028)

 

All items in the above statement derive from continuing operations.

 

The accompanying notes are an integral part of this statement.

 

ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 March 2011


Note


31 March 2011

31 March 2010

30 September 2010




(unaudited)

(unaudited)

(audited)




€'000

€'000

€'000

ASSETS






Non-current assets






Investment properties

5


254,612

249,323

243,870

Property, plant and equipment



171

121

152

Tax Receivables



7,046

10,394

8,869

Trade and other receivables



4,435

                        -

3,330

Total non current assets



266,264

259,838

256,221







Current assets






Trade and other receivables



7,372

6,992

8,100

Tax receivables



1,737

700

1,631

Financial assets at fair value through profit or loss

6


9,779

9,434

9,610

Cash and cash equivalents



3,661

10,622

4,416

Total current assets



22,549

27,748

23,757

Total assets



288,813

287,586

279,978







EQUITY






Capital and reserves attributable to equity holders of the parent company






Share capital

7


3,100

3,100

3,100

Share premium

7


7,859

7,859

7,859

Other reserve



95,096

95,096

95,096

Translation reserve



(1,584)

(1,758)

(1,655)

Retained earnings



(69,737)

(77,662)

(79,539)

Total equity attributable to equity holders of the parent company



34,734

26,635

24,861

Non-controlling interest



12,564

11,119

11,607

Total equity



47,298

37,754

36,468







LIABILITIES






Non-current liabilities






Bank loans



223,323

153,351

151,290

Deferred income tax



4,407

4,146

4,396

Total non-current liabilities



227,730

157,497

155,686







Current liabilities






Bank loans



3,276

75,121

75,357

Trade and other payables



8,606

10,690

7,488

Financial liabilities



1,906

6,397

4,816

Current income tax



(3)

127

163

Total current liabilities



13,785

92,335

87,824

Total equity and liabilities



288,813

287,586

279,978







 

The financial statements were approved and authorised for issue by the Board of Directors on               29 June 2011 and signed on its behalf by David Clark and Robert Brown.

 

The accompanying notes are an integral part of this statement.

 

 

ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

As at 31 March 2011

 

Group











Amount attributable to Parent Company Equity Holders




Share          Capital

Share Premium

Other Reserve

Revaluation
Reserve

Translation Reserve

Retained
Earnings

Total

Non-controlling interest

Total


€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000

€'000











At 1 October 2009

1,000

         -

95,096

          -

(1,577)

(71,202)

23,317

13,487

36,804

Other comprehensive income

        -

         -

        -

          -

     (78)

            -

       (78)

            9

         (69)

Result for the year

        -

         -

        -

          -

        -

     (8,337)

   (8,337)

     (1,889)

   (10,226)

Total comprehensive income  for the year

        -

         -

        -

          -

     (78)

    (8,337)

   (8,415)

     (1,880)

   (10,295)

Shares issued in the period

2,100

7,859

        -

          -

        -

            -

9,959

            -

9,959

At 30 September 2010

3,100

7,859

          -

(1,655)

(79,539)

24,861

11,607

36,468

Other comprehensive income

        -

         -

        -

          -

      71

            -

         71

            9

          80

Result for the period

        -

         -

        -

          -

        -

      9,802

     9,802

         948

     10,750

Total comprehensive income  for the period

        -

         -

        -

          -

71

9,802

9,873

957

10,830

At 31 March 2011

3,100

7,859

95,096

          -

(1,584)

(69,737)

34,734

12,564

47,298











At 1 October 2009

1,000

         -

95,096

          -

(1,577)

(71,202)

23,317

13,487

36,804

Other comprehensive income

        -

         -

        -

          -

    (181)

            -

(181)

          22

(159)

Result for the period

        -

         -

        -

          -

        -

     (6,460)

(6,460)

     (2,390)

(8,850)

Total comprehensive income  for the period

        -

         -

        -

          -

    (181)

    (6,460)

   (6,641)

     (2,368)

     (9,009)

Shares issued in the period

2,100

7,859

        -

          -

        -

            -

9,959

            -

9,959

At 31 March 2010

3,100

7,859

95,096

          -

(1,758)

(77,662)

26,635

11,119

37,754

 

 

The accompanying notes are an integral part of this statement

 

ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED

UNAUDITED CONDENSED CONSOLIDATED CASH FLOW STATEMENT

For the 6 months ended 31 March 2011


Note

6 months to   31 March 2011

6 months to   31 March 2010

Year ended      
   30 September 2010



(unaudited)

(unaudited)

(audited)



€'000

€'000

€'000

OPERATING ACTIVITIES










Profit/(loss) for the period


10,750

(8,850)

(10,226)






Adjustments for :





Depreciation


21

17

32

Changes in fair value of investment property

5

(9,569)

13,536

17,184

Impairment of financial assets

6

(109)

(62)

39

Net financing expense


4,918

5,796

11,719

Exchange translation movements


71

(181)

(78)

Taxation


(136)

(1,573)

(1,280)






Operating cash flows before movements in working capital


5,947

8,683

17,390






Movements in working capital :





Decrease/(increase) in operating trade and other receivables


784

(3,631)

(5,899)

Increase/(decrease) in operating trade and other payables


1,366

(23)

(4,756)






Cash generated from operations


8,097

5,029

6,735






Interest received


                     -

295

403

Interest paid


(7,711)

(8,057)

(15,916)

Taxation paid


(10)

(4)

(12)






Cash generated from operating activities


376

(2,737)

(8,790)






INVESTING ACTIVITIES










Purchase of investment properties


(607)

(48)

(1,028)

Purchase of property, plant and equipment


(39)

(8,554)

(5,618)

Loans advanced


(5)

(13)

(24)

Loans repaid


                     -

236

393






Cash flows from investing activities


(652)

(8,379)

(6,277)






FINANCING ACTIVITIES










Proceeds from ordinary shares issued


                     -

9,959

9,959

Drawdown of bank loans including costs


900

3,900

3,900

Bank loans repaid


(903)

(1,920)

(3,854)






Cash flows from financing activities


(3)

11,939

10,005






Increase in cash and cash equivalents


(279)

823

(5,062)






Cash and cash equivalents at start of period


4,416

11,188

11,188






Net foreign exchange difference


(476)

(1,389)

(1,710)






Cash and cash equivalents at 31 March 2011


3,661

10,622

4,416






The accompanying notes are an integral part of this statement.

 

ARGO REAL ESTATE OPPORTUNITIES FUND LIMITED - 31 March 2011

NOTES TO THE UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

 

1. GENERAL INFORMATION

 

The Company is a limited liability, authorised closed-ended investment company incorporated in Guernsey. The shares of the Company have been admitted to trading on the Alternative Investment Market of the London Stock Exchange.

 

The Company invests in commercial property in Central and Eastern Europe which is held through its subsidiary companies. The consolidated financial statements of the Company for the period ended 31 March 2011 comprise the financial statements of the Company and its subsidiaries (together referred to as the "Group").

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

a. Basis of preparation

 

The principle accounting policies adopted in the preparation of the unaudited condensed interim consolidated financial statements are set out below.

 

The unaudited condensed interim consolidated financial statements have been prepared using the recognition and measurement principles of International Financial Reporting Standards (with the exception of IAS 34, Interims) which comprise standards and interpretations approved by the International Accounting Standards and Standings Committee that remain in effect and to the extent that they have been adopted by the European Union. These interim financial statements are unaudited but have been reviewed by the auditors whose review report is set out on page 12.

 

The same accounting policies, presentation and methods of computation are followed in these interim consolidated financial statements as those followed in the preparation of the Group's annual financial statements for the year ended 30 September 2010 and which are expected to be applied for the consolidated financial statements for the year ending 30 September 2011.

 

The report of the auditors on the financial statements for the year ended 30 September 2010 was unqualified but did include references to an emphasis of matter in respect of the going concern of the Group. This arose from its need for further working capital in the second quarter of 2011 and the breach of certain banking covenants requiring specific loans to be reported as falling due for payment within one year despite the good relationship and ongoing support of the banks concerned.

 

The unaudited condensed interim consolidated financial statements have been prepared on a going concern basis which assumes that the Group will be able to meet its liabilities as they fall due, for the foreseeable future. Under the current depressed economic conditions in the local markets in which the Group operates, the Investment Manager has sought to renegotiate where possible existing bank loan facilities to minimise the short term cash commitments whilst rental income begins to stabilise. Therefore, removing the need to provide material tenant discounts, as growth once again returns within these markets. While these actions have helped to improve the immediate and future cash position, the cash flow forecasts prepared by the Investment Manager for the next 12 months indicate that the Group requires additional working capital for the foreseeable future; this requirement is currently being provided by the Investment Manager or funds advised by a fellow subsidiary of the Investment Manager's parent company. Firstly, by its agreement to defer receiving its management fee as and when it becomes due; secondly, in providing a short term loan facility to assist with specific project funding needs and thirdly, by providing an undertaking to provide additional working capital over the next 12 months, as and when this is required.

 

In order to meet the liabilities and those specifically falling due to the Investment Manager's and/or its related companies' provision of ongoing support to the Group, as well as to enhance working capital, the Company is looking at a number of sources including asset sales, additional or further restructuring of bank borrowings and the  issue of additional equity capital.

 

In reviewing the forecasts the Directors have taken into account material risks and uncertainties, including the following:

 

·        The continued and ongoing support of the Investment Manager and related companies to the Investment Manager to the funding needs of the Company is critical to enable its obligations to be met over the next 12 months;

·        Certain surplus cash funds are held in project subsidiary companies and the release of these funds for use of the Group's working capital needs in general would, in some circumstances, require the support of the specific lending banks financing these projects.

·        The uncertainties facing property valuations in the current difficult economic and financial markets. In the event that property valuations should again deteriorate it is likely that the Group could strain financial loan covenants. Breaches of such covenants would provide the lenders with the right, if they should choose, to request early repayment of outstanding borrowings.  

The above represent material uncertainties which may cast significant doubt on the Group's ability to continue as a going concern. In the Directors' view discussions are continuing on the above satisfactorily and they have therefore concluded that it is appropriate to prepare these financial statements on a going concern basis.  The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

The condensed financial statements are presented in euros and all values are rounded to the nearest thousand (€'000) except when otherwise indicated.

 

The financial information summarised does not constitute statutory accounts.

 

b. Basis of consolidation

 

The consolidated financial statements incorporate the results of the Company and entities controlled by the Company (its subsidiaries) made up to 31 March 2011. Control exists where the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. All inter-company loan balances, interest charges and investments are eliminated on consolidation.

 

The financial statements of the subsidiaries are prepared for the same reporting period as the Company. The accounting policies are applied consistently throughout the Group.

 

3. BASIC AND DILUTED EARNINGS PER SHARE

 

The basic and diluted earnings per ordinary share are based on the profit for the period of €9.8m and on 310 million ordinary shares (31 March 2010: loss €6.46m and 284.6 million ordinary shares), being the weighted average number of shares in issue during the period.

 

There were no dilutive interests as at 31 March 2011.

 

4. NET ASSET VALUE PER SHARE

 

The Net Asset Value per share is based on shareholders' equity at the period end as follows:

 


31 March 2011

31 March 2010

30 September 2010


           €'000

       €'000

           €'000





Net Asset Value

34,734

26,635

24,861





Add back deferred tax provision attributable to equity shareholders

2,361

2,238

2,257





Adjusted Net Assets

37,095

28,873

27,118













Number of ordinary shares in issue

310 million

310 million

310 million













Net Asset Value per share

 €0.1120

 €0.0859

 €0.0802





Adjusted Net Asset Value per share

 €0.1197

 €0.0931

 €0.0875

 

The adjustment added back to arrive at the Adjusted Net Asset Value has been made to reflect the likely value of the Group given that the deferred tax liability provided is unlikely to crystallise in full as the Group is likely to dispose of the property holding companies rather than the properties themselves.

 

5. INVESTMENT PROPERTY

 


31 March 2011

31 March 2010

30 September 2010


       €'000

       €'000

          €'000

Carrying value








At 1 October 2010

243,870

181,504

181,504

Reclassification of development
property

                     -

77,268

77,268

Capital expenditure during the period

1,173

48

1,028

Reclassification of lease incentives

                     -

                     -

(2,700)

Land Acquisitions

                     -

4,039

3,954

Fair value write down

9,569

(13,536)

(17,184)





At 31 March 2011

254,612

249,323

243,870









Adjustment from fair value to carrying value








Fair value

262,482

251,393

252,321

Adjustment for rent recognised in advance

(7,870)

(2,070)

(8,451)





At 31 March 2011

254,612

249,323

243,870





 

The fair value of the Group's investment properties at 31 March 2011 has been determined by desktop valuations carried out on an open market basis by independent valuers, DTZ and Jones Lang LaSalle, in accordance with the requirements of the  Appraisal and Valuation Manual,       6th Edition published by the Royal Institution of Chartered Surveyors.

 

Open market value, deemed to be fair value, is determined by reference to market based evidence, which is the amount for which the asset could be exchanged between a knowledgeable willing buyer and seller, in an arms' length transaction. The valuation methodology involves the discounted cash flow of the future rental income streams and a reversionary value discounted to a present value estimate and/or the capitalisation of the rental income stream at an all risks market yield to determine the present value. It also includes an assessment of the recent open market sales and investments within the Central and Eastern European regions.

 

6. FINANCIAL ASSETS

 


31 March 2011

31 March 2010

30 September 2010


       €'000

       €'000

          €'000





Loans receivable

10,962

10,622

10,902

Recoverability impairment provision

(1,183)

(1,188)

(1,292)






9,779

9,434

9,610

 

 

Loans receivable represents advances, deposits and related accrued interest for purchases of land in Moldova of 0.9m secured on land assets, together with a loan in Romania of €8.9m unsecured. Desktop valuations arrived at on an open market value basis, carried out by independent valuers, DTZ, have been carried out on the land assets in Moldova.

 

7. SHARE CAPITAL AND PREMIUM

 

 

The total number of authorised shares is 450 million (2010: 450 million) with a par value of €0.01 each (2010: €0.01 each). All issued shares are fully paid.

 

The Company has only one class of ordinary shares which carry no right to fixed income.

 

 


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