Quarterly Report • Aug 31, 2018
Quarterly Report
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Q2
RomReal is a Company focusing on the Romanian Real Estate market. Established in 2005 it owns premium properties in Constanta.
• Net Asset value was EUR 0.49 (NOK 4.86) per share, 3.2 per cent higher compared to Q1 2018. There were no changes made to the value of the investment properties during the quarter.
| EUR '000 | Q2 2018 | Q2 2017 |
|---|---|---|
| Operating Revenue | 1,894 | (48) |
| Operating Expenses | (201) | (806) |
| Other operating income/ (expense), net | (1,128) | 24 |
| Net financial income/(cost) | 7 | (2) |
| Pre-tax result | 565 | (800) |
| Result for the period | 605 | (801) |
| Total assets | 20,727 | 24,817 |
| Total liabilities | 329 | 6,443 |
| Total equity | 20,399 | 18,376 |
| Equity % | 98.4 | 74% |
| NAV per share (EUR) | 0.49 | 0.46 |
| Cash position | 3,099 | 2,523 |
The Net Asset Value (NAV) increased to EUR 20,399,000 at the end of Q2 2018 compared to EUR 19,770,000 at the end of Q1 2018.
| Asset base | Q2 2018 | Q1 2018 | ||||
|---|---|---|---|---|---|---|
| EUR '000 | EUR/ share |
NOK/share | EUR '000 | EUR/ share | NOK/share | |
| Investment property |
12,725 | 0.31 | 3.03 | 13,655 | 0.33 | 3.25 |
| Assets held for sale |
275 | 0.01 | 0.07 | 436 | 0.01 | 0.10 |
| Inventories | 2,690 | 0.07 | 0.64 | 2,690 | 0.07 | 0.64 |
| Cash | 3,099 | 0.07 | 0.74 | 3,789 | 0.09 | 0.90 |
| Other assets/(liabilities) |
1,609 | 0.04 | 0.38 | (799) | (0.02) | (0.19) |
| Net asset value | 20,399 | 19,770 | ||||
| NAV/Share | 0.49 | 4.86 | 0.48 | 4.71 | ||
| Change in NAV | 3.2% | -0.8% |
The average number shares used in the NAV calculation above is 41,367,783 shares and unchanged from Q1 2018.
The end of year 2017 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 | Q2 2018 | Q2 2017 |
|---|---|---|
| Net cash flow from operating activities | (1,085) | (2,182) |
| Net cash flow used in investing activities | 395 | 15,970 |
| Net cash flows from financing activities | - | (12,107) |
| Net cash change during period | (690) | 1,681 |
Operating cash flow for Q2 2018 was negative EUR 181,000 compared to a negative EUR 172,000 in the same quarter last year. The large operating cash flow during the quarter is due to the EUR 988,000 tax paid in respect of the gains realised on the sale of Mamaia North. The net cash from investing activities includes the receipt of the down payment related to the sale of the Hospital plot as well as some outflows related to the ongoing asset base improvement investments.
Romania's economic growth slowed to 4.1% year-on-year in the second quarter of 2018, compared to 6.1% annual growth in the like quarter of 2017, non-adjusted provisional data of the country's statistical board, INS, indicated on 21 Aug 2018.
On a seasonally adjusted annual comparison basis, Romania's gross domestic product (GDP) growth decelerated to an annual 4.2% from 6.1% in the second quarter of last year, INS data showed. Compared to the previous quarter, Romania's GDP increased by 1.4%.
In the six months through June, Romania's economy grew by 4.2% on the year in nonadjusted terms and by a seasonally adjusted 4%, INS data showed. In the first quarter of the year, Romania's economy expanded by 4%.
Economic growth of 5.5% and budget deficit equivalent to 2.96% of GDP are forecast in Romania's 2018 state budget.
Romania's economy expanded by 6.9% year-on-year in 2017.
The end of the first semester has brought into light great results from regional cities in all real estate segments, according to the real estate consultancy company Colliers International Romania, with the prospects for the remainder of the year remaining strong. The first half of the year closed with overall investment volumes of EUR 404m, an increase of close to 18 percent compared to the first semester of 2017.
Office market: In the first semester of 2018, the Bucharest market saw deliveries of 33,000 sqm in new office spaces, and over 150,000 sqm are expected for the remainder of the year. Regional cities were more active, with Timisoara and Cluj-Napoca adding around 72,000 sqm of modern office spaces.
Retail Market: The first half of 2018 saw the delivery of Bistrita Retail Park – 15,000 sqm and Focsani Value Center – 6,400 sqm. The second half of the year should be much more prolific, with around 168,000 sqm in new GLA. Vacancy was almost non-existent for good retail schemes, as existing brands expanded and new brands entered the market.
Industrial Market: In the first semester, 330,000 sqm in modern warehouse spaces were delivered (excluding self-developed warehouse spaces), more than double the level of the same period in 2017. Bucharest accounted for over 110,000 sqm, mostly in western and northern areas, Timisoara had 38,000 sqm and Pitesti and Ploiesti had 20,000 sqm each. The reported industrial leasing transactions were a bit under 110,000 sqm; the Colliers specialists believe that direct (and as such, unreported transactions) make up a significant part of the market, with vacancy still in low single digits.
Land Market: The supply of land plots suitable for good development projects is expected to decrease, while demand is growing for land plots appropriate for residential and office use. Taking into consideration the deliveries on the office sector, and also the fact that companies need to expand in secondary cities, office developers are likely to buy land and develop in cities where their tenants want to expand and open new offices, such as Timisoara, Cluj and Iasi.
Residential Market: Residential market followed a positive path over the first half of 2018 and has made further steps to recover the losses in volumes / prices from 2009-2013. Prices of medium-profile apartments reached levels of 700-950 Euro/net sqm across county capitals of above 100,000 inhabitants, respectively 900-1,200 Euro/net sqm in regional capitals such as Brasov, Constanta and Iasi.
The following operational highlights took place during the quarter:
Lake Side (No.1 on the table) –The plot is being split in small plots suitable for house building and small blocks. Please see www.westhouseGroup.ro for further info. The new Planning Permission (PUZ) has been approved by Ovidiu City Hall on 2nd August 2017. The Company is presently starting projecting the roads and utilities on the site in order to request the Urbanization Certificate and obtain the building authorisations for the roads and utilities. Building authorisation for roads has been obtained middle August 2018 and the rest of building authorisations for utilities are estimated to be obtained before end 2018. Works for implementing the roads and utilities is expected to commence in Q4 2018. In order to obtain the necessary authorisations for gas connection in the area it will be necessary at least 6 houses be built on the site.
The infrastructure costs are estimated to EUR 1.5-1.6m.
Oasis (No. 4 on the table) –The plot will be divided in small plots suitable for house building and small blocks. The 4 villas built in 2009 are presently being connected to utilities with a view to put them up for sale and the Planning Permission (PUZ) is currently in progress. The houses are registered in the Land Book Registry. It is expected that the new Planning Permission (PUZ) will be approved in Q3 2018.
Industrial Park (No. 5 on the table) - The approvals for the new PUZ have been obtained. The Company has appointed architects and engineers to start projecting roads and utilities on the site in order to obtain the building authorisations for the roads and utilities. Several companies have shown specific interest to acquire parcels in the property.
Balada Market (No. 7 on the table) - The Company have upgraded the electrical installation and the firefighting equipment in order to comply with the requirements of the National Safety Inspectorate. There are ongoing discussions with the National Safety Inspectorate in order the final approval to be granted.
Badulescu plot (No. 2 on the table) - New urbanistic zone planning on this plot has been commenced by the Company in order to regulate the area as a commercial one in Ovidiu town. It is estimated that the new urbanistic plan would be finalised in Q1 2019
Extraordinary tax claim: As briefly mentioned in the first quarter 2018 report, during the latest routine tax audit performed at the level of RomReal Romanian subsidiary Westhouse Group, covering the period 1 January 2011 – 31 December 2016, the tax authorities reassessed the loans granted by RomReal Ltd. to Westhouse Group as contribution to share capital instead of inter-company loans. In this respect, the Company received the tax audit report ("Tax Report") and the corresponding tax assessment decision ("Tax Decision"), whereby the tax authorities imposed an extraordinary tax-bill on the Company, in excess of EUR 1.7m (including penalties), as profit tax for the period covered by the tax audit. On 05.06.2018, Westhouse Group was notified of the Taxation Decision.
Westhouse Group has retained the services of E&Y Romania and pursued all available legal means for challenging the effects of such reassessment, in order to cancel the additional tax liabilities. In addition, the Company has proceeded with a legal request to Romanian competent Courts, asking the suspension of the Tax decision, pending the result of the contestation and until a binding Court decision regarding the contestation is obtained. On 18th July 2018 the Company managed to obtain the suspension of the Tax Authority Decision, until a binding Court decision regarding the contestation is obtained. The Constanta Court of Appeal ordered that no attachments to the bank accounts and/or lands belonging to Westhouse Group should take place in the meantime.
The Company's land bank consists at the end of Q2 2018 of 7 plots with a total size of 1,073,549 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 |
| 7 Un-zoned land | Constanta | 864,534 |
| Total | 1,073,549 |
*(1) Sale agreed, closing still to be completed
Please see below the list of the top 20 shareholders in RomReal as of 20 August 2018:
| Shareholder | Holding | Percentage |
|---|---|---|
| SIX SIS AG 25PCT ACCOUNT | 10,336,054 | 24.99 |
| GRØNSKAG KJETIL | 4,038,449 | 9.76 |
| SAGA EIENDOM AS | 3,162,383 | 7.64 |
| THORKILDSEN DØDSBO KAY TØNNES | 3,071,656 | 7.43 |
| THORKILDSEN WENCHE SYNNØVE | 2,344,100 | 5.67 |
| AUSTBØ EDVIN | 2,108,500 | 5.10 |
| Danske Bank A/S 3887 OPERATIONS SEC. | 1,452,995 | 3.51 |
| ORAKEL AS | 1,101,000 | 2.66 |
| ENERGI INVEST A/S | 1,055,993 | 2.55 |
| SPAR KAPITAL INVESTO | 940,236 | 2.27 |
| THORKILDSEN INVEST A | 829,478 | 2.01 |
| PERSSON ARILD | 718,000 | 1.74 |
| HOEN ANDERS MYSSEN | 689,557 | 1.67 |
| Skandinaviska Enskil | 628,832 | 1.52 |
| JONAS BJERG PENSION NTS TRUSTEES LTD | 558,306 | 1.35 |
| GRØNLAND STEINAR | 533,726 | 1.29 |
| SILJAN INDUSTRIER AS | 481,480 | 1.16 |
| MAGDAHL AKSEL | 465,000 | 1.12 |
| CLEARSTREAM BANKING | 438,583 | 1.06 |
| BNP Paribas Securities S/A SPEARPOINT LTD | 406,856 | 0.98 |
| TOTAL TOP20 | 35,361,184 | 85 |
(1) This is the Top 20 Shareholder list as per 20 August 2018.
(2) The total issued number of shares issued at end Q2 2018 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 4,288,179 shares corresponding to 10.4%.
(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. This includes, among others, increased sales & marketing efforts, if required some infrastructure investments and engaging more resources into regulation processes. The ongoing tax dispute adds uncertainty and reduces the financial flexibility. The Company is involved in several on-going sales processes and expects reportable conclusions before the end of 2018.
The financial statements for the Q2 2018 report have been prepared in accordance with IAS 34 – Interim Financial Reporting. The quarterly result has been prepared in accordance with the current IFRS standards and interpretations. 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 2017. The financial statements have been prepared on a going concern basis.
The interpretations below refer to comparable financial information for Q2 2018 and Q2 2017. They are prepared for RomReal on a consolidated basis and use consistent accounting policies and treatments.
The operating revenue during Q2 2018 was EUR 1,894,000 compared to a total of negative / correction EUR 48,000 reported in Q2 2017. This consists mainly of the finalization of the sale of the Hospital plot in Bucharest and for which a down payment was received.
Total operating expenses amounted to a negative EUR 201,000 in Q2 2018 compared to a total EUR 806,000 in Q2 2017. Out of these, the payroll costs were EUR 46,000, while general and administration costs in connection with the running of the Group amounted to EUR 131,000.
The other operating income/ (expense) during the quarter were a loss of EUR 1,128,000, reflecting mainly the derecognition from the Company's books of the Hospital plot for which the sale was completed during the quarter.
During Q2 2018, RomReal generated an operating profit of EUR 564,000, compared to a loss of EUR 830,000 in Q2 2017.
The Company no longer has interest costs in respect of third party finance providers. Foreign exchange result for Q2 2018 was a net gain of EUR 4,000 compared to a net foreign exchange gain of EUR 32,000 in Q2 2017. During the quarter the RON lost 0.03% against 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 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 Q2 2018 was a loss of EUR 565,000 compared to a loss before tax of EUR 800,000 in Q2 2017.
The Company's cash and cash equivalents position at end of Q2 2018 was EUR 3,099,000 compared to EUR 3,789,000 as at end of Q1 2018. In addition, a total of EUR 1,350,000 in outstanding payments related to binding sales agreements, totalling at about EUR 4.4 million.
| No | Plot name | Location | Plot size (sqm) |
Book value June 2018(Eur) |
Agreed sale value (EUR) |
Installments received@ 17/08/2018 |
To cash 2018 |
To cash 2019 |
To cash 2021 |
|---|---|---|---|---|---|---|---|---|---|
| Bucharest | |||||||||
| 1 | Alexandriei plot | sector 5 | 13,263 | 875,000 | 1,850,000 | 600,000 | 500,000 | 600,000 | 150,000 |
| Total | 13,263 | 875,000 | 1,850,000 | 600,000 | 500,000 | 600,000 | 150,000 |
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.
Figures in thousand EUR
| Q2 2018 | Q2 2017 | YTD 2018 | YTD 2017 | |
|---|---|---|---|---|
| Rent revenue | 40 | 46 | 80 | 96 |
| Revenue from sale of assets | 1,854 | (94) | 8,593 | 10,903 |
| Operating revenue | 1,894 | (48) | 8,673 | 10,999 |
| Payroll expenses | (46) | (47) | (89) | (89) |
| Management fees | (25) | (25) | (50) | (50) |
| Inventory (write off)/reversal | 1 | 2 | (4) | 7 |
| General and administrative expenses | (131) | (736) | (289) | (871) |
| Operating expenses | (201) | (806) | (432) | (1,003) |
| - | ||||
| Profit/ (loss) before other operating items | 1,693 | (854) | 8,241 | 9,996 |
| Other operating income/(expense), net | (1,128) | 24 | (7,748) | (10,875) |
| Profit from operations | 564 | (830) | 492 | (879) |
| Financial income | (0) | 13 | 4 | 13 |
| Financial costs | (3) | (15) | (6) | (112) |
| Foreign exchange, net | 4 | 32 | (18) | (108) |
| - | ||||
| Result before tax | 565 | (800) | 472 | (1,086) |
| Tax expense | 40 | (1) | (15) | (1) |
| Result of the period | 605 | (801) | 457 | (1,087) |
| Figures in thousand EUR | |||
|---|---|---|---|
| -- | -- | ------------------------- | -- |
| ASSETS | June 30, 2018 | December 31, 2017 |
June 30, 2017 |
|---|---|---|---|
| Non-current assets | |||
| Investment properties | 12,725 | 13,627 | 14,032 |
| Property, plant and equipment | 80 | 90 | 43 |
| Deferred tax asset | 121 | 121 | 124 |
| Total non current assets | 12,927 | 13,838 | 14,199 |
| Current assets | |||
| Inventories | 2,690 | 2,690 | 2,525 |
| Other short term receivables | 1,691 | 325 | 236 |
| Prepayments | 45 | 43 | 37 |
| Cash and cash equivalents | 3,099 | 3,505 | 2,523 |
| Total current assets | 7,526 | 6,562 | 5,321 |
| Assets held for sale | 275 | 7,103 | 5,297 |
| TOTAL ASSETS | 20,727 | 27,503 | 24,817 |
| EQUITY AND LIABILITIES | June 30, 2018 | December 31, 2017 |
June 30, 2017 |
|---|---|---|---|
| Equity | |||
| Share capital | 103 | 103 | 103 |
| Contributed surplus | 87,117 | 87,119 | 87,117 |
| Other reserves | 160 | 425 | 425 |
| Retained earnings | (69,450) | (69,178) | (69,180) |
| Result of current period | 457 | (272) | (1,086) |
| FX reserve | 1,999 | 1,734 | 997 |
| Total equity | 20,399 | 19,930 | 18,376 |
| Non current liabilities | |||
| Deferred income tax | 114 | 1,091 | 849 |
| Total non current liabilities | 114 | 1,091 | 849 |
| Current Liabilities | |||
| Other payables | 106 | 117 | 91 |
| Deferred income | 106 | 6,363 | 5,502 |
| Tax payable | 3 | 1 | 1 |
| Total current liabilities | 215 | 6,482 | 5,594 |
| TOTAL EQUITY AND LIABILITIES | 20,728 | 27,503 | 24,817 |
| Figures in thousand EUR | |||
|---|---|---|---|
| June 30, 2018 | December 31, 2017 |
June 30, 2017 | |
| Profit for the year | 457 | (272) | (284) |
| Other comprehensive income | |||
| Exchange differences on translation of foreign operations | 265 | 833 | 68 |
| Other comprehensive income for the year, net of tax | 265 | 833 | 68 |
| Total comprehensive income for the year, net of tax | 722 | 561 | (216) |
Figures in thousand EUR
| June 30, 2018 | December 31, 2017 |
June 30, 2017 | |
|---|---|---|---|
| Net cash flow from operating activities | (1,266) | (2,992) | (2,354) |
| Net cash flow from investing activities | 860 | 17,868 | 16,248 |
| Net cash flows from financing activities | - | (12,077) | (12,077) |
| Net cash change during period | (406) | 2,798 | 1,817 |
| Cash at beginning of period | 3,505 | 707 | 707 |
| Cash and cash equivalents at end of the period | 3,099 | 3,505 | 2,524 |
| Figures in thousand EUR | |||
|---|---|---|---|
| June 30, 2018 | December 31, 2017 |
June 30, 2017 | |
| Equity at the beginning of the period | 19,930 | 19,369 | 19,369 |
| Result for the period | 457 | (272) | (1,086) |
| Other changes | 12 | 833 | 93 |
| Equity at the end of the period | 20,399 | 19,930 | 18,376 |
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, Constanta, 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 2017. 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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