Quarterly Report • Aug 27, 2015
Quarterly Report
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Q2
RomReal is a Company focusing on the Romanian Real Estate market. Established in 2005 it owns premium properties in Constanta and Bucharest.
Net Asset value was EUR 0.47 (NOK 4.04) per share at the end of Q2 2015, a 1.3% decrease compared to the end of Q1 2015.
| EUR '000 | Q2 2015 | Q2 2014 | YTD 2015 | YTD 2014 |
|---|---|---|---|---|
| Operating Revenue | 1,195 | 218 | 1,261 | 279 |
| Operating Expenses | (154) | (266) | (417) | (487) |
| Other operating income/ (expense), net |
(581) | (661) | (1,066) | (854) |
| Net financial income/(cost) | (1,272) | 747 | (301) | (568) |
| Pre-tax result | (812) | 38 | (523) | (170) |
| Result for the period | (866) | 98 | (571) | (170) |
| Total assets | 31,162 | 33,597 | 31,162 | 33,597 |
| Total liabilities | 11,733 | 12,398 | 11,733 | 12,398 |
| Total equity | 19,428 | 21,199 | 19,428 | 21,199 |
| Equity % | 62.3% | 63.1% | 62.3% | 63.1% |
| NAV per share (EUR) | 0.47 | 0.51 | 0.47 | 0.51 |
| Cash position | 303 | 669 | 303 | 669 |
The Net Asset Value (NAV) was reduced from EUR 19,684,000 in Q1 2015 to EUR 19,428,000 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 | Q2 2015 | Q1 2015 | ||||
|---|---|---|---|---|---|---|
| EUR '000 |
EUR/share | NOK/share | EUR '000 |
EUR/share | NOK/share | |
| Investment property |
27,363 | 0.66 | 5.69 | 28,439 | 0.69 | 6.07 |
| Inventories | 2,399 | 0.06 | 0.50 | 2,394 | 0.06 | 0.51 |
| Cash | 303 | 0.01 | 0.06 | 310 | 0.01 | 0.07 |
| Other assets/(liabilities) |
(10,636) | (0.26) | (2.21) | (11,460) | (0.28) | (2.44) |
| Net asset value | 19,428 | 19,684 | ||||
| NAV/Share | 0.47 | 4.04 | 0.48 | 4.20 | ||
| Change in NAV | -1.3% | -1.2% |
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 | Q1 2014 | Q2 2014 | Q3 2014 | Q4 2014 | Q1 2015 | Q2 2015 | |||
|---|---|---|---|---|---|---|---|---|---|
| Property value | 37,363 | 33,842 | 30,827 | 31,834 | 31,569 | 31,543 | 30,797 | 30,833 | 29,762 |
| NAV | 26,837 | 19,916 | 19,916 | 21,494 | 21,199 | 20,941 | 19,916 | 19,684 | 19,428 |
| Market cap | 5,335 | 1,520 | 7,623 | 6,426 | 7,479 | 8,974 | 7,541 | 8,438 | 10,053 |
| Market cap/NAV | 20% | 8% | 38% | 30% | 35% | 43% | 38% | 43% | 52% |
| EUR '000 | Q2 2015 | Q2 2014 | YTD 2015 | YTD 2014 |
|---|---|---|---|---|
| Net cash flow from operating activities |
(109) | (159) | (301) | (304) |
| Net cash flow used in investing activities |
994 | - | 989 | - |
| Net cash flows from financing activities |
(893) | - | (893) | - |
| Net cash change during period | (8) | (159) | (205) | (304) |
Operating cash flow for Q2 2015 was negative EUR 109,000 compared to negative EUR 159,000 last year. During the quarter, the buyer of the Brasov plot paid the remaining purchase price. The Company also received EUR 102,000 for sales of two plots on the Tartar Peninsula. EUR 893,000 was used to pay down the principal value of the Alpha bank loan.
RomReal had at the end of Q2 2015 EUR 303,000 in cash (Q2 2014: EUR 669,000). In addition the Company has a bond investment of EUR 743,000. The bond is issued by Svenska Handelsbanken and the Company expects the issuer to call the bond in December 2015 at par.
As the end of Q2 2015 the Company's consolidated interest-bearing debt amounted to EUR 11,505,000, representing principal amount of EUR 10,549,000 and interest accrued to date of EUR 955,000. The loan is secured with the Company's plots, and it has an interest
rate of EURIBOR + 300 bp. The loan falls due November 15, 2015 but the Company has an option to extend the loan one plus one years provided that the Company pays one year interest up front at the time of extension. The cash at hand and the financial bond investment are sufficient to extend the loan in November 2015.
The table below shows the interest bearing debt for RomReal Ltd as at end Q2 2015 and estimated at maturity:
| End Q2 2015 | 30 Nov 2015 |
|---|---|
| 10,549 | 10,549 |
| 955 | 1,122* |
| 11,505 | 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
Romania's economy continues to perform very well. It went into 2015 on a high note, expanding a notable 4.3% in the first quarter and 3.2% in the second quarter (annual growth compared to same quarter last year). The NBR cut the interest four times until May and lowered the monetary policy rate from 2.75% into the year to 1.75% in May. In June, the Romanian Parliament approved tax cuts that cut the general value-added tax (VAT) from 24% to the 2010 rate of 19%, 1.0 percentage point lower than outlined in the draft proposal. The Bill was returned by the President to the Parliament with proposals for a stepped reduction, but the Government plans for the approved tax package to take effect January 2016 at latest more or less in the initial form. This comes in spite of warnings from the EU and the IMF that the move would drive up the budget gap and threatens to undermine fiscal consolidation.
Nevertheless, the outlook for the Romanian economy is positive, led by a solid growth in consumer spending. Wages have continued to grow in 2015 after a 5.3% growth in 2014. At the same time, inflation is expected to remain very low, averaging only 0.9% this year. This should ensure robust real income growth, particularly as unemployment will gradually fall through the year.
2015 started with a general sense of optimism among investors and developers and witnessed a much more dynamic start of year as compared to the recent years. The most active segments have been land transactions and newly built apartments transactions, according to market analysis done by Crosspoint investment Banking & Real Estate.
Relationship between supply and demand for office space in classes A and B remained relatively steady during 2015. So far into 2015 over 60,000 sqm were already rented. Consequently, the vacancy rate dropped to about 13%, the lowest vacancy rate recorded from 2008 to present. The average rent for prime office space is 18.25 euros / sqm month.
Retail market:
RomReal Limited [second quarter 2015] Page 5 of 14
Regarding malls in Bucharest, the current stock amounts to 950,000 sqm. The Launch of Mega Mall during the second quarter of 2015 has added another 75,000 sqm to the total stock. Still, the next years are expected to add several new malls, including Victoria Centre and Park Lake.
Vacancy rates in the retail street in Bucharest are down, given the recent expansion activity of market players supermarkets, pharmacies, coffee shops and other street retailers.
Two large transactions have market the start of 2015 in the industrial developments market: the Czech CTP developer has acquired the Cefin Arad and Mercury logistic parks, while the acquisition of the portfolio of logistic developments of CA Immo by P3 has also been completed. NEPI, another active player has announced the launching of a fund focus on the industrial developments segment.
An intense activity was recorded in the land segment, where demand has increased in early 2015. Considering the terms of the offer, with both attractive construction permitting and asking price, a number of investors have stated to make acquisitions with a view to secure the basis for future developments.
If the land transactions market in the previous period was mainly represented by plots suitable to retailers, now other types of developers have also increased their activity.
This has been the case especially for transactions with land suitable for office building development but also for the residential development, most investors / developers looking to acquire land areas between 800-2000 sqm.
Several indicators point to a recovery in the residential market. During first half of 2015, building permits for houses and apartment buildings rose 3.3%. 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. Several developers that had put projects on hold reappear in the market with adjusted concepts (e.g. Neocity, Impact). A number of developers have also made new public housing projects.
The last years has seen most residential projects catering to standard quality needs and the basic Prima Casa program. In addition to the larger, standard quality developments, developers seem now to offer also more high-quality apartment projects catering to a more affluent group of buyers.
According to the largest online broker in Romania imobiliare.ro, apartment prices in Constanta have increased 6.1 per cent during the first 7 months of 2015, reaching EUR 905 per square meter. In Bucharest, housing prices have increased 0.2% during the same period and are currently estimated at an average of EUR 1,077 per square meter.
RomReal completed the sale of the Brasov plot and sold two more plots in Tatar peninsula during the quarter. After the end of the second quarter, RomReal has sold an additional three plots in Tatar Peninsula for ca. 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.
On 10 July 2015, RomReal announced the approval of a partial and conditional sale of 1,956 sqm of the Balada market plot, for a net price of EUR 537,900.
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. 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 Q3 2015.
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 | 2,637 |
| 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 Alexandriei plot | Bucharest Sector 5 | 13,263 |
| 12 Un-zoned land | Constanta | 865,062 |
| 13 Mamaia North plot | Navodari/Mamaia | 56,167 |
| Total | 1,249,180 |
Please see below the list of the top 20 shareholders in RomReal as of 21 August 2015.
| Shareholder | Holding | % |
|---|---|---|
| SIX SIS AG 25PCT ACCOUNT | 11,699,278 | 28.28 |
| THORKILDSEN KAY TØNNES | 5,415,756 | 13.09 |
| GRØNSKAG KJETIL | 3,850,307 | 9.31 |
| TONSENHAGEN FORRETNI | 1,614,444 | 3.90 |
| SILJAN INDUSTRIER AS | 1,600,000 | 3.87 |
| SEB Private Bank S.A | 1,323,372 | 3.20 |
| SAGA EIENDOM AS | 1,223,667 | 2.96 |
| CO/JONAS BJERG NTS TRUSTEES LTD | 1,058,306 | 2.56 |
| ENERGI INVEST A/S | 1,000,000 | 2.42 |
| SPAR KAPITAL INVESTO | 940,236 | 2.27 |
| Carnegie Investment CLIENT ACCOUNT | 851,692 | 2.06 |
| THORKILDSEN INVEST A | 829,478 | 2.01 |
| ORAKEL AS | 800,000 | 1.93 |
| HOEN ANDERS MYSSEN | 689,557 | 1.67 |
| CLEARSTREAM BANKING | 649,417 | 1.57 |
| PERSSON ARILD | 588,000 | 1.42 |
| LOHNE PER OVE | 508,500 | 1.23 |
| Skandinaviska Enskil A/C CLIENTS ACCOUNT | 508,384 | 1.23 |
| KBC SECURITIES NV A/C CLIENTS NON-TREA | 477,676 | 1.15 |
| DANSKE BANK A/S 3887 OPERATIONS SEC. | 457,998 | 1.11 |
| TOTAL TOP 20 | 36,086,068 | 87.24 |
Notes:
(1) This is the Top 20 Shareholder list as per 21 August 2015.
(2) The total issued number of shares issued at end Q2 2015 was 41,367,783.
(3) Thorkildsen Invest AS is a company controlled by RomReal CEO Kay Thorkildsen. Altogether RomReal CEO Kay Thorkildsen owns 15.09% of the Company.
(4) RomReal Director Arne Reinemo controls directly or indirectly SILJAN INDUSTRIER AS.
(5) The above list is the 20 largest shareholders according to the VPS print out; please note that shareholders might use different accounts and account names, adding to their total holding.
RomReal expects the recent positive development in the macroeconomic environment will reflect in a continued improvement of the real estate market in 2015. 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 has the necessary liquidity to extend the Alpha Bank loan in November 2015.
The Company expects further asset disposals at satisfactory prices in the quarters to come.
The financial statements for the Q2 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 Q2 2015 and Q2 2014. They are prepared for RomReal on a consolidated basis and use consistent accounting policies and treatments.
The operating revenue during Q2 2015 was EUR 1,195,000 compared to a total of EUR 185,000 in Q2 2014. The income relates to the sale of some of the land bank assets (EUR 1,138,000 in Q2 2015 vs EUR 125,000 in Q2 2014) and the rent received on some of the land bank assets awaiting development (EUR 57,000 in Q2 2015 vs EUR 60,000 in Q2 2014).
Total operating expenses amounted to EUR 154,000 in Q2 2015 compared to EUR 233,000 in Q2 2014. Out of these operating expenses, the payroll costs were EUR 70,000. Adjustment for inventories not considered, the total operating expenses of the Company in Q2 2015 were around 4% lower 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 derecognition/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 Q2 2015 there were no changes to the EUR values of the investment property.
The net of Other Operating Income/ (Expense) in Q2 2015 amounted to a net loss of EUR 581,000, compared to a net loss of EUR 661,000 in Q2 2014.
During Q2 2015, RomReal generated an operating profit of EUR 460,000, compared to a loss of EUR 709,000 in Q2 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 86,000. Foreign exchange result for Q2
RomReal Limited [second quarter 2015] Page 9 of 14
2015 was a loss of EUR 1,187,000 compared to a net foreign exchange gain of EUR 843,000 in Q2 2014. During the quarter the year the RON depreciated by 2% 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 Q2 2015 was a loss of EUR 812,000 compared to a gain before tax of EUR 39,000 in Q2 2014.
The Company's cash and cash equivalents position at end of Q2 2015 was EUR 303,000 compared to EUR 310,000 as at end of Q1 2015.
In 2013, the Group invested in a bond issued by Svenska Handelsbanken. The bond is issued in perpetuity but the issuer has a call option for 16 December 2015. The bond was acquired at 102.43% of par and carries a coupon of 4.19%. The bond is expected to be called by its issuer at par and the expected yield to maturity amounts to 3.01%. At the end of Q2 2015, the principal amount placed in the bond and the accrued interest totalled EUR 746,000.
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 | ||||
|---|---|---|---|---|
| Q2 2015 | Q2 2014 | YTD 2015 | YTD 2014 | |
| Rent revenue | 57 | 60 | 123 | 119 |
| Revenue from sale of assets | 1,138 | 125 | 1,138 | 127 |
| Operating revenue | 1,195 | 185 | 1,261 | 246 |
| Payroll expenses | (70) | (50) | (134) | (101) |
| Management fees | (16) | (16) | (32) | (32) |
| Inventory (write off)/reversal | 46 | (35) | 6 | (54) |
| General and administrative expenses | (114) | (132) | (257) | (267) |
| Operating expenses | (154) | (233) | (417) | (454) |
| - | ||||
| Profit/ (loss) before other operating items | 1,041 | (48) | 844 | (208) |
| Other operating income/(expense), net | (581) | (661) | (1,066) | (854) |
| Profit from operations | 460 | (709) | (222) | (1,062) |
| Interest income | 8 | 1 | 15 | 2 |
| Interest costs | (86) | (96) | (171) | (191) |
| Foreign exchange, net | (1,194) | 843 | (145) | 1,287 |
| - | ||||
| Result before tax | (812) | 3 9 |
(523) | 3 6 |
| Tax expense | (54) | 59 | (48) | 91 |
| Result of the period | (866) | 9 8 |
(571) | 127 |
RomReal Limited [second quarter 2015] Page 11 of 14
| Figures in thousand EUR | ||||
|---|---|---|---|---|
| ------------------------- | -- | -- | -- | -- |
| ASSETS | June 30, 2015 | December 31, 2014 |
June 30, 2014 |
|---|---|---|---|
| Non-current assets | |||
| Financial assets | 746 | 734 | 744 |
| Investment properties | 27,363 | 28,439 | 29,006 |
| Property, plant and equipment | 15 | 12 | 53 |
| Deferred tax asset | 76 | 126 | 237 |
| Total non current assets | 28,200 | 29,311 | 30,040 |
| Current assets | |||
| Inventories | 2,399 | 2,388 | 2,563 |
| Other short term receivables | 252 | 236 | 281 |
| Prepayments | 8 | 8 | 43 |
| Cash and cash equivalents | 303 | 507 | 669 |
| Total current assets | 2,962 | 3,138 | 3,556 |
| TOTAL ASSETS | 31,162 | 32,450 | 33,597 |
| EQUITY AND LIABILITIES | June 30, 2015 | December 31, 2014 |
June 30, 2014 |
| Equity | |||
| Share capital | 103 | 103 | 103 |
| Contributed surplus | 87,115 | 87,117 | 87,117 |
| Other reserves | 425 | 425 | 425 |
| Retained earnings | (68,178) | (66,413) | (66,414) |
| Result of current period | (571) | (1,767) | 127 |
| FX reserve | 534 | 449 | (159) |
| Total equity | 19,428 | 19,916 | 21,199 |
| Non current liabilities | |||
| Non current debt | - | 0 | 12,203 |
| Deferred income tax | 70 | 75 | 75 |
| Total non current liabilities | 7 0 |
7 5 |
12,278 |
| Current Liabilities | |||
| Bank debt | 11,505 | 12,230 | 0 |
| Other payables | 158 | 74 | 116 |
| Deferred income | 0 | 154 | 0 |
| Tax payable | 0 | 1 | 3 |
| Total current liabilities | 11,663 | 12,459 | 120 |
| TOTAL EQUITY AND LIABILITIES | 31,162 | 32,450 | 33,597 |
| Figures in thousand EUR | |||
|---|---|---|---|
| June 30, 2015 | December 31, 2014 |
June 30, 2014 | |
| Profit for the year | (571) | (1,767) | 127 |
| Other comprehensive income | |||
| Exchange differences on translation of foreign operations | 84 | 11 | (597) |
| Other comprehensive income for the year, net of tax | 8 4 |
1 1 |
(597) |
| Total comprehensive income for the year, net of tax | (486) | (1,756) | (471) |
| Figures in thousand EUR | |||
|---|---|---|---|
| June 30, 2015 | December 31, | June 30, 2014 | |
| 2014 | |||
| Net cash flow from operating activities | (306) | (466) | (304) |
| Net cash flow used in investing activities | 994 | 157 | - |
| Net cash flows from financing activities | (893) | (157) | - |
| Net cash change during period | (205) | (466) | (304) |
| Cash at beginning of period | 507 | 973 | 973 |
| Cash and cash equivalents at end of the period | 303 | 507 | 827 |
| June 30, 2015 | December 31, 2014 |
June 30, 2014 | |
|---|---|---|---|
| Equity at the beginning of the period | 19,916 | 21,671 | 21,671 |
| Result for the period | (571) | (1,767) | 127 |
| Other changes | 84 | 11 | (599) |
| Equity at the end of the period | 19,428 | 19,916 | 21,199 |
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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