Quarterly Report • Nov 26, 2015
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 Constanta and Bucharest.
Net Asset value was EUR 0.46 (NOK 4.50) per share at the end of Q3 2015, a 1.2% decrease compared to the end of Q2 2015.
Previous CEO Mr. Thorkildsen passed away on October 25 and the funeral took place in his home town Kristiansand, Norway on November 6th, 2015. Mr. Thorkildsen has been the CEO for most of the Company's history, and his effort, loyalty and contribution was significant. In a release October 20th, 2015, Mr. Adrian Cristea was appointed Interim CEO. Mr. Cristea has been RomReal's legal advisor since its formation in 2005.
| EUR '000 | Q3 2015 | Q3 2014 | YTD 2015 | YTD 2014 |
|---|---|---|---|---|
| Operating Revenue | 139 | 61 | 1,400 | 363 |
| Operating Expenses | (248) | (221) | (665) | (682) |
| Other operating income/ (expense), net |
(512) | (160) | 735 | (319) |
| Net financial income/(cost) | 864 | 350 | 563 | 652 |
| Pre-tax result | 243 | (2) | (280) | (370) |
| Result for the period | 283 | 31 | (288) | (296) |
| Total assets | 31,039 | 33,463 | 31,039 | 33,463 |
| Total liabilities | 11,840 | 12,534 | 11,840 | 12,534 |
| Total equity | 19,198 | 19,916 | 19,198 | 19,916 |
| Equity % | 61.9% | 61.4% | 61.9% | 61.4% |
| NAV per share (EUR) | 0.46 | 0.51 | 0.46 | 0.51 |
| Cash position | 1,031 | 652 | 1,031 | 652 |
The Net Asset Value (NAV) was reduced from EUR 19,428,000 in Q2 2015 to EUR 19,198,000 by the end of this quarter. The decrease in NAV is explained mainly by currency effects related to the Company's use of RON as operating currency and EUR as reporting currency.
| Asset base | Q3 2015 | Q2 2015 | ||||
|---|---|---|---|---|---|---|
| EUR '000 |
EUR/share | NOK/share | EUR '000 |
EUR/share | NOK/share | |
| Investment property |
27,339 | 0.66 | 6.41 | 27,363 | 0.66 | 5.69 |
| Inventories | 2,300 | 0.06 | 0.54 | 2,399 | 0.06 | 0.50 |
| Cash | 1,031 | 0.01 | 0.24 | 303 | 0.01 | 0.06 |
| Other assets/(liabilities) |
(11,471) | (0.28) | (2.69) | (10,636) | (0.26) | (2.21) |
| Net asset value | 19,198 | 19,428 | ||||
| NAV/Share | 0.46 | 4.50 | 0.47 | 4.04 | ||
| Change in NAV | -1.2% | -1.3% |
The average number shares used in the NAV calculation above is 41,367,783 shares.
The Company has not made any changes to the value of the investment property as compared to the end of 2014. The end of year 2014 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, as published by the Royal Institution of Chartered Surveyors (RICS) in March 2012.
| EUR '000 Y/E 2011 | Y/E 2012 | Y/E 2013 | Y/E 2014 | Q1 2015 | Q2 2015 | Q3 2015 | |
|---|---|---|---|---|---|---|---|
| Property value | 37,363 | 33,842 | 30,827 | 30,797 | 30,833 | 29,762 | 29,638 |
| NAV | 26,837 | 19,916 | 19,916 | 19,916 | 19,685 | 19,428 | 19,198 |
| Market cap | 5,335 | 1,520 | 7,623 | 7,541 | 8,438 | 10,053 | 9,166 |
| Market cap/NAV | 20% | 8% | 38% | 38% | 43% | 52% | 48% |
| EUR '000 | Q3 2015 | Q3 2014 | YTD 2015 | YTD 2014 |
|---|---|---|---|---|
| Net cash flow from operating | ||||
| activities | (115) | (112) | (416) | (412) |
| Net cash flow used in investing | ||||
| activities | 844 | 157 | 1,833 | (731) |
| Net cash flows from financing | ||||
| activities | - | (157) | (893) | 1,414 |
| Net cash change during period | 729 | (112) | 524 | 271 |
Operating cash flow for Q3 2015 was negative EUR 115,000 compared to negative EUR 112,000 in the same quarter last year. During the quarter, the Company divested the Svenska Handelsbanken bond for a total amount of EUR 726,000 while the remaining investing cashflow is related to the divestments of the plots in Tatar Peninsula. For YTD 2015, the key components of investing cash flow are the sale of the Svenska Handelsbanken bond and the proceeds from the sale of the Brasov plot.
As the end of Q3 2015 the Company's consolidated interest-bearing debt amounted to EUR 11,585,000, representing principal amount of EUR 10,549,000 and interest accrued to
RomReal Limited third quarter 2015 Page 4 of 14
date of EUR 1,036,000. The loan is secured with the Company's plots, and it has an interest rate of EURIBOR + 300 bp. The loan falls due November 27, 2015. After the close of the quarter, the Company has declared its option to extend the loan for a one year period. The Company has left one remaining one year option. The Company expects the loan extension process to close in November/December.
The table below shows the interest bearing debt for RomReal Ltd as at end Q3 2015 and estimated at maturity:
| EUR '000 | End Q3 2015 | 30 Nov 2015 |
|---|---|---|
| Principal (Alpha Bank loan) | 10,549 | 10,549 |
| Accrued Interest | 1,036 | 1,122* |
| Total | 11,585 | 11,671 |
*Estimated based on current Euribor levels and considering post end of quarter prepayment using the proceeds from the sale of the Brasov plot.
Macro-economic development in Romania continues to follow a positive route. During the third quarter, GDP increased by 3.6%. Economists expect GDP to come in around 3.5% for 2015 and they expect the growth to continue in 2016 with 3.7% growth. Unemployment continues to stay low at 6.8%.
As a result of reduced VAT rate for food and lower energy prices, inflation went into negative territory at -1.7 per cent in September 2015, thus significantly below central bank's target of 1.5-3.5 per cent in 2014 and 2015. However, the core inflation rate continues to stay around 1.5% (1.4% in September).
The NBR has recently (November) decided to maintain the policy rate at the historically low level of 1.75 per cent decided in May.
During the quarter, The Prime Minister Ponta was charged with corruption, and in November he resigned. A new "technocrat" PM, Mr. Dacian Cioloș has already formed a government that will govern until late 2016 when a new election is scheduled. Despite increased political risks, most experts keep their favourable outlook for the Romanian market.
The transaction volume in the real estate market continues the strong trend from 2014 although the total volume is expected to come somewhat off. The underlying construction work volume continues to increase rapidly. Construction work increased 10.5% for the first three quarters compared with last year, and segments of construction types increased. Non-residential developments increased by 8.6% versus a 6.7% increase in residential buildings.
The office stock to be delivered in the main cities of Romania (Cluj, Timisoara, Iasi and Brasov) during 2015 is estimated at 96,000 sqm, thus some 50% more than 2014. The main
drivers of demand are mainly related to technology and telecommunication companies followed by manufacturing and industrial ones. With 124,500 sqm of modern office stock, Iasi is the second largest office market besides Bucharest. The average rent for prime office space outside Bucharest is 12-15 euros / sqm month.
This market segment witnesses the highest degree of optimism in terms of new deliveries with total stock estimated to exceed 3 million sqm by the end of the year, according to a study of DTZ Echinox. Around 60% of the market is represented by shopping malls. Of the new deliveries, NEPI is expected to be the beneficiary of around two thirds of it. An additional driver of new retail space will be the continuous expansion of the FMCG networks with the market leader Kaufland continuing to be the most active having announced 9 new openings.
Two large transactions marked the start of 2015 in the industrial building market; the Czech CTP developer acquiring the Cefin Arad and Mercury logistic parks and the acquisition of the portfolio of logistic developments of CA Immo by P3. At the beginning of November, Blackstone acquired the regional portfolio of Immofinanz for EUR 508 million. The transaction is expected to close in Q1 2016. The deal includes assets located in Germany and Romania. In Romania the transaction entailed the sale of three logistic parks in Ploiesti, Timisoara and Pantelimon, valued at EUR 22.6 mln, and over 110 ha of land devoted to industrial construction in several cities.
The brokers in the market indicate an increased investors' and developers' interest in land transactions and as opposed to previous years when the main buyers were the retailers, this year more and more transactions are done with a view to develop either office or residential projects. Among the largest transaction, the acquisition of a 14 hectares plot of land located in east Bucharest, by local investors with a view to develop a real estate project. Another large transaction was the recent acquisition by Ikea of a plot of land in east Bucharest in a transaction estimated at EUR 15-20 million.
The residential market is in a recovery phase. During the third quarter of 2015, building permits for houses and apartment buildings rose 8.4% and for the first nine month, building permits rose 5.3%. Transactions that involve apartments under construction or apartment projects under building permit application are becoming more common again, indicating a more active market with more risk appetite. According to a study conducted by imobiliare.ro, the main criteria for new acquisitions remains the price of the apartments followed by location.
In terms of prices, apartment prices in Constanta have increased by 7.2% per cent compared to September last year, reaching EUR 907 per square meter. In Bucharest, housing prices increased 3% in September compared to same month last year average price is estimated at an average of EUR 1,054 per square meter. In October, housing prices continued to increase with prices up 0.3% in Constanta relative to September.
RomReal completed during the quarter the sale of three more plots in Tatar Peninsula, for a total sale price of EUR 225,000. These sales take the total plot sales in Tatar Peninsula to 12 plots. The strong sales record confirms the Company's strategy to improve the saleability by splitting the Tatar peninsula into smaller plots. Since 4Q 2013, the Company has now sold properties for a total consideration of EUR 1.3 million – all of the sales concluded on or about the IFRS valuation.
The Company continues to work on upgrading the planning status for its plots and progressing its project plans for some of its plots. At the Ovidiu Lake Side plot, the Company has filed in an application for a 1,000 residential unit project, and it expects approval during Q4 2015/ 1Q 2016. The delay compared to the initial Q3 estimate is related to slower activity during summer in obtaining the required environmental study. For the Ovidiu Centrepoint plots, the Company has delivered an application to convert the land to buildable land. It expects a decision during 1Q 2016.
The sale of parts of the Balada Market plot announced July 10, 2015 is expected to close during 4Q 2015/1Q 2016.
The Company's land bank consists currently of 13 plots with a total size of 1,249,180 sqm at the end of Q2 2015.
| Plot name | Location | Size (m2) |
|---|---|---|
| 1 Ovidiu Lakeside | Constanta North/Ovidiu | 61,029 |
| 2 Badulescu plot | Constanta North/Ovidiu | 50,000 |
| 3 Tatar Peninsula | Constanta North/Ovidiu | 1,266 |
| 4 Ovidiu Town | Constanta North/Ovidiu | 4,641 |
| 5 Ovidiu (Oasis) | Constanta North/Ovidiu | 25,127 |
| 6 Centrepoint | Constanta North/Ovidiu | 122,350 |
| 7 Gunaydin plot | Constanta North/Ovidiu | 15,000 |
| 8 Balada Market | Central Constanta | 7,188 |
| 9 Carrefour plot | Constanta | 15,000 |
| 10 Morii Lake | Bucharest Sector 6 | 11,716 |
| 11 Hospital plot | Bucharest Sector 5 | 13,263 |
| 12 Un-zoned land | Constanta | 865,062 |
| 13 Mamaia North plot | Navodari/Mamaia | 56,167 |
| Total | 1,247,809 |
Note: an additional 1,219 sqm have been pre-sold during the quarter for which the Company already cashed the down payment, however the sale has not been derecognised from the accounts as per the contract arrangements the sale will be finalised in Q2 2016 once all instalments have been paid.
| SHAREHOLDERS | HOLDING | % | |
|---|---|---|---|
| SIX SIS AG | 11,699,278 | 28.3% | |
| THORKILDSEN | KAY TØNNES | 5,415,756 | 13.1% |
| GRØNSKAG | KJETIL | 3,850,307 | 9.3% |
| TONSENHAGEN FORRETNINGSSENTRUM 2 A | 1,614,444 | 3.9% | |
| SILJAN INDUSTRIER AS | 1,600,000 | 3.9% | |
| SKANDINAVISKA ENSKILDA BANKEN S.A. | 1,323,372 | 3.2% | |
| SAGA EIENDOM AS | 1,223,667 | 3.0% | |
| CO/JONAS BJERG | NTS TRUSTEES LTD | 1,058,306 | 2.6% |
| ENERGI INVEST A/S | 1,000,000 | 2.4% | |
| SPAR KAPITAL INVESTOR AS | 940,236 | 2.3% | |
| CARNEGIE INVESTMENT BANK DK BRANC | 851,692 | 2.1% | |
| THORKILDSEN INVEST AS | 829,478 | 2.0% | |
| ORAKEL AS | 800,000 | 1.9% | |
| HOEN | ANDERS MYSSEN | 689,557 | 1.7% |
| CLEARSTREAM BANKING S.A. | 649,417 | 1.6% | |
| PERSSON | ARILD | 588,000 | 1.4% |
| LOHNE | PER OVE | 508,500 | 1.2% |
| SKANDINAVISKA ENSKILDA BANKEN AB | 508,384 | 1.2% | |
| KBC SECURITIES NV | 477,676 | 1.2% | |
| DANSKE BANK A/S | 457,998 | 1.1% | |
| TOTAL TOP 20 | 36,086,068 | 87.2% |
Please see below the list of the top 20 shareholders in RomReal as of 17 November 2015.
Notes:
(1) This is the Top 20 Shareholder list as per 17 November 2015.
(2) The total issued number of shares issued at end Q2 2015 was 41,367,783.
(3) RomReal Director Arne Reinemo controls directly or indirectly SILJAN INDUSTRIER AS.
(4) 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 expects the recent positive development in the macroeconomic environment will reflect in a continued improvement of the real estate market in 2015 and 2016. In addition to sale of plots, the Company seeks to add incremental value to the individual plots during the period in which they are part of the Land Bank up until a potential sale is completed.
The Company expects further asset disposals at satisfactory prices in the quarters to come.
The financial statements for the Q3 2015 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 2014.
The interpretations below refer to comparable financial information for Q3 2015 and Q3 2014. They are prepared for RomReal on a consolidated basis and use consistent accounting policies and treatments.
The operating revenue during Q3 2015 was EUR 139,000 compared to a total of EUR 61,000 in Q3 2014. The income relates to the sale of some of the land bank assets (EUR 79,000 in Q3 2015 vs EUR 2,000 in Q3 2014) and the rent received on some of the land bank assets awaiting development (EUR 59,000 in Q3 2015 vs EUR 59,000 in Q3 2014).
Total operating expenses amounted to EUR 211,000 in Q3 2015 compared to EUR 202,000 in Q3 2014. Out of these operating expenses, the payroll costs were EUR 63,000. Adjustment for inventories not considered, the total operating expenses of the Company in Q3 2015 were around 7% higher than the ones in the same quarter of 2014. Out of the total operating expenses, the main cost items relate to general and administration costs in connection with the running of the Group.
The other operating income/(expense) is driven by the de-recognition/expending of the carrying value related to the sold assets and the adjustment to the value of the investment property as a result of the effect of the foreign currency exchange rate before translating them into the functional currency of the Group. During Q3 2015 there were no changes to the EUR values of the investment property.
The net of Other Operating Income/ (Expense) in Q3 2015 amounted to a net loss of EUR 512,000, compared to a net loss of EUR 193,000 in Q3 2014.
During Q3 2015, RomReal generated an operating loss of EUR 621,000, compared to a loss of EUR 353,000 in Q3 2014.
The interest expense includes the expense accrued for the period with the interest in respect of the Alpha Bank loan in amount of EUR 83,000. Foreign exchange result for Q3
RomReal Limited third quarter 2015 Page 9 of 14
2015 was a loss of EUR 940,000 compared to a net foreign exchange gain of EUR 444,000 in Q3 2014. During the quarter the year the RON appreciated by 1.5% against the EUR.
The main items that generate foreign exchange differences are the inter-Company loans and the loan taken from Alpha Bank in principal amount of EUR 10.6 million plus its accrued interest to date.
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 Q3 2015 was a gain of EUR 243,000 compared to a loss before tax of EUR 2,000 in Q3 2014.
The Company's cash and cash equivalents position at end of Q3 2015 was EUR 1,031,000 compared to EUR 303,000 as at end of Q2 2015.
In 2013, the Group invested in a bond issued by Svenska Handelsbanken. The bond was sold in September to increase the Company's cash balance.
The Company is required to calculate its current income tax at a flat rate of 16%. Starting 2013, the companies in the Group with turnover below a EUR 65,000 threshold are subject to a 3% tax calculated on total revenue. This is the case for 7 of the Group companies 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 | ||||
|---|---|---|---|---|
| Q3 2015 | Q3 2014 | YTD 2015 | YTD 2014 | |
| Rent revenue | 59 | 59 | 182 | 199 |
| Revenue from sale of assets | 79 | 2 | 1,217 | 164 |
| Operating revenue | 139 | 6 1 |
1,400 | 363 |
| Payroll expenses | (63) | (51) | (197) | (163) |
| Management fees | (16) | (16) | (48) | (48) |
| Inventory (write off)/reversal | (36) | (19) | (30) | (40) |
| General and administrative expenses | (132) | (135) | (389) | (431) |
| Operating expenses | (248) | (221) | (665) | (682) |
| - | ||||
| Profit/ (loss) before other operating items | (109) | (160) | 735 | (319) |
| Other operating income/(expense), net | (512) | (193) | (1,578) | (703) |
| Profit from operations | (621) | (353) | (843) | (1,022) |
| Interest income | 7 | 1 | 22 | 2 |
| Interest costs | (83) | (95) | (254) | (285) |
| Foreign exchange, net | 940 | 444 | 795 | 935 |
| - | ||||
| Result before tax | 243 | (2) | (280) | (370) |
| Tax expense | 40 | 32 | (8) | 74 |
| Result of the period | 283 | 3 1 |
(288) | (296) |
| Figures in thousand EUR | ||
|---|---|---|
| ASSETS | September 30, 2015 |
December 31, 2014 |
September 30, 2014 |
|---|---|---|---|
| Non-current assets | |||
| Financial assets | - | 734 | 749 |
| Investment properties | 27,339 | 28,439 | 28,980 |
| Property, plant and equipment | 15 | 12 | 47 |
| Deferred tax asset | 117 | 126 | 222 |
| Total non current assets | 27,471 | 29,311 | 29,998 |
| Current assets | |||
| Inventories | 2,300 | 2,388 | 2,563 |
| Other short term receivables | 230 | 236 | 239 |
| Prepayments | 7 | 8 | 11 |
| Cash and cash equivalents | 1,031 | 507 | 652 |
| Total current assets | 3,568 | 3,138 | 3,465 |
| TOTAL ASSETS | 31,039 | 32,450 | 33,463 |
| EQUITY AND LIABILITIES | September 30, | December 31, | September 30, |
|---|---|---|---|
| 2015 | 2014 | 2014 | |
| Equity | |||
| Share capital | 103 | 103 | 103 |
| Contributed surplus | 87,115 | 87,117 | 87,117 |
| Other reserves | 425 | 425 | 425 |
| Retained earnings | (68,179) | (66,413) | (66,415) |
| Result of current period | (288) | (1,767) | (296) |
| FX reserve | 22 | 449 | 5 |
| Total equity | 19,198 | 19,916 | 20,941 |
| Non current liabilities | |||
| Non current debt | - | 0 | 12,139 |
| Deferred income tax | 71 | 75 | 77 |
| Total non current liabilities | 7 1 |
7 5 |
12,216 |
| Current Liabilities | |||
| Bank debt | 11,585 | 12,230 | 0 |
| Other payables | 147 | 74 | 148 |
| Deferred income | 37 | 154 | 156 |
| Tax payable | 0 | 1 | 2 |
| Total current liabilities | 11,769 | 12,459 | 306 |
| TOTAL EQUITY AND LIABILITIES | 31,039 | 32,450 | 33,463 |
| Figures in thousand EUR | |||
|---|---|---|---|
| September 30, 2015 |
December 31, 2014 |
September 30, 2014 |
|
| Profit for the year | (288) | (1,767) | (296) |
| Other comprehensive income | |||
| Exchange differences on translation of foreign operations | (427) | 11 | (434) |
| Other comprehensive income for the year, net of tax | (427) | 1 1 |
(434) |
| Total comprehensive income for the year, net of tax | (715) | (1,756) | (730) |
| Figures in thousand EUR | |||
|---|---|---|---|
| September 30, | December 31, | September 30, | |
| 2015 | 2014 | 2014 | |
| Net cash flow from operating activities | (416) | (466) | (321) |
| Net cash flow used in investing activities | 1,833 | 157 | 157 |
| Net cash flows from financing activities | (893) | (157) | (157) |
| Net cash change during period | 524 | (466) | (321) |
| Cash at beginning of period | 507 | 973 | 973 |
| Cash and cash equivalents at end of the period | 1,031 | 507 | 652 |
| September 30, 2015 |
December 31, 2014 |
September 30, 2014 |
|
|---|---|---|---|
| Equity at the beginning of the period | 19,916 | 21,671 | 21,671 |
| Result for the period | (288) | (1,767) | (296) |
| Other changes | (429) | 11 | (435) |
| Equity at the end of the period | 19,198 | 19,916 | 20,941 |
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: 208 Mamaia Avenue, Constanța, Romania Tel: +40-241-551488 Fax: +40-241-551322
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 2014. 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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