Quarterly Report • Nov 21, 2019
Quarterly Report
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Q3
RomReal is a Company focusing on the Romanian Real Estate market. Established in 2005 it owns premium properties in the Black Sea Constanta region.
| EUR '000 | Q3 2019 | Q3 2018 |
|---|---|---|
| Operating Revenue | 43 | 559 |
| Operating Expenses | (152) | (238) |
| Other operating income/ (expense), net | 46 | (302) |
| Net financial income/(cost) | (171) | (23) |
| Pre-tax result | (235) | (4) |
| Result for the period | (238) | (18) |
| Total assets | 19,572 | 20,800 |
| Total liabilities | 456 | 417 |
| Total equity | 19,117 | 20,397 |
| Equity % | 97.7% | 98.1% |
| NAV per share (EUR) | 0.46 | 0.49 |
| Cash position | 2,490 | 3,685 |
The Net Asset Value (NAV) pre any tax slightly decreased to EUR 19,117,000 at the end of Q3 2019 compared to EUR 19,245,000 at the end of Q2 2019.
| Asset base | Q3 2019 | Q2 2019 | |||||
|---|---|---|---|---|---|---|---|
| EUR '000 | EUR/ share |
NOK/share | EUR '000 | EUR/ share | NOK/share | ||
| Investment property |
11,287 | 0.27 | 2.69 | 10,776 | 0.26 | 2.57 | |
| Assets held for sale |
2,191 | 0.05 | 0.52 | 2,191 | 0.05 | 0.52 | |
| Inventories | 2,492 | 0.06 | 0.59 | 2,492 | 0.06 | 0.59 | |
| Cash | 2,490 | 0.06 | 0.59 | 3,191 | 0.08 | 0.76 | |
| Other assets/(liabilities) |
658 | 0.02 | 0.16 | 594 | 0.01 | 0.14 | |
| Net asset value | 19,117 | 19,245 | |||||
| NAV/Share | 0.46 | 4.55 | 0.47 | 4.58 | |||
| Change in NAV | -0.7% | -0.3% |
The average number shares used in the NAV calculation above is 41,367,783 shares and unchanged from Q2 2019.
The end of year 2018 independent valuation of the Company's property was executed by Knight Frank Romania. The property portfolio was evaluated in accordance with the ANEVAR Valuation Standards 2013, which include the International Valuation Standards, issued by the IVSC in 2011. The valuation also complies with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB); and it is performed in accordance with the RICS Valuation Standards, 8th edition.
| EUR '000 Y/E 2013 | Y/E 2014 | Y/E 2015 | Y/E 2016 | Y/E 2017 | Y/E 2018 | Q3 2019 | |
|---|---|---|---|---|---|---|---|
| Property value | 29,304 | 30,797 | 28,736 | 32,787 | 23,419 | 14,962 | 13,477 |
| NAV | 21,671 | 19,916 | 18,089 | 19,369 | 19,930 | 19,603 | 19,117 |
| Market cap | 7,623 | 7,541 | 7,933 | 11,052 | 12,100 | 11,848 | 9,579 |
| Market cap/NAV | 35% | 38% | 44% | 57% | 61% | 60% | 50% |
| EUR '000 | Q3 2019 | Q3 2018 |
|---|---|---|
| Net cash flow from operating activities | (294) | (284) |
| Net cash flow used in investing activities | (408) | 870 |
| Net cash flows from financing activities | - | - |
| Net cash change during period | (702) | 586 |
Operating cash flow for Q3 2019 was negative EUR 294,000 compared to a negative EUR 284,000 in the same quarter last year. The Q3 2019 net negative change is mainly driven by the operating expenses related to specific land-bank projects. The negative net cash from investing activities includes the investments made to further improve the saleability of other investment properties in the portfolio.
At the beginning of November 2019, the European Bank for Reconstruction and Development (EBRD) revised its forecast for Romania's economic growth upwards this year to 4 percent. Previous EBRD estimates, published in May, indicated an advance of only 3.2 percent for the Romanian economy in 2019. At that time, the institution had reduced the forecast from 3.6 percent, which had been estimated in November 2018. For 2020, the EBRD has maintained the growth forecast for the Romanian economy at 3.2 percent.
A month before, the IMF and World Bank also revised their estimates by forecasting an advance of 4 percent, while the World Bank estimates an increase of 4.2 percent.
The economy grew 3.0% year-on-year in the third quarter, down from the second quarter's 4.4% expansion and marking the weakest acceleration since Q2 2014, according to a flash estimate released by the Statistical Institute. The print undershot analysts' expectations largely due to big GDP data revisions; nevertheless, it exceeded the EU average of 1.3%.
On November 4, the parliament approved a new transitional Government led by National Liberty Party Leader Ludovic Orban, which is expected to be in office until the scheduled general election in November 2020. The first round President election took place 10 November and second round will be done 24 November 2019. The President Klaus Johanis is expected to be re-elected.
The volume of commercial real estate transactions in Romania in the first nine months exceeded EUR 585 million, shows the most recent research report of CBRE. The office market attracted more than half of the investments, Bucharest and Cluj-Napoca being the most dynamic cities, with almost 90 percent of the traded volume.
According to the same study, of total investment, 60% were in Bucharest, 29% in Cluj-Napoca and 11% in other secondary cities. For the last quarter of the year, the volume of investments is estimated to increase by over 40 percent, thus potentially reaching the threshold of EUR 1 billion in total, if the transactions currently in progress will be concluded.
Office market: The first half of 2019 saw deliveries of some 185,000 sqm in Bucharest, taking the city's modern office stock to 2.6 million sqm. This is an increase of over 10% compared to last year's same period stock, making Bucharest the most dynamic among central European capitals. Some of the largest projects were: the new Renault headquarters (47,000 sqm), Business Garden Bucharest (over 41,000 sqm), The Mark and the third phase of Oregon Park (both in the 25,000 sqm area). Occupancy rates at delivery stood as some 75 to 80% on average).
Retail Market: The market expectations are that new supply this year could reach 216,000 sqm, a 50% increase of 2018 and the highest figure since 2011. The main trends noted are the focus on retail parks, developers focusing on cities that would have not been on their radar several years ago. Non-food retail sales went up by 10% in the first 6 months of 2019, the same as the full-year result for 2018. Robust consumer confidence thus far together with strong wage growth is setting the stage for another very good year in terms of retail sales.
Industrial Market: Around 300,000 sqm of new modern storage spaces were delivered in the first half of 2019, of which Bucharest accounted for over 40%. The market continues to be dominated by CTP and WDP, together accounting for over half of the supply. Expectations are that deliveries could reach around half a million sqm by year-end, taking the total to around 4.7 million sqm. Romania continues to look undersupplied relative to CEE peers. A notable transaction was that of Pirelli, which leased 64,000 sqm at a WDP facility in Slatina in one of the biggest deals in recent years.
Land Market: the capital Bucharest and the main secondary cities continue to dominate the market with supply being represented by from former factories, located in semi-central areas. In Bucharest, the few remaining prime plots located in central, high end, residential areas are also sought-after by residential constructors and developers. Investors mainly focused on land plots that have all or most of construction permits required.
Residential Market: Office-to-residential ratio emerges as key indicator for real estate projects in Bucharest in particular. More and more apartments are being delivered in the immediate vicinity of office projects.
The following operational highlights took place during the quarter and up to the interim reporting date:
Lake Side (No.1 on the table) – Works for implementing the roads and utilities commenced in November 2018 and are on-going. The Company has recently finalised negotiations with the gas Company for a satisfactory price. The negotiations with the electricity Company concerning the grid connection is still on-going. The Company has several specific processes for selling plots in the area and signed in November a conditional sale and purchase agreements for 11 plots totalling EUR 550,000. These additional specific cases are not expected to be converted into binding agreements before all regulation items are concluded, including electrical grid connection and a change of existing urbanistic regulations.
Oasis (No. 3 on the table) – The Company is still negotiating with the gas and electricity Company ENEL the costs and conditions for the grid connection of whole area including the blocks built on the site, to be implemented in stages. Meanwhile, the Company more broad marketing and sales activities when the pending regulation and utility issues are further advanced.
Industrial Park (No. 4 on the table) - RomReal agreed in September 2018 a conditional sale of 1.5 hectares to a foreign investor for a total amount of EUR 630,000 to be paid in stages. The Company is presently following the authorisation procedures of the road and utilities, in order to start building the roads and comply with the provisions of sale agreement, as well as attract other investors in the area.
Balada Market (No. 6 on the table) - The sale of whole plot and building have been agreed with a Bucharest investor for a total amount of EUR 2.5m and a down payment of EUR 150,000 is received. The prospective buyer has utilised an option to delay payment/final signing until 17th December 2019.
Badulescu plot (No. 2 on the table) – The New General urbanistic zone planning on this plot has been approved by Ovidiu City Hall in November 2019. The Company has already established sales negotiations with interested investors in the area.
According to the Order no. 1045 of 20.08.2012 issued by the Mayor of Navodari City, it was ordered that the 1,453 sqm surface of land located in Navodari, Constanta County to be expropriated for the cause of public utility necessary for the achievement of local objectives, namely "Black Sea shore layout in the seaside area of the Navodari town - Development of the public utility infrastructure".
It was also established that Terra del Sol (Romanian subsidiary) should receive an indemnity in the amount of 312,850.66 lei (about 67,155 Euro). Given that the local objective has not been and is not expected to be accomplished on the expropriated land, the Company have asked the Court for the restitution of this land. The first instance Court has dismissed our claim based on the higher Court jurisprudence in the sense that the law does not provide such a remedy in case the land is no longer of use to the authorities. The case is at the
moment in the appeal phase of the proceedings. Following the satisfactory application by the Company, the Romanian parliament changed the subject restitution laws.
A new law in this respect has been published in August 2019, ordering local authorities to restore the lands having no plans for public buildings to be built on them. The Company has already served the necessary notifications to Navodari City Hall, and since the request of the Company has been rejected, is presently following the necessary legal steps to recover the plot. Subject to a final solution with the municipality, and subject to solving litigation case, the piece of land is already agreed to be sold to the buyer of the Company's previous Mamaia North plot.
judge during next hearing on 11th December 2019. He is going to be accompanied in his work by a specialised Professor tax expert chosen by the Company.
The Company's land bank consists at the end of Q3 2019 of 6 plots with a total size of 278,290 sqm:
| Plot name | Location | Size (m2) |
|---|---|---|
| 1 Ovidiu Lakeside | Constanta North/Ovidiu | 59,779 |
| 2 Badulescu plot | Constanta North/Ovidiu | 50,000 |
| 3 Ovidiu (Oasis) | Constanta North/Ovidiu | 24,651 |
| 4 Centrepoint | Constanta North/Ovidiu | 121,672 |
| 5 Gunaydin plot | Constanta North/Ovidiu | 15,000 |
| 6 Balada Market | Central Constanta | 7,188 |
| Total | 278,290 |
*(1) Sale agreed, closing still to be completed
Please see below the list of the top 20 shareholders in RomReal as of 15 Nov 2019:
| Rank | Name | Holding | Stake |
|---|---|---|---|
| 1 | SIX SIS AG | 10,331,934 | 24.98% |
| 2 | GRØNSKAG, KJETIL | 4,422,475 | 10.60% |
| 3 | SAGA EIENDOM AS | 3,262,976 | 7.89% |
| 4 | THORKILDSEN DØDSBO, KAY TØNNES | 3,071,656 | 7.43% |
| 5 | THORKILDSEN, WENCHE SYNNØVE | 2,344,100 | 5.67% |
| 6 | AUSTBØ, EDVIN | 2,108,500 | 5.10% |
| 7 | Danske Bank A/S | 1,456,219 | 3.52% |
| 8 | ENERGI INVEST AS | 1,236,948 | 2.99% |
| 9 | ORAKEL AS | 1,101,000 | 2.66% |
| 10 | SPAR KAPITAL INVESTOR AS | 940,236 | 2.27% |
| 11 | THORKILDSEN INVEST AS | 829,478 | 2.01% |
| 12 | PERSSON, ARILD | 718,000 | 1.74% |
| 13 | GRØNLAND, STEINAR | 707,223 | 1.71% |
| 14 | HOEN, ANDERS MYSSEN | 689,557 | 1.67% |
| 15 | Skandinaviska Enskilda Banken S.A. | 604,861 | 1.46% |
| 16 | JONAS BJERG PENSION PLAN, NTS TRUSTEES LTD |
558,306 | 1.35% |
| 17 | SILJAN INDUSTRIER AS | 481,480 | 1.16% |
| 18 | MAGDAHL, AKSEL | 476,456 | 1.15% |
| 19 | CLEARSTREAM BANKING S.A. | 441,703 | 1.07% |
| 20 | BNP Paribas Securities Services | 406,856 | 0.98% |
| TOTAL TOP 20 | 36,189,964 | 87.19% |
(1) This is the Top 20 Shareholder list as per 15 Nov 2019
(2) The total issued number of shares issued at end Q3 2019 was 41,367,783.
(3) Thorkildsen Invest AS is a Company controlled by RomReal Kay Thorkildsen family.
(4) Chairman Kjetil Grønskag owns directly and indirectly 4,422,475 shares corresponding to 10.6%.
(5) The above list is the 20 largest shareholders according to the VPS print out; please note that shareholders might use different accounts and account names, adding to their total holding.
RomReal is focusing on land value enhancing activities in order to improve the shareholder value and exit. This includes, among others, investments to improve the saleability of certain plots and to commence and to some extent conclude regulation processes.
This strategy is deemed sensible and helps to attract and conclude sales agreement with investors. The Company's relatively strong balance sheet is also an edge in order to assist buyers with the financing. The Company is involved in several on-going conditional sales processes.
The condensed consolidated interim financial statements for the second quarter of 2019, which have been prepared in accordance with IFRS as adopted by EU and IAS 34 Interim Financial Reporting, give a true and fair view of the Company's consolidated assets, liabilities, financial position and results of operations. The accounting policies applied in the preparation of the quarterly result are consistent with the principles applied in the financial statements for the year to 31 December 2018. The financial statements have been prepared on a going concern basis.
To information presented in the interim report for the first quarter of 2019 includes a fair review of important events that have occurred during the period and their impact on the condensed financial statements, the principal risks and uncertainties for the remaining of 2019, and major related party transactions.
The interpretations below refer to comparable financial information for Q3 2019 and Q3 2018. They are prepared for RomReal on a consolidated basis and use consistent accounting policies and treatments.
The operating revenue during Q3 2019 was EUR 43,000 compared to a total of EUR 559,000 reported in Q3 2018. This consists of the rent earned by the Company in respect of some of the plots.
Total operating expenses amounted to a negative EUR 152,000 in Q3 2019 compared to a total negative EUR 238,000 in Q3 2018. The main cost element relates to the general and administrative expenses of EUR 102,000. Of the remaining operating expenses, the payroll costs were EUR 51,000, while the Management fees were EUR 24,000.
The other operating income/ (expense) during the quarter were a gain of EUR 46,000, reflecting mainly the movement in the EUR/RON exchange rate.
During Q3 2019, RomReal generated an operating loss of EUR 63,000, compared to a gain of EUR 19,000 in Q3 2018.
Foreign exchange result for Q3 2019 was a net loss of EUR 171,000 compared to a net foreign exchange loss of EUR 23,000 in Q3 2018. During the quarter the RON lost 0.34% to the EUR. The Company's policy is to hedge these effects by retaining most of its cash in Euros and also by denominating all receivables in Euros. Although not reflected from an accounting perspective, practice in real estate is that transactions are denominated in EUR and
RomReal Limited [third quarter 2019] Page 10 of 15
payments made at the exchange rate ruling at the date of payment, hence reducing the risk of cash losses due to exchange rate movements.
The result before tax in Q3 2019 was a loss of EUR 235,000 compared to a loss before tax of EUR 4,000 in Q3 2018.
The Company's cash and cash equivalents position at end of Q3 2019 was EUR 2,490,000 compared to EUR 3,191,000 as at end of Q2 2019. In addition, a total of EUR 1,300,000 in outstanding payments related to binding sales agreements, totalling at about EUR 3.79 million.
| Plot size |
Book value December |
Agreed sale value |
Installments received@ |
To cash |
To cash |
To cash |
|||
|---|---|---|---|---|---|---|---|---|---|
| No | Plot name | Location | (sqm) | 2018(Eur) | (EUR) | 12/11/2019 | 2019 | 2020 | 2021 |
| Bucharest | |||||||||
| 1 | Alexandriei plot | sector 5 | 13,263 | 875,000 | 1,850,000 | 1,700,000 | 150,000 | ||
| Ovidiu | |||||||||
| 2 | Lakeside plot 15 | Constanta | 302 | 33,220 | 58,000 | 35,372 | 22,628 | ||
| Ovidiu | |||||||||
| 3 | Ind Park 3 plots | Constanta | 15,834 | 205,842 | 630,000 | 63,000 | 567,000 | ||
| 4 | Balada market | Constanta | 7,188 | 2,200,000 | 2,500,000 | 150,000 2,350,000 | |||
| Ovidiu | |||||||||
| 5 | Ovidiu Lakeside plot 16 | Constanta | 859 | 94,490 | 163,210 | 32,642 | 48,963 | 81,605 | |
| Ovidiu | |||||||||
| 6 | Ovidiu Lakeside 10 plots | Constanta | 2,153 | 236,830 | 387,540 | 77,508 | 116,262 | 193,770 | |
| Total | 39,599 | 3,645,382 | 5,588,750 | 2,058,522 2,372,628 | 732,225 | 425,375 |
The Company is required to calculate its current income tax at a flat rate of 16%. Starting 2013, based on turnover thresholds, some companies in the Group are subject to a while some are subject to 1% tax calculated on total revenue. This is the case for 7 of the Group companies (1 pays 1% tax and 6 of them 3% tax) while 3 of them are subject to 16% on taxable profits.
The Company accounts for deferred tax on all movements in the fair values of its investment properties at a flat rate of 16%. Any change in the deferred tax liability or change in the deferred tax asset is reflected as an element of income tax in the profit and loss statement. The Company recognises deferred tax asset for the amount of carried forward unused tax losses to the extent that it is probable that future taxable profits will be available against which the unused tax losses can be utilised.
The Company is currently the subject of a tax dispute for a total amount of EUR 1.7 million. The Company assesses the possible obligation as contingent and has therefore not booked any provision in this respect.
| Figures in thousand EUR | ||
|---|---|---|
| Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | |
|---|---|---|---|---|
| Rent revenue | 43 | 53 | 122 | 133 |
| Revenue from sale of assets | 0 | 505 | 58 | 9,222 |
| Operating revenue | 43 | 559 | 181 | 9,356 |
| Payroll expenses | (51) | (42) | (151) | (131) |
| Management fees | (24) | (25) | (76) | (75) |
| Inventory (write off)/reversal | 24 | 1 | 49 | (4) |
| General and administrative expenses | (102) | (171) | (385) | (460) |
| Operating expenses | (152) | (238) | (564) | (670) |
| - | - | |||
| Profit/ (loss) before other operating items | (109) | 321 | (383) | 8,686 |
| Other operating income/(expense), net | 46 | (302) | 224 | (8,175) |
| Profit from operations | (63) | 19 | (159) | 511 |
| Financial income | 1 | 19 | 10 | 23 |
| Financial costs | (3) | (3) | (10) | (10) |
| Foreign exchange, net | (169) | (39) | (906) | (56) |
| - | - | |||
| Result before tax | (235) | (4) | (1,064) | 468 |
| Tax expense | (3) | (14) | (12) | (28) |
| Result of the period | (238) | (18) | (1,076) | 439 |
| Figures in thousand EUR | ||
|---|---|---|
| ASSETS | September 30, 2019 |
December 31, 2018 |
September 30, 2018 |
|---|---|---|---|
| Non-current assets | |||
| Investment properties | 11,287 | 10,222 | 10,507 |
| Property, plant and equipment | 76 | 85 | 75 |
| Deferred tax asset | 119 | 121 | 121 |
| Total non current assets | 11,482 | 10,428 | 10,704 |
| Current assets | |||
| Inventories | 2,492 | 2,504 | 2,690 |
| Other short term receivables | 908 | 1,389 | 1,395 |
| Prepayments | 10 | 29 | 38 |
| Cash and cash equivalents | 2,490 | 3,469 | 3,685 |
| Total current assets | 5,900 | 7,391 | 7,808 |
| Assets held for sale | 2,191 | 2,200 | 2,288 |
| TOTAL ASSETS | 19,572 | 20,020 | 20,800 |
| EQUITY AND LIABILITIES | September 30, 2019 |
December 31, 2018 |
September 30, 2018 |
|---|---|---|---|
| Equity | |||
| Share capital | 103 | 103 | 103 |
| Contributed surplus | 87,117 | 87,117 | 87,117 |
| Other reserves | 160 | 160 | 160 |
| Retained earnings | (69,808) | (69,450) | (69,450) |
| Result of current period | (1,076) | (360) | 439 |
| FX reserve | 2,620 | 2,032 | 2,015 |
| Total equity | 19,117 | 19,603 | 20,397 |
| Non current liabilities | |||
| Deferred income tax | 104 | 100 | 112 |
| Total non current liabilities | 104 | 100 | 112 |
| Current Liabilities | |||
| Other payables | 108 | 124 | 99 |
| Deferred income | 243 | 193 | 176 |
| Tax payable | 0 | 0 | 16 |
| Total current liabilities | 351 | 317 | 290 |
| TOTAL EQUITY AND LIABILITIES | 19,572 | 20,020 | 20,800 |
Figures in thousand EUR
| September 30, 2019 |
December 31, 2018 |
September 30, 2018 |
|
|---|---|---|---|
| Profit for the year | (1,076) | (339) | 439 |
| Other comprehensive income | |||
| Exchange differences on translation of foreign operations | 588 | 284 | 281 |
| Other comprehensive income for the year, net of tax | 588 | 284 | 281 |
| Total comprehensive income for the year, net of tax | (488) | (55) | 720 |
| Figures in thousand EUR | |||
|---|---|---|---|
| September 30, | December 31, | September 30, | |
| 2019 | 2018 | 2018 | |
| Net cash flow from operating activities | (472) | (1,858) | (181) |
| Net cash flow from investing activities | (508) | 1,822 | 465 |
| Net cash flows from financing activities | - | - | - |
| Net cash change during period | (979) | (36) | 284 |
| Cash at beginning of period | 3,469 | 3,505 | 3,505 |
| Cash and cash equivalents at end of the period | 2,490 | 3,469 | 3,789 |
| Figures in thousand EUR | |||
|---|---|---|---|
| September 30, 2019 |
December 31, 2018 |
September 30, 2018 |
|
| Equity at the beginning of the period | 19,603 | 19,930 | 19,930 |
| Result for the period | (1,076) | (339) | 439 |
| Other changes | 590 | 12 | 28 |
| Equity at the end of the period | 19,117 | 19,603 | 20,397 |
RomReal Limited Postal address: Burnaby Building, 16 Burnaby street, Hamilton HM11, Bermuda Telephone: Tel- +1-441-293-6268 Fax +1-441-296-3048 | www.RomReal.com
Visiting address: 54 Cuza Voda street, Constanța, Romania Tel: +40-241-551488 Fax: +40-241-551322
IR Harris Palaondas +40 731123037 | [email protected]
For further information on RomReal, including presentation material relating to this interim report and financial information, please visit www.RomReal.com.
The information included in this Report contains certain forward-looking statements that address activities, events or developments that RomReal Limited ("the Company") expects, projects, believes or anticipates will or may occur in the future. These statements are based on various assumptions made by the Company, which are beyond its control and are subject to certain additional risks and uncertainties. The Company is subject to a large number of risk factors including but not limited to economic and market conditions in the geographic areas and markets in which RomReal is or will be operating, counterparty risk, interest rates, access to financing, fluctuations in currency exchange rates, and changes in governmental regulations. For a further description of other relevant risk factors, we refer to RomReal's Annual Report for 2018. As a result of these and other risk factors, actual events and our actual results may differ materially from those indicated in or implied by such forward-looking statements. The reservation is also made that inaccuracies or mistakes may occur in the information given above about current status of the Company or its business. Any reliance on the information above is at the risk of the reader, and RomReal disclaims any and all liability in this respect.
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