Quarterly Report • Sep 12, 2011
Quarterly Report
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The Board of Directors of Orco Property Group, S.A. (the "Group") has approved on 31 August 2011 the condensed consolidated interim financial information as at and for the six months" period ended 30 June 2011. All the figures in this report are presented in thousands of Euros, except if explicitly stated otherwise.
The accompanying notes form an integral part of this condensed consolidated interim financial information.
| June | June | June 2010 |
||
|---|---|---|---|---|
| Note | 2011 | 2010 | (proforma) | |
| Revenue | 3 | 73,571 | 163,076 | 153,760 |
| Net gain /(loss) from fair value adjustments | ||||
| on investment property | 4 | -351 | 26,629 | 26,629 |
| Other operating income | 370 | 2,333 | 2,254 | |
| Net result on disposal of assets | 4 | 11,052 | -273 | -273 |
| Cost of goods sold | 6 | -16,899 | -87,899 | -87,844 |
| Employee benefits | -14,058 | -21,055 | -15,896 | |
| Amortisation, impairments and provisions | 6 | -3,585 | -8,311 | -8,388 |
| Other operating expenses | -31,196 | -36,730 | -34,897 | |
| Operating result | 18,904 | 37,770 | 35,345 | |
| Interest expenses | -41,600 | -51,530 | -50,582 | |
| Interest income | 2,419 | 3,101 | 1,260 | |
| Foreign exchange result | 12,664 | -6,910 | -2,697 | |
| Other net financial results | 11 | 5,572 | 255,405 | 264,761 |
| Financial result | -20,945 | 200,066 | 212,742 | |
| Profit/(loss) before income taxes | -2,041 | 237,836 | 248,087 | |
| Income taxes | 12 | -443 | -4,335 | -5,600 |
| Impact of assets held for sale | 7 | -3,342 | - | -8,986 |
| Net profit/(loss) for the period | -5,826 | 233,501 | 233,501 | |
| Total profit/(loss) attributable to: | ||||
| non controlling interests | 1,677 | -4,232 | -4,232 | |
| owners of the Company | -7,503 | 237,733 | 237,733 | |
| Basic earnings in EUR par share | 13 | -0.55 | 19.42 | 19.42 |
| Diluted earnings in EUR per share | 13 | -0.06 | 19.42 | 19.42 |
"Proforma" here is the Income Statement for 6 months 2010 with an amended contribution of the Russian assets covered by a letter of intent (see note 7) that are transferred to impact of assets held for sale as reported in 2011.
The accompanying notes form an integral part of this condensed consolidated interim financial information.
| Profit /(Loss) for the period: | 2011 | 2010 |
|---|---|---|
| Other comprehensive income/(loss) | -5,826 | 233,501 |
| Currency translation differences | -6,887 | 13,708 |
| Total comprehensive income/(loss) for the period | -12,713 | 247,209 |
| Total comprehensive income/(loss) attributable to: - owners of the Company - non controlling interests |
-14,502 1,789 |
248,570 -1,361 |
The accompanying notes form an integral part of this condensed consolidated interim financial information.
| Assets | |||
|---|---|---|---|
| Note | 30 June 2011 |
31 December 2010 |
|
| NON-CURRENT ASSETS | 1,170,316 | 1,204,255 | |
| Intangible assets | 47,934 | 48,205 | |
| Investment property | 4 | 891,154 | 888,036 |
| Property, plant and equipment Hotels and own-occupied buildings Fixtures and fittings Properties under development |
5 | 165,326 152,298 12,481 547 |
237,851 222,563 15,288 0 |
| Financial assets at fair value through profit or loss | 14.1 | 41,418 | 30,049 |
| Non current loans and receivables | 14.2 | 24,191 | 0 |
| Deferred tax assets | 293 | 114 | |
| CURRENT ASSETS Inventories Trade receivables Other current assets Derivative instruments Current financial assets Cash and cash equivalents Assets held for sale |
6 8 7 |
639,139 406,325 38,887 38,263 1 6 382 35,200 120,066 |
698,050 418,957 34,349 59,105 0 302 53,439 131,898 |
| TOTAL | 1,809,455 | 1,902,305 | |
| Equity and liabilities | |||
| 30 June 2011 |
31 December 2010 |
||
| EQUITY | 338,194 | 355,969 | |
| Equity attributable to owners of the Company | 1 3 |
286,754 | 303,056 |
| Non controlling interests | 9 | 51,440 | 52,913 |
| LIABILITIES Non-current liabilities Bonds Financial debts Provisions & other long term liabilities Derivative instruments Deferred tax liabilities |
10.1 10.2 |
1,471,261 463,122 145,285 213,513 13,980 0 90,344 |
1,546,336 903,080 235,667 526,991 14,307 19,323 106,792 |
| Current liabilities Current bonds Financial debts Trade payables Advance payments Derivative instruments Other current liabilities Liabilities linked to assets held for sale TOTAL |
10.3 10.3 7 & 10.3 |
1,008,139 118,167 681,662 17,441 33,869 43,856 74,096 39,048 1,809,455 |
643,256 8,222 389,282 21,011 32,714 27,469 88,064 76,494 1,902,305 |
The accompanying notes form an integral part of this condensed consolidated interim financial information.
| Share | Share | Translation | Treasury | Other | Equity attributable | Non controlling | Equity | ||
|---|---|---|---|---|---|---|---|---|---|
| Note | capital | premium | reserve | shares | reserves | to owners of the Company |
interests | ||
| Balance at 31 December 2009 | 44,870 | 400,524 | 15,776 | -19,374 | -385,219 | 56,577 | 48,153 | 104,730 | |
| Loss for the period : | |||||||||
| Translation differences | 10,837 | 10,837 | 2,871 | 13,708 | |||||
| Loss for the period | 237,733 | 237,733 | -4,232 | 233,501 | |||||
| Total comprehensive income | 10,837 | 237,733 | 248,570 | -1,361 | 247,209 | ||||
| Capital increase | 12,751 | 3,464 | -86 | 16,129 | 16,129 | ||||
| Non controlling interests' transactions | 10 | -759 | -759 | 323 | -436 | ||||
| Balance at 30 June 2010 | 57,621 | 403,988 | 26,613 | -19,374 | -148,331 | 320,517 | 47,115 | 367,632 | |
| Loss for the period : | |||||||||
| Translation differences | 736 | 736 | -1,296 | -560 | |||||
| Loss for the period | -4,322 | -4,322 | -6,525 | -10,847 | |||||
| Total comprehensive income | 736 | -4,322 | -3,586 | -7,821 | -11,407 | ||||
| Own equity instruments | -640 | -640 | -640 | ||||||
| Non controlling interests' transactions | 10 | -13,234 | -13,234 | 13,618 | 384 | ||||
| Balance at 31 December 2010 | 57,621 | 403,988 | 27,349 | -20,014 | -165,887 | 303,057 | 52,912 | 355,969 | |
| Profit /(loss) for the period : | |||||||||
| Translation differences | -6,999 | -6,999 | 112 | -6,887 | |||||
| Profit /(Loss) for the period | -7,503 | -7,503 | 1,677 | -5,826 | |||||
| Total comprehensive income | 0 | 0 | -6,999 | 0 | -7,503 | -14,502 | 1,789 | -12,713 | |
| Own equity instruments | -4,048 | 48 | -4,000 | -4,000 | |||||
| Non controlling interests' transactions | 10 | 2,200 | 2,200 | -3,261 | -1,061 | ||||
| Balance at 30 June 2011 | 57,621 | 403,988 | 20,350 | -24,062 | -171,142 | 286,755 | 51,440 | 338,195 |
The accompanying notes form an integral part of this condensed consolidated interim financial information.
| 30 June | 30 June | |
|---|---|---|
| 2011 | 2010 | |
| Operating result | 18,904 | 37,770 |
| Net (gain) /loss from fair value adjustments on investment property | 351 | -26,629 |
| Amortisation, impairments and provisions | 3,585 | 8,311 |
| Net result on disposal of assets | -11,052 | 273 |
| Adjusted operating profit/(loss) | 11,788 | 19,725 |
| Financial result | 3,293 | -1,596 |
| Income tax paid | -491 | -368 |
| Financial result and income taxes paid | 2,802 | -1,964 |
| Changes in operating assets and liabilities | 4,565 | 59,412 |
| NET CASH FROM /(USED IN) OPERATING ACTIVITIES | 19,155 | 77,173 |
| Capital expenditures and tangible assets acquisitions | -9,353 | -8,930 |
| Proceeds from sales of non current tangible assets | 105,321 | 31,329 |
| Purchase of intangible assets | -28 | -37 |
| Purchase of financial assets | -1,520 | -691 |
| NET CASH FROM INVESTING ACTIVITIES | 94,420 | 21,671 |
| Net issue of equity instruments to shareholders | 0 | 16,129 |
| Purchase of treasury shares and change in ownership interests in subsidiaries | -4,000 | 0 |
| Proceeds from borrowings | 27,960 | 14,350 |
| Net interest paid | -47,892 | -28,437 |
| Repayments of borrowings | -106,411 | -94,712 |
| NET CASH USED IN FINANCING ACTIVITIES | -130,343 | -92,670 |
| NET DECREASE IN CASH | -16,768 | 6,174 |
| Cash and cash equivalents at the beginning of the year ** | 53,439 | 57,040 |
| Cash and cash equivalents at the beginning of the year of assets reclassified to assets | ||
| held for sale during 6 months 2011* | -1,905 | 0 |
| Exchange difference on cash and cash equivalents | 434 | 530 |
| CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR ** | 35,200 | 63,744 |
* Opening balance of cash and cash equivalents have been corrected for cash of a group of Russian activities mainly related to reclassified to assets held for sale (see Note 7).
** Cash and cash equivalents are detailed in the note 8.
Orco Property Group S.A., société anonyme ("the Company") and its subsidiaries (together the "Group") is a real estate group with a major portfolio in Central and Eastern Europe. It is principally involved in leasing out investment properties under operating leases as well as in asset management, in operating hotels and extended stay hotels and is also very active in the development of properties for its own portfolio or intended to be sold in the ordinary course of business.
The Company is a limited liability company incorporated for an unlimited term and registered in L-2661, Luxembourg. The address of its registered office is 42, rue de la Vallée.
The Company is listed on the EuroNext Paris stock exchange, the Prague stock exchange, the Budapest stock exchange and the Warsaw stock exchange.
These condensed consolidated interim financial information have been approved for issue by the Board of Directors on 31 August 2011.
This condensed consolidated interim financial information as at and for the half-year ended 30 June 2011 has been prepared in accordance with IAS 34, "Interim financial reporting" as adopted by the European Union.
They should be read in conjunction with the annual consolidated financial statements as at and for the year ended 31 December 2010, which have been prepared in accordance with IFRS as adopted by the European Union.
In determining the appropriate basis of preparation of the condensed consolidated interim financial information, the Directors are required to make an assessment of the Group"s ability to continue as a going concern. In making such an assessment, the Directors have taken into account all available information at their disposal about the future, which is at least, but not limited to twelve months from June 30, 2011.
The Group"s financial risks including foreign exchange risk, fair value risk, cash flow risk, interest rate risk, price risk, credit risk and liquidity risk are assessed according to the note 2 of the condensed consolidated interim financial statements as at and for the period ended 30 June 2011.
The financial performance of the Group is naturally dependent upon the wider economic environment in which the Group operates. The uncertainty of the evolution of real estate market in Central Europe could be damaging to the Group"s activities and slow down the asset sales program. It should be noted that this environment has generally stabilized over the last 18 months.
Despite the fact that the residential market remains difficult, a number of positive evolutions have resulted over the first half of 2011 with the resolution of covenant breaches, successful refinancing negotiations and the conclusion of major agreements concerning the Bubny development, the increased control of Orco Germany, the expected future sale of Russian assets and the agreement reached by the major shareholders on the long term financing of Suncani Hvar.
The Group is currently implementing the "Plan de Sauvegarde" (Safeguard plan) which has been approved on the basis of a business plan supported by the Board of Directors and estimated as achievable by the Commercial Court, the "Juge Commissaire" and the "Mandataire Judiciaire". The Group"s ability to continue as a going concern is primarily dependent upon its ability to implement the Safeguard plan as approved by the Commercial Court in Paris.
When making its assessment of the Group"s ability to continue as a going concern, the Board of Directors has identified the following material uncertainties that relate to events or conditions that may cast significant doubt upon the Group"s ability to continue as a going concern:
specific Group assets or activities and the Management is particularly focused on the challenging refinancing of both the GSG portfolio, with an existing loan of EUR 300 Million to be repaid in April 2012, and of Bonds issued by Orco Germany to be repaid in May 2012 for a nominal amount of EUR 100 Million. Negotiations are ongoing for the refinancing of both lines. None of these two loans benefit from guarantee given by the Company.
All other bank loan financing is located in special purpose vehicles. In the eventuality that a guarantee granted prior to the opening of the Safeguard procedure is exercised further to an unsuccessful financing negotiation, this would not have a short term impact on the Group"s cash flows as repayment would occur in accordance with the term out plan approved in May 2010.
The business plan is built on the capacity of the Group to generate sufficient cash from its profitable activities and asset sales in order to support the activities or assets that are currently in development or restructuring. Particularly, assets or activities sales forecasted to generate by June 2012 some EUR 52 million net cash in (out of which EUR 20 million are linked to transactions closed or close to be) are key for the Group to be able to finance its investments and Safeguard dividend. This amount does not include any cash on residential or commercial development sales.
The Board of Directors is in the opinion that the aforementioned material uncertainties, are mutually independent and are mitigated by the reasonability of the assumptions taken in the establishment of the business plan. As a result of the implementation of the Safeguard plan, the contemplated sale of non-core assets, the reasonable expectation that refinancing negotiations will be successful and the continuous reduction of operating expenses, the Board of Directors has concluded that there is a reasonable expectation that the Company can continue its operations in the foreseeable future and has, accordingly, formed a judgment that it is appropriate to prepare the condensed consolidated interim financial information on a going concern basis.
The accounting policies applied by the Group in this condensed consolidated interim financial information are consistent with those applied by the Group in its consolidated financial statements as at and for the year ended 31 December 2010, except as described below.
(a) New and amended standards adopted by the Group
There is no new standard or amendment adopted by the Group for the first half year 2011.
(b) Standards, amendments and interpretations to existing standards effective in 2011 :
These principles do not differ from IFRS standards as published by IASB insofar as their application, which is compulsory for business years starting 1 January 2011, and the following amendments and interpretations, should have no significant impact on Group accounts
(c) The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not effective for the financial year beginning 1 January 2011 and have not been early adopted:
IFRS 11 : Joint Arrangements
IFRS 12 : Disclosure of Interests in Other Entities
Finally, the Group does not apply in advance the following revised amendments and standards that have been adopted by the European Union and for which compulsory application comes after January 1, 2011.
Given the seasonal nature of retail sales in the hotel and extended stay residence activities and given high correlation between the sales in the development segment and the number of units ready to be sold, as well as the volatile impact of the valuation of financial instruments and certain categories of lands and buildings at their market value, the results for the first six months cannot be extrapolated to the remainder of the year.
As of 30 June 2011, the Group performed internally a valuation review covering its entire portfolio. For each asset, possible material change of assumptions in comparison with December 2010 appraisal have been researched including :
The review process concluded on the absence of material change of local market environment between December 2010 and June 2011, with the exception of the local currencies movements against the euro. Valuation of the portfolio as been impacted accordingly as of June 2011. Aside from exchange rate impact, a decrease of EUR 2.6 Million is recorded on the Budapest bank portfolio (Budapest Bank HQ and Small Budapest Bank) which value is now based on a distressed scenario as the bank holding the related loans decided to ask for repayment on a short term basis. Negotiations with the creditors are ongoing, but in order to represent the additional risk the bank"s request generates, the Group impacted a discount on the assets" valuations. In the meantime, the valuation of the activity park of Stribro, in Czech Republic, increased by EUR 0.6 Million or 16% compared to December 2010 valuation, due to better than expected letting performance.
Fair value as of June 2011 of ongoing development projects including Zlota 44, Vaci 1 Benice 1B and Mostecka were adjusted according to current status of construction works.
Changes in fair values and impairments are further addressed in notes 5, 6 and 7.
The methodology and assumptions applied for the valuation of real estate assets and developments are consistent with the ones described in the annual consolidated financial statements as at December 31, 2010 :
| New value | ||||||
|---|---|---|---|---|---|---|
| H1 2011 | 2010 | 2009 | ||||
| Discount Rate | 6,5% | 11,8% | 6,5% | 11,8% | 7,0% | 11,0% |
| Yield Range | 6,7% | 13,0% | 5,8% | 13,0% | 6,8% | 12,0% |
| Exit Cap Rate | 5,3% | 9,0% | 5,3% | 9,0% | 6,0% | 9,0% |
| Equivalent Yield | Cap Rate | Discount Rate | ||||
| Min | Max | Min | Max | Min | Max | |
| Hospitality | 8,0% | 12,5% | 7,3% | 9,0% | 9,0% | 11,8% |
| Rental CE | 6,7% | 13,0% | NA | NA | NA | NA |
| German assets | NA | NA | 5,3% | 6,5% | 6,5% | 7,5% |
The fair value of the financial instruments has been adjusted according to the following assumptions:
The Group"s activities expose it to a variety of financial risks: market risk (including foreign exchange risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group"s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group financial performance. The Group uses financial instruments to mitigate certain risk exposures.
Risk management, being formalized, is carried out by the Group"s Chief Financial Officer (CFO) and his team. As a result of the current restructuring, the policies are under review for approval by the Board of Directors. The Group"s CFO identifies, evaluates and mitigates financial risks in close co-operation with the Group"s operating units. The Board of Directors will provide principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.
Foreign exchange risk
The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Czech Koruna (CZK), the Polish Zloty (PLN), the Hungarian Forint (HUF), the Croatian Kuna (HRK) and secondarily to the US Dollar (USD) and the Russian Ruble (RUB). Foreign exchange risk, as defined by IFRS 7, arises mainly from recognized monetary assets and liabilities. Loans, operating income and - except in the development activities - sales of buildings are mainly denominated in Euro (EUR). The Group does not use foreign currency derivatives contracts, as salaries, overhead expenses, future purchase contracts in the development sector, building refurbishment and construction costs are mainly denominated in local currencies. The main circumstance for the Group to put in place currency derivatives is for the financing of a construction contract when the local currency operations do not generate sufficient cash and as a result that construction contract must be financed with another currency.
Price risk
The Group is exposed to equity risks from Endurance Fund and Novy Fund, which are classified in financial assets at fair value through profit or loss.
Furthermore, the Group is exposed to price risk from embedded derivatives on instruments issued by Orco Germany S.A.. The derivative instruments are classified in the consolidated balance sheet under "Derivative instruments".
To manage its price risk arising from investments in equity securities and such embedded derivatives, the Group diversifies its portfolio or only enters these operations if they are linked to operational investments. No sensitivity analysis has been performed.
The Group is also exposed to property price and property rentals risk but it does not pursue any speculative policy. Even though the Group"s activities are focused on one geographical area – Western and Eastern Europe and Russia - such activities are spread over several business lines (residences, offices, hotels) and different countries.
The Group has no significant concentrations of credit risk. Rental contracts are made with customers with an appropriate credit history. Cash transactions are limited to high credit-quality financial institutions. The Group has policies that limit the amount of credit exposure to any financial institution. Credit risk is managed by local management and by Group management.
The Investment Committee is the responsible body making decisions for all acquisitions and disposals of projects. The Investment Committee assesses the performance of the operating segments based on a measure of adjusted earnings before interests, tax, depreciation and amortisation ("adjusted EBITDA" as defined below).
Corporate expenses are allocated on the basis of the revenue realised by each activity.
Adjusted EBITDA is the recurring operational cash result calculated by deducting from the operating result non-cash and non-recurring elements (Net gain or loss on fair value adjustments – Amortisation, impairments and provisions – Correction of costs of goods sold being the reversal of previous years valuation adjustments and impairments – Net gain or loss on the sale of abandoned developments included in inventories – Net gain or loss on disposal of assets – Attribution of shares, stock options and warrants to executive management ) and the net results on sale of subsidiaries.
The Group structure lies on two main activities to which the Investment Committee is allocating the Group investment capacity on the basis of the strategy defined by the Board of Directors. On the one hand, the Group is investing in land bank or assets for development and effectively developing them once the project presented is satisfactorily approved by the Investment Committee. Once the asset is developped it can be either sold to a third party or kept in the Group own portfolio for value accretion. On the other hand, the Group is actively investing in and managing its own or third parties real estate assets for operational profitability and value appreciation. These two business lines are the segments by which the operations are analysed.
These two segments or business lines can be defined as following :
| As at 30 June 2011 | Development | Property Investment |
TOTAL |
|---|---|---|---|
| Revenue | 23,476 | 50,095 | 73,571 |
| Net gain /(loss) from fair value adjustments on investment property |
1,279 | -1,630 | -351 |
| Cost of goods sold | -15,921 | -978 | -16,899 |
| Amortisation, impairments and provisions | 528 | -4,113 | -3,585 |
| Other operating results | 325 | -34,157 | -33,832 |
| Operating result | 9,687 | 9,217 | 18,904 |
| Net gain /(loss) from fair value adjustments on investment property Amortisation, impairments and provisions Net result on disposal of assets |
-1,279 -528 -10,824 |
1,630 4,113 -228 |
351 3,585 -11,052 |
| Adjusted EBITDA | -2,944 | 14,732 | 11,788 |
| Net gain /(loss) from fair value adjustments on investment property Amortisation, impairments and provisions Net result on disposal of assets |
1,279 528 10,824 |
-1,630 -4,113 228 |
-351 -3,585 11,052 |
| Operating result | 9,687 | 9,217 | 18,904 |
| Financial result | -20,945 | ||
| Profit before income tax | -2,041 |
| Segment assets | 635,716 | 1,041,026 | 1,676,742 |
|---|---|---|---|
| Investment Properties | 105,146 | 786,008 | 891,154 |
| Property, plant and equipment | 4 | 165,322 | 165,326 |
| Inventories | 406,325 | 0 | 406,325 |
| Assets held for sale | 18,153 | 101,913 | 120,066 |
| Unallocated assets | 226,582 | ||
| Total assets | 1,809,454 | ||
| Segment liabilities | 0 | 39,048 | 39,048 |
| Liabilities linked to assets held for sale Unallocated liabilities |
0 | 39,048 | 39,048 1,770,406 |
| Total liabilities | 1,809,454 | ||
| Cash flow elements |
| As at 30 June 2010 | Development | Asset Management | TOTAL |
|---|---|---|---|
| Revenue | 101 586 | 61 490 | 163 076 |
| Net gain or loss from fair value adjustments on investment property |
109 | 26 520 | 26 629 |
| Cost of goods sold | -86 919 | -980 | -87 899 |
| Amortisation, impairments and provisions | -4 003 | -4 308 | -8 311 |
| Other operating results | -15 267 | -40 458 | -55 725 |
| Operating result | -4 494 | 42 264 | 37 770 |
| Net gain from fair value adjustments on investment property Amortisation, impairments and provisions Past valuation on goods sold Net loss on disposal of assets Adjusted EBITDA Net gain from fair value adjustments on investment property Amortisation, impairments and provisions Past valuation on goods sold Net loss on disposal of assets Operating result Financial result |
-109 4 003 1 622 40 1 062 |
-26 520 4 308 - 233 20 285 |
-26 629 8 311 1 622 273 21 347 26 629 -8 311 -1 622 -273 37 770 200 066 |
| Profit before income tax | 237 836 | ||
| Segment assets | 750 388 | 1 141 535 | 1 891 923 |
| Investment Properties Property, plant and equipment Inventories Other segment assets Assets held for sale Unallocated assets Total assets |
271 276 2 478 392 691 42 738 41 205 |
800 525 249 973 5 764 79 803 5 470 |
1 071 801 252 451 398 455 122 541 46 675 118 862 2 010 785 |
| Segment liabilities Liabilities linked to assets held for sale Unallocated liabilities Total liabilities |
134 431 34 876 |
95 757 3 000 |
230 188 37 876 1 780 597 2 010 785 |
| Cash flow elements Capital expenditure |
5 346 | 4 062 | 9 408 |
Even though the Group is controlling the majority of the voting rights, the operation and the strategy, the disposal of real estate assets located in entities where the Group does not hold 100% of the shares, needs the agreement of the partner.
66 investment properties with a fair value of EUR 707.6 million (EUR 839.2 million as at 31 December 2010) financed by bank loans in local special purpose entities are fully pledged for EUR 491.0 million of bank loans (EUR 605.5 million as at 31 December 2010).
| Investment property | Freehold buildings |
Extended stay hotels |
Land bank | Buildings under construction |
Buildings under finance lease |
TOTAL |
|---|---|---|---|---|---|---|
| Balance at 31 December 2009 | 795,704 | 21,430 | 214,780 | 40,110 | 280 | 1,072,304 |
| Investments / acquisitions | 1,155 | 255 | 11,156 | 13,822 | - | 26,388 |
| Asset sales | -50,256 | - | -82 | - | -293 | -50,631 |
| Revaluation through income statement | 13,513 | 4,615 | 15,181 | -7,348 | - | 25,961 |
| Other transfers | -1,527 | - | -196,875 | - | - | -198,402 |
| Translation differences | 7,407 | - | 6,180 | -1,184 | 13 | 12,416 |
| Balance at 31 December 2010 | 765,996 | 26,300 | 50,340 | 45,400 | - | 888,036 |
| Investments / acquisitions | 429 | 63 | 216 | 8,439 | - | 9,147 |
| Asset sales | -6,379 | - | -455 | - | - | -6,834 |
| Revaluation through income statement | -2,529 | 907 | 503 | 768 | - | -351 |
| Other transfers | 7,656 | - | -6,500 | - | - | 1,156 |
| Translation differences | - | - | - | - | - | 0 |
| Balance at 30 June 2011 | 765,173 | 27,270 | 44,104 | 54,607 | - | 891,154 |
During the period, the Group invested EUR 9.1 million in investment properties representing mainly EUR 8.4 million in Hungary of capitalization on the development of the Vaci 1 shopping center project, in Budapest.
During the period, the net book value ("NBV") of the assets sold amounts to EUR 6.8 million and is composed mainly of the following disposals:
Net gain/(loss) from fair value adjustmentsThe movement in fair value relates mainly to Freehold buildings and Building under construction:
The transfers are mainly made of the following movements:
| 6 months to 30 June | 12 months to 31 December 2010 |
||||
|---|---|---|---|---|---|
| 2011 Revaluation |
Fair value 30.06.11 |
2010 Revaluation |
Fair value 31.12.10 |
||
| Freehold Buildings | -2,528 | 765,171 | 13,513 | 765,996 | |
| Germany | 340 | 490,515 | 5,575 | 506,138 | |
| Mixed retail & office | -290 | 483,445 | 6,666 | 492,548 | |
| Office | 630 | 0 | -620 | 5,570 | |
| Residential | 0 | 7,070 | -471 | 8,020 | |
| Czech Republic | -597 | 175,500 | 5,951 | 177,156 | |
| Office | -3,795 | 83,727 | 7,460 | 87,500 | |
| Mixed retail & office | 1,791 | 65,880 | 449 | 64,000 | |
| Industrial | 1,163 | 23,663 | -1,512 | 22,470 | |
| Residential | 244 | 2,230 | -446 | 3,186 | |
| Slovakia | 0 | 15,870 | -39 | 15,821 | |
| Mixed retail & office | 0 | 15,870 | -39 | 15,821 | |
| Hungary | -2,261 | 44,758 | 4,413 | 31,300 | |
| Mixed retail & office | 945 | 15,612 | -314 | 14,550 | |
| Mixed office & parking | -602 | 15,000 | 4,886 | 0 | |
| Hotel | 0 | 3,000 | -335 | 3,000 | |
| Office | -2,604 | 11,146 | 176 | 13,750 | |
| Poland | -37 | 12,201 | 28 | 12,230 | |
| Mixed logistics & industrial | 0 | 6,588 | -122 | 6,580 | |
| Office | -37 | 5,613 | 150 | 5,650 | |
| Luxembourg | 0 | 24,967 | -2,494 | 22,017 | |
| Office | 0 | 24,967 | -2,494 | 22,017 | |
| Other | 27 | 1,360 | 79 | 1,334 | |
| Residential | 27 | 900 | 84 | 874 | |
| Mixed retail & residential | 0 | 460 | -5 | 460 |
| 2011 Revaluation |
Fair Value 30.06.11 |
2010 Revaluation |
Fair Value 31.12.10 |
|
|---|---|---|---|---|
| Land bank | 502 | 44 106 | 15 181 | 50 340 |
| Czech Republic | 626 | 23 268 | -88 | 22 880 |
| Land Bank | 165 | 5 366 | 116 | 5 620 |
| Residential development | 422 | 16 509 | -12 | 15 920 |
| Retail & office development | 3 9 |
1 393 | -192 | 1 340 |
| Germany | 0 | 2 020 | 19 985 | 2 020 |
| Mixed use development | 0 | - | 20 725 | 0 |
| Office development | 0 | 1 100 | -800 | 1 100 |
| Retail & office development | 0 | 920 | 6 0 |
920 |
| Russia | 0 | 0 | -2 115 | 6 500 |
| Land bank | 0 | 0 | -2 115 | 6 500 |
| Poland | -123 | 18 348 | -2 578 | 18 470 |
| Residential development | -123 | 18 347 | -2 583 | 18 470 |
| Land bank | 0 | 1 | 5 | 0 |
| Croatia | - 1 |
470 | -23 | 470 |
| Land bank | - 1 |
470 | -23 | 470 |
| Other | - | - | 0 | - |
| Buildings under finance lease | - | - | 0 | 0 |
| Extended stay hotels | 907 | 27 270 | 4 615 | 26 300 |
| Buildings under construction | 768 | 54 607 | -7 348 | 45 400 |
| Retail Hungary | 768 | 54 607 | -7 348 | 45 400 |
| TOTAL | -351 | 891 154 | 25 961 | 888 036 |
A) Investments/ Acquisitions
During the year, the Group has invested EUR 26.4 million in investment property representing mainly capitalization on buildings under construction and investments for zoning and building permits. These investments have been partially financed by new bank loans for EUR 6.4 million.
During the year, the net book value ("NBV") of the assets sold represents EUR 50.6 million, for a total sale price of EUR 52.5 million out of which EUR 31.4 million have been used to repay the bank loans, with a total net gain compared to the December 2009 DTZ valuation amounting to EUR 1.9 million and composed mainly of the following disposals:
Freehold buildings:
The movement in fair value of the assets relates mainly to Freehold buildings and Land banks:
The transfers are mainly made of the following movements:
1) Freehold buildings
Main incoming assets:
Main outgoing assets:
The land plots of Bialystok (EUR 2.1 million) in Poland and Wertheim (EUR 112.7 million) in Germany have been transferred to assets held for sale (see note 7).
| Hotels and owner-occupied buildings |
Owner-occupied buildings |
Prepaid operating leases |
Hotels | TOTAL |
|---|---|---|---|---|
| GROSS AMOUNT | ||||
| Balance as at 31 December 2009 | 113 199 | 2 164 | 181 140 | 296 503 |
| Investments / acquisitions | 231 | - | 79 | 310 |
| Disposal | -224 | - | - | -224 |
| Transfer | - | - | 5 695 | 5 695 |
| Translation differences | 4 031 | - | 2 582 | 6 613 |
| Balance as at 31 December 2010 | 117 237 | 2 164 | 189 496 | 308 897 |
| Investments / acquisitions | 76 | - | 130 | 206 |
| Transfer | -3 530 | - | - | -3 530 |
| Transfered to assets held for sale | -286 | -286 | ||
| Translation differences | -88 | - | 894 | 806 |
| Balance as at 30 June 2011 | 48 910 | 2 164 | 190 520 | 241 594 |
| AMORTISATION AND IMPAIRMENT | ||||
| Balance as at 31 December 2009 | 50 825 | 1 167 | 29 118 | 81 110 |
| Allowance | 296 | 13 | 1 186 | 1 495 |
| Impairments | 329 | 253 | 11 268 | 11 850 |
| Write back impairments | -8 401 | - | -401 | -8 802 |
| Transfer Translation differences |
- 66 |
- - |
599 16 |
599 82 |
| Balance as at 31 December 2010 | 43 115 | 1 433 | 41 786 | 86 334 |
| Allowance | -1 | 1 | 106 | 106 |
| Translation differences | -1 | - | 66 | 65 |
| Impairments | 2 760 | - | 416 | 3 176 |
| Other | (286) | -99 | - | -385 |
| Balance as at 30 June 2011 | 45 587 | 1 335 | 42 374 | 89 296 |
| NET AMOUNT as at 30 June 2011 | 3 323 | 829 | 148 146 | 152 298 |
| Net amount as at 31 December 2010 | 74 122 | 731 | 147 710 | 222 563 |
25 assets (EUR 37.6 million) financed by bank loans in local special purpose entities are fully pledged for EUR 36.2 million.
The impairment test based on the DTZ valuation as at 31.12.10 amended for operating results of Hotels during 6 months 2011 comprises impairment write off amounting to EUR 2.8 million of which EUR 2.7 Million for Suncani Hvar.
22 projects (EUR 200.1 million) financed by bank loans located in special purpose entities are fully pledged for EUR 102.0 million.
During the year, the hotel Sirena on the Island of Hvar has been transferred back from assets held for sale to the hotel portfolio, as the Group does not intend to sell this property on a short term basis (acquisition cost of EUR 6.3 million and related amortisation of EUR 0.6 million).
As of December 31, 2010, the Group is expecting to sell one hotel in Hvar which has been transferred to assets held for sale: Café Pjaca (EUR 0.6 million) (see note 10).
Moreover, the Group entity Suncani Hvar sold the asset "Manager"s house" to Orco Adriatic, a subsidiary of Orco, held at 100%. This asset is recognized in inventory in Orco Adriatic.
The impairment tests based on the DTZ valuation reported as at December 2010 led to the recognition of the following impairments:
Moreover, the impairment test led to the derecognition of part of the impairment from 2009 on the Andrassy hotel in Budapest for EUR 0.4 million, on the Molcom warehouse for EUR 8.3 million and on the Hvar headquarter for EUR 0.1 million.
| 30 June 2011 |
31 December 2010 |
|
|---|---|---|
| Opening Balance | 418,957 | 482,605 |
| Net impairments | -4,022 | -8 |
| Transfers | -10,926 | 80,624 |
| Translation differences | 3,435 | 11,231 |
| Development costs | 15,614 | 10,275 |
| Cost of goods sold | -16,733 | -165,770 |
| Closing Balance | 406,325 | 418,957 |
Inventories are properties developed with the intention to resell.
Development costs amounting to EUR 15.6 million have been capitalized mainly on Zlota 44 (EUR 8.7 million), Bubny (EUR 2.6 Million), Mostecka (EUR 1.1 million), Sky Office (EUR 1.1 million) and Benice (EUR 1.0 Million).
Cost of goods sold amounting to EUR 16.7 million have been registered mainly for residential projects as following: Mostecka (EUR 3.8 million), Kosic (EUR 2.4 million), Koliba (EUR 2.1 million), Malborska (EUR 1.9 million), Spynderluv Mlyn (EUR 1.2 million), Nove Dvory (EUR 1.1 million), Benice (EUR 0.8 million) and Drawska (EUR 0.6 million).
The transfers arise on Russian activities reclassified to assets held for sale for EUR 11.9 million partially compensated by a reclassification of Hochwald for EUR 1.0 million from Investment Property to Inventories after obtaining building permit and approval by the Investment Committee for completing a land development for resale of parcels: Koliba (EUR -1.6 million), Benice (EUR -1.6 million), Mostecka (EUR -0.8 million),Vavrenova (EUR -0.6 million). Write back of impairments have been recognized mainly on Kosic EUR 0.5 million.
8 projects in development (EUR 353.7 million) are pledged for a total amount of EUR 173.3 million.
Development costs amounted to EUR 10.3 million have been capitalized mainly for Mostecka (EUR 2.6 Million), Benice (EUR 0.7 million), Bubny (EUR 1.3 million), Sky Office (EUR 0.4 Million) and Zlota (EUR 0.2 Million).
Cost of goods sold amounting to EUR 165.8 million have been registered mainly for:
The transfers arise mainly from the project Bubny (EUR +80.6 million), transferred from Investment Property to Inventories.
Impairments have been recognized mainly on the following projects:
Radotin: EUR 0.9 Million
Koliba: EUR 0.5 Million
Impairments have been reversed on the following projects:
8 projects in development (EUR 379.4 million) are pledged for a total amount of EUR 182.8 million.
| Assets held for sale | June 2011 |
December 2010 |
Liabilities linked to assets held for sale |
June 2011 |
December 2010 |
|---|---|---|---|---|---|
| Opening Balance | 131,898 | 48,930 | Opening Balance | 76,494 | 51,451 |
| Asset Sales | -114,762 | -19,360 | Asset sales | - | -15,473 |
| Transfer | 117,887 | 112,707 | Transfer | 39,049 | 54,402 |
| Accrued interest | - | 285 | |||
| Repayment of loans | -66,000 | - | |||
| Reclassified from assets held for sale due to changes to plans of sale |
-15,602 | -10,000 | Reclassified from liabilities linked to assets held for sale due to changes to plans of sale |
-10,916 | -13,616 |
| Translation differences | 645 | -379 | Translation differences | 421 | -555 |
| Closing Balance | 120,066 | 131,898 | Closing Balance | 39,048 | 76,494 |
As at 30 June 2011 the Group approved the sale of following assets:
Total liabilities linked to assets held for sale include bank loans amounting to EUR 24.7million and other operating liabilities for EUR 14.5 million.
Condensed consolidated interim Income Statement of Russian group of activities for 6 months:
| June | June | |
|---|---|---|
| 2011 | 2010 | |
| Revenue | 12,018 | 9,316 |
| Net gain /(loss) from fair value adjustments | ||
| on investment property | -9 | 0 |
| Other operating income | 44 | 79 |
| Net result on disposal of assets | 0 | 0 |
| Cost of goods sold | 166 | -55 |
| Employee benefits | -8,242 | -5,159 |
| Amortisation, impairments and provisions | -4,563 | 78 |
| Other operating expenses | -2,091 | -1,834 |
| Operating result | -2,677 | 2,425 |
| Interest expenses | -751 | -948 |
| Interest income Foreign exchange result |
1,162 -699 |
1,841 -4,213 |
| Other net financial results | -10 | -9,356 |
| Financial result | -298 | -12,676 |
| Profit/(loss) before income taxes | -2,975 | -10,251 |
| Income taxes | -367 | 1,265 |
Impairment amounting to EUR 4.5 million comprise difference between net assets and potencial consideration on third parties receivables.
Over the first half a year 2011 Leipziger Platz plot of land with a value of EUR 113.5 million and Bialystok plot of land with a value of EUR 2.09 million were sold. EUR 66 million of bank loan have been repaid upon the sale of Leipziger Platz.
The sale plans of Szervita office and car park buildings with a total value of EUR 15.6 million and EUR 10.9 million of liabilities have been canceled and reclassified accordingly.
As at December 31, 2010, 3 assets held for sale (EUR 127.7 million) financed by bank loans located in special purpose entities are pledged for the amount of EUR 76.2 million.
As at December 31, 2010, the Group decided to sell 6 assets from its investment property portfolio (5 in 2009). These assets have been transferred in assets held for sale.
Moreover, the Group deconsolidated the project Stein located in Slovakia (EUR 10.0 million) as this entity is in liquidation. The bank debt on this asset amounts to EUR 13.3 million and accrued interest amounts to EUR 0.3 million. As the bank loan was covered by a guarantee issued by the Company, a provision (corresponding to the net present value of the difference between the expected payments by the company and the restated net sales price of the asset) has been recognized for an amount of EUR 1.1 million (See note 19).
As at December 31, 2010, 3 assets previously recognized as held for sale have been transferred back to investment property or to the Hotel portfolio for EUR 19.2 million:
The expected sales of the these projects in 2009 have not been finalized and no other potential buyers have been identified for the sale of these assets.
Moreover, two assets located in Germany and previously recognized as held for sale have been sold during the year:
As at 30 June 2011, the cash and cash equivalents consist of short term deposits for EUR 1.1 million (EUR 3.9 million as at 31 December 2010), cash in bank for EUR 35.0 million (EUR 49.4 million as at 31 December 2010) and cash in hand for EUR 0.7 million (EUR 0.1 million as at 31 December 2010).
Cash in bank include restricted cash amounting to EUR 18.1 million (EUR 24.3 million as at 31 December 2010), representing:
In January 2011 a 100% subsidiary of ORCO Property Group S.A. bought 1.9 million shares and 1.0 million warrants of ORCO Germany S.A. for EUR 1.5 million from the former management of that company. This transaction resulted in a direct and indirect increase of the percentage of interest of the Group in Orco Germany S.A. and its subsidiaries from 58.94% to 62.84% and a net increase of the consolidated reserves group share of EUR 1.7 million.
In the 1st quarter of 2011 the Company capitalised the equity loan granted to Orco Property s.p.z.o.o. This transaction resulted in a direct and indirect increase of the percentage of interest of the Group in that company holding the Zlota 44 project from 75.0% to 95.5% and a net increase of the consolidated reserves group share of EUR 0.9 million.
Kosic s.à r.l. owned at 50% by the Group repaid part of its share premium to the Company without change of ownership leading to a net increase of the consolidated reserves group share of EUR 0.9 million.
In 2010, the Group increased its stake in the company Office II invest S.A. to 100%. It results to an increase of the noncontrolling interests of EUR 0.3 million.
In January 2010, the joint venture company Kosic S.à.r.l. repaid part of the share premium to both joint venture holders, the Group and GECGE Kosik Investors S.à.r.l, for EUR 1.9 million. According to the agreement with the partners, the Company received EUR 0.5 million, with a net impact on the consolidated reserves of the Group of EUR - 0.4 million.
At 30 June 2011, the long term Bank loans amortized cost of bank loans amounts to EUR 195.0 million (see note 10.2) and the current Bank loans amortized cost of bank loans amounts to EUR 681.4 million (see note 10.3) have together an estimated fair value of EUR 876.4 million.
| Non-current bonds | Convertible bonds |
Non Convertible bonds |
TOTAL |
|---|---|---|---|
| Balance at 31 December 2010 | 57 109 | 178 557 | 235 667 |
| Own bonds | 1 391 | 7 821 | 9 212 |
| Interest | 6 576 | 11 996 | 18 571 |
| Transfer to Short term | -7 731 | -110 435 | -118 166 |
| Balance at 30 June 2011 | 57 347 | 87 939 | 145 286 |
As at June 2011, the fair value of the long term part and the short term part (see note 10.3) of the Safeguard bonds together with the bonds issued by Orco Germany S.A. is etablished at EUR 272.8 million compared to EUR 250.5 million as at 31 December 2011. The increase is mainly driven by the change in net present value.
On 19 May 2010 the company"s safeguard plan was approved (see point 2.1.2). This resulted in a rescheduling of the repayment of the bonds nominal, accrued interests, and interest to accrue during the Safeguard plan, over ten years with effect from 30 April 2010 as described by the amortisation table included in note 2.1.2. Previous bonds have been derecognised and restructured bonds have been recorded at fair value at the date of the approval of the Safeguard plan. The fair value has been estimated by an independent expert (Grant Thornton). On the basis of comparables, the fair value of the Safeguard bonds was set at a total value excluding deductions from own bonds of EUR 142.9 million at 19 May 2010 of which EUR 133.9 million was classified as Non Current. The derecognition of the debts results in a gain of EUR 269.5 million.
As a consequence of the approval of the Safeguard plan, the terms of the restructured bonds are identical to the ones described in the 31 December 2009 consolidated financial statement except for the following points:
| Non-current financial debts | Bank loans | Other non-current borrowings |
Finance lease liabilities |
TOTAL |
|---|---|---|---|---|
| Balance at 31 December 2009 | 469 402 | 14 110 | 1 122 | 484 634 |
| Issue of new loans and drawdowns | 13 006 | 4 042 | 0 | 17 048 |
| Repayments of loans | -47 733 | -1 500 | -1 213 | -50 446 |
| Transfers | 70 792 | -39 | 36 | 70 789 |
| Translation differences | 4 418 | 493 | 55 | 4 966 |
| Balance at 31 December 2010 | 509 885 | 17 106 | 0 | 526 991 |
| Issue of new loans and drawdowns | 14 968 | 935 | 0 | 15 903 |
| Repayments of loans | -16 031 | - | 0 | -16 031 |
| Transfers | -311 628 | 370 | 0 | -311 258 |
| Translation differences | -2 192 | 100 | 0 | -2 092 |
| Balance at 30 June 2011 | 195 002 | 18 511 | - | 213 513 |
As at June 2011
Issue of new loans and drawdowns (EUR 15.0 million) arise mainly from the new drawdown of Molcom for EUR 14.4 million.
Repayment of loans relate mainly from Molcom (EUR 12.6 million), Gebauer Hofe (EUR 2.0 million) as extraordinary repayment and Apple Tree Investment for EUR 0.7 million.
During the first half transfer of bank loans (EUR 311.6 million) are mainly due to loans coming due within 12 months after 30 June 2011 as GSG for EUR 299.9 million or Na Porici for EUR 38.9 million and to the reclassification to liabilities linked to assets held for sales mainly Molcom for EUR 14.3 million partially compensated by the resolution of covenants breaches leading to a transfer to long term debt as for Gebauer Hofe (EUR 28.9 million), Paris Department Store (EUR 16.7 million) and Szervita (EUR 10.2 million) linked to assets held for sales. These covenant breaches have been solved by the signature of amendments to the original loan agreements during the first semester.
Other non-current borrowings are mainly equity loans from joint ventures and loans from partner companies.
Issue of new bank loans and draw downs (EUR 13.0 million) mainly relate to the refinancing for Molcom in Russia (EUR 12.3 million).
Repayment of bank loans (EUR -47.7 million) mainly relate to the following operations in Germany: sales of healthcare developments (EUR -27.9 million), sale of the Brunnenstr. 27 (EUR -1.1 million), Ku-dammstr. 103 (EUR -4.7 million), sale of part of the project Genestr. 5-6 (EUR -1.0 million) and repayment of the loan in Molcom after refinancing of the debt (EUR -10.1 million).
Transfers of bank loans (EUR 70.8 million) are mainly due:
to the reclassification of the bank loan of the project Kosic in the Czech Republic (EUR -4.5 million), that will fall due within twelve months.
to the reclassification in short term of the bank loan that has been repaid early 2011 (EUR -1.9 million) upon reception of the funds on Jeremiasova project sold in 2010.
to settlement of previous breaches on financial covenants for the bank loans financing the following projects:
In Slovakia: Dunaj (EUR 13.1 million);
In Germany: Invalidenstr. 112 (EUR 2.9 million);
In the Czech Republic: Bubny (EUR 5.5 million) and Vlatska (EUR 19.1 million).
Koliba (EUR 3.5 million) in Slovakia, extended till 2012, with an increase of the margin of 0.75% ;
Na Porici (EUR 37.6 million) in the Czech Republic, extended till 2012, with an increase of the margin of 1.5%;
As at 31 December 2010, the total carrying value of non-current loans in breach due to non respected covenants amounts to EUR 101.9 million (EUR 156.0 million as at 31 December 2009) (not included in the table above).
Other non-current borrowings are mainly equity loans from joint ventures and loans from partner companies. The new loans (EUR 4.1 million) mainly relate to Praga, Benice and Hospitality (EUR +0.1 million, EUR +0.5 million and EUR +3.4 million respectively).
As at 30 June 2011, the movements in current loans are the following:
| Current financial debts | Bank Loans | Bank loans linked to assets held for sales |
Other current borrowings |
TOTAL |
|---|---|---|---|---|
| Balance at 31 December 2009 | 593 474 | 51 451 | 2 302 | 647 227 |
| Issue of new loans and drawdowns | 6 924 | 0 | 307 | 7 231 |
| Repayments of loans | -75 224 | -29 088 | -6 152 | -110 455 |
| Write off of Bank loan | -13 606 | - | -13 616 | |
| Transfers | -130 023 | 54 686 | 4 490 | -70 846 |
| Translation differences | -209 | -554 | 9 | 6 235 |
| Balance at 31 December 2010 | 388 326 | 76 494 | 956 | 465 776 |
| Issue of new loans and drawdowns | 10 421 | - | 1 636 | 12 057 |
| Repayments of loans | -16 475 | -66 000 | -6 692 | -89 167 |
| Transfers | 294 893 | 13 829 | 4 297 | 313 019 |
| Translation differences | 4 279 | 421 | 23 | 4 724 |
| Balance at 30 June 2011 | 681 444 | 24 745 | 220 | 706 409 |
The total current financial debts includes the loans linked to assets held for sales for EUR 24.7 million (see note 7 assets held for sales) and excludes the short term portion of bonds for EUR 118.2 million (see table bellow).
The issue of new loans (EUR 10.4 million) mainly relates to further drawdowns in Vaci 1 and Jozefslaw (EUR 6.8 million and EUR 1.5 million respectively).
The repayment of bank loans (EUR 82.5 million) is mainly related to the sales of Leipziger Platz (EUR 66.0 million) then Invalidenstrasse (EUR 3.9 million) for the assets sales, Mostecka (EUR 4.6 million), Koliba (EUR 2.9 million) and Klonowa (EUR 1.8 million) for the residential projects.
Transfers of bank loans (EUR 308.7 million) are mainly due to loans that have become due within the next 12 months after 30 June 2011 as GSG (EUR 299.9 million) and transfer in liabilities linked to assets held for sales as Molcom (EUR 14.3 million).
As at 30 June 2010, the movements in current bonds are the following:
| Current bonds | Convertible bonds |
Non Convertible bonds |
TOTAL |
|---|---|---|---|
| Balance at 31 December 2010 | 2,925 | 5,297 | 8,222 |
| Repayment of bonds | -2,925 | -5,297 | -8,222 |
| Transfer from Long term | 7,806 | 110,359 | 118,165 |
| Balance at 30 June 2011 | 7,806 | 110,359 | 118,165 |
In 2011
| At 30 June 2011 | Less than one year | 1 to 2 years | 2 to 5 years | More than 5 years | Total |
|---|---|---|---|---|---|
| Non-current | |||||
| Bonds | - | 23,505 | 92,422 | 29,358 | 145,285 |
| Convertible bonds | 9,356 | 46,106 | 9,007 | 64,469 | |
| Non Convertible | - | 14,149 | 46,316 | 20,351 | 80,816 |
| Financial debts | - | 45,475 | 110,183 | 57,856 | 213,514 |
| Bank loans | - | 45,475 | 110,183 | 39,345 | 195,003 |
| Bank loans fixed rate | - | 10,434 | 1,449 | 8,282 | 20,165 |
| Bank loans floating rate | - | 35,041 | 108,734 | 31,063 | 174,838 |
| Other non-current borrowings | - | - | - | 18,511 | 18,511 |
| Total | - | 68,980 | 202,605 | 87,213 | 358,798 |
| Current | |||||
| Bonds | 118,165 | - | - | - | 118,165 |
| Convertible bonds | 9,267 | - | - | 9,267 | |
| Non Convertible | 108,898 | - | - | 108,898 | |
| Financial debts | 681,662 | - | - | - | 681,662 |
| Bank loans | 681,442 | - | - | - | 681,442 |
| Bank loans fixed rate | 655 | - | - | - | 655 |
| Bank loans floating rate | 680,787 | - | - | - | 680,787 - |
| Other borrowings | 220 | - | - | - | 220 |
| Liabilities linked to assets held for sale | 24,745 | - | - | - | 24,745 |
| Bank loans floating rate | 2,011 | - | - | - | 2,011 |
| Bank loans fixed rate | 22,734 | - | - | - | 22,734 |
| Total | 824,572 | - | - | - | 824,572 |
| TOTAL | 824,572 | 68,980 | 202,605 | 87,213 | 1,183,370 |
The other non-current borrowings mainly relate to equity loans granted by our partners in joint ventures.
The Group has entered into interest rate derivatives representing 54% of the non-current floating rate borrowings (81.% in 2010) and 50% of the current floating rate borrowings (22% in 2010), in order to limit the risk of the effects of fluctuations of market interest rates on its financial position and future cash flows. Most floating interest debt instruments have a fixing period of maximum 3 months.
Bank loans include amounts secured by a mortgage on properties with a value of EUR 0.920 billion (EUR 0.969 billion as at 31 December 2010), in addition to a pledge on the shares of the special purpose vehicles.
Liabilities linked to assets held for sales in current represent the loans in respect of Molcom, Ku-Damm 102, Brunnestrasse 156, and Wertheim which are classified as held for sale and accrued interests amounting to EUR 24.7 million.
| At 31 December 2010 | Less than one year | 1 to 2 years | 2 to 5 years | More than 5 years | Total | |
|---|---|---|---|---|---|---|
| Non-current | ||||||
| Bonds | - | 115,474 | 82,107 | 38,086 | 235,667 | |
| Convertible bonds | - | 7,611 | 37,466 | 12,032 | 57,109 | |
| Non Convertible | - | 107,863 | 44,641 | 26,054 | 178,558 | |
| Financial debts | - | 368,372 | 91,562 | 67,057 | 526,991 | |
| Bank loans | - | 368,372 | 91,562 | 49,951 | 509,885 | |
| Bank loans fixed rate | - | 12,940 | 8,969 | 11,058 | 32,967 | |
| Bank loans floating rate | - | 355,432 | 82,593 | 38,893 | 476,918 | |
| Other non-current borrowings | - | - | - | 17,106 | 17,106 | |
| Total | - | 483,846 | 173,669 | 105,143 | 762,658 | |
| Current | ||||||
| Bonds | 8,222 | - | - | - | 8,222 | |
| Convertible bonds | 2,925 | - | - | - | 2,925 | |
| Non Convertible | 5,297 | - | - | - | 5,297 | |
| Financial debts | 389,282 | - | - | - | 389,282 | |
| Bank loans | 388,326 | - | - | - | 388,326 | |
| Bank loans fixed rate | 23,534 | - | - | - | 23,534 | |
| Bank loans floating rate | 364,792 | - | - | - | 364,792 - |
|
| Other borrowings | 956 | - | - | - | 956 | |
| Liabilities linked to assets held for sale | 76,494 | - | - | - | 76,494 | |
| Bank loans floating rate | 10,215 | - | - | - | 10,215 | |
| Bank loans fixed rate | 66,000 | - | - | - | 66,000 | |
| Accrued interests | 279 | - | - | - | 279 | |
| Total | 473,998 | - | - | - | 473,998 | |
| TOTAL | 473,998 | 483,846 | 173,669 | 105,143 | 1,236,656 |
The other non-current borrowings mainly relate to equity loans granted by our partners in joint ventures.
The Group has entered into interest rate derivatives representing 81.2% of the non-current floating rate borrowings (72.7% in 2009) and 21.7% of the current floating rate borrowings (35.7% in 2009), in order to limit the risk of the effects of fluctuations of market interest rates on its financial position and future cash flows. Most floating interest debt instruments have a fixing period of maximum 3 months.
Bank loans include amounts secured by a mortgage on properties with a value of EUR 0.969 billion (1.108 billion as at 31 December 2009).
Held for sale liabilities in Current represent the loans in respect of Szervita and Wertheim which are classified as held for sale and accrued interests amounting to EUR 0.3 million.
The carrying amount of the Group's borrowings is denominated in the following currencies:
The tables above describe the maturity of the Group"s borrowings. As at 30 June 2011, the total bonds and financial debts amount to EUR 1,186 million (EUR 1,237 million at 31 December 2010).
| As at 30 June 2011 | As at 31 December 2010 | |||||
|---|---|---|---|---|---|---|
| Principal | Accrued Interest |
Total | Principal | Accrued Interest |
Total | |
| Long term loans presented in ST | ||||||
| due to Financial covenant breach | 3,799 | - | 3,799 | 37,686 | - | 37,686 |
| due to Non repayment | 41,320 | - | 41,320 | 41,320 | - | 41,320 |
| due to Administrative breach | 4,300 | - | 4,300 | 4,300 | - | 4,300 |
| due to Financial and administrative breach | ||||||
| and/or non repayment | 21,767 | - | 21,767 | 18,566 | - | 18,566 |
| Total LT loans presented in ST | 71,186 | - | 71,186 | 101,872 | - | 101,872 |
| Short term loans in breach | ||||||
| due to Financial covenant breach | 13,080 | 0 | 13,080 | 13,980 | 70 | 14,050 |
| due to Non repayment | 36,649 | 11,004 | 47,653 | 32,807 | 8,131 | 40,938 |
| due to Financial and administrative breach | ||||||
| and/or non repayment | 190 | 789 | 979 | 18,272 | 687 | 18,959 |
| Total ST loans in breach | 49,919 | 11,793 | 61,712 | 65,059 | 8,888 | 73,947 |
| Total loans linked to assets held for sale | - | - | - | 10,215 | 892 | 11,107 |
| Total Loans in Breach | 121,105 | 11,793 | 132,898 | 177,146 | 9,780 | 186,926 |
While as at December 2010 EUR 101.9 million of long term loans were presented as short term, as at June 30 the long term loans presented in short term amount to EUR 69.4 million and are mainly composed of Suncani Hvar bank loans for EUR 40.9 million due to non repayment, Main Budapest Bank for EUR 20.6 million due to financial and administrative breaches, Huettenstrasse for EUR 4.3 million due to administrative breaches and Marki EUR 3.8 million due to financial covenants breaches. The change over the first half of 2011 is due to the closing of an admendment solving the breaches for the loan financing the Gebauer Hofe office building and the sale of Invalidenstrasse.
The decrease of the amount of short term loans with covenant breaches is mainly explained by the signature of an admendment solving the breach for the loan financing the project Paris Department Store.
The decrease of the amount of short term loans linked to assets held for sale with covenant breaches is mainly explained by the signature of an admendment solving the breach for the loan financing the Szervita buildings.
| 30 June 2011 |
31 December 2010 |
|
|---|---|---|
| Expiring within one year | 25,046 | 63,042 |
| Expiring after one year | 10,212 | 49,681 |
| Total | 35,258 | 112,723 |
The decrease is undrawn facilities is mainly due to the repayment of the credit lines on residential projects with the sale of units and the draw downs on construction facilities.
| 30 June 2011 |
30 June 2010 |
|
|---|---|---|
| Change in carrying value of liabilities at amortised cost | 0 | 269,549 |
| Change in fair value and realised result on derivative instruments | 3,848 | -1,238 |
| Change in fair value and realised result on other financial assets | 1,680 | 257 |
| Other net finance gains/ (charges) | 44 | -13,163 |
| Gain (loss) on other financial results | 5,572 | 255,405 |
Over the first half of 2010, the change in carrying value of liabilities relates to gains on the revaluation of bonds following the approval of the Safeguard plan. This arises from the derecognition of the value of bonds on the date of approval of the Safeguard plan (19 May 2010) of EUR 388.9 million and EUR 17.1 million accrued interest and recognition of the new valuation of EUR 135.9 million and own bonds of EUR 7.0 million. For further discussion see note 2.1 and note 10.
Change in the fair value of derivative instruments essentially relates to movements in fair value of derivative instruments linked to bonds issued by the Group and in fair value of other derivatives (IRS, options and forwards).
Other finance charges consist mainly of impairment of loan receivables registered in other current assets to third party (EUR - 9.4 million), finance and legal fees relating to the financial restructuring, and bank charges.
The current income tax expense recognized in the income statement amounts to EUR 0.1 million mainly as a result of current year transactions reflected in theIncome Statement.
| 30 June 2011 |
30 June 2010 |
|
|---|---|---|
| At the beginning of the period | 13,964,411 | 10,934,765 |
| Shares issued | 14,053,866 | 10,943,866 |
| Treasury shares | -89,455 | -9,101 |
| Weighted average movements | -244,805 | 1,304,000 |
| Issue of new shares | 1,304,000 | |
| Treasury shares | -244,805 | |
| Weighted average outstanding shares for the | ||
| purpose of calculating the basic earnings per share | 13,719,606 | 12,238,765 |
| Dilutive potential ordinary shares | 1,086,956 | - |
| Convertible bond | 1,086,956 | - |
| Weighted average outstanding shares for the | ||
| purpose of calculating the diluted earnings per share | 14,806,562 | 12,238,765 |
| Net profit/(loss) attributable to the Equity holders of the Company | -7,503 | 237,733 |
| Effect of assumed conversions / exercises | 6,578 | - |
| Convertible bond | 6,578 | - |
| Net profit /(loss) attributable to the Equity holders of the Company | ||
| after assumed conversions / exercises | -926 | 237,733 |
| Basic earnings in EUR per share | -0.55 | 19.42 |
| Diluted earnings in EUR per share | -0.06 | 19.42 |
Basic earnings per share is calculated by dividing the profit/(loss) attributable to the Group by the weighted average number of ordinary shares in issue during the period, excluding ordinary shares purchased by the Group and held as treasury shares.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.
This line includes mainly 3 financial assets:
This balance sheet caption includes only the net present value of the deferred consideration on the sale of Leipziger Platz amounting to EUR 24.2 million.
As a developer of buildings and residential properties, the Group is committed to finalize the construction of properties in different countries. The commitments for the projects started as at June 2011 amount to EUR 95 million (EUR 104 million in December 2010). This does not take into account the potential investments in future projects like Bubny in Prague or hotels to be refurbished in Suncani Hvar.
The members of the Board of Directors of the Company and of the Executive Committee are considered as the key management personnel of the Group. In 2010, the Executive Committee was made of 6 people. After one departure and two nominations in 2011, the Executive Committee is made of 7 members.
Over the first half of 2011, total compensation given as short term employee benefits to the members of the Executive Committee amounted to EUR 2.6 Million (EUR 1.8 Million for the full year in 2010). This compensation includes an amount of EUR 750 thousand paid in cash with the obligation to reinvest immediately in the acquisition from the Company of treasury shares (such transactions are described under point c of this note). As at 30 June 2011, the cumulated balance to be paid at the termination of the contract of current executive board members amounts to EUR 0.5 Million (EUR 0.4 Million as at December 2010).
In November 2009, the Board of Directors of the Company approved the remuneration plan for Board, Committee and General Meeting attendances that applies to all Board members except the management who is paid by the Company. A compensation of EUR 1,000 is granted to each Board and Committee member for all physical attendance. A compensation of EUR 1,500 is granted for the attendance as president to all Committee meetings. EUR 4,500 is granted to compensate the President presiding an ordinary and extraordinary general meeting of shareholders. Over the first half of 2011 the Board and Committees attendance compensation amounts to EUR 130,500 (EUR 96,500 for the full year in 2010), including General Meetings presidency compensations. On its meeting held 25 May 2011, the Board of Directors agreed that compensation granted to each Board and Committee member for all physical attendance shall be increased to EUR 4,000. The compensation to the President presiding an ordinary and extraordinary general meeting of shareholders shall be increased to EUR 9,000.
In a decision taken in 2006, the Board of Directors of the Company granted to some members of the management of the Group a termination indemnity payment for a total amount of EUR 34 Million. As a result of the reduction of the number of persons covered by this termination agreement as at 31 December 2010, the potential termination indemnity payment amounted to EUR 16 Million (EUR 16 Million as at 31 December 2009). This indemnity would become payable by the Company to the relevant management members only in case of change of control of the Company and in case the relationship between the Company and the management member is terminated by either party within a period of 6 months after the change of control.
On 16 February 2007, the Company has granted a loan of EUR 61,732 to Steven Davis, one former executive of the Company with maturity date on 1 March 2008. In 2009, the loan has been fully impaired as a result of the dispute on the termination of the employment contract of Steven Davis. As at 30 June 2011, litigation is pending in front of Luxembourg court.
Steven Davis also benefited from a loan of CZK 1,520,000 (EUR 56,438) from Orco Project Management s.r.o. (now Orco Prague, a.s.), a fully owned subsidiary of the Company, granted on 20 November 2006, with maturity date at 31 December 2008. In 2009, the Company has launched legal action to recoup this receivable and the loan has been fully impaired. In 2010, the first instance court in Prague pronounced a judgment by which Mr. Davis shall return to Orco Prague a.s. CZK 1,020,000, but accepted Mr. Davis"s defense counterclaim for CZK 500,000. Orco Prague a.s. appealed the decision with respect to CZK 500,000. The court of appeals sided with Orco Prague"s appeal and ordered Steven Davis to repay the remaining CZK 500,000. Mr. Davis already paid CZK 1,020,000. Orco Prague a.s. also sued Mr. Davis for CZK 700,000 for unjust enrichment and IPB Real a.s. sued Mr. Davis for CZK 86,000 for unpaid rent. These litigations are pending as at 30 June 2011.
Over 2010, no sales of asset with members of the Executive Committee were closed. Over the first half of 2011, one apartment was sold to a member of the Board of Directors for a total amount of EUR 305 thousand at no discount.
In first half of 2011, OTT & Co. S.A. a member of the Board of Directors purchased total of 50,388 Company ordinary shares from the Company"s subsidiary for an aggregate amount of EUR 433,337, or EUR 8.60 per share. In first half of 2011, an entity closely associated to Nicolas Tommasini, a member of the Board of Directors purchased total of 27,132 Company ordinary shares from the Company"s subsidiary for an aggregate amount of EUR 233,335, or EUR 8.60 per share. Both of these transactions were approved by the Board of Directors on 21 March 2011 (at no discount compared to the closing price on the last trading day preceding the Board of Directors meeting).
Two entities closely associated to Gabriel Lahyani, a member of the Board of Directors acquired 8,890 bonds (ISIN: XS0302623953) of ORCO Germany S.A. from the Company"s subsidiary for a total of EUR 4,4 Million. As of the date of this report, the amount of EUR 227,480 is owed to the Company as a consequence of this transaction.
A subsidiary of ORCO Germany S.A. acquired from an entity closely associated to Rainer Bormann, a former ORCO Germany Board member 1,150,000 ORCO Germany Warrants (ISIN XS0302626889) and 1,900,000 ORCO Germany ordinary shares (ISIN LU0251710041) for a total of EUR 1,520,000.
The Group is the sponsor of a Luxembourg regulated closed end umbrella investment fund dedicated to qualified investors, the Endurance Real Estate Fund. This fund has opted for the form of a "Fonds Commun de Placement". The Company is the shareholder of the management company of the Fund and has also invested in the three sub-funds existing as at 30 June 2011 (see note 14). As at 30 June2011, the Group"s subscription to the office I, office II and residential sub-funds represent respectively 16.16%, 15.69% and 5.79% of the total subscription (in 2010, 16.16%, 15.69% and 5.79% respectively).
Orco"s remuneration from the office and residential sub-funds amounting to EUR 1.6 Million in 2011 (EUR 3.5 Million in 2010) is linked to:
As at 30 June 2011, open invoices for unpaid management fees amounted to EUR 8.8 Million (EUR 8.8 Million as at December 2010). The investment process foresees that any investment proposed by the fund manager has first to be approved by the investment committee. This committee is made of a representative of each investor. The Company provided a subordinated bridge loan to BB C – Building E, k.s., a Czech subsidiary of the Endurance Fund, pursuant to the loan agreement dated 15
October 2010. The loan was used to cover an extraordinary payment required by the financing bank. The loan amounting to EUR 798 123 has a final repayment date of 26 August, 2013 and bears an annual interest of 30%.
Besides the fund management, there are transactions between the Group and Endurance Fund companies as a consequence of OPG companies renting offices in Endurance Fund buildings and OPG companies rendering administrative, financial or property management services. These transactions resulted in the recognition of EUR 0.6 Million revenue (EUR 0.7 Million in 2010) and EUR 0.2 Million expenses (EUR 0.5 Million in 2010). They also resulted as at 30 June 2011 in a net payable of EUR 0.01 Million ( a net receivable of EUR 0.4 Million as at 31 December 2010)
In 2007, the Group sold in the form of Future Purchase Contract 24 apartments to a subsidiary of the residential Endurance subfund for a total amount of EUR 11.1 Million. In 2009, the investment board of the Fund decided to cancel this acquisition and the advance payment of EUR 1.3 Million has been registered in the consolidated income statement.
On 10 June 2010, a third party filed an opposition with the Commercial Court of Paris regarding the 19 May 2010 judgment approving the Company"s Safeguard plan. This third party opposition was filed by Maitre François Kopf attorney for bondholder representative for the "OBSAR 2012"(ISIN FR0010249599), "convertible 2013" (ISIN FR0010333302), and "OBSAR 2014" (ISIN XS0291838992 and XS029184062). This third party opposition contests the maximum bond liability to be reimbursed within the Safeguard plan.
On 17 May 2011, the bondholders" representative filed a request to the juge commissaire to obtain an interpretation of the juge commissaire"s admission of the bond debt. The requests were pleaded in front of the juge commissaire on 21 June 2011. The decision shall be rendered in the course of September 2011. Then on 27 September 2011, a new hearing will occur on the request of the Bondholders" representative to contest that the total amount of bond debt admitted by the "juge commissaire" is complete.
The pleadings in front of the Commercial Court of Paris on the Tierce opposition can only continue validly once the juge commissaire decision will be rendered and becomes definitive. As long as the Court has not rendered a decision on the third party opposition, the underlying judgment approving the Safeguard plan is fully effective. The Company deplores that the Court hearing has been postponed in several occasions.
If the creditors are successful in challenging the Safeguard plan, the Court may determine to put the Company in a rehabilitation or judicial liquidation proceeding. A rehabilitation proceeding or judicial liquidation may materially adversely affect the Group's business, financial condition, results of operations or prospects. The Company sees the risk of this opposition being accepted as remote.
On 22 February 2011 the Company announced that a settlement agreement was reached by Orco Property Group and Millenius, Fideicom and Bugle (collectively "the Parties"). As a result, the parties have agreed to end the legal claims which aimed to cancel the resolutions adopted by the General Assembly of 8 July, 2010 and the capital increases of 6, 8 and 14 April, 2010. Millenius, Fideicom, and Bugle have formally and irrevocably agreed to withdraw from all legal proceedings and abandon the positions they took during the course of these proceedings. Orco Property Group has accepted their withdrawal and abandonment without reservation.
Orco Property Group has signed on 29 July 2011 an agreement for the sale of a plot of 3,7ha on its downtown Bubny land in Prague to a joint venture between Orco and Unibail Rodamco, where Unibail Rodamco will be at minimum 60% ownership. Closing of the transaction is expected by early 2012 while the opening of the premium large shopping centre would take place in 2017.
Orco Property Group and Funds advised by Morgan Stanley Real Estate Investing ("MSREI") have entered into an agreement regarding MSREI"s investment in Orco. Subject to regulatory and internal approvals and final closing, Orco and MSREI have agreed that Orco will issue 3 Million ordinary shares in a private placement. The subscriptions of said Orco shares will be paid by MSREI through contributions of its stakes in Orco Germany and Endurance Real Estate Fund. Following the completion of the transaction, MSREI will become the largest shareholder of Orco with app. 18.7%. Orco will increase its stake in Orco Germany to app. 87.3% and in the two Sub-funds of Endurance Real Estate Fund as follows, 14.8 % in the Residential Subfund and 27 % in the Office I Sub-fund.
Orco Property Group and Surmena Enterprises Company Limited have entered into an agreement to sell the Group stake in its several Russian assets, including it"s logistic business, residential projects, office real estate and land plots for a total amount of EUR 53.0 million. The agreement remains subject to formal closing which is scheduled for September 2011. The first payment (15% of the sales price) is due upon closing with the balance to be paid over the coming 15 months.
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