Secure Property Development & Invest PLC/ Index: AIM / Epic: SPDI / Sector: Real Estate

29 June 2018

Secure Property Development & Investment PLC ('SPDI' or 'the Company')

 

2017 Audited Annual Results

 

Secure Property Development & Investment PLC, the AIM quoted South Eastern European focused property company, is pleased to announce its full year audited financial results for the year ended 31 December 2017.

 

Financial Highlights

·     EBITDA showed a 61% increase to €3,7m compared to €2,3m in 2016, mainly due to the sale of Delia Lebada, a plot of land in east Bucharest

Significant asset backing behind the Company:

·     Net Equity of €36,3 million as at 31 December 2017 (31 December 2016: €38,9 million)

·     NAV per share as at 31 December 2017 stood at GBP 0,31 and the discount of the current Market Value vis a vis this NAV widened to 63%

Successful management of portfolio costs:

·     10% further reduction in business costs to €2,35 million (2016: €2,6 million) - in line with strategy to reduce corporate costs

·     40% reduction in interest costs to ~€1,9m compared to ~€3,2m in 2016

·     Significant improvement in operating result after finance and tax expenses to €1,47m (compared to a €1,05m loss in 2016)

 

Operational Highlights

·     Romania, the fastest growing economy of the EU in 2017, is now the prime country of operations

·     Successful and profitable sale of primary Ukrainian asset (Terminal Brovary) completed at a Gross Asset Value of ~€15 million generating a profit for SPDI of ~€2,7 million and a cash inflow of ~ €3 million and reduces the Company's exposure to Ukraine to 12%

·     Profitable disposal of 65% owned ~40,000 sq m plot of land in Romania (Delia Lebada) for €2,4 million (net) and settlement of associated €6,6 million loan at a rate of 45 cents / Euro (totalling ~€3 million) using the disposal proceeds plus additional €550,000 payment; a transaction that generated a gain on disposal of €2.7m

·     Following the successful completion of these sales, the Gross Asset Value of the Company's properties stood at ~€82 million

·     Focused on executing the due diligence on, and raising the necessary funding for, a potential acquisition of the Olympians logistics property portfolio in Romania

 

Post Period End Highlights

·     On 17 January 2018, PM Capital Inc. , one of the Company's largest shareholders, lent the Company €1   m illion to be used for general working capital purposes

·     Board changes - appointment of Mr Michael Beys as Non-Executive Chairman and Mr Colin Chapin as a Non-Executive Director. Paul Ensor, previous Non-Executive Chairman, remains as a Non-Executive Director.

 

Lambros G. Anagnostopoulos, Chief Executive Officer, said , "61% increase in EBITDA to €3,7m, 10% reduction in total operating costs, 40% drop in interest costs, and a swing to a €1,47m operating profit after finance and tax, the financial headlines neatly encapsulate the excellent progress the Company has made in 2017 in focusing on disposing of non-core assets and streamlining our related cost base.  We embarked on this programme to lay the foundations for the next phase of the Company's growth, one which is centred on adding to our existing portfolio of prime real estate in our target South East European markets which, combined with our existing properties would transform SPDI into a major player in the South East European logistics property market. 

 

"A focus on fast-growing economies such as Romania, exposure to the ongoing European compression play, a portfolio of prime real estate let to blue chip customers, and a management team with a proven track record in identifying and securing properties at attractive yields, the growth credentials of SPDI are clear.  I am confident that the period ahead will see us make great strides towards delivering on our objective to build SPDI into the leading London-listed property company focused on selected emerging South East European countries and in the process close the 63% discount that has opened up between our share price and our NAV per share."

 

Copies of the Annual report and Accounts are being posted to Shareholders today and are available on the Company's website at www.secure-property.eu .

 

* * ENDS * *

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

 

For further information please visit www.secure-property.eu or contact:

 

Lambros Anagnostopoulos	SPDI	Tel: +357 22 030783
Rory Murphy Ritchie Balmer Jack Botros	Strand Hanson Limited	Tel: +44 (0) 20 7409 3494
Jon Belliss   Lottie Wadham Frank Buhagiar Megan Dennison	Novum Securities Limited   St Brides Partners Ltd	Tel: +44 (0) 207 399 9400   Tel: +44 (0) 20 7236 1177

 

Notes to Editors

Secure Property Development and Investment plc is an AIM listed property development and investment company focused on the South East European markets.  The Company's strategy is focused on generating healthy investment returns principally derived from: the operation of income generating commercial properties and capital appreciation through investment in high yield real estate assets.  The Company is focused primarily on commercial and industrial property in populous locations with blue chip tenants on long term rental contracts.  The Company's senior management consists of a team of executives that possess extensive experience in managing real estate companies both in the private and the publicly listed sector, in various European countries.

 

 

1.    Chairman Statement

 

During 2017, the favourable fundamentals of our target markets continued to prevail, as economic growth picked up across the Eurozone, and property markets in our region have continued to experience a steady yield compression as the global search for yield has forced funds to deploy new allocations of cash to these markets.  During the period, SPDI continued to pursue its established strategy of disposal of non-core assets and acquisition of cash generative properties in favoured markets, currently Romania and Greece. In 2018, we have maintained our focus on these objectives and have renewed efforts to find funding partners who can assist us in building the business further and enhancing shareholder value.

 

We are grateful to our shareholders for their continued support in 2017 and look forward to capitalising upon the significant opportunities that we can see for the Group in 2018.

 

Michael Beys

Chairman of the Board

 

2.    Letter to Shareholders

 

Dear Shareholders,

 

2017 has been a year of consolidation during which we have laid the foundation for a renewed push to grow based on our strategy to transform SPDI into a leading London listed property company focused on selected emerging South East European countries.  As the economies and property markets in Romania and Ukraine grew at rapid rates, a plan to sell our non-core assets was put together to take advantage of increased demand and pricing; conditions we have been expecting for the last few years to materialise. Land (pre) sales in both countries were coupled with increased residential units' sales. In fact, working hand in hand with our lenders in Bucharest and Sofia, SPDI plans to invest in some key residential assets in order to expedite sales at higher prices during 2018, with a view of minimising the time and resources needed to manage such non-core, non-income producing assets. At the same time, in 2017 we also focused on identifying target property portfolios to acquire and accordingly we agreed to buy up to 50% of a 127.000 sqm fully let logistics portfolio in Romania. We believe that logistics is not only the most underrated and undervalued property type but it also has the highest return on capital. We are now mid-way in executing such acquisition and if it is executed (subject to due diligence and capital adequacy) SPDI will transform itself into a major player in the South East European logistics property market.

 

In 2017, Romania continued being the fastest growing economy of the European Union and saw property prices continue to rise across all sectors, facilitating our residential sales and confirming our choice not to have systematically sold off such assets in preceding years.

 

Greece managed not only to agree the upcoming end of its inter-governmental lending programme but achieved a large primary surplus and even though the property markets have not experienced a substantial price uptick, the demand has substantially increased and is expected to continue to do so.

 

In parallel with the increased rate of selling non-core assets, the Company focused on reducing certain (non-strictly property related) costs even further. This included both corporate consolidations through the merger of special property corporate vehicles as well as reducing HR costs through agreeing with some of our executives to become part time advisers. This exercise coupled with various actions towards extending the terms of some of our property loans as well as reducing their costs, advanced the corporate consolidation of the Company, in preparation of an expansive 2018, as we expect this coming year to be transformative. 

 

As the markets we are active in are picking up both speed and international interest, SPDI is well placed to participate in the expected growth cycle, fully acknowledging that despite the hard work and good results of the last few years, the target has yet to be achieved and there is much more to go for, with both Management and Directors committed to achieving our goals and delivering value for our shareholders. 

 

Best regards,

Lambros G. Anagnostopoulos, Chief Executive Officer

 

3.   Management Report

 

3.1 Corporate Overview & Financial Performance

 

In 2017 the Company's management focused on a) selling land and residential assets in Romania, Bulgaria and Ukraine and b) identifying, negotiating and executing the due diligence for a potential acquisition of the Olympians logistics property portfolio in Romania. In parallel, the Company restructured some of the financings of assets; restructured its operating teams; and prepared the ground for the next phase of transformative growth.

 

The Romanian economy continued leading the European Union in terms of pace of growth with a strong 6,9% increase. Bucharest is bustling with property developments as existing increasing demand far outweighs existing supply, whilst also being characterised by low unemployment. At the same time property prices are seeing a distinct increase and international investors and developers are moving back in the country.

           

Greece is rapidly reaching the end of the program agreed with its international lenders having turned the macro corner and showing signs of economic growth. It posted a 4%+ primary surplus, and in mid-2018 is expected to be able to go to the markets to support its development plans with a number of property investors knocking on its door. While a series of elections are planned for the coming two years (local, municipal, European) many analysts believe that Greece is on the growth turn and such growth may prove to be faster than expected.

 

During 2017, the Company proceeded with taking the necessary approvals for rationalizing the equity structure of the Company by setting off carry forward losses (generated in pre 2011 periods) against part of the share premium, effecting in that way the potential of future dividend distribution, as well as the potential of the adoption of a share buy-back programme.  

At the same time, the Company continued devoting significant time and effort in restructuring its debt to the long term, which is expected to result in further deleveraging of the Company.

 

At the same time, the Company continued optimizing its corporate structure by merging or closing down low activity SPV corporate entities so as to benefit both from the related corporate administration cost reduction, but also from the effective utilization of existing carried forward losses and the subsequent reduction of the effective income tax rate.           

During 2017, with the view of executing acquisitions of selected income producing property portfolios, the Company reached out to its shareholder base and some new investors to raise capital. During the year, the Company raised approximately €3m of debt and equity with most of the former coming from existing shareholders and Directors, who both believe strongly in the prospects of the Company and the validity of its business plan. 

 

Following the successful and profitable sale of our primary Ukrainian asset, Terminal Brovary in Kiev, SPDI's operating income remained almost stable with an increase in non-core asset sales.  Whilst the Company countered a temporary decrease/partial rent of the ex-Nestle space at Innovations warehouse, its three fully let assets (EoS Business Park in Romania, Bluebigbox in Craiova, Romania and Victini (ex GED) warehouse in Greece) all recorded stable income.

 

Following the successful disposal of Terminal Brovary, EBITDA showed a 61% increase to €3,7m compared to €2,3m in 2016, mainly due to the sale of Delia Lebada.  Interest costs were reduced by 40% to ~€1,9m vs ~€3,2m in 2016 and administration costs reduced by 10% following the continuing successful cost management by the Company.       

 

	2017	2016
Rental, Utilities, Management  & Sale of electricity  Income	4.625.970	6.070.940
Net Income from Sale of Assets less Cost of Assets sold	195.274	283.934
Income from Operations of Investments	4.821.244	6.354.874
Asset operating expenses	(749.571)	(992.441)
Net Operating Income from Investments	4.071.673	5.362.433
Share of profits from associates	390.217	247.720
Result from disposal  of subsidiaries/ available for sale financial assets	1.633.737	(206.491)
Net Income from Available for Sale financial assets (ex revaluation)	-	(485.529)
Total Income	6.095.627	4.918.133
Administration expenses	(2.351.546)	(2.614.188)
Operating Result (EBITDA)	3.744.081	2.303.945
Interest cost, net	(1.916.207)	(3.181.625)
Income tax expense	(354.730)	(174.315)
Operating Result after finance and tax expenses  for the year	1.473.144	(1.051.995)
Other income / (expenses), net	(117.498)	(1.304.304)
Other finance (costs) / income and interest write off	(121.195)	595.917
Prior years Taxes and VAT non refundable	(499.345)
Gain realized on acquisition of subsidiaries	23.921	-
Other Fair Value Adjustments from investments	92.183	(36.549)
Foreign exchange differences, net	(2.649.682)	(1.700.333)
Result for the year	(1.798.472)	(3.497.264)

 

 

The operating results after finance and tax for the year were significantly improved with the end result being a profit of €1,47m from a €1,05m loss in 2016.

 

3.2 Property Holdings

 

The Company's portfolio at year-end consists of commercial income producing and residential properties in Romania, Greece, Bulgaria and Ukraine as well as land plots in Ukraine, Bulgaria and Romania.

 

Commercial Property	Location	Key Features
VICTINI Logistics Terminal	Athens, Greece	Gross Leasable Area:	17.756 sqm
		Anchor Tenant:	Kuehne + Nagel and GE Dimitriou SA
		Occupancy Rate:	100%
EOS Business Park	Bucharest, Romania	Gross Leasable Area:	3.386 sqm
		Anchor Tenant:	Danone Romania lease runs to 2025
		Occupancy Rate:	100%
Praktiker Craiova	Craiova, Romania	Gross Leasable Area:	9.385 sqm
		Anchor Tenant:	Praktiker lease runs to 2028
		Occupancy Rate:	100%
Delenco (SPDI has a 24.35% interest)	Bucharest, Romania	Gross Leasable Area:	10.280 sqm
		Anchor Tenant:	ANCOM (Romanian telecoms regulator)
		Occupancy Rate:	100%
Innovations Terminal Logistic Park	Bucharest, Romania	Gross Leasable Area:	16.570 sqm
		Anchor Tenant:	Aquila srl (large Romanian logistics operator)
		Occupancy Rate:	60%
Kindergarden	Bucharest, Romania	Gross Leasable Area:	1.400 sqm
		Anchor Tenant:	International School for Primary Education
		Occupancy Rate:	100%

 

 

Land & Residential  Assets	Location	Key Features
Bela Logistic Centre	Odessa, Ukraine	Plot of land  (~ th. sqm):	224
Kiyanovskiy Lane	Kiev, Ukraine	Plot of land  (~ th. sqm):	6
Tsymlyanskiy Lane	Kiev, Ukraine	Plot of land  (~ th. sqm):	4
Balabino project	Zaporozhye, Ukraine	Plot of land  (~ th. sqm):	264
Rozny Lane	Kiev, Ukraine	Plot of land  (~ th. sqm):	420
Boyana Land	Sofia, Bulgaria	Plot of land  (~ th. sqm):	20
Green Lake land (SPDI has a ~44% interest)	Bucharest, Romania	Plot of land  (~ th. sqm):	40
Romfelt,  Monaco, Blooming, Green Lake, Boyana	Romania & Bulgaria	Sold units during 2017:	20
Romfelt, Monaco,Blooming, Green Lake, Boyana	Romania & Bulgaria	Available units (end 2017):	142

 

In 2017, the Company's accredited valuers, namely CBRE Ukraine for the Ukrainian Assets, and Real Act for the Romanian, Bulgarian and Greek Assets, remained appointed. The valuations have been carried out by the appraisers on the basis of Market Value in accordance with the current Practice Statements contained within the Royal Institution of Chartered Surveyors ("RICS") Valuation - Global Standards (2017) (the "Red Book") and are also compliant with the International Valuation Standards (IVS).

 

In recent years, following the successful implementation of the Company's strategy, SPDI's portfolio became even more diversified in terms of geography as well as asset class. At the end of the reporting period, taking into account the % participation in the properties that the Company holds directly, Romania is the prime country of operations (58%) in terms of Gross Asset Value, and, following the sale of Terminal Brovary, the exposure to Ukraine reduced to 12%.

 

In respect of the Company's rental income generation capacity, Romania is the prime source with 66%, with the remaining income deriving from Greece (34%).

 

			Annualized Net Operating Income**
EURm	2017		2015		2014		2013		2012
Ukraine		0	1.3	23%	1.8	25%	2.4	40%	2.7	100%
Greece	1.5	34%	1.5	26%	1.5	21%	1.5	25%
Romania	2.8	66%	2.8	51%	3.2	45%	2.1	35%
Bulgaria		0%	0.0	0%	0.6	8%		0%
Total	4.2	100%	5.5	100%	7.0	100%	6.0	100%	2.7	100%

 

 

** Annualized Net Operating Income includes NOI from Terminal Brovary logistics, Innovations logistics, GED logistics park, EOS office building, Praktiker retail center, Kindergarten, Residential units as well as Delenco office building (in which the Company has ~24,35% participation).

 

The table below summarizes the main financial position of each of the Company's assets (representing the Company's participation in each asset) at the end of the reporting period.

 

		2017
		€m
Property	Country	GAV*	Debt (principal)*	NAV
Innovations	Rom	10,0	7,2	2,8
Eos	Rom	7,2	4,5	2,7
Delenco	Rom	5,5	0,7	4,8
Praktiker	Rom	7,5	4,3	3,2
Victini   logistics	Gr	16,1	11,2	4,9
Kindergarden	Rom	0,9	0,5	0,4
Residential units	Rom & Bul	11,4	6,6	4,8
Land banking	Rom & Ukr & Bul	23,6	3,2	20,3
Total  Value		82,09	38,05	44,03
Other balance sheet items, net **				-7,7
Net Asset Value total				36,3
Market Cap 31/12/2017 (Share price at £0,115)				13,4
Market Cap 27/6/2018 (Share price at £0,115)				16,7
Discount of Market Cap (at the reporting date) vs NAV (at 31/12/2017)				-63%
* Reflects the Company's participation at each asset
**Refer to balance sheet and related notes of the financial statements

 

The Net Equity attributable to the shareholders as at 31 December 2017 stood at ~€36,3m vs ~€38,9m in 2016. Following the sale of Terminal Brovary, the highest income generating property asset, the Company has now fewer income producing assets than in 2016 generating less income than in 2016. We strongly believe that the Company has an operational structure capable of managing many more assets and intends to grow its property base accordingly.

 

The NAV per share as at 31 December 2017 stood at GBP 0,31 and the discount of the Market Value vis a vis the Company's NAV increased to 63% at year-end.

 

3.3 Financial and Risk Management

 

The Group's overall bank principal debt exposure at the end of the reporting period was ~€38m (including fully consolidated properties, calculating relative to the Company's percentage shareholding in each), comprised of the following:

 

a)   €3,7m finance lease of EOS business park with Alpha Leasing Romania and €0,8m debt facility received by First Phase from Alpha Bank Romania.

b)  €7,2m finance lease of Innovations park with Piraeus Leasing Romania.

c)   €11,2m debt financing of Victini (ex GED) Logistics park and photovoltaic park with Eurobank.

d)  €4,3m debt financing of Praktiker Craiova with Marfin Bank Romania.

e)   €0,5m being the Company's portion on debt financing of the Kindergarten with Bancpost Romania.

f)   €6,6m being the Company's portion on the residential portfolio debt financing.

g)   €3,2m being the Company's portion on land plot related debt financing in Romania and Bulgaria.

 

Throughout 2017, the Company focused on managing and preserving liquidity through cash flow optimization so as to secure the Company's future.  With the completion of the sale of Terminal Brovary, and the sale of Delia Lebada, the Company is focused on expanding its asset base so as to establish growth.

 

3.4 2018 and beyond

 

At the start of 2018, with the market conditions improving across the Company's regions of operation, SPDI increased its efforts to sell the various non-core residential assets while focusing on identifying opportunities in the core income producing logistics sector. As such, 2018 promises to be a year of repositioning of the Company's assets as we identify the way to grow further towards our vision of becoming a large regional income producing property company.

           

4.   Regional Economic Developments

4.1 Romania

 

The Romanian economy is undergoing strong growth.  Unemployment has fallen to a record low, and the financial sector is steadily improving. Romania's economy last year recorded the fastest growth rate in the 28 European Union ("EU") member states, reaching a nine-year high of 7% and gaining one place to rank 16th by Gross Domestic Product (GDP) values according to Eurostat, ranking it above Greece, but slightly under Czech Republic (€191,6 billion) and Portugal (€193,1 billion).

 

The strong growth has been fueled by domestic consumption, on the back of a multi-year fiscal expansion and minimum wage hikes. An accommodative monetary policy stance and improving EU economy also helped. The current account deficit widened, as expanding imports offset the improving demand for Romania's exports. A tight labor market is seeing private sector wages growing at double-digit rates. The targets of the National Bank of Romania ("NBR") were met in 2017.

 

The Romanian Government's priorities for 2018-20 include the improved absorption of EU funds and a focus on securing investments in infrastructure and health care, reforming the pension system, and simplifying tax administration.

 

The Romanian Government's program reconfirms Romania's roadmap for achieving the 2020 objectives for smart, sustainable, and inclusive growth and prioritizes the use of EU funds in line with the European Structural and Investment Funds ("ESIF") envelope for 2014-20, which amounts to approximately €40 billion.

 

We believe the banking sector in Romania is well capitalized and liquid, profitability is increasing, and non-performing loans ("NPLs") have declined to 6,4% of total loans in December 2017, falling significantly, close to the EU average. Banks' profitability remains robust, capital positions are strong, and liquidity abundant.

 

Macroeconomic data and forecasts
			2012	2013	2014	2015	2016	2017e
GDP (EUR bn)			131,8	142,2	149,3	160,0	170,0	187,5
Population (mn)			20,0	19,9	19,9	19,9	19,9	19,7
Real GDP (y-o-y %)			0,7	3,4	2,9	3,8	4,8	6,9
CPI (average, y-o-y %)			3,4	4,0	1,1	-0,7	-1,6	1,3
Unemployment rate (%)			7,0	7,1	6,8	6,7	5,9	4,9
Net FDI (EUR bn)			2,2	2,6	2,5	3,0	3,9	4,3

 

4.2 Bulgaria

 

In Bulgaria, in line with the overall growth of the economy and the residential market, the year was a dynamic one. GDP growth for 2017 was 3,7% while the unemployment rate fell to 6,2%.

 

In 2017, Bulgaria witnessed growth in nearly every sector of the economy, boosted by an increase in personal consumption, state supported minimum wage increases, higher FDI, and the improvement of the financial and banking environment.

 

With these considerations in the background, Bulgaria gained, international credibility as an investment destination.

 

2017 was a record year for the Property Investment market in Bulgaria in terms of total sales transactions, with total volume €957m. 70% of the total investment transaction volume came from the sale of shopping centers. International buyers prevailed over locals in terms of market share, reversing the trend established since 2012. South African investors entered the Bulgarian market very actively in 2017, comprising 71% of the total volume. The volume of income-generating deals (83%) considerably prevailed over speculative (12%) and owner-occupied (5%) volumes, a trend since 2016.

 

Several large-scale transactions involving quality, income generating assets led to a decrease in prime yields. For retail and offices, yields stood at 7,25% and 8,25% respectively, while for industrial 10% at the end of 2017. 

 

Macroeconomic data and forecasts
			2012	2013	2014	2015	2016	2017e
GDP (EUR bn)			39,7	41,0	42,0	44,0	47,4	49,2
Population (mn)			7,3	7,3	7,2	7,3	7,1	7,1
Real GDP (y-o-y %)			0,8	0,9	1,7	2,9	3,9	3,7
CPI (average, y-o-y %)			3,0	1,4	-1,6	-1,1	0,1	2,8
Unemployment rate (%)			12,3	12,9	11,5	10,0	7,7	6,2
Net FDI (EUR bn)			1,2	1,1	1,2	1,6	0,7	0,9

 

4.3 Greece

 

The Greek economy experienced a marginal nominal GDP increase in 2017, partly as a result of the effects from the upturn in consumer spending and a rise in exports, recording a 1,5% growth after two negative years and a primary surplus of 4%.

 

Greek Government Bonds fell to their lowest yield since 2006, shrinking the "trust gap" between Greece and the rest of Europe, reflecting the prospects of growth and the certainty that the country will exit the current financing and stabilization program during the summer of 2018.

 

A low volume of international deals suggests that Greek assets are still not that attractive despite the asset value collapse of the last seven years. However, there was a shift from mid /small transactions (€10-50m) to micro deals with values below €10m, supported by international and local investment vehicles.

 

Key economic drivers for the economy remain weak, consumption and disposable income are still under pressure created from the high tax environment, liquidity is still constrained by the capital controls imposed in 2015, although significant relaxation of such controls took place from 2017 onwards. Unemployment continues to fall, despite remaining high among women and the younger generations, as well as in comparison to the EU average.

 

A number of projects, from privatizations to long term leases of infrastructure, moved ahead in 2017. They are expected to contribute in a tangible way to the recovery of the Greek economy but also to the recovery of the local real estate market.

 

Hopes remain high that the timely completion of the 3rd Economic Adjustment Program will bring rise to a positive momentum for the following years. Such an environment could bring a complete suspension of the capital controls through an increase in the credibility of the country and in parallel accelerate much needed FDI to feed into the economy.

 

Macroeconomic data and forecasts
			2012	2013	2014	2015	2016	2017e
GDP (EUR bn)			193,4	182,1	179,1	176,0	176,0	180,0
Population (mn)			11,1	11,0	11,0	10,9	10,6	10,7
Real GDP (y-o-y %)			-6,6	-3,9	0,7	-0,2	-0,2	1,5
CPI (average, y-o-y %)			3,0	-0,9	-1,4	-1,7	0,0	0,6
Unemployment rate (%)			24,5	27,5	26,6	24,6	23,6	21,5
Net FDI (EUR bn)			1,4	1,6	1,0	0,0	0,0	0,4

 

4.4 Ukraine

 

The Ukrainian economy recovered from the economic and political crisis of previous years which resulted in growth of real GDP of around 2,5% (2016: 2,3%) and the stabilization of its national currency, the Hryvna. From a trading perspective, the economy demonstrated a refocusing on the EU market, which was a result of the signed Association Agreement with the EU in January 2016 which established the Deep and Comprehensive Free Trade Area ("DCFTA"). Implementation of DCFTA commenced in January 2017.

 

In terms of currency regulations, the National Bank of Ukraine ("NBU") decreased the required share of mandatory sale of foreign currency proceeds from 65% to 50% from April 2017, increased the settlement period for export-import transactions in foreign currency from 120 to 180 days from May 2017, and allowed companies to pay the 2013 (and earlier) dividends with a limit of US$2 million per month from November 2017 (from June 2016, companies were allowed to pay dividends for 2014-2016 to non-residents with a limit of US$5 million per month).

 

In March 2015, Ukraine signed a four-year Extended Fund Facility ("EFF") with the IMF that will last until March 2019. The total programme amounted to US$17,5 billion, while Ukraine has so far received only US$8,7 billion from the entire amount. In September 2017, Ukraine successfully issued US$3 billion of Eurobonds, of which US$1,3 billion is new financing, with the remaining amount aimed to refinance the bonds due in 2019. The NBU expects that Ukraine will receive another US$3,5 billion from the IMF in 2018. To receive the next tranches, the government of Ukraine has to implement certain key reforms, in such areas as the pension system, anti-corruption regulations, and privatization. IMF forecasts GDP growth for 2018 at 3,2% with a CPI of 11%.

 

Macroeconomic data and forecasts
			2012	2013	2014	2015	2016	2017e
GDP (USD bn)			176,2	177,4	127,6	98,0	93,3	112,2
Population (mn)			45,6	45,5	42,7	42,5	42,5	42,4
Real GDP (y-o-y %)			0,2	0,0	-6,0	-9,9	2,3	2,5
CPI (average, y-o-y %)			0,6	-0,2	24,9	43,3	12,4	13,7
Unemployment rate (%)			7,5	7,4	10,5	9,4	9,7	9,4
Net FDI (USD bn)			6,6	3,3	0,2	2,3	3,2	2,3

 

5.   Real Estate Market Developments 

 

5.1 Romania

 

The 2017 property investment volume for Romania is estimated at almost €1 billion, a value approximately 10% higher than the one registered in 2016 (€890 million). The number of transactions increased, with the average deal size standing at approximately €28,5 million. Bucharest accounted for approximately 36% of the total investment volume, less than in 2016, showing that liquidity in secondary cities has improved. Market volumes were dominated by retail transactions (43%), while industrial, office and hotels accounted for 22%, 17% and 18%, respectively.

 

Prime office yields are at 7,50%, prime retail yields at 7,25%, while prime industrial yields are at 8,50%. Yields for office and retail are at the same level as 12 months ago, while industrial yields have compressed by 50 bps over the year.

 

The Industrial and Logistics market in Romania had a promising performance in 2017, with new supply being almost three times higher compared with last year, while demand remained strong, coming especially from companies active in the Logistics/Distribution and Retail sectors. The rental level has remained relatively stable, with prime headline rents around 4,25€/sqm/month.

 

The Industrial sector continued on a positive trend, supported by further improvements in market fundamentals. It registered solid leasing activity coupled with a record volume of new supply delivered at the national level, while average rents saw marginal growth. Demand counted for 410.000 sqm of major leases at the national level. Around 70% of that area was leased for logistics, with the rest having a manufacturing destination and being dominated by demand coming from automotive car-parts suppliers, representing 20% of the total volume of major leases.

 

Bucharest concentrated almost 55% of the registered demand, with major deals totaling 220.000 sqm. Take-up doubled in the last two years and increased by 7% in 2016. Bucharest remains the clear favourite on logistics, reaching more than 90% of take-up.

 

Timisoara is the 2nd largest market after Bucharest, with major leases of 450.000 sqm during the last seven years, 55% for logistics and 45% for manufacturing platforms (automotive, electronics, equipment/machinery).

 

2017 saw the delivery of 123.000 sqm of new modern office spaces, taking the total stock to nearly 2,3 million sqm. Some delays were recorded due to both an overstretched construction segment and some developers seemingly pushing back their projects as they seek to improve the pre-lease percentage before the actual delivery. This coincides with the tight overall labour market. The trend highlighted in 2016 continues to hold, with half of the total expected deliveries coming from just two projects (the first phases for Globalworth's Campus and Forte Partner's The Bridge); Vastint also delivered over 30.000 sqm in two new buildings in its Timpuri Noi Square. Underpinning the newer hotspot in Centre-West, the two projects delivered in 2017 accounted for over one third of the total, while Timpuri Noi and Dimitrie Pompeiu each had a share of just under a quarter of the total.

 

Overall, market conditions in Bucharest remained fairly neutral, with average vacancy at just under 10% at the end of last year.

 

A touch over 100.000 sqm in new modern retail spaces were delivered in 2017 (versus around 240.000 sqm in the previous year). Bucharest concluded few lease extensions, which amounted to less than 20% of the total new GLA (versus more than 40% in 2016's total deliveries of 240.000 sqm). As such, Bucharest has been experiencing a period of relative equilibrium between supply and demand, a favorable moment for the large schemes delivered in 2016 to gain traction and settle in the domestic retail scene. Bucharest still features a considerably smaller per capita retail stock compared to Warsaw and Prague (though it is comparable to Budapest's), so there might be room for Bucharest to absorb some new large schemes over the medium term.

 

2017 brought a more favorable climate for the Residential Market, as the adoption of a strategy for the 'Prima Cas?' programme for a five-year period increased the level of predictability, both for investors and for the end consumers. For 2017, the recorded demand and the accessibility of a new housing unit purchase resulted in price increases on all regional markets of Romania, ranging from 5% on average in Bucharest, Bra?ov or Timisoara, to approximately 10% in Cluj-Napoca, where the average price per square meter exceeded, for the first time ever, the one in the Capital.

 

According to the National Institute of Statistics, 27.881 homes were completed in all cities in 2017, the region with the highest share of total number of completed residential units being Bucharest - Ilfov, with over 10.000 delivered new units. Approximately 1.800 units, located in medium and large projects, of over 100 housing units, were delivered late by developers in 2017 or they are to be delivered in the near future.

 

Considering the current macroeconomic conditions and demand, the residential market will continue to remain attractive for the small investors who can achieve annual rental yields of 5% - 7%.

 

5.2 Bulgaria

           

Following a strong year of investment transactions with retail properties, a raising of interest in other segments (offices, industrial and logistics, and hotels) of the market may well unfold. Total sales transaction volume is unlikely to surpass the 2017 record high watermark in 2018, unless assets acquired in 2017 are resold. Interest rates on loans are expected to continue falling in the first half of 2018, with the available debt remaining stable.

 

The smaller number of institutional investors in Bulgaria, compared to other countries in the region, places Bulgaria in a less favorable position in terms of investment activity. Strong end-user demand remains among the country's advantages, likely to reinforce further investment interest.

 

Throughout the year, the interest in purchases both for residential and investment purposes remained high. Unlike the mass market, the dynamics of which is largely driven and facilitated by the increase in credit, the key factor for the higher price range was the buyer's higher disposable income. The lack of suitable investment alternatives also worked in favor of greater activity in the luxury property market during the past quarters of the year.

 

As a result of the increasing demand and the development of the infrastructure of Sofia, new promising zones for positioning luxury properties were established. The supply of luxury properties is still lagging behind the corresponding demand, but the market will move towards better balance with the new projects planned for 2018. Construction activity is high and together with the well-known and established neighbourhoods, more and more buildings are emerging in new luxury zones preferred by the buyers.

 

Total supply in the mid-plus and high-end residential market registered a 12% increase, reaching 7.900 residential units in 70 projects. The number of projects under active construction continued to grow, coming in at 2.800 residential units. The trend since 2015 of buying residential property "under construction" has remained in place. Those buying properties for personal use sustained demand again; the share of buyers for investment purposes remained at 25%. Asking prices for mid-plus and high-end residential units increased 7% in 2017, varying widely between €1.000-1.600 per sqm (including VAT), depending on the additional characteristics of the property and the environment.

 

5.3 Greece

           

After almost ten years of decline, real estate in Greece is starting to show some solid signs that there might be good things to come. The Greek economy is gradually starting to deal with its problems. Inflation entered positive territory in the past quarters and this also seems to create expectations of solid increases related to local real estate markets.

 

Focusing on the future outlook of the industry, the momentum should be maintained and demand for industry services is expected to grow over the next five years (based on expected increasing of outsourcing). At the same time, expected favorable impact of a series of external factors that would act as accelerators for the industry over the next five years - mainly participation in wider networks 4PL, and the upscaled presence of Cosco. Cosco Shipping has secured a foothold in Piraeus, and China is expected to activate plans to route the new Silk Road through the country's largest port, making Greece the gateway to the rest of Europe and setting the Greek logistics sector on the path toward expansion. Cosco Shipping has agreed to team up with the operator of Shanghai port, the world's largest container port, to promote container shipping traffic.

 

Continuing investment in road and rail infrastructure means that Greece's major ports are now directly interconnected with modern road and rail links, facilitating intermodal transport of cargo onwards to their final destination quickly and cost-effectively. Under the new European Infrastructure Policy (TEN-T) more than €26 billion will be invested in European infrastructure, including railway, road, port, airport and multimodal infrastructure projects in Greece.

 

Ferrovie dello Stato Italiane (known as Trainitalia), as of September 2017, owns TrainOSE, the Greek Rail Operator and is expected to invest in the existing network.

 

The booming market of e-commerce will dramatically increase the demand in warehouse properties while Outsourcing Logistics Services (3PLs) is growing rapidly in Greece. Supply of newly constructed logistics buildings was very limited in 2014-2017 as developers looked to pre-let or pre-sell before commencing any new developments.

 

5.4 Ukraine

 

2017 was an eventful year for the Kyiv office market, which continued strengthening at the backdrop of political and economic stability. 2017 experienced a consistent increase in demand for office space, with estimated annual take-up reaching approx. 155.000 sqm (+94,8% y-o-y). Prime effective rents remained roughly stable at US$23/sqm/month, while asking rates grew by 10-20% y-o-y.

 

The main trends and indicators for the warehouse market in Kyiv region in 2017 were composed of steady demand for warehouse space which continued to grow, as supported by a firm economic recovery. Annual take-up volume reached approximately 120.000 sqm (+9% y-o-y), while vacancy posted tangible decline from 12% to 6%, keeping prime effective rates stable at US$4,1 sqm/month (net of VAT and OPEX) with asking rents rising by 10%-15% y-o-y.

 

6.   Property Assets

 

6.1 Victini (ex GED) Logistics center, Athens Greece

 

The 17.756 sqm complex that consists of industrial and office space is situated on a 44.268 sqm land plot in the West Attica Industrial Area (Aspropyrgos). It is located at exit 4 of Attiki Odos (the Athens ring road) and is 20 minutes from the port of Piraeus (where Cosco runs a container port handling +4 million containers a year) and the National Road connecting Athens to the north of the country. The roof of the warehouse buildings houses a photovoltaic park of 1,000KWp.

 

The buildings are characterized by high construction quality and state-of-the-art security measures. The complex includes 100 car parking spaces, as well as two central gateways (south and west).

           

During December 2017 the Company finalized its discussions with Dimitriou and Kuehne & Nagel (the German transportation and logistics company), the two existing tenants, in order for the latter to lease all the warehouse space and almost all of the office space that Dimitriou used to lease, with Dimitriou remaining as a tenant for only a small office area. The Kuehne & Nagel lease agreement is extended until 2023 and as at year-end the complex is 100% occupied.

 

6.2 EOS Business Park - Danone headquarters, Romania

 

The park consists of 5.000 sqm of land including a class "A" office building of 3.386 sqm GLA and 90 parking places. It is located next to the Danone factory, in the North-Eastern part of Bucharest with access to the Colentina Road and the Fundeni Road. The Park is very close to Bucharest's ring road and the DN 2 national road (E60 and E85) and is also served by public transportation. The park is highly energy efficient.

 

The Company acquired the office building in November 2014. The complex is fully let to Danone Romania, the French multinational food company, until 2025.

 

6.3 Praktiker Retail Center, Romania

 

The retail park consists of 21.860 sqm of land including a retail BigBox of 9.385 sqm GLA and 280 parking places. It is located in Craiova, on one of the main arteries of the city, along with most of the DIY companies. Craiova is an important city for the Romanian automotive industry as Ford bought the Daewoo facilities in 2007 and produces two of its models from there. Ford is committed to continue investing and it is completing a brand new engine production facility.

 

The complex is fully let to Praktiker Romania, a member of Kingfisher plc network, until December 2028.

 

6.4 Delenco office building, Romania

 

The property is a 10.280 sqm office building, which consists of two underground levels, a ground floor and ten above-ground floors. The building is strategically located in the very center of Bucharest, close to three main squares of the city: Unirii, Alba Iulia and Muncii, only 300m from the metro station.

The Company acquired 24,35% of the property in May 2015. As at the year-end 2017, the building is 100% let, with ANCOM (the Romanian Telecommunications Regulator) being the anchor tenant (70% of GLA).

 

6.5 Innovations Logistics Park, Romania

 

The park incorporates approximately 8.470 sqm of multipurpose warehousing space, 6.395 sqm of cold storage and 1.705 sqm of office space. It is located in the area of Clinceni, south west of Bucharest center, 200m from the city's ring road and 6km from Bucharest-Pitesti (A1) highway. Its construction was completed in 2008 and was tenant specific.  It comprises four separate warehouses, two of which offer cold storage.

 

In April 2017, the Company signed a lease agreement with Aquila srl, a large Romanian logistics operator, for 5.740 sqm of ambient space in the warehouse which generates an annual rent payable by Aquila of ~€300.000.  As at year-end 2017, the terminal's ambient space is fully let while overall the terminal is 60% leased.

 

6.6 Residential portfolio

 

·    Romfelt Plaza (Doamna Ghica), Bucharest, Romania

Romfelt Plaza is a residential complex located in Bucharest, Sector 2, relatively close to the city center, easily accessible by public transport and nearby supporting facilities and green areas.      

 

 During 2017, four units were sold and, at the end of 2017, 14 apartments were available with five of them being rented.

 

·    Monaco Towers, Bucharest, Romania

Monaco Towers is a residential complex located in South Bucharest, Sector 4, enjoying good car access due to the large boulevards, public transportation, and a shopping mall (Sun Plaza) reachable within a short driving distance or easily accessible by subway.

 

 At the end of 2017, 22 apartments were available while six of them were rented, indicating an occupancy rate of 27%. Following extended negotiations for the last 18 months with the company which acquired Monaco's loan, the SPV holding Monaco units entered into insolvency status in order to protect itself from its creditors.

 

·    Blooming House, Bucharest, Romania

Blooming House is a residential development project located in Bucharest, Sector 3, a residential area with the biggest development and property value growth in Bucharest, offering a number of supporting facilities such as access to Vitan Mall, kindergartens, café, schools and public transportation (both bus and tram).

 

 During 2017 two units were sold and at the end of 2017, 13 apartments were available while six were rented.

 

·    Green Lake, Bucharest, Romania

A residential compound of 40.500 sqm GBA, which consists of apartments and villas, situated on the banks of Grivita Lake, in the northern part of the Romanian capital - the only residential property in Bucharest with a 200-metre frontage to a lake. The compound also includes facilities such as one of Bucharest's leading private schools (International School for Primary Education), outdoor sports courts and a mini-market. Additionally Green Lake includes land plots totaling 40.360 sqm. SPDI owns ~43% of this property asset portfolio.

                       

During 2017, eleven apartments and villas were sold while at the end of the year, of the 56 units that were unsold, 16 of them were let.

 

·    Boyana Residence, Sofia, Bulgaria

A residential compound, which consisted at acquisition date (May 2015) of 67 apartments plus 83 underground parking slots developed on a land surface of 5.700 sqm, situated in the Boyana high end suburb of Sofia, at the foot of Vitosha mountain with Gross Buildable Area ("GBA") totaling 11.400 sqm. The complex includes adjacent land plots available for sale or development of ~22.000 sqm of gross buildable area.

                       

During 2017 three apartments were sold, with 37 remaining unsold at the end of 2017.

 

6.7 Land Assets

 

·    Aisi Bela - Bela Logistic Center, Odessa, Ukraine

The site consists of a 22,4 Ha plot of land with zoning allowance to construct up to 103.000 sqm GBA industrial properties and is situated on the main Kiev - Odessa highway, 20km from Odessa port, in an area of high demand for logistics and distribution warehousing.

 

The Company does not intend to recommence construction in the near future.

 

·    Kiyanovskiy Lane - Kiev, Ukraine

 

The property consists of 0,55 Ha of land located at Kiyanovskiy Lane, near Kiev city center. It is destined for the development of businesses and luxury residences with beautiful protected views overlooking the scenic Dnipro River, St. Michaels' Spires and historic Podil.

 

In July, the Company announced the conditional sale of Kiyanovski land asset to Riverside Developments. As of Q1 2018 such sale has not been realized in view of problems the buyer encountered with its development plan in the city of Podol.

 

·    Tsymlyanskiy Lane - Kiev, Ukraine

 

The 0,36 Ha plot is located in the historic and rapidly developing Podil District in Kiev. The Company owns 55% of the plot, with a local co-investor owning the remaining 45%.

 

Discussions are on-going with interested parties with a view to partnering in the development or sale of this property

 

·    Balabino- Zaporozhye, Ukraine

 

The 26,38 Ha site is situated on the south entrance of Zaporozhye city, 3km away from the administrative border of Zaporozhye. It borders the Kharkov-Simferopol Highway (which connects eastern Ukraine and Crimea and runs through the two largest residential districts of the city) as well as another major artery accessing the city center.

 

The site is zoned for retail and entertainment. Development has been put on hold.

 

·    Rozny Lane - Kiev Oblast, Kiev, Ukraine

 

The 42 Ha land plot located in Kiev Oblast is destined to be developed as a residential complex. Following a protracted legal battle, it has been registered under the Company pursuant to a legal decision in July 2015.

 

The Company is evaluating potential commercialization options to maximize the property's value.

 

7.   CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2017

 

 

			Note		201 7		201 6
					€		€
Income			2		4.625.970		6.070.940
Asset operating expenses			3		(749.571)		(992.441)
Net Operating Income					3.876.399		5.078.499
Administration expenses			4		(2.351.546)		(2.614.188)
Share of profits/(losses) from associates			14		390.217		469.248
Valuation gains/(losses) from Investment Property			5		326.961		896.793
Net loss on disposal of inventory			6a		(43.870)		(368.907)
Net gain/(loss) on disposal of investment property			6b		4.366		(438.516)
Result on disposal of available for sale financial assets			18		-		(206.491)
Impairment allowance for inventory and provisions			7		150.000		(63.513)
Gain realized on acquisition of assets			13a		23.921		-
Gain on disposal of subsidiaries			13b		1.483.737		-
Other operating income/(expenses), net			8		(375.408)		(1.304.304)
Operating profit / (loss)					3.484.777		1.448.621
Finance income			9		13.376		1.153.243
Finance costs			9		(2.050.778)		(3.738.951)
Profit / (loss) before tax and foreign exchange differences					1.447.375		(1.137.087)
Foreign exchange (loss), net			10a		(2.030.561)		(1.041.239)
Forex transfer on disposal of foreign operation			10b		(37.352.923)		-
Loss before tax					(37.936.109)		(2.178.326)
Income tax expense			11		(596.165)		(174.315)
Loss for the year					(38.532.274)		(2.352.641)
Other comprehensive income
Exchange difference on I/C loans to foreign holdings			10b		37.349.385		(4.167.542)
Exchange difference on translation of foreign operations			22		(615.583)		3.508.448
Available-for-sale financial assets - Gains recycled to loss for the year			18		-		(485.529)
Total comprehensive income for the year					(1.798.472)		(3.497.264)
Loss attributable to:
Owners of the parent					(39.444.549)		(2.363.693)
Non-controlling interests					912.275		11.052
					(38.532.274)		(2.352.641)
Total comprehensive income attributable to:
Owners of the parent					(2.962.059)		(3.477.567)
Non-controlling interests					1.163.587		(19.697)
					(1.798.472)		(3.497.264)
Earnings / (Losses) per share (Euro cent per share):		31b
Basic earnings/(losses) for the year attributable to ordinary equity owners of the parent				(0,41)		(0,03)
Diluted earnings/(losses) for the year attributable to ordinary equity owners of the parent				(0,38)		(0,02)

8.   CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE YEAR ENDED 31 DECEMBER 2017

	Note	201 7	2016
		€	€
ASSETS
Non?current assets
Investment properties	12.4a	74.732.502	95.654.207
Investment properties under development	12.4b	4.586.009	5. 027 .986
Tangible and intangible assets	15	70.504	129.396
Long-term receivables and prepayments	16	316.788	351.181
Investments in associates	14	5.115.587	5.217.310
		84.821.390	106.380.080
Current assets
Inventory	17	4.812.550	5.028.254
Prepayments and other current assets	19	5.846.584	2.778.361
Cash and cash equivalents	20	831.124	1.701.007
		11.490.258	9.507.622
Total assets		96.311.648	115.887.702
EQUITY AND LIABILITIES
Issued share capital	21	1.035.893	900.145
Share premium		123.126.328	122.874.268
Foreign currency translation reserve	22	9.294.576	10.161.471
Exchange difference on I/C loans to foreign holdings	33.3	(217.670)	(37.567.055)
Accumulated losses		(96.888.569)	(57.444.020)
Equity attributable to equity holders of the parent		36.350.558	38.924.809
Non-controlling interests	23	8.401.414	7.237.827
Total equity		44.751.972	46.162.636
Non?current liabilities
Borrowings	24	25.324.378	16.895.155
Finance lease liabilities	29	10.435.241	11.081.379
Bonds issued	25	1.033.842	-
Trade and other payables	26	417.791	451.123
Taxes payables	28	602.200	-
Provision on taxes	28	399.450	-
Deposits from tenants	27	187.976	217.328
		38.400.878	28.644.985
Current liabilities
Borrowings	24	5.162.087	31.580.299
Finance lease liabilities	29	391.002	301.409
Bonds issued	25	20.495	-
Trade and other payables	26	6.920.308	7.038.170
Taxes payable	28	613.859	1.147.018
Provisions on taxes	28	51.047	742.166
Deposits from tenants	27	-	271.019
		13.158.798	41.080.081
Total liabilities		51.559.676	69.725.066
Total equity and liabilities		96.311.648	115.887.702

 

Net Asset Value (NAV) € per share:	31c
Basic NAV attributable to equity holders of the parent		0,35	0,43
Diluted NAV attributable to equity holders of the parent		0,35	0,38