Quarterly Report • May 23, 2018
Quarterly Report
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Q1
RomReal is a Company focusing on the Romanian Real Estate market. Established in 2005 it owns premium properties in Constanta and Bucharest.
• Net Asset value was EUR 0.48 (NOK 4.71) per share, 0.8 per cent lower compared to quarter 4 2017. The year-end 2017 valuation was concluded by Knight Frank 15 February 2018, therefore there were no further changes made to the value of the investment properties during the quarter.
| EUR '000 | Q1 2018 | Q1 2017 |
|---|---|---|
| Operating Revenue | 6,779 | 50 |
| Operating Expenses | (231) | (196) |
| Other operating income/ (expense), net | (6,620) | (2,565) |
| Net financial income/(cost) | (21) | (237) |
| Pre-tax result | (93) | (285) |
| Result for the period | (148) | (284) |
| Total assets | 21,151 | 33,745 |
| Total liabilities | 1,381 | 14,597 |
| Total equity | 19,770 | 19,148 |
| Equity % | 93.5% | 56.7% |
| NAV per share (EUR) | 0.48 | 0.46 |
| Cash position | 3,789 | 843 |
The Net Asset Value (NAV) decreased to EUR 19,770,000 at the end of Q1 2018 compared to EUR 19,930,000 at the end of Q1 2017.
| Asset base | Q1 2018 | Q4 2017 | ||||
|---|---|---|---|---|---|---|
| EUR '000 | EUR/ share |
NOK/share | EUR '000 | EUR/ share | NOK/share | |
| Investment property |
13,655 | 0.33 | 3.25 | 13,627 | 0.33 | 3.24 |
| Assets held for sale |
436 | 0.01 | 0.10 | 7,103 | 0.17 | 1.69 |
| Inventories | 2,690 | 0.07 | 0.64 | 2,690 | 0.07 | 0.64 |
| Cash | 3,789 | 0.09 | 0.90 | 3,505 | 0.08 | 0.83 |
| Other assets/(liabilities) |
(799) | (0.02) | (0.19) | (6,995) | (0.17) | (1.66) |
| Net asset value | 19,770 | 19,816 | ||||
| NAV/Share | 0.48 | 4.71 | 0.48 | 4.74 | ||
| Change in NAV | -0.8% | +8.7% |
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 Y/E 2011 | Y/E 2012 | Y/E 2013 | Y/E 2014 | Y/E 2015 | Y/E 2016 | Y/E 2017 | Q1 2018 | |
|---|---|---|---|---|---|---|---|---|
| Property value | 37,363 | 33,842 | 29,304 | 30,797 | 28,736 | 32,787 | 23,419 | 16,781 |
| NAV | 26,837 | 19,930 | 21,671 | 19,916 | 18,089 | 19,369 | 19,930 | 19,770 |
| Market cap | 5,335 | 1,520 | 7,623 | 7,541 | 7,933 | 11,052 | 12,100 | 11,848 |
| Market cap/NAV | 20% | 8% | 35% | 38% | 44% | 57% | 61% | 60% |
| Property value / NAV / Market cap (EUR '000) |
| EUR '000 | Q1 2018 | Q1 2017 |
|---|---|---|
| Net cash flow from operating activities | (181) | (172) |
| Net cash flow used in investing activities | 465 | 278 |
| Net cash flows from financing activities | - | 30 |
| Net cash change during period | 283 | 136 |
Operating cash flow for Q1 2018 was negative EUR 181,000 compared to a negative EUR 172,000 in the same quarter last year. The cash flow from investing activities during the quarter represents the partial payments in respect of the sales agreements for the Mamaia North and the partial payment following the sale of the un-zoned land.
Romania went up one place to become the 16th largest economy in the European Union (EU) in 2017. With the highest economic growth rate in the EU, of 7%, Romania surpassed Greece, according to data from Eurostat.
Romania's gross domestic product (GDP) reached almost EUR 188 billion, namely 1.2% of EU's total GDP. Greece had a GDP of EUR 178 billion in 2017
However, the growth witnessed in the 18 last months has started to slow down, with the first quarter of 2018 flat compared to the last quarter of 2017 and a 4% increase compared with the similar period last year, the slowest growth rate since 2016.
Official forecast suggests GDP will increase by 6.1% in 2018 and by 5.0-5.7% per year on medium term. Increases in salaries and currency depreciation are anticipated to generate
RomReal Limited [first quarter 2018] Page 4 of 14
a 3.7% increase in prices over 2018 to influence the level of interest rates and mortgages volumes.
Romania attracted foreign direct investment (FDI) worth EUR 1.38 billion in the first quarter of this year, up by 21% compared to the same period of last year, according to Romania's National Bank (BNR).
According to a report of Active Property Services, the 2017 volume of activity in the construction sector decreased by 5.4%, being affected by a massive 21.3% drop in engineering constructions as public investments allocations were decreased. However, the volume of new constructions grew by 4.9% and residential buildings saw a 69.7% jump in investments value.
Office market: Office sector reached a mature stage of development, characterized in 2017 by record volumes of new demand, deliveries of multi-phase business parks and strong pipeline development across the main cities, coupled with decreasing vacancies and stable rents. Bucharest accounted for office deliveries of 147,800 sqm GLA last year, a level slightly above last 8 years average, but 44% below the same period record of 2016 (265,000m2).
Retail Market: Retail sector followed a positive trend during Q1 2018, marked by growing sale densities, active demand coming from all sectors and new entrants, coupled with decreasing vacancy rates. A limited volume of new completions was reported, on both the shopping centre and retail park markets. A 10.7% increase in retail sales for the second year, maintained a widely spread optimism in the market, influencing both tenants and landlords/developers, with effects on the market fundamentals. Non-food sales jumped by 13.2% year/year, while food sales recorded a 6.8% growth.
Industrial Market: Demand reached an all-time record in 2017, with the take-up volume increasing by 70%, according to market reports. A number of 80 major leasing transactions were reported, totalling 730,000 sqm. Logistics operators, retail chains and automotive companies represented the main sources of demand. Prime rents have average levels of 3.5-4.0 Euro/sqm. Lower levels (3.25-3.50 Euro/sqm are recorded for large leases outside Bucharest, while levels of 4.00-4.25 Euro/sqm are mainly found in Bucharest area.
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: The local market made further steps to recover the losses in volumes / prices from 2009-2013, helped by the economic growth and the state First House program. A new residential supply of 53,301 units was completed last year in Romania according to the preliminary data from the National Institute of Statistics, representing a 2% annual increase and the fourth consecutive year of growth. Prices of medium-profile apartments during Q1 2018, reached levels of 700-950 Euro/net sqm across county capitals of above 100,000 inhabitants, respectively 900-1,200 Euro/net per m2 in regional capitals such as Brasov, Constanta and Iasi.
The following operational highlights tool place during the quarter:
Lake Side –The plot is presently divided in small plots suitable for house building and small blocks. The approvals for the new PUZ (urbanistic zone planning) have been finalised in 2017 summer. The architects and engineers are presently doing the design and utilities for the roads building approval. It would be necessary to build and sell around 6 houses in order for the approval of electricity/gas connection be approved. As soon as the building authorisations for the roads and utilities will be obtained, the Company will need to commence building the roads and utilities in order to increase saleability of the plots in the area.
Oasis –The plot will also be parcelled into small plots suitable for house building and small blocks. Steps have been also taken to single out the plots under the 4 villas with a plan to put them up for sale – the PUZ (urbanistic zone planning) is currently in progress. The erected villas were registered in the Land Book Registry. Efforts are done at present to connect the villas to the utilities and thereafter to sell them. It is expected that the new PUZ (urbanistic zone planning) will be finally approved in Q3 2018. As soon as the building authorisations is issued the Company should commence building roads and utilities in order the increase the likelihood of sales of the area.
Industrial Park-Centrepoint 12 ha - The approvals for the new PUZ have been completed in Q1 2018, approval from Ovidiu City Hall have been obtained. As soon as the building is obtained the Company will need to commence building the roads and utilities in order to increase the attractiveness of the project.
5 hectars plot (Badulescu plot)/Commercial park - New PUZ (urbanistic zone planning) on this plot has been commenced by the Company in order to regulate the area as a commercial one in Ovidiu. It is estimated that the new urbanistic plan will be finalised in Q1 2019.
The Company's project bank consists at the end of Q1 2018 of 8 plots with a total size of 1,086,812 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 |
| 8 Carrefour plot *(1) | Constanta SOLD | 15,000 |
| 7 Alexandriei plot | Bucharest Sector 5 | 13,263 |
| 8 Un-zoned land | Constanta | 795.259 |
| Total | 1,086.812 |
*(1) Sale agreed, closing still to be completed
Please see below the list of the top 20 shareholders in RomReal as of 16 May 2018:
| Shareholder | Holding | Percentage |
|---|---|---|
| SIX SIS AG 25PCT ACCOUNT | 10,336,154 | 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 |
| SILJAN INDUSTRIER AS | 481,480 | 1.16 |
| CLEARSTREAM BANKING | 438,483 | 1.06 |
| MAGDAHL AKSEL | 410,000 | 0.99 |
| BNP Paribas Securiti S/A SPEARPOINT LTD | 406,856 | 0.98 |
| GRØNLAND STEINAR | 400,263 | 0.97 |
| TOP 20 | 35,172,721 | 85 |
(1) This is the Top 20 Shareholder list as per 16 May 2018.
(2) The total issued number of shares issued at end Q1 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 maximise shareholder value. This means, among others, increased sales & marketing efforts, if required some infrastructure investments and engaging more resources into regulation processes. The Company expects further properties in the project-bank to be sold during 2018.
The Company is fully financed without any external debt, and when/if certain additional disposals are realised, a potential re-distribution of cash to the shareholders should become realistic.
The financial statements for the Q1 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 Q1 2018 and Q1 2017. They are prepared for RomReal on a consolidated basis and use consistent accounting policies and treatments.
The operating revenue during Q1 2018 was EUR 6,779,000 compared to a total of EUR 2,713,000 reported in Q1 2017. This consists mainly of the finalization of the sale of the remaining Mamaia North plot and for which payment was partially received in instalments.
Total operating expenses amounted to a negative EUR 231,000 in Q1 2018 compared to a total EUR 196,000 in Q1 2017. Out of these, the payroll costs were EUR 43,000, while general and administration costs in connection with the running of the Group amounted to EUR 158,000.
The other operating income/ (expense) during the quarter were a loss of EUR 6,620,000, reflecting mainly the derecognition from the Company's books of the Mamaia North plot for which the sale was completed during the quarter.
During Q1 2018, RomReal generated an operating loss of EUR 72,000, compared to a loss of EUR 48,000 in Q1 2017.
The Company no longer has interest costs in respect of third party finance providers. However, it did collect interest in respect of the vendors' credit note issued in the favour of the buyer for part of the Mamaia North plot. This amounted to EUR 2.188 during Q1 2018.
Foreign exchange result for Q1 2018 was a net loss of EUR 22,000 compared to a net foreign exchange loss of EUR 140,000 in Q1 2017. During the quarter the RON gained 0.05% 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 Q1 2018 was a loss of EUR 93,000 compared to a loss before tax of EUR 285,000 in Q1 2017.
The Company's cash and cash equivalents position at end of Q1 2018 was EUR 3,789,000 compared to EUR 3,505,000 as at end of Q4 2017. In addition, a total of EUR 419,974 in outstanding payments related to binding sales agreements, totalling at about EUR 4.2 million.
By 15 May 2018, outstanding agreed cash is according to payment schedule reduced to about EUR 420,000.
| No | Plot name | Location | Plot size (sqm) |
Book value September 2017(Eur) |
Agreed sale value (EUR) |
Installments received@ 15/05/2018 |
To cash |
|---|---|---|---|---|---|---|---|
| 9 | Un-zoned land |
Constanta North/Ovidiu |
864,534 | 389,000 | 625,058 | 205,084 | 419,974 |
| Total | 864,534 | 389,000 | 625,058 | 205,084 | 419,974 |
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.
By the end of Q1 2018, the Company had outstanding deferred tax liabilities of EUR 989,342. The last installment related to the Mamaia North plot sellers credit was paid by the purchaser in April as agreed. The payable tax EUR 989,342 was paid in April 2018.
The Company's fully owned Romanian subsidiary has recently engaged in on-going discussions with the Tax Authorities. If this results in a tax claim, the Company will vigorously defend its tax position.
| Q1 2018 | Q1 2017 | |
|---|---|---|
| Rent revenue | 40 | 50 |
| Revenue from sale of assets | 6,739 | 2,663 |
| Operating revenue | 6,779 | 2,713 |
| Payroll expenses | (43) | (42) |
| Management fees | (25) | (25) |
| Inventory (write off)/reversal | (5) | 6 |
| General and administrative expenses | (158) | (135) |
| Operating expenses | (231) | (196) |
| - | ||
| Profit/ (loss) before other operating items | 6,548 | 2,517 |
| Other operating income/(expense), net | (6,620) | (2,565) |
| Profit from operations | (72) | (48) |
| Interest income | 4 | 0 |
| Interest costs | (3) | (97) |
| Foreign exchange, net | (22) | (140) |
| - | ||
| Result before tax | (93) | (285) |
| Tax expense | (55) | 1 |
| Result of the period | (148) | (284) |
| Figures in thousand EUR | |||
|---|---|---|---|
| -- | -- | ------------------------- | -- |
| ASSETS | March 31, 2018 | December 31, 2017 |
March 31, 2017 |
|---|---|---|---|
| Non-current assets | |||
| Investment properties | 13,655 | 13,627 | 14,047 |
| Property, plant and equipment | 85 | 90 | 17 |
| Deferred tax asset | 121 | 121 | 124 |
| Total non current assets | 13,861 | 13,838 | 14,188 |
| Current assets | |||
| Inventories | 2,690 | 2,690 | 2,527 |
| Other short term receivables | 321 | 325 | 10,848 |
| Prepayments | 55 | 43 | 43 |
| Cash and cash equivalents | 3,789 | 3,505 | 843 |
| Total current assets | 6,854 | 6,562 | 14,260 |
| Assets held for sale | 436 | 7,103 | 5,297 |
| TOTAL ASSETS | 21,151 | 27,503 | 33,745 |
| EQUITY AND LIABILITIES | March 31, 2018 | December 31, 2017 |
March 31, 2017 |
| Equity | |||
| Share capital | 103 | 103 | 103 |
| Contributed surplus | 87,119 | 87,119 | 87,117 |
| Other reserves | 425 | 425 | 425 |
| Retained earnings | (69,450) | (69,178) | (69,180) |
| Result of current period | (148) | (272) | (284) |
| FX reserve | 1,743 | 1,734 | 969 |
| Retained earnings | (69,450) | (69,178) | (69,180) |
|---|---|---|---|
| Result of current period | (148) | (272) | (284) |
| FX reserve | 1,743 | 1,734 | 969 |
| Total equity | 19,770 | 19,930 | 19,148 |
| Non current liabilities | |||
| Deferred income tax | 157 | 1,091 | 850 |
| Total non current liabilities | 157 | 1,091 | 850 |
| Current Liabilities | |||
| Bank debt | - | - | 11,600 |
| Shareholder loan | - | - | 500 |
| Other payables | 128 | 117 | 139 |
| Deferred income | 107 | 6,363 | 260 |
| Tax payable | 990 | 1 | 1,248 |
| Total current liabilities | 1,224 | 6,482 | 13,747 |
| TOTAL EQUITY AND LIABILITIES | 21,151 | 27,503 | 33,745 |
| March 31, 2018 | December 31, 2017 |
March 31, 2017 |
|
|---|---|---|---|
| Profit for the year | (148) | (272) | (284) |
| Other comprehensive income | |||
| Exchange differences on translation of foreign operations | 9 | 833 | 68 |
| Other comprehensive income for the year, net of tax | 9 | 833 | 68 |
| Total comprehensive income for the year, net of tax | (139) | 561 | (216) |
Figures in thousand EUR
Figures in thousand EUR
| March 31, 2018 | December 31, 2017 |
March 31, 2017 |
|
|---|---|---|---|
| Net cash flow from operating activities | (181) | (2,992) | (172) |
| Net cash flow from investing activities | 465 | 17,868 | 278 |
| Net cash flows from financing activities | - | (12,077) | 30 |
| Net cash change during period | 283 | 2,798 | 136 |
| Cash at beginning of period | 3,505 | 707 | 707 |
| Cash and cash equivalents at end of the period | 3,789 | 3,505 | 843 |
| Figures in thousand EUR | |||
|---|---|---|---|
| March 31, 2018 | December 31, 2017 |
March 31, 2017 |
|
| Equity at the beginning of the period | 19,930 | 19,369 | 19,369 |
| Result for the period | (148) | (272) | (284) |
| Other changes | (12) | 833 | 63 |
| Equity at the end of the period | 19,770 | 19,930 | 19,148 |
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 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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