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EQUEST BALKAN PROPERTIES plc

FULL YEAR RESULTS 

FOR THE YEAR ENDED 31 DECEMBER 2008 

 

Equest Balkan Properties plc ('EBP' / 'Company' / 'Group'), an Isle of Man registered company specialising in commercial property investments in the Balkan region, announces today its final results for the year ended 31 December 2008.

Highlights for year 2008

• Net Asset Value per share of Euro 0.92 under IFRS (31 December 2007: Euro 1.49), a decrease of 38.3% 

• Net Asset Value per share of Euro 0.92 under EPRA (European Public Real Estate Association) (31 December 2007: Euro 1.56), a decrease of 40.4% 

• Pre-tax loss of Euro 64.3 million (31 December 2007: Euro 3.5 million) 

• No dividend declared (31 December 2007: Euro 0.035 per share)

• Strategic reviews carried out during 2008 for a disposal program of property assets and a review of operating costs to achieve cost savings

• Successful sale of City Center Sofia (CCS) shopping mall for Euro 101.5 million 

• Construction completions of Vitantis Retail Park (Euro 59.5 million with 34,213 sqm GLA) and Equest Logistic Center (Euro 39.0 million with 56,630 sqm GLA) 

• Approximately 135 new lease contracts signed in 2008 and in the 1st half of 2009, involving 77,000 sqm (65% of total current income yielding space by area, excluding that owned by associates) 

• Total non-current property assets of Euro 256.6 million, including those held by associates (31 December 2007: Euro 372.6 million), and net rental income of Euro 11.4 million (31 December 2007: Euro 8.5 million)

• Group cash balance of Euro 15.5 million (31 December 2007: Euro 8.1 million) 

• Total borrowings (secured) of Euro 117.9 million and other (unsecured) loans of Euro 10.2 million, resulting in an overall gearing ratio of 46.1% 

• Post period event of default for Moldova Mall financing due to breach of financial covenants

• Post period event of default for Vitantis for failing to fully meet all of the required criteria to convert a development loan of Euro 37.8 million to investment loan status, due to timing issues, though we met the financial covenants. The excess of property value above financing amounts to Euro 26.6 million as at 31 December 2008.

Commenting on the results, Charles Jillings, Non-executive Chairman of EBP, said:

'The operating markets for EBP in South East Europe remain extremely challenging. Whilst EBP successfully sold its largest asset and several small land parcels in 2008, the disposal program has not yet reached its intended goal to return cash to shareholders. 

We remain very concerned about the economic outlook and the resultant trend in property prices in South East Europe. These issues adversely affect the value and operating results of EBP's portfolio as well as the ability to meet loan obligations. Given that we have only non-recourse debt secured over specific properties and relatively low gearing levels, we expect that even in this economic downturn, we can continue to support the majority of our holdings.

EBP's Board is participating actively in the disposal program and monitoring closely the Company's financial performance. To improve the momentum on sales, the Board has assigned a director to work with some local offices to assist with the disposal program. In addition, the Board has retained an experienced consultant to work with the Investment Adviser's Chief Financial Officer and Finance Director to reduce costs and optimise the Group's cash flows. The Company's aims remain to continue to cut costs, further dispose of assets and return cash to shareholders.'

Michael Uhler of Equest Partners Limited, EBP's Investment Adviser, added:

'In early 2008, we initiated our disposal program and were pleased to complete the sale of our largest asset, City Center Sofia, as well as some of our smaller land holdings. We were also able to secure a construction loan and a corporate bridge facility before the capital markets closed. As a result, we met all capital obligations in 2008 and ended the year with Euro 15.5 million in cash. We have minimal equity commitments related to our diminishing construction pipeline.  

Asset valuations have continued to decline primarily because appraisers have moved out yields. As a result, in the post year end period, we breached our financial covenants at Moldova Mall and have begun discussions with our lender to relinquish ownership voluntarily. We do not believe it is in Shareholder's interests to cure the covenant breach or to reposition the asset on the terms available. With respect to the covenant breach at Vitantis we believe that this was a breach largely of a technical nature, and that should the matter go to arbitration, the company is in a strong position and the outcome may even benefit the company. We are in active discussion with the bank concerned on this matter and with our other lenders to avoid similar circumstances should problems arise elsewhere. We are pleased with the constructive dialogues held with Raiffeisen Zentralbank and Hypo Real Estate Bank. 

Our peer group is operating under similar circumstances. We expect the situation to persist until a broader economic recovery begins. 

We started 2009 with a renewed impetus to cut costs and to sell assets. Fortunately, our income producing assets are of high quality, mostly newly constructed, and our land bank contains several well located parcels. We believe these assets should be attractive to local and international investors with a long term interest in the growth prospects for the Balkan Region.'

 

For further information please contact:    

Equest Partners Limited
Tel: + 44 20 7240 7600 Michael Uhler Naomi Kora
KBC Peel Hunt - NOMAD and Joint Broker Tel: +44 20 7418 8900 Capel Irwin Alex Vaughan Arbuthnot Securities - Joint Broker Tel: +44 20 7012 2000 Alastair Moreton Hannah Pearce

Chairman's Statement

Introduction

These are disappointing results. Our objective over the last year was to bring sharper focus onto asset disposals and cost structures, to put EBP in a stronger position financially and ultimately to return cash to shareholders. We have made some progress but not enough relative to market conditions. The investor market continues to deteriorate, due largely to scarce financing, and evidenced by sharply rising yield expectations and infrequent sales. At an operating level, we see slowed leasing activity and financing consequences as a result of lower valuations.  EBP's position remains relatively weak.

The Board remains focussed on three objectives: stability, profitability and return of capital. Stability will require further leasing and ultimately asset sales. We must expect further declines in asset values as the structural concerns over the Balkans rise. We may need to distance ourselves on occasions from the lenders. Profitability remains elusive and in the short-term will be difficult to achieve as revenues come under pressure. However, we will keep focus on the cost base at both the fund and asset level, as one defence within our control. Further progress is needed in this area 

Return of capital remains a key goal and is directly reliant upon cash generated by asset sales. The Board believes the Company should sell assets until it has collected sufficient free cash to return to shareholders. Given market conditions, we intend to frequently review our disposal plan in the context of our cash requirements.  

To strengthen the Board's position, the Board has appointed Mr. Donald Lake to work with the local country manager to assist with the asset disposal program in Romania. 

We will continue to retain our commitment to shareholders to return capital in a tax efficient manner, which may include the buying back of shares once further asset sales have been completed.

Results

IFRS NAV decreased 38.3% to Euro 0.92 per share from Euro 1.49 at 31 December 2007.

In the twelve months to 31 December 2008, the Company made a pre tax loss of Euro 64.3 million (31 December 2007: pre-tax profit Euro 3.5 million), including a revaluation loss of Euro 20.8 million (31 December 2007: revaluation gain Euro 14.5 million) equating to a basic loss per share of Euro 0.44 (31 December 2007: earnings per share Euro 0.05).

Net rental income grew to Euro 11.5 million (31 December 2007: Euro 8.6 million) reflecting nearly a full year's results for City Center Sofia and partial year income from Vitantis Retail Park, and one building at Equest Logistic Centre. 

The net change in fair value of property assets showed a loss of Euro 20.8 million, or 9.8% of net asset value (31 December 2007: gain of Euro 14.5 million). Most of this decline is attributable to market yields moving out on investment assets from 100 to 150 basis points over the year 2008.

Portfolio

Following the strategic review, the management team was directed to complete the existing construction pipeline, exit from all other development related commitments as well as joint ventures, and to sell assets, in particular City Center Sofia (CCS), and our holdings in Serbia. The objective was and remains to reduce the construction cash commitments, to curb all future cash uses related to new projects, and to simplify the portfolio by ending joint ventures. We prefer 100% owned, completed and fully let assets in the current environment. The previously stated goal was to reduce the portfolio to Euro 220 million by the end of 2008.

Vitantis was completed and opened for trading in September 2008. In March 2009 the construction pipeline was completed with the delivery of the third and final building at Equest Logistic Centre. Any further construction investments are now discretionary. As of June 2009, Vitantis is 95% let and Equest Logistic Centre has leasing commitments which will bring total occupancy to 67% by September 2009.  

Looking forward, achieving disposals will be increasingly difficult in the short term. Local economic conditions have deteriorated further in 2009 and this is affecting our tenant's businesses, their ability to pay rent on time and will eventually impact on our asset values. In the current environment, the disposals that are completing often reflect distressed realisations and bear little resemblance to fair value exchanges. 

Valuations

CBRE appraises the portfolio semi-annually and continues to move yields up and values down in response to the growing economic uncertainty.  Between 2007 and June 2009, yields on income assets are out about 150 to 200 basis points and development land values are down between 25% and 50%.

The Board has also approved value reductions from CBRE year end valuations of certain assets for which they believe the CBRE valuation is inappropriate as a result of post period events. The value for Moldova Mall, for example, has been written down to the outstanding debt balance to reflect a worst case scenario even though we are working with our lender to achieve a constructive outcome for all parties.  

Costs

As part of the strategic review, the Company examined its operating costs with a view to reducing costs and improving efficiency. 

In 2008, EBP simplified its holding structure by merging 13 Dutch NV holding companies into one entity, Capital Balkan Properties NV. Additional mergers at the BV level are planned for 2009.

Also, EBP replaced its auditor believing that accounting and audit fees could be substantially reduced without sacrificing the quality of the audit of our financial statements.

Disappointingly, administrative costs increased by Euro 1.6 million (excluding bad and doubtful debt expenses) from 2007 to 2008. Legal fees related to the corporate bridge loan and two mortgage facilities explain much of the variance, as do one time advisory charges for the NV restructuring.

Financing / Funding

The Company ended the year with Euro 15.5 million in cash which formed a positive platform with which to start 2009. Our Total Non-current Liabilities reduced to Euro 117.8 million, and at a Group level gearing reduced to 46.1%. More importantly, all of the bank debt held by the Group is non-recourse and secured individually by specific assets. There are no cross default provisions between facilities.  

Fortunately, none of our bank debt will mature prior to 2011; though as a result of the events of default at Moldova Mall and Vitantis, these loans are technically payable immediately. We do not believe it is in Shareholder's interest to cure the covenant breach at Moldova Mall or to restructure the loan on the terms available. With respect to the event of default at Vitantis, we believe that this was a breach of a technical nature related to the conditions precedent, not financial covenants.  This dispute should go to arbitration. We believe the company is in a strong position and the outcome may even benefit the company. We are in active discussion with the bank concerned on this matter. As at the 31 December 2008, the amount of the property value above financing for these two assets amounts to Euro 26.6 million. 

EBP had Euro 10.0 million of unsecured property related loans including accrued interest as at the end of 2008. Euro 1.3 million of the liability was repaid in the first half of 2009. The repayment terms of the Euro 8.7 million are being negotiated with the lender, Equest Investment Balkans Limited. 

Hedging

The Company has a policy to hedge interest rate risk for its mortgage loans by entering into swap agreements with the respective lenders. Since interest rates have fallen significantly since 2007, all of the swap positions now show a negative fair value; the Group does not hedge account for these swaps under IAS39. The Company's finance costs are locked in at the higher historical levels on most of its bank debt. Development loans are hedged upon conversion to investment loan status, so the debt tied to Equest Logistic Centre and the Apollo project is not yet hedged.

Excluding amortisation, the prevailing interest rate, including margin, on the hedged debt is approximately 6.5%.

Change in Nominated Adviser

In March 2008, the Company announced that it had appointed KBC Peel Hunt Ltd as Nominated Adviser (NOMAD) and Joint Broker and Arbuthnot Securities Limited as Joint Broker.

Change in Non-executive Chairman and Directors

In April 2008 the Company appointed Charles Jillings (53) and Andrzej Sobczak (58) as Non-executive Directors. Charles Jillings was subsequently elected as Non-executive Chairman on 23 July 2008, replacing Lord St John of Bletso. In parallel, Dr Solomon Passy resigned as Non-executive Director on 23 July 2008. Charles Jillings is the Executive Director of Utilico Emerging Markets Limited, which holds 32,360,483 ordinary shares (23.11%) in EBP, and Andrzej Sobczak was the Deputy Chief Executive of Carrousel Capital Ltd, which holds 36,995,000 ordinary shares (26.43%) in EBP. Andrzej resigned as a Director of the Company effective from 29 May 2009. 

Going Concern

The Directors believe the Group is able to successfully manage its business risks in the current challenging economic environment. After making enquiries and examining major areas which could give rise to significant financial exposures, the Board has a reasonable expectation that the Company and the Group have adequate resources to continue its operations for the foreseeable future. The Group has primarily mortgage debt facilities secured at the local company level and collateralized only by specific assets. In the event of a financing default, each lender only has recourse to the borrower and not to the Company or other Group companies. Therefore, even in a distress situation, underperforming assets can be released back to the appropriate lender to limit the financial damage to the Group. With respect to its cash position, the Board has a reasonable expectation that sufficient liquidity will be available from a combination of existing cash reserves, draws on committed yet unfunded mortgage loans, net sales proceeds arising from the disposal program, cash flow from normal operations, periodic reimbursements of VAT, and interest income.

Accordingly, the Group continues to adopt the going concern basis of preparation of these financial statements.

Please refer to the accompanying financial statements and the notes for the details on the financial position of the Group. In addition, we provide an analysis of the Group's objectives and policies for managing its capital, its debt facilities and hedging positions, and its exposure to credit and liquidity risk.  

Outlook

Though we are actively seeking to dispose of selected assets to meet operational or loan obligations and to raise cash for any shareholder distributions, we will review our disposal program on a monthly basis through 2009.

The Board remains committed to a return to shareholders of equity capital in a tax efficient manner, including the buying back of shares once further asset sales have been completed.

Charles Jillings

Non-executive Chairman

24 June 2009 

  Investment Manager's Update

While the global economic crisis was slow to reach the Balkan region, it arrived in the last quarter of 2008.  After addressing our outlook on 2009 market conditions, we will point out a few important activities completed in 2008. 

Market conditions

We are seeing signs of the broader economic crisis in Romania which has fallen into recession. Post period demands for rent reductions by our retail tenants, in part due to currency devaluations in Romania, continue to escalate. Tenant defaults are increasing and we are re-assessing our estimates for stabilised occupancy and performance levels for the next 12 months. Declines here could have an exacerbating impact on future valuations as well. On a brighter note, tenant demand for the Equest Logistic Centre and for our offices in Bucharest appears to be strong, though small concessions for new leases are now standard in the market.

Recent commercial market statistics for the Balkan region indicate that net absorption of commercial premises has slowed and there are not yet signs of improvement. 

Completed activities

From an operational perspective, the income producing assets met our expectations during 2008 especially for Vitantis Retail Park (Vitantis) and Equest Logistic Centre (ELC). We completed a Euro 58.7 million construction pipeline and signed enough new leases to replace nearly all the rental revenues lost when City Center Sofia (CCS) was sold. Excluding Glorient, over 60% of our current rent roll by area was secured in 2008 or early 2009, for predominantly five year initial terms and includes many international tenants.  

At the Group level, we successfully sourced a corporate bridge facility, and at the SPV level, we closed and funded two construction loans at favourable terms. Selling CCS enabled EBP to meet all of its cash obligations in 2008, and to end the year on a positive note. Despite external factors, we believe EBP is generally well positioned internally to address the numerous challenges ahead in 2009. 

As the year 2009 has progressed, however, the mounting stress on our retail tenants became evident and rent collections and expense recoveries have slowed. We initiated a round of cost saving measures at a local company level to reduce operating and administrative expenses. These measures should translate into lower service charges for our tenants and thus improved recovery rates. Operational issues are of growing importance in 2009. 

EBP Property Portfolio

Valuations

Excluding assets sold, the EBP portfolio is valued as follows:

Project	Land Use	Country		€m	€m
At CBRE valuation
Vitantis *	Retail	Romania		67.5
Equest Logistics *	Warehouse	Romania		30.8
Domenii / Cartex *	Offices	Romania		20.3
Targoviste *	Retail	Romania		7.4
Apollo *	Mixed	Serbia		35.0
					161.0
Serdika **	Offices	Bulgaria		17.6
Ploesti **	Retail	Romania		6.0
At CBRE valuation					23.6
Glorient Portfolio ***	Retail	Bulgaria		44.1
At CBRE valuation, minority ownership interest					44.1
At Director's valuations
Archway ***	Retail	Serbia
Moldova Mall *	Retail	Romania
Skopje Business *	Offices	Macedonia
Euro Car Park **	Parking	Romania
					27.9
Total					256.6
* Wholly owned
** Controlling ownership interest
*** Non controlling ownership interest

The technical methodology utilised by CBRE to value assets remained unchanged from previous periods. Income producing assets are valued based on cash flow features reflecting rising yield expectations for investors (about 100 to 150 bps higher net initial yields than at 31 December 2007) and more conservative assumptions for non-recoverable expenses, lease renewal probabilities, and stabilised occupancy levels. Since 2007, CBRE has applied increasingly less favourable market assumptions to reflect the continued deterioration in the investment and banking sectors.  

Land sites are valued using a development residual method. CBRE has assumed higher finance costs, lower overall gearing during construction, and more conservative exit yields.

The Glorient Portfolio consists of 41 properties: 28 retail warehouses, 2 supermarkets, 1 office- warehouse, 1 retail warehouse under development and 9 sites in pre-development stage. The investment assets are valued based on cash flow features. The land plots have been valued on a price per square meter basis since comparables exist.

Due to post period events, the valuations for select assets were marked down to reflect ongoing negotiations with lenders, joint venture partners, and interested investors.

Bank debt / Funding issues

The commercial mortgage market in the Balkan Region effectively closed for new business in the third quarter of 2008, and as a result construction starts and investment sales have stalled. Borrowers and lenders are occupied with restructuring repayment obligations following covenant breaches, predominately loan to value breaches.

The Company had Euro 117.8 million in bank debt and Euro 10.2 million in other property related debt at year end. 

	Project		Lender		Amount*		Maturity		Covenants		Amort
1.	Vitantis		BACA		€41.3m		31/03/12		1.20 / 70%		2% pa
2.	Equest Logistics		RZB		€17.7m		30/04/13		1.20 / 71%		3% pa
3.	Moldova Mall		BACA		€20.7m		09/08/11		1.20 / 70%		2% pa
4.	Domenii Offices		HRE		€15.0m		24/09/12		1.35 / 75%, 90%		None
5.	Targoviste		BRD		€2.9m		12/02/13		NA / NA		3% pa
6.	Apollo		Hypo Adria		€20.2m		10/02/17		NA / NA		N/A

*Principal loan balances outstanding at 31 December 2008, excluding current amounts

In 2008 we established two loans: a construction loan for Equest Logistic Centre of Euro 25.7 million, on a five year term at normal market rates and a corporate debt facility of Euro 15.0 million on a seven month term at normal market rates. Both facilities were secured from Raiffeisen Zentralbank. The construction loan is not yet fully drawn though building has been completed. The corporate debt was repaid early and in full from CCS sales proceeds in November 2008.

The banking environment remains difficult. We will qualify to draw up to Euro 7.9 million from the Equest Logistic Centre debt facility once certain letting agreements are completed. VAT reimbursements related to prior construction works also contribute periodically to liquidity.  

Fortunately, we have no scheduled term maturities on our mortgage secured debt until 2011 though both Moldova Mall and Vitantis loans are technically payable following their respective event of default, as referred to in the Chairman's statement.  

Property disposals 

Global developments in the property sector have had an impact in our region and investment sales brokers are reporting that investor yield expectations have risen. We were fortunate to have secured a 7.1% yield on CCS in November 2008. Since then, investor activity, even on prime assets, has been limited to only a few transactions, mostly by distressed sellers. While we expect a favourable outcome in the marketing of our assets, we cannot predict the timing associated with an orderly sales process. 

The main disposals during 2008 included: 

City Center Sofia - Shopping Mall, Bulgaria 

The sale of EBP's largest asset completed at a price of Euro 101.5 million. The sale created a net cash inflow to the Company of Euro 37.0 million, primarily the return of capital invested since the original Euro 94 million price paid in December 2005. 

Aurora / Archway Portfolio - Retail Development Joint Venture, Serbia

In June 2008 the Company agreed a staged sale contract whereby EBP agreed to sell its shares in the Aurora portfolio, consisting of nine retail land plots, to its joint venture partner at prices tied to 31 December 2007 valuations. The Company has a remaining financial interest in the portfolio but, as the valuation of that interest is currently indeterminable with any reasonable degree of precision, and the events which will enable its recognition have not yet occurred, the financial statements ascribe a zero value to it.

Additionally, the Company disposed of two small land holdings: the Sarajevska land plot in Old Belgrade and finalised the earlier sale of a retail land plot in central Skopje in May 2009 (post period). 

Property acquisitions

Following the strategic review in May 2008, EBP has not entered into any new purchase contracts. However, under prior contracts, EBP had one remaining purchase payment commitment and had an obligation to restructure a joint venture, both of which completed in the year. 

Skadarlija / Apollo - Mixed Use Development Site, Belgrade 

In May 2008, the Company made the final Euro 8.0 million instalment payment to complete the acquisition of this former brewery site in the centre of Old Belgrade. In addition, the Company incurred some late payment costs.  

Serdika - Mixed Use Development Site, Sofia

In July 2008 EBP contributed its ownership interest in this prime assemblage to a new Dutch co-operative owned by the company and a minority partner in order to facilitate the sale of the site to an Austrian institutional investor. The minority partner also contributed its proportion of ownership of the property to the new SPV. Unfortunately, the Austrian investor chose to end negotiations in January 2009. 

A deposit of Euro 15 million was paid by the investor in respect of the proposed purchase, subject to an agreement with, and security provided by, the minority partner alone. Euro 10.0 million of the Euro 15 million was paid to the Company. The minority partner has since repaid the investor the whole Euro 15 million leaving the company indebted to the minority partner, Equest Investments Balkans Limited, for Euro 10.0 million. The terms and timing of the repayment of the Euro 10.0 million are being negotiated.

Investment property

The Company's investment assets include the retail projects Vitantis, Moldova Mall, and Targoviste; three logistic warehouses in Bucharest; four office buildings in Bucharest; and an office building in Skopje.  

Vitantis Retail Park - Bucharest, Romania

With three anchors (Carrefour, Technomarket and Praktiker) and about 85% of its 11,000 sqm retail gallery leased, Vitantis is still transitioning to a stabilised operation. Since the gallery shops opened in September 2008 the Romanian Lei has devalued by over 14%, which has put pressure on retailers since all lease payments are based on the Euro and payable in local currency. On a more positive note, we know the performance of our anchor stores is very strong and our monthly footfall statistics are improving.

In light of the current operational issues and the event of default, the sale of this asset has been postponed until the asset reaches stabilised levels and the current negotiations are resolved with the bank. 

Moldova Mall - Shopping Mall, Iasi, Romania

As noted in a post period RNS announcement, due to a breach of financial covenants, Bank Austria has declared an event of default for this financing.  

The retailers in this asset have suffered disproportionally from the depreciation of the Romania Lei and have made numerous demands for rent reductions. As nearly 33% of the rent roll expires annually in each of the next three years, the downward pressure on rents is expected to continue for some time. This could also lead to a further decline in the asset value.

Based on the 31 December 2008 CBRE valuation of Euro 26.5 million, the Company has lost a significant portion of the Euro 35.0 million invested to date, and has impaired the carrying value of the asset down to the level of outstanding loan finance, reflecting a prudent view of the likely recoverable value. The Board continues to examine its options for this asset, which may include allowing it to revert to the lender. This will have no further impact on net assets.

Equest Logistic Centre -Three Modern Distribution Warehouses, Bucharest, Romania 

In April 2008 the Company secured a Euro 25.7 million five year construction to investment loan with Raiffeisen Zentralbank (RZB), of which Euro 17.7 million had been utilised as at year end 2008. These modern facilities are attracting tenants as planned and achieving top rents in the market. Building 1, an office warehouse of 20,308 sqm, opened in February 2008 and is now 100% let. Building 2, an office warehouse of 18,161 sqm, opened in October and is 42.2% let. Building 3, an office warehouse of 18,161 sqm, was completed in March 2009 and agreed heads of terms for a lease agreement with Domo Retail S.A. in April 2009 for 57.4% of the premises. These contracts will bring the overall leasing status to 67% which is the minimal threshold needed to qualify to draw on the RZB facility. Though Euro 7.9 million is committed and available from RZB, we will not qualify to draw the full amount without additional leases.

We plan to market this property for sale once stabilised occupancy is achieved. 

Development property

We made significant construction progress during 2008 and have effectively completed the construction pipeline. There is no remaining development project with committed equity. The portfolio contains several land parcels which require further capital to complete key pre-development initiatives, such as securing building permits, which we believe are needed to protect value and enhance the marketability of the land. Since construction financing for new projects cannot be obtained on favourable terms, each project is being marketed for sale and / or we are in discussions with a third party capital investor.

Euro Car Park - Mixed Use Development Site, Bucharest, Romania

This land concession in the centre of Bucharest is a project the Company is still evaluating. The project is a mixed use urban scheme with a car park, offices, and ground level retail and estimated return on cost of over 12%, subject to the final architectural design and detailed construction costs.

Associates

Glorient Investment BV (40% EBP) - Retail Warehouse Portfolio, Bulgaria 

Glorient continues to expand its holdings and now owns 32 investment properties and nine development sites. Glorient has made a cautious entry into Slovakia by securing four sites which will eventually host Technomarket stores.  

Cost savings

A merger proposal for several BV entities has been submitted to the relevant bankers for consideration and approval. The concept is to reduce the total count of BV's to save administration costs and to simplify our corporate structure. Subordinate SPV's may be merged later in 2009 to further reduce complexity. The merger application was filed in February 2009 and will be completed by the third quarter of 2009, subject to approval from banks and the completion of amended finance documentation, primarily subordination agreements and share pledges. No joint venture entities are to be merged and no cross guarantees or cross default provisions are contemplated as part of the merger.  

    

Hedging

We believe that some cash should be directed to buy down existing swap contracts to reduce the annual finance costs at the SPV level. This would relieve some of the pressure on interest service covenants. 

Swap Positions 

Project		Hedge	Maturity	Base Rate
Moldova Mall		fixed @ 4.15%	exp 09/08/2011	3-M EURIBOR
Targoviste		fixed @ 3.97%	exp 12/02/2013	1-M EURIBOR
Vitantis		fixed @ 5.21%	exp 31/03/2012	3-M EURIBOR
Bucharest Offices		fixed @ 4.50%	exp 24/09/2012	3-M EURIBOR

Outlook

We expect general market conditions to improve in late 2009 and early 2010 due to lower interest rates and a general improvement in lending conditions. Investor activity until then will be limited.  

Financial statements

Copies of the accounts will be sent to shareholders shortly and will be available from Equest Balkan Properties c/o IOMA, IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP and on the company's website www.equestbalkan.com.

Equest Property Management Limited

24 June 2009

   

CONSOLIDATED INCOME STATEMENT

			2008	2007
			Group	Group (restated)
		Notes	€ '000	€ '000
Revenue			21,252	16,207
Property operating expenses			(9,791)	(7,616)
Net rental and related income		4	11,461	8,591
(Loss)/Net gain from fair value adjustment on property assets		11, 14	(20,838)	14,523
Share of profit from associate		18	966	4,612
Loss on sale of subsidiaries		5	(14,807)	-
Administrative expenses		6	(13,021)	(7,107)
Operating (loss)/profit			(36,239)	20,619
Finance income		7	437	1,593
Finance costs		7	(26,339)	(13,767)
Impairment of goodwill and acquired building rights		13, 17	(2,197)	(4,973)
(Loss)/profit for the year before tax			(64,338)	3,472
Income tax credit		8	1,741	3,545
(Loss)/profit for the year after tax			(62,597)	7,017
Attributable to:
Equity shareholders in the Company			(61,653)	7,663
Minority interest			(944)	(646)
			(62,597)	7,017
(Loss)/earnings per share for (loss)/profit attributable to the equity holders of the Company during the year:
(Loss)/earnings per share - basic and diluted		10	(0.44)	0.05

  CONSOLIDATED AND COMPANY BALANCE SHEETS

			Group	Group	Company	Company
			2008	2007 (restated)	2008	2007
		Notes	€ '000	€ '000	€ '000	€ '000
ASSETS
Non-current assets
Investment property		11	146,674	290,454	-	-
Prepaid operating leases		12	-	5,752	-	-
Acquired building rights		13	1,750	7,505	-	-
Development property		14	64,258	23,215	-	-
Other property, plant and equipment		15	200	181	-	-
Investments in subsidiaries		16	-	-	56,762	2
Goodwill		17	-	2,455	-	-
Investment in associates		18	32,884	38,256	-	-
Loans and receivables		16, 18	1,148	3,910	131,442	197,859
Deferred income tax assets		19	440	893	-	-
Total non-current assets			247,354	372,621	188,204	197,861
Current assets
Loan receivable		18	61	1,000	-	-
Trade and other receivables		20	9,951	8,832	1,151	2,004
Cash and cash equivalents			15,530	8,083	3,043	105
Total current assets			25,542	17,915	4,194	2,109
Total assets			272,896	390,536	192,398	199,970
EQUITY
Share capital		26	1,400	1,400	1,400	1,400
Distributable reserve			176,242	176,242	176,242	176,242
Retained earnings			(38,719)	22,809	4,211	21,181
Translation reserve			(12,395)	(1,080)	-	-
Revaluation reserve			2,153	8,944	-	-
Total equity attributable to equity holders of the parent company			128,681	208,315	181,853	198,823
Minority interest			2,833	1,762	-	-
Total equity			131,514	210,077	181,853	198,823
Liabilities
Non-current liabilities
Bank borrowings		21	113,550	146,618	-	-
Deferred income tax liabilities		19	1,976	5,123	-	-
Deposits			447	1,501	-	-
Other long term loans		22	200	1,063	-	-
Other non-current liabilities			1,253	-	-
Total non-current liabilities			117,426	154,305	-	-

  

Current liabilities
Trade and other payables		24	9,693	19,272	496	1,147
Bank borrowings		21	4,215	807	-	-
Other short term loans		22	10,048	6,075	10,049	-
Total current liabilities			23,956	26,154	10,545	1,147
Total liabilities			141,382	180,459	10,545	1,147
Total equity and liabilities			272,896	390,536	192,398	199,970

The financial statements below were approved and authorised for issue by the Board of Directors on 24 June 2009 and were signed on their behalf by:

Donald Lake           

Director and Deputy Chairman        

Robin James

Director 

The notes below are an integral part of these financial statements.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

		ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
		Share Capital	Distributable Reserve	Retained Earnings (resta-ted)	Translation Reserve	Revaluation Reserve (restated)	Total (resta-ted)		Minority Interest	Total Equity
		€ '000	€ '000	€ '000	€ '000	€ '000	€ '000		€ '000	€ '000
Balance at 1 January 2007		1,400	196,640	15,146	819	9,900	223,905		855	224,760
Profit for the year		-	-	7,663	-	-	7,663		(646)	7,017
Fair value movement on development property (restated)		-	-	-	-	(607)	(607)		874	267
Deferred tax		-	-	-	-	(349)	(349)		(136)	(485)
Exchange differences on translating foreign operations		-	-	-	(1,899)	-	(1,899)		(18)	(1,917)
Total recognised income and expense for the year		-	-	7,663	(1,899)	(956)	4,808		74	4,882
Dividends declared		-	(20,398)	-	-	-	(20,398)		-	(20,398)
Minority interest arising on acquisitions		-	-	-	-	-	-		833	833
Balance at 31 December 2007 (restated)		1,400	176,242	22,809	(1,080)	8,944	208,315		1,762	210,077
Loss for the year		-	-	(61,653)	-		(61,653)		(944)	(62,597)
Fair value movement on development property		-	-	-	-	(646)	(646)		(371)	(1,017)
Realisation of reserves on sale of subsidiary		-	-	125	(347)	(125)	(347)		-	(347)
Exchange differences on net investment in foreign operations		-	-	-	(9,362)	-	(9,362)		-	(9,362)
Exchange differences on translating foreign operations		-	-	-	(1,606)	(233)	(1,839)		(68)	(1,908)
Share of revaluation reserve of an associate		-	-	-	-	(5,613)	(5,613)		-	(5,613)
Minority interest on disposals		-	-	-	-	-	-		2,454	2,454
Deferred tax		-	-	-	-	(174)	(174)		-	(174)
Total recognised income and expense for the year		-	-	(61,528)	(11,315)	(6,791)	(79,634)		1,071	(78,563)
Balance at 31 December 2008		1,400	176,242	(38,719)	(12,395)	2,153	128,681		2,833	131,514

The notes below are an integral part of these financial statements.

COMPANY STATEMENT OF CHANGES IN EQUITY
		Share Capital	Distributable Reserve		Retained Earnings	Total Equity
		€ '000	€ '000		€ '000	€ '000
Balance at 1 January 2007		1,400	196,640		9,739	207,779
Profit and total recognised income and expense for the year		-	-		11,442	11,442
Dividends declared		-	(20,398)		-	(20,398)
Balance at 31 December 2007		1,400	176,242		21,181	198,823
Loss and total recognised income and expense for the year		-	-		(16,970)	(16,970)
Dividends declared		-	-		-	-
Balance at 31 December 2008		1,400	176,242		4,211	181,853

The notes below are an integral part of these financial statements.

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS

			Group  2008	Group         2007	Company  2008	Company 2007
		Notes	€ '000	€ '000	€ '000	€ '000
Cash (outflow)/inflow (used by)/ generated from operations		27	(3,019)	2,990	(7,932)	(4,623)
Finance costs			(11,576)	(5,908)	(84)	(8)
Tax paid			(138)	(445)	-	-
Net cash inflow/(outflow) from operating activities			(14,733)	(3,363)	(8,016)	(4,631)
Cash flow from investing activities
Proceeds on sale of subsidiaries		30	41,654	-	-	-
Purchase of investment property		11	(13,511)	(11,583)	-	-
Proceeds on sale of investment property			2,150	-	-	-
Purchase of prepaid operating leases		12	-	(2,212)	-	-
Purchase of building rights		13	-	(671)	-	-
Purchase of development property		14	(45,842)	(25,153)	-	-
Purchase of other property, plant and equipment		15	(149)	(22)	-	-
Proceeds on disposal of other property, plant and equipment		15	-	221	-	-
Loans advanced to subsidiaries		16	-	-	(14,890)	(51,049)
Loans repaid by subsidiaries		16	-	-	26,666	47,139
Acquisition of subsidiaries, net of cash acquired		30	-	(25,200)	1,785	(1)
Interest received			134	2,234	-	13,485
Net cash (outflow)/inflow from investing activities			(15,564)	(62,386)	13,561	9,574
Cash flows from financing activities
Dividends paid		9	-	(20,398)	-	(20,398)
Repayment of long term borrowings			(4,026)	-	-	-
Loans advanced			(606)	(4,910)	(2,594)	-
Proceeds from borrowing and other loans			40,607	44,380	-	-
Net cash inflow/(outflow) from financing activities			35,975	19,072	(2,594)	(20,398)
Net (decrease)/increase in cash & cash equivalents			5,678	(46,677)	2,951	(15,455)
Cash & cash equivalents at beginning of year			8,083	52,921	105	15,607
Foreign exchange gains/(losses) on cash and cash equivalents			1,769	1,839	(13)	(47)
Cash & cash equivalents at end of year			15,530	8,083	3,043	105

The notes below are an integral part of these financial statements.

STATEMENT OF ACCOUNTING POLICIES

For the year ended 31 December 2008

General Information 

Equest Balkan Properties plc ('the Company') and its subsidiaries (together 'the Group') are a property group with a portfolio of development property and investment property assets in South East Europe. 

The principal accounting policies are set out below.

Basis of preparation

These financial statements have been prepared in accordance with the Isle of Man Companies Acts 1931-2004 except as disclosed in Note 9, International Financial Reporting Standards ('IFRS') and IFRIC interpretations adopted by the European Union. The consolidated financial statements have been prepared on a going concern basis and on a historical cost basis as amended by the revaluation of investment property, development property and financial assets and financial liabilities at fair value through profit or loss. Comparative information for the Group and Company financial statements is presented for the period from 1 January 2006 to 31 December 2007.  

In accordance with the provisions of Section 3 of the Isle of Man Companies Act 1982, no separate income statement has been presented for the Company. The amount of the Company's loss for the year recognised in the Consolidated Income Statement is €16,970,000 (2007: profit €11,442,000).

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 1.

Specifically, the Directors have prepared the consolidated financial statements on a going concern basis. This is a key judgement of the Board, and is discussed further in Note 1 (d).

Restatement of comparative amounts

During the year the management performed a detailed review of the Company's IFRS financial statements for 2006 and 2007 and the related accounting policies. This review exercise identified an error, which necessitated restatement of the financial statements for 2007 in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The nature and effect of restatement is detailed below. 

Investment and development property in the associate

In 2006 and in 2007 development property of Glorient Investments BG was accounted for as investment property with revaluation gain/loss taken to the income statement. The comparative financial statements for 2007 have been restated to correct this error and to recognise fair value changes on development property in the revaluation reserve in equity. In 2006 the effect of the change resulted in a reduction of consolidated profit after tax by €9,900,000. In 2007, the effect of the change resulted in an increase of consolidated profit after tax by €2,850,000.

The effect of restatement of prior period balances on total equity of the Group as at 31 December 2006 and 31 December 2007 is summarised below:

	2006 € '000	2007 € '000
Retained earnings as previously reported	25,046	29,859
Effect of recognition of property revaluation in Glorient Investments BG	(9,900)	(7,050)
Retained earnings restated	15,146	22,809

The effect of restatement of prior period balances on the income statement for the year ended 31 December 2007 is as follows:

	€ '000
Profit  for the year ended 31 December 2007 (as previously reported)	4,167
Effect of recognition of development property revaluation in Glorient Investments BG	2,850
Profit for the year ended 31 December 2007 (restated)	7,017

Changes to accounting policies since the last year

The accounting policies adopted are consistent with those of previous financial year except for IFRIC 11: IFRS 2 - Group and Treasury Share Transactions - which was adopted on 1 January 2008. Adoption of this interpretation did not have any effect on the financial performance or position of the Group. 

The IASB also issued various interpretations that are effective from 1 January 2008, but have no relevance to the activities of the Group. These are IFRIC 12, IFRIC 13 and IFRIC 14.

Certain new standards, amendments and interpretations to existing standards which may be relevant to the Group have been published that are mandatory for later accounting periods and which have not been adopted early. These are:

• IFRS 1 and IAS 27 Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate (Amendment) effective 1 January 2009

• IFRS 3 Business Combinations (Revised) effective 1 July 2009

• IFRS 7 Financial Instruments: Disclosure (Amendment) effective 1 January 2009

• IFRS 8 Operating Segments effective 1 January 2009

• IAS 1 Presentation of Financial Statements (Revised) effective 1 January 2009

• IAS 23 Borrowing Costs (Revised) effective 1 January 2009

• IAS 27 Consolidated and Separate Financial Statements (Amendment) effective 1 July 2009

• IAS 32 and IAS 1 Puttable Financial Instruments and Obligations Arising on Liquidation (Amendment) effective 1 January 2009

• IAS 39 Eligible Hedged Items (Amendment) effective 1 July 2009

• IFRIC 15 Agreements for the Construction of Real Estate effective 1 January 2009

• IFRIC 17 Distributions of Non-cash Assets to Owners effective 1 July 2009

The Group is currently assessing the impact of these new standards and changes on the financial statements. 

In May 2008 the IASB issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard.   The Group has decided not to adopt early any of these amendments as they are not anticipated to have a significant impact on the reported results of the Group.

Basis of consolidation

(a) Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group, except for certain acquisitions that do not meet the definition of a business combination under IFRS 3. These are accounted for as asset acquisitions (Note 30).  The cost of an acquisition is to be measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of an acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.  Investments in subsidiaries are carried at cost less any provision for permanent impairment in the value in the Company's financial statements.

 

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

 

(b) Transactions with minority interests

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

(c) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost. The Group's investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss.

The Group's share of its associates' post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Accounting policies of associates have been reviewed to ensure consistency with the policies adopted by the Group.

Intangible assets

(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill has an indefinite useful life.  Goodwill on acquisition of subsidiaries is presented separately in the balance sheet. Goodwill on acquisition of associates is included in investments in associates and is tested for impairment as part of the overall balance. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.

(b) Acquired building rights

Acquired building rights that do not meet the definition of investment property under IAS40 are accounted for as intangible assets. Acquired building rights have a finite useful life and are carried at historical cost less amortisation.  Amortisation is calculated on a straight line basis over the life of the acquired building rights.

Segment reporting

The Directors are of the opinion that the Group is engaged in a single segment of business, being property investment business, in one geographical area, being South Eastern Europe.

Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements are presented in Euros, which is the Company's presentational currency. The functional currency of each entity within the Group is a key judgement of management and the directors. This judgement prioritises primary factors, such as the source of competitive forces and the denomination of sales prices and input costs, over secondary considerations such as the source of financing, in accordance with IAS21.  These considerations indicate that the functional currencies of the Balkan trading entities are local currencies, and the functional currency of the holding companies is the Euro.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Non-monetary items carried at fair value, which are denominated in foreign currencies, are translated at the rates prevailing at the date when the fair value was determined and the gain or loss is recognised in the income statement, except for differences arising on the re-translation of non-monetary items, in respect of which gains and losses are recognised directly in equity. 

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(ii) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(iii) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders' equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale.

Investment property

Property that is held for rental yields or for capital appreciation or both and that is not occupied by the companies in the Group is classified as investment property. The Group has elected to use the fair value model to measure investment property after initial recognition.  

Investment property comprises freehold land, freehold buildings and land held under operating leases. Investment property is measured initially at its cost, including related transaction costs and subsequently revalued at the balance sheet date to fair value.

Subsequent expenditure is charged to the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. 

Fair value is based on active market prices, adjusted if necessary, for any difference in the nature, location or condition of the specific asset. These valuations are prepared semi-annually by CB Richard Ellis. The fair value of investment property reflects, among other things, rental income from current leases and assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property.

Investment property that is being redeveloped for continuing use as investment property or for which the market has become less active continues to be measured at fair value. 

Changes in fair values of investment property are recorded in the income statement. Depreciation is not provided in respect of investment properties.

Development property

Property that is being constructed or developed for future use as investment property is classified as development property. The Group has elected to use the fair value model to measure development property after initial recognition. Development property is measured initially at its cost, including related transaction costs and subsequently revalued at the balance sheet date to fair value.

Fair value is based on active market prices, adjusted if necessary, for any difference in the nature, location or condition of the specific asset. These valuations are prepared semi-annually by CB Richard Ellis. The fair value of development property reflects, among other things, rental income from temporary current leases and the potential development project including the assumptions about rental income from future leases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that could be expected in respect of the property. 

Gains in fair values of development property are credited to the revaluation reserves in shareholders' equity. Decreases that offset previous increases of the same asset are charged against other reserves directly in equity; all other decreases are charged to the income statement. Upon completion, development property to be held for long-term rental income and capital appreciation is transferred to investment property.

 

Other property, plant and equipment

Other property, plant and equipment consists of fixtures, fittings & equipment and is stated at a historical cost. Historical cost includes expenditure that is directly attributable to the acquisition of the items. 

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying value of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Depreciation is calculated using the straight-line method to allocate cost over the assets' estimated useful economic lives of 5 to 15 years. Depreciation expense is included within 'property operating expenses' in the income statement. The assets' residual values and useful lives are reviewed and adjusted if appropriate, at least at each financial year-end. An asset's carrying amount is written down immediately to its recoverable amount if its carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are recognised in the income statement.

Leasing

(a) A group company is the lessee

Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

(b) A group company is the lessor

Properties leased out under operating leases are included in investment property in the balance sheet. Lease income is recognised over the term of the lease on a straight-line basis.

Impairment of assets

Assets including goodwill that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Financial assets

The Group classifies its financial assets into the following categories: at fair value through profit or loss and loans and receivables. The Group has not classified any of its financial assets as held to maturity or as assets available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.  

Unless otherwise indicated, the carrying amounts of the Group's financial assets are a reasonable approximation of their fair value. 

(a) Financial assets at fair value through profit or loss

Financial assets at fair value through the profit or loss comprise only in-the-money derivatives (see financial liabilities policy for out-of-the money derivatives), which are carried at fair value with changes in fair value recognised in the income statement in finance income or finance costs.

  

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables, cash and cash equivalents or loans and receivables in the balance sheet.

Loans and receivables are initially recognised at fair value, plus transaction costs that are directly attributable to their acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less impairment. 

Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.

Trade receivables

Trade receivables are non-derivative financial assets with fixed or determinable payment that are not quoted in an active market. The carrying value of trade receivables approximates their fair values. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited in the income statement.

Share capital 

Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

Financial liabilities

The Group classifies its financial liabilities into the following categories: at fair value through profit or loss and other financial liabilities.

Unless otherwise indicated, the carrying amounts of the Group's financial liabilities are a reasonable approximation of their fair value. 

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through the profit or loss comprise only out-of-the-money derivatives (see financial assets policy for in-the-money derivatives), which are carried at fair value with changes in fair value recognised in the income statement as finance income or finance costs.  

(b) Other financial liabilities

Other financial liabilities include borrowings and trade and other payables, which are measured at amortised cost using the effective interest rate method. 

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included in the income statement line items finance costs or finance income.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Trade payables and other payables

Trade payables and other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 

Taxation

(a) Income tax

The standard rate of income tax for companies in the Isle of Man is 0% and consequently no provision for Isle of Man taxation has, therefore, been made.  As the Company is wholly owned by non-resident members, the Company meets the definition as being a 'distributing company' and is, therefore, exempt from the distributable profits charge and the Attribution Regime for Individuals which will commence from 1 January 2009.

The Group is liable to tax in the Netherlands Antilles, the Netherlands, Bulgaria, Serbia, Montenegro and Romania on the activities of its subsidiaries.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expenditure that are taxable or deductible in other periods and it also excludes items that are not taxable or deductible. The Group's liability for current tax is calculated using tax rates applicable at the balance sheet date.

(b) Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. It is accounted for using the balance sheet liability method.

Deferred income tax is provided in full on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit nor loss. 

Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Provisions

Provisions for legal claims are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated.

Revenue recognition

Revenue includes rental income and service charges from properties.     

Rental income from operating leases is recognised in income on a straight-line basis over the lease term. When the Group provides incentives to its customers, the cost of incentives are recognised over the lease term, on a straight line basis, as a reduction of rental income.

Service charges are recognised in the accounting period in which the services are rendered. When the Group is acting as an agent, the commission rather than gross income is recorded as revenue.

Finance income

Finance income is accrued on a time basis by reference to the outstanding principal and the effective interest rate applicable.

Interest expense

Interest expense for borrowings is recognised within finance costs in the income statement using the effective interest rate method. The effective interest rate method is a method of calculating the amortised cost of a financial liability and of allocating the interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments throughout the expected life of the financial instrument, or a shorter period where appropriate to the net carrying amount of the financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options). The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Dividend distributions

Dividend distributions to the Company's shareholders are recognised as a liability in the Group's financial statements in the period in which the dividends are approved.

Expenses

Expenses are accounted for on an accruals basis. The Group's property operating expenses, administration fees, finance costs and all other expenses are charged to the income statement. Transaction costs directly attributable to the purchase of investment property are included within the cost of the property.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the year ended 31 December 2008

1    Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience as adjusted for current market conditions and other factors.  

The Directors make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

(a) Classification of property as prepaid operating leases, investment, development and acquired  
   building rights

Investment property is property held for rental income and capital appreciation. Development property is property that does not earn rental income and that is being developed for the future use as investment property. Development property is transferred to the category of investment property when construction is completed and the property starts earning rental income. Acquired building rights are licences and rights acquired from third parties that give the Group the right to construct on the land. Prepaid operating leases are the up-front payments that relate to operating leases acquired by the Group.

(b) Estimate of fair value of investment and development properties

The best evidence of fair value is current prices in an active market for similar lease and other contracts. In the absence of such information, the Group determines the amount within a range of reasonable, fair value estimates. In making its judgement, the Group considers information from a variety of sources (discussed further in Note 11) and engages external, professional advisers to carry out third party valuations of its properties. These are completed in accordance with the appropriate sections of the current Practice Statements contained in the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards, 6th Edition (the 'Red Book'). This is an internationally accepted basis of valuation.

In completing these valuations the valuer considers the following:

• current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences;

• recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and

• discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. 

(c) Income taxes

The Group is subject to income taxes in different jurisdictions. Estimates are required in determining the worldwide provision for income taxes. There are some transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises deferred tax liabilities on the revaluation of investment property and development property. The Group is structured in a way that future disposal of investment property and development property is expected to be through the sale of the corporate entity which owns the property, rather than the sale of the underlying property, therefore the Directors do not anticipate the crystallisation of these deferred tax liabilities. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(d) Going concern

In assessing the going concern basis of preparation of the consolidated financial statements for the year ended 31 December 2008, the directors have taken into account the status of current negotiations on loans. 

The Group's forecasts and projections to July 2010 have been prepared taking into account the economic environment and its challenges and the mitigating factors referred to above. These forecasts take into account possible changes in trading performance, potential sales of properties and the future financing of the Group. They show that the Group will have sufficient facilities for its ongoing operations. 

While there will always remain some inherent uncertainty within the aforementioned cash flow forecasts, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future, and for a period of at least 12 months from the date of signing of these financial statements. Accordingly they continue to adopt the going concern basis in preparing the consolidated financial statements for the year ended 31 December 2008. 

Impact of Serdika project 

Debt obligations relating to the Serdika development are not anticipated to be repaid in the next 12 months; since the terms for repayment are the subject of discussions with the lender (as was the case at the balance sheet date), the debt has been shown as a current liability in the financial statements.  However, interest expenses are forecast to be paid on a current basis. The Group intends to repay the outstanding principal from the sale of the Serdika asset, which is being actively marketed. If further capital is needed this could come all or in part from the undrawn commitment relating to the Equest Logistic Centre and future asset sales. 

It is possible that discussions with the lender may not be completed for some time.  The Directors have concluded that this circumstance represents a material uncertainty that casts significant doubt upon the Group's ability to continue as a going concern. In the opinion of the Directors, agreement will be reached with the lender to defer repayment of the unsecured loan balance for a period of at least 12 months from the date of issue of these financial statements. 

Therefore, after making enquiries, and considering the uncertainties described above, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts. 

Impact of Moldova and Vitantis events 

The Group cash flow forecast assumes that all surplus cash flow from operations is being held at the local company level for both Vitantis and Moldova Mall. No cash from these assets is needed to meet the other obligations of the Group; as a result, the Board does not believe that the situations at Moldova Mall and Vitantis (as discussed in the Chairman's statement) will affect the normal operations of the Fund. 

The financial statements do not include any adjustments that would result if the going concern basis of preparation were to become no longer appropriate.

(e) Disposal of subsidiaries

During the year the Group disposed of a subsidiary, Lerma BV. As a result of this disposal management are exposed to certain contingent liabilities, but have judged based on currently available facts that the probability of these liabilities crystallising is less than 50%, and therefore these liabilities have not been provided for. 

2     Financial risk management

2.1    Financial risk factors

The Group's activities expose it to a variety of financial risks: market risk (including currency risk, price risk, cashflow and fair value interest rate risk), credit risk and liquidity risk. The financial risks relate to the following financial instruments: trade receivables, loans and receivables, derivatives, cash and cash equivalents, trade and other payables and borrowings. 

Risk management is carried out by the Investment Manager under policies approved by the Board of Directors. The Investment Manager identifies and evaluates financial risks in close co-operation with the Group's operating companies. The Board approves written principles for overall risk management and oversees the development of policies covering areas such as foreign exchange risk and interest rate risk.

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Romanian New Lei (RON) and Serbian Dinar (RSD) and to a lesser extent to the Macedonian Dinar, Slovakian Koruna, UK Pound Sterling and the Bulgarian Lev, (BGN) which is currently pegged against the Euro. 

The following table summarises the Group's net financial assets by foreign currency at 31 December 2008. The Group's financial assets and liabilities at carrying amounts are included in the table, categorised by the currency at their carrying amount.  

2008	EUR € '000	RON € '000	BGN € '000	RSD € '000	Other € '000	Total € '000
FINANCIAL ASSETS
Non-current financial assets
Loans and receivables	1,148	-	-	-	-	1,148
Total non-current financial assets	1,148	-	-	-	-	1,148
Current financial assets
Loan receivable	61	-	-	-	-	61
Trade & other receivables	911	8,808	40	135	57	9,951
Cash & cash equivalents	10,989	4,198	56	5	282	15,530
Total current financial assets	11,961	13,006	96	140	339	25,542
Total financial assets	13,109	13,006	96	140	339	26,690
FINANCIAL LIABILITIES Non-current financial liabilities
Bank borrowings	113,550	-	-	-	-	113,550
Deposits	-	447	-	-	-	447
Other long term loans	200	-	-	-	-	200
Other non-current liabilities	1,253	-	-	-	-	1,253
Total non-current financial  liabilities	115,003	447	-	-	-	115,450
Current financial liabilities
Trade and other payables	4,054	5,498	28	26	87	9,693
Bank borrowings	4,215	-	-	-	-	4,215
Other short-term loans	10,048	-	-	-	-	10,048
Total current liabilities	18,317	5,498	28	26	87	23,956
Total liabilities	133,320	5,945	28	26	87	139,406
Net financial assets by currency	(120,211)	7,061	68	114	252	(112, 716)

The following tables summarises the Group's net financial assets by foreign currency at 31 December 2007. The Group's financial assets and liabilities at carrying amounts are included in the table, categorised by the currency at their carrying amount.

2007		EUR € '000			RON € '000			BGN € '000			RSD € '000			Other € '000			Total € '000
FINANCIAL ASSETS
Non-current financial assets
Loans and receivables		3,910			-		-				-		-				3,910
Total non- current financial assets		3,910			-		-				-		-				3,910
Current financial assets
Loans receivable		1,000			-		-				-		-				1,000
Trade and other receivables		967			5,541		1,482				417		425				8,832
Cash and cash equivalents		409			4,545		1,283				358		1,488				8,083
Total current financial assets		2,376			10,086		2,765				775		1,913				17,915
Total financial assets		6,286			10,086		2,765				775		1,913				21,825
FINANCIAL LIABILITIES
Non-current financial liabilities
Bank borrowings	146,618				-		-			-			-				146,618
Deposits	-				96		1,405			-			-				1,501
Other long term loans	1,063				-		-			-			-				1,063
Total non-current financial liabilities	147,681				96		1,405			-			-				149,182
Current financial liabilities
Trade and other payables	8,617				7,048		1,598			663			1,346				19,272
Bank borrowings	807				-		-			-			-				807
Other short-term loans	4,995				-		840			240			-				6,075
Total current financial liabilities	14,419				7,048		2,438			903			1,346				26,154
Total financial liabilities	162,100				7,144		3,834			903			1,346				175,336
Net financial assets by currency	(155,814)				2,942		(1,069)			(128)			567				(153,511)

 

The Company does not have any significant concentration of foreign exchange risk. The Group's property assets are valued in Euro, rental income is linked to the Euro and borrowings are denominated in Euro.

The sensitivity analyses below are based on a change in an assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in some of the assumptions may be correlated - for example, change in interest rate and change in foreign currency rates. The Group manages foreign currency risk on an overall basis.  

The sensitivity analysis prepared below by management for foreign currency risk illustrates how changes in the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

If the Euro weakened/strengthened by 10% against the Romanian Lei with all other variables held constant, post-tax loss for the year would have been €3,831,600 lower and €3,134,900 higher (2007: post-tax profit for the year would have been €1,742,000 higher and €1,425,000 lower).

If the euro weakened/strengthened by 10% against the Serbian Dinar with all other variables held constant, post-tax loss for the year would have been €369,000 lower, and €451,000 higher (2006: post-tax profit for the year would have been €451,000 lower and €369,000 higher).

(ii) Price risk

The Group is exposed to property price and property rentals risk.  The Company does not have any significant concentration of price risk.

(iii) Cash flow and fair value interest rate risk

The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows, as the Group's cash is deposited in interest bearing accounts at floating rates. The Group manages interest rate risk on these assets by monitoring interest rates offered by the market. 

The Group's interest rate risk arises from long-term borrowings.  Borrowings issued at variable rates expose the Group to cash flow interest rate risk.  Borrowings issued at fixed rates expose the Group to fair value interest rate risk.  

The Group mitigates its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (primarily quarterly), the difference between the fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts.

The Group's cash flow and fair value interest rate risk is periodically monitored by the Investment Manager. The Investment Manager analyses the Group's interest rate exposure.  This analysis takes into account exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest costs may increase as a result of such changes. They may reduce or create losses in the event that unexpected movements arise. Various scenarios are considered including re-financing, renewal of existing positions, alternative financing and hedging.

Trade and other receivables and payables are interest-free and have settlement dates within one year.

The sensitivity analysis below reflects the sensitivity of loan interest (on unswapped loans only), and the sensitivity of the fair value of interest rate swaps, to changes in interest rates.

An increase in 100 basis points in Euribor Interest rate would result in an increase in the post-tax profit for the year of €480,000 (2007: €460,000). A decrease in 100 basis points in Euribor Interest rate would result in a decrease in the post-tax profit for the year of €480,000 (2007: €287,000). This is a combined effect of interest costs of unswapped borrowings and fair value change of interest rate swaps.

The Company does not have any significant concentration of cash flow and fair value interest rate risk.

(b) Credit risk 

Credit risk arises from cash and cash equivalents as well as credit exposures with respect to rental customers, including outstanding receivables. The Group has no significant concentrations of credit risk. It has policies in place to ensure that where possible rental contracts are made with customers with an appropriate credit history. Cash transactions are limited to high-credit-quality financial institutions.   The Company does not have any significant concentration of credit risk.

(c) Liquidity risk 

Prudent liquidity risk management implies conserving cash balances by minimising costs, eliminating discretionary capital expenditures and collecting rental invoices.  These measures are taken by the Investment Manager.  Non-discretionary expenditures are carefully monitored and paid whenever contractually obligated.  

The Group has diversified its lending relationships to secure mortgage debt and the maturity of these loans is staged in later years so as not to concentrate the refinance risk.  In 2008, the Group secured corporate level bridge financing to meet interim capital obligations related to its construction pipeline.  No further construction is planned and the corporate loan was repaid ahead of schedule from net sales proceeds.  

The Group has access to a €7.9m committed yet undrawn mortgage debt facility.  These amounts are being held in reserve and will remain available through 2010 provided existing leasing levels are maintained at Equest Logistic Center which is likely.

 

The Group's liquidity position is monitored on a weekly basis by the Investment Manager and on a monthly basis by the Board of Directors.  In addition, the Board has appointed a consultant to monitor cash flows and debt covenant performance.

A summary table with maturity of financial liabilities presented below shows the liquidity risks as at 31 December 2007 and 31 December 2008.

Group	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	Over 5 years
2008
	€ '000	€ '000	€ '000	€ '000
Moldova Mall loan finance	1,664	1,636	20,669	-
Vitantis loan finance	2,485	3,508	40,023	-
Other loan finance	4,001	6,673	47,799	10,770
Other loans payable	611	10,659	-	-
Trade and other payables	6,467	-	-	-
2007
Borrowings	807	2,451	122,233	21,934
Other loans payable	6,075	-	1,063	-
Trade and other payables	19,272	-	-	-

Parent	Less than 1 year	Between 1 and 2 years	Between 2 and 5 years	Over 5 years
2008
	€ '000	€ '000	€ '000	€ '000
Borrowings	-	-	-	-
Other loans payable	611	10,659	-	-
Trade and other payables	614	-	-	-
2007
Borrowings	-	-	-	-
Other loans payable	-	-	-	-
Trade and other payables	1,147	-	-	-

The above schedule has, in accordance with IFRS7 Financial Instruments: Disclosures, been presented in line with the conditions present at the balance sheet date, with regards to the contractual maturities of financial liabilities held by the Group.

As discussed in the Chairman's statement, events of default occurred post year end at Moldova Mall and Vitantis.  While the Group continues to participate in active discussions with the bank providing finance at these two properties, the expected pattern of settlement of these loans may differ from those outlined above as a result of the aforementioned post balance sheet date events, including the possibility that these debts may become due within one year of the balance sheet date.  As discussed in the Chairman's statement, these loans are non-recourse and secured individually by specific assets, with no cross-default provisions between facilities.

2.2    Capital risk management 

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including bank loans and loans from minority investors), and other long term loans as shown in the consolidated balance sheet, less cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated balance sheet, plus net debt.

Group
	2008	2007
	€'000s	€'000s
Total borrowings	117,765	147,425
Other loans	10,248	7,138
Less: cash and cash equivalents	(15,530)	(8,083)
Net debt	112,483	146,480
Total equity	131,514	210,077
Total capital	243,997	356,557
Gearing ratio	46%	41%
Parent
	2008	2007
	€'000s	€'000s
Total borrowings	-	-
Other loans	10,048	-
Less: cash and cash equivalents	(3,043)	(105)
Net debt	7,005	(105)
Total equity	181,853	198,823
Total capital	188,859	198,718
Gearing ratio	4%	0%

3    Summary of financial assets and liabilities by category

The carrying amounts of the Group's financial assets and liabilities as recognised at 31 December 2008 are categorised as follows. 

2008	Financial assets and liabilities at fair value through profit or loss	Loans and receivables	Financial liabilities measured at amortised cost	Total
	€'000s	€'000s	€'000s	€'000s
2008	Financial assets and liabilities at fair value through profit or loss	Loans and receivables	Financial liabilities measured at amortised cost	Total
	€'000s	€'000s	€'000s	€'000s
FINANCIAL ASSETS
Non-current financial assets
Loans and receivables	-	1,148	-	1,148
Total non-current financial assets	-	1,148	-	1,148
Current assets
Loans receivable	-	61	-	61
Trade & other receivables	-	9,951	-	9,951
Cash & cash equivalents	-	15,530	-	15,530
Total current financial assets	-	25,542	-	25,542
Total financial assets	-	26,690	-	26,690
FINANCIAL LIABILITIES
Non-current financial liabilities
Bank borrowings	-	-	113,550	113,550
Deposits	-	-	447	447
Other long term loans	-	-	200	200
Other non-current liabilities	-	-	1,253	1,253
Total non-current financial liabilities	-	-	115,450	115,450
Current financial liabilities
Trade and other payables	2,995	-	6,698	9,693
Bank borrowings	-	-	4,215	4,215
Other short term loans	-	-	10,048	10,048
Total current financial liabilities	2,995	-	20,961	23,956
Total financial liabilities	2,995	-	136,411	139,406

The carrying amounts of the Group's financial assets and liabilities as recognised at 31 December 2007 are categorised as follows. 

2007	Financial assets  and liabilities  at fair value through profit or loss	Loans and receivables	Financial liabilities measured at amortised cost	Total
	€ '000	€ '000	€ '000	€ '000
FINANCIAL ASSETS
Non-current financial assets
Loans and receivables	-	3,910	-	3,910
Total non-current financial assets	-	3,910	-	3,910
Current assets
Loans receivable	-	1,000	-	1,000
Trade and other receivables	756	8,076	-	8,832
Cash and cash equivalents	-	8,083	-	8,083
Total current financial assets	756	17,159	-	17,915
Total financial assets	756	21,069	-	21,825
FINANCIAL LIABILITIES
Non-current financial liabilities Bank borrowings	-	-	146,618	146,618
Deposits	-	-	1,501	1,501
Other long term loans	-	-	1,063	1,063
Total non-current financial liabilities	-	-	149,182	149,182

Current financial liabilities
Trade and other payables	-	-	19,272	19,272
Bank borrowings	-	-	807	807
Other short term loans	-	-	6,075	6,075
Total current financial liabilities	-	-	26,154	26,154
Total financial liabilities	-	-	175,336	175,336

The carrying amounts of the Company's financial assets and liabilities as recognised at 31 December 2008 are categorised as follows. 

2008	Financial assets and liabilities at fair value through profit or loss	Loans and receivables	Financial liabilities measured at amortised cost	Total
	€'000s	€'000s	€'000s	€'000s
FINANCIAL ASSETS
Non-current financial assets
Loans and receivables	-	131,442	-	131,442
Total non-current financial assets	-	131,442	-	131,442
Current assets
Loans receivable	-	-	-	-
Trade & other receivables	-	1,151	-	1,151
Cash & cash equivalents	-	3,043	-	3,043
Total current financial assets	-	4,194	-	4,194
Total financial assets	-	135,636	-	135,636
FINANCIAL LIABILITIES
Non-current financial liabilities
Bank borrowings	-	-	-	-
Deposits	-	-	-	-
Other long term loans	-	-	-	-
Other non-current liabilities	-	-	-	-
Total non-current financial liabilities	-	-	-	-
Current financial liabilities
Trade and other payables	-	-	496	496
Bank borrowings	-	-	-	-
Other short term loans	-	-	10,049	10,049
Total current financial liabilities	-	-	10,545	10,545
Total financial liabilities	-	-	10,545	10,545

The carrying amounts of the Company's financial assets and liabilities as recognised at 31 December 2007 are categorised as follows. 

2007	Financial assets and liabilities at fair value through profit or loss	Loans and receivables	Financial liabilities measured at amortised cost	Total
	€'000s	€'000s	€'000s	€'000s
2007	Financial assets and liabilities at fair value through profit or loss	Loans and receivables	Financial liabilities measured at amortised cost	Total
	€'000s	€'000s	€'000s	€'000s
FINANCIAL ASSETS
Non-current financial assets
Loans and receivables	-	197,861	-	197,861
Total non-current financial assets	-	197,861	-	197,861
Current assets
Loans receivable	-	-	-	-
Trade & other receivables	-	2,004	-	2,004
Cash & cash equivalents	-	105	-	105
Total current financial assets	-	2,109	-	2,109
Total financial assets	-	199,970	-	199,970
FINANCIAL LIABILITIES
Non-current financial liabilities
Bank borrowings	-	-	-	-
Deposits	-	-	-	-
Other long term loans	-	-	-	-
Other non-current liabilities	-	-	-	-
Total non-current financial liabilities	-	-	-	-
Current financial liabilities
Trade and other payables	-	-	1,147	1,147
Bank borrowings	-	-	-	-
Other short term loans	-	-	-	-
Total current financial liabilities	-	-	1,147	1,147
Total financial liabilities	-	-	1,147	1,147

4  Net rental and related income

	Group 2008	Group 2007
	€'000	€'000
Gross rental income	16,899	12,792
Service charge income	2,964	2,677
Other property income	1,389	738
Property operating expenses	(9,791)	(7,616)
Net rental and related income	11,461	8,591

Future rental income

At the balance sheet date the Group had contracted with tenants for the following future minimum non-cancellable operating lease payments:

	Group 2008	Group 2007
	€'000	€'000
No later than 1 year	8,089	6,825
Later than 1 year and no later than 5 years	27,245	22,150
Later than 5 years	9,058	14,981
Total	44,392	43,956

The comparative information for 31 December 2007 relating to future rental income has been reclassified to exclude Associates.

5    Loss on sale of subsidiaries

	Lerma BV	Aurora BV	Other	Total
2008	€'000	€'000	€'000	€'000
Proceeds	37,004	4,500	150	41,654
Net assets	(38,618)	(994)	605	(39,007)
Realisation of translation reserve		347		347
Costs of sale	(2,041)			(2,041)
Minority interest at the date of sale		300		300
Provision against receivables subject to completion of the transaction		(16,060)		(16,060)
Profit/(loss) on sale of subsidiaries	(3,655)	(11,907)	755	(14,807)

The loss on sale of Aurora BV has uncompleted elements which may result in further revenues accruing to the Group, but which the Group cannot yet recognise as the transaction remains contingent. As a result receivables due to the Group on completion of the transaction have been provided for at the year end.

6  Administration expenses

	Group 2008	Group 2007
	€'000	€'000
Audit fees	135	399
Non-audit fees	106	176
Management fees	5,712	4,373
Other professional expenses	1,691	908
Directors' fees	180	140
Bad debts	4,307
Other administration expenses	890	1,111
Total	13,021	7,107

Bad debts include €4,255,000 of loans due from an associate Archway BV to EBP Plc as at 31 December 2008 written off to the income statement as a result of impairment of those loans.

7  Finance income and finance costs

Finance income and finance costs include all finance-related income and expenses. The following amounts have been included in the income statement line for the reporting periods presented:

	Group 2008	Group 2007
	€'000	€'000
Fair value movement on interest rate swaps	-	658
Interest on short-term bank deposits	167	692
Other finance income	270	243
Finance income	437	1,593
Fair value movement on interest rate swaps	4,764	-
Interest expense on borrowings	10,491	6,241
Bank charges	595	346
Net foreign exchange losses	9,662	6,607
Other finance expenses	827	573
Finance costs	26,339	13,767

Foreign exchange losses have arisen from the translation of Euro loans in subsidiaries to the local functional currency. These foreign exchange losses are offset by foreign exchange gains from the translation of Euro denominated investment property in subsidiaries to the local functional currency. These foreign exchange gains are included within the net gain from fair value adjustments on investment property (Note 10). 

8     Income tax credit/(expense)

	Group 2008	Group 2007
	€'000	€'000
Current tax	(102)	(283)
Deferred tax
Movement in deferred tax liability (Note 18)	1,342	3,703
Movement in deferred tax asset (Note 18)	501	125
	1,741	3,545

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the weighted average rate of the applicable profits of the consolidated companies as follows:

	Group  2008	Group  2007
	€ '000	(restated) € '000
(Loss)/profit before tax	(64,338)	3,472
Tax calculated at the domestic rate in the Isle of Man of 0% (2007: 0%)	-	-
Tax calculated at domestic tax rates applicable to profits in the respective countries (see below)	1,827	6,762
Income not subject to tax	18	-
Expenses not deductible for tax purposes	(7)	(2,422)
Tax losses for which no deferred tax has been recognised	(97)	(795)
Tax credit	1,741	3,545

There have been no changes in the applicable tax rates in any of the countries in which the Group operates. There has been a reversal of deferred tax liabilities in the year of €702,000. Of this, €310,000 was originally recognised on acquisition of Cartex Construct SRL. In 2007 these properties were re-valued when the 1% minority interest ownership was restructured. In accordance with Romanian tax rules, the re-valued amount became the new tax base for the revalued assets. Accordingly the deferred tax liability that was recognised at acquisition on these assets was reversed, resulting in a decrease in both the deferred tax liability and the related goodwill that arose on acquisition (Note 16).  

  9    Dividends

	2008	2007
	€ '000	€ '000
Final paid for 2006 - €0.11 per share	-	15,400
Interim paid for 2007 - €0.0357 per share		4,998
	-
	-	20,398

No dividends were paid in respect of 2008.

In April 2007, the Board of Directors of the Company declared a dividend of €0.11 (c7.5p) per share in respect of 2006. This dividend was paid on 25 May 2007 to shareholders on the register at 11 May 2007. In accordance with the Group's accounting policy under IFRS this dividend was not accrued at 31 December 2006. However this was not in accordance with the Isle of Man Companies Acts 1931 to 2004 which require a proposed dividend to be accrued at the balance sheet date to which it relates.

In September 2007, the Board of Directors of the Company declared an interim dividend of €0.0357 (c2.5p) per share in respect of 2007. This dividend was paid on 9 November 2007 to shareholders on the register at 12 October 2007. 

10    (Loss)/earnings per share

The basic (loss)/earnings per ordinary share are calculated by dividing the net (loss)/profit attributable to the ordinary shareholders of the Company by the weighted average number of ordinary shares in issue during the year.  

		Group 2008	Group 2007
		€'000	€'000
(Loss)/profit attributable to ordinary shareholders of the Company		(61,653)	7,663
Weighted average number of ordinary shares in issue		140,000	140,000
Basic (loss)/earnings per share		(€0.44)	€0.05

The Company has no dilutive potential ordinary shares; the diluted (loss)/earnings per share is the same as the basic (loss)/earnings per share.

11     Investment property

	Group 2008	Group 2007
	€'000	€'000
Beginning of year	290,454	219,578
Additions	13,511	59,220
Transfer (to)/from development property (Note 14)	(6,887)	3,390
Transfer from prepaid operating leases (Note 12)	-	1,596
Disposals	(116,724)	-
Exchange differences	(16,808)	(8,812)
Net (loss)/gain from fair value adjustments on investment property	(16,872)	15,482
End of year	146,674	290,454

Except for two of the Group's investment properties which were valued at potential sale prices, the Groups investment properties were revalued at 31 December 2008 and 2007 by independent professionally qualified valuers CB Richard Ellis. Valuations were prepared in accordance with the RICS Appraisal and Valuation Standards. Valuations of investment properties were determined using a number of valuation techniques including current prices in active markets.

In the income statement, direct operating expenses include €250,000 relating to investment property that was unlet (2007: €45,000). 

The exchange differences in the above table arise from the translation of investment property from each subsidiary's functional currency to the Group's presentational currency. 

12     Prepaid operating leases

	Group 2008	Group 2007
	€'000	€'000
Beginning of year	5,752	5,221
Additions	-	2,212
Transfer to investment property (Note 11)	-	(1,596)
Disposals	(5,116)	-
Amortisation of prepaid operating leases	(30)	(66)
Exchange differences	(606)	(19)
End of year	-	5,752

The up-front payments relate to operating leases acquired by the Group. Each operating lease is amortised over its individual term, which ranges from 80 to 99 years.

The directors have obtained a valuation of the land relating to these operating leases at 31 December 2007 by independent professionally qualified valuers CB Richard Ellis. Valuations were prepared in accordance with the RICS Appraisal and Valuation Standards. At 31 December 2007 the market value of the land was  €8,940,000.

13   Acquired building rights

			Group 2008	Group 2007
			€'000	€'000
Beginning of year			7,505	3,741
Additions			-	4,128
Disposals			(3,302)	-
Amortisation of acquired building rights			(39)	(80)
Impairment of acquired building rights			(1,815)	-
Exchange differences			(599)	(284)
End of year			1,750	7,505

Licences and rights acquired from third parties are classified as acquired building rights. These building rights give the Group the right to construct on the land. Each building right is amortised over its individual term, which ranges from 80 to 99 years.  

In 2008 the Group's acquired building rights have been impaired to reflect potential sales prices.

In 2008 the directors have obtained a valuation of the land relating to these acquired building rights by independent professionally qualified valuers CB Richard Ellis. Valuations were prepared in accordance with the RICS Appraisal and Valuation Standards. At 31 December 2008 the market value of the land was €3,500,000 (2007: €12,880,000).

14     Development property

	Group 2008	Group 2007
	€'000	€'000
Beginning of year	23,215	700
Additions	45,842	25,167
Transfer from / (to) investment property (Note 11)	6,887	(3,390)
Disposals	(2,665)	-
Exchange differences	(4,409)	(1,420)
Gain from fair value adjustments on development property credited to equity	-	3,117
Loss from fair value adjustments on development property charged to income statement	(4,612)	(959)
End of year	64,258	23,215

The Group's development properties were revalued at 31 December 2008 and 2007 by independent professionally qualified valuers CB Richard Ellis. Valuations were prepared in accordance with the RICS Appraisal and Valuation Standards. 

Valuations of development properties were determined using a number of valuation techniques including the residual method.

If development property had been carried under the cost model the carrying amounts would have been  €68,870,000 (2007: €21,057,000). 

15     Other property, plant and equipment

Group 2008 Group 2007   €'000 €'000 At beginning of year Cost 280 506 Accumulated depreciation (99) (50)     Net book amount 181 456 Year ending 31 December Opening net book amount 181 456 Additions 149 23 Disposals (43) (221) Depreciation charge (68) (70) Exchange difference (19) (7)     End of year 200 181 At 31 December Cost 293 280 Accumulated depreciation (93) (99)     Net book amount 200 181

The Company has no property, plant and equipment.

16     Investments in subsidiaries

Significant subsidiaries held by the Group are as follows:

Name of significant subsidiary		% of ordinary share capital and voting rights held 2008	% of ordinary share capital and voting rights held 2007		Country of incorporation
Auriga EAD		0%*	100%		Bulgaria
Capital Properties EAD		100%	100%		Bulgaria
Equilibrium EOOD		100%	100%		Bulgaria
Elan Properties DOOEL		0%*	100%		Macedonia
Elan Properties BC-S DOOEL		100%	100%		Macedonia
Airport Smart Office SRL		0%**	100%		Romania
Cartex Construct SRL		100%	100%		Romania
Casa Mosilor SRL		0%**	100%		Romania
Domenii Imobiliare SRL		100%	100%		Romania
Equest Logistic SRL		100%	100%		Romania
Man Construct-UN-Impex SRL		75%	75%		Romania
Modul Linea SRL		70%	70%		Romania
Modul Shopping Center SRL		100%	100%		Romania
Rivium Galleria Mall SRL		100%	100%		Romania
Union Properties SRL		100%	100%		Romania
Vitantis SRL		100%	100%		Romania
Euro Projekt DOO		0%*	70%		Serbia
Retail Park Development		100%	0%		Serbia
Star Imobiliare DOO		100%	100%		Serbia
Star Invest DOO		0%*	100%		Serbia
T Future DOO		0%*	70%		Serbia
T Property DOO		0%*	70%		Serbia

* - sold in the year

** - merged into Domenii Imobiliare SRL in the year 

The above significant investments in subsidiaries are not directly held by the Company but via intermediate holding companies. All subsidiary undertakings are included in the consolidation. The Company's cost of investment in subsidiaries at 31 December 2008 was €56,762,000 (2007: €1,880).

Movement in investments in subsidiaries during 2008 is as follows:

		Company 2008
		€'000
Beginning of year		2
Capital contribution into Lerma BV		36,228
Capital contribution into Banbury BV		14,532
Capital contribution into Capital Balkan Properties NV		6,000
End of year		56,762

The Company enters into loans with its direct subsidiaries. At 31 December 2008 loans and receivables due from subsidiaries was €131,442,000 (2007: €197,859,000). During the year the Company lent €63,852,175    (2007: €51,049,000) and was repaid   €55,456,000 (2007: €47,139,000) on the loans due from subsidiary undertakings. All loans to subsidiaries are unsecured with no set repayment date and are subject to interest at the rate of 9.9% per annum. Total loan interest income for the year was   €11,705,000 (2007: €17,009,000). There was accrued interest on these loans at 31 December 2008 of €12,029,000 (2007: €17,385,000). The Company does not intend to seek repayment of these loans or the accrued interest within 12 months of the balance sheet date.  

The Company also has   €855,000 (2007: €1,922,000) due from its direct subsidiaries included within trade and other receivables (Note 20). These amounts are short-term in nature, are unsecured with no set repayment date and are not subject to interest.

17     Goodwill

	Group 2008	Group 2007
	€'000	€'000
At beginning of year
Cost	2,455	7,421
Accumulated impairment	-	-
Net book amount	2,455	7,421
Beginning of year
Opening net book amount	2,455	7,421
Disposals of subsidiaries	(2,066)	-
Impairment charge	(382)	(4,973)
Exchange differences	(7)	7
End of year	-	2,455
At 31 December
Cost	382	7,421
Accumulated impairment	(382)	(4,966)
Net book amount	-	2,455

Goodwill is allocated to the particular cash-generating units identified as each operating company acquired. 

An impairment charge of €382,000 arose in 2008 as a result of local revaluation of investment property of Cartex Construct SRL.  

In 2007 the recoverable amount of goodwill allocated to a property in Bulgaria of €2,065,000 had been determined using a value-in-use calculation with the following key assumptions: gross margin 44%, growth rate 10% and discount rate 10%. No impairment charge arose as a result of this impairment test. The value-in-use calculations use post-tax cash flow projections based on financial budgets approved by management covering a four year period.  

In 2007 the recoverable amount of goodwill allocated to properties in Romania €389,000 has been determined using fair value less costs to sell. Fair value less costs to sell had been determined using the valuation of the property assets by independent professionally qualified valuers CB Richard Ellis. An impairment charge of €4,973,000 arose in 2007 as a result of the restructuring of the 1% minority ownership of certain companies. An amount of €6,660,000 was credited to deferred income tax in the income statement as a result of this restructuring.

18     Associates 

Investments in associates

	Group 2008	Group 2007
	€'000	€'000
Beginning of year	38,256	36,495
Impairment in the year	(641)	-
Exchange differences	-	(1)
Share of profit	1,607	4,612
Share of devaluation on development	(5,613)	(2,850)
Share of translation reserve	(725)	-
End of year	32,884	38,256

    

Summary financial information for equity accounted investees, adjusted for the percentage ownership held by the Group:

		Assets	Liabilities	Revenues	Profit after tax	%interest
Name of associate		€'000	€'000	€'000	€'000	held
2008
Archway Properties BV		6,614	5,962	195	350	50
Glorient BV		47,474	14,661	3,509	1,258	40
		47,706	14,668	3,509	1,473

Name of associate	Assets  € '000	Liabilities € '000	Revenues € '000	Profit after tax (restated)  € '000	% interest held
2007

Archway Properties BV	6,840	5,824	1,401	1,014	50
Glorient BV	47,934	10,694	1,304	3,598	40
	54,774	16,518	2,705	4,612

Loans to associates

Loans to associates consist of €1,000,000 (2007: €4,910,000) which is included within current assets (2007: €1,000,000 is a current asset, €3,910,000 is a non-current asset). These loans are unsecured and bear interest at 10% per annum. The non-current portion of the loans will mature in 2010. 

19     Deferred income tax

The movement in deferred income tax assets and liabilities during the year is as follows:

	Changes in fair value of property and swaps	Tax losses	Total
	Group 2007	Group 2007	Group 2007
Deferred tax assets	€'000	€'000	€'000
Beginning of year	-	769	769
Credited to income statement (Note 7)	106	19	125
Exchange differences	-	(1)	(1)
At 31 December 2007	106	787	893
	Changes in fair value of property and swaps	Tax losses	Total
	Group 2008	Group 2008	Group 2008
Deferred tax assets	€'000	€'000	€'000
Beginning of year	106	787	893
Credited/(charged) to income statement (Note 7)	501	-	501
Credited to reserves	(74)	-	(74)
Disposal of a subsidiary	(82)	(787)	(869)
Exchange differences	(11)	-	(11)
At 31 December 2008	440	-	440

	Changes in fair value of property and swaps	Total
	Group 2007	Group 2007
Deferred tax liabilities	€'000	€'000
Beginning of year	8,515	8,515
Acquisition of subsidiaries	(3,703)	(3,703)
Charged to income statement (Note 7)	485	485
Exchange differences	(174)	(174)
At 31 December 2007	5,123	5,123
	Changes in fair value   of property and swaps	Total
	Group 2008	Group 2008
Deferred tax liabilities	€'000	€'000
Beginning of year	5,123	5,123
Credited to income statement (Note 7)	(1,342)	(1,342)
Charged to equity	188	188
Disposal of a subsidiary	(1,739)	(1,739)
Exchange differences	(254)	(254)
At 31 December 2008	1,976	1,976

Deferred income tax credited/charged to the income statement is recognised for decreases in the fair value of investment properties to the extent that the realisation of the related tax benefit through the future increase in fair value of the investment properties is probable. Deferred income tax assets are recognised for tax losses to the extent that the realisation of the related tax benefit through the future taxable profits is probable. 

Deferred income tax credited/charged to the income statement is recognised for decreases/increases in the fair value of interest rate swaps to the extent that the realisation of the related tax benefit through the future increase in fair value of the swaps is probable.

Deferred income tax that relates to revaluation of development property in the revaluation reserve is charged to equity. Deferred income tax that relates to revaluation of development property in the income statement is charged to the income statement. 

20     Trade and other receivables

				Group	Group	Company	Company
				2008	2007	2008	2007
				€'000	€'000	€'000	€'000
Trade receivables				2,296	1,298	-	-
Due from subsidiary undertakings				-	-	855	1,922
Accrued income and prepaid expenses				1,308	5,060	76	72
Other receivables				6,347	2,474	220	10
Trade and other receivables				9,951	8,832	1,151	2,004

The estimated fair values of receivables approximate their carrying amounts. 

There is no concentration of credit risk with respect to trade receivables as the Group has a large number of tenants.  

Trade receivables past due					Group	Group
					2008	2007
					€'000	€'000
Up to 30 days outstanding					1,727	1,086
30 days to 60 days outstanding					105	73
60 days to 90 days outstanding					406	64
90 days or more outstanding					58	75
At 31 December 2008					2,296	1,298

The Group impaired receivables of €52,000 during the year ended 31 December 2008 (2007: nil). Trade receivables that are less than three months past due are not considered impaired. These relate to a number of independent customers for whom there is no recent history of default.  The Company has no trade receivables.

21    Bank borrowings

The Group's borrowings are at floating and fixed rates of interest. Interest costs may increase or decrease as a result of changes in the prevailing market interest rates.

Group Group 2008 2007     €'000 €'000 Non-current Bank borrowings 113,550 146,618 Current Bank borrowings 4,215 807   Total borrowings 117,765 147,425

The above borrowings are secured by way of fixed and floating charges over certain of the Group's assets, including property assets which have a fair value of at 31 December 2008 of €181,729,000 (2007: €254,354,000). 

The maturity of non-current borrowings is as follows:

		Group	Group
		2008	2007
		€'000	€'000
Between 1 and 2 years		4,860	2,451
Between 2 and 5 years		98,436	122,233
Over 5 years		10,254	21,934
		113,550	146,618

The effective interest rate on bank borrowings at the balance sheet date was 5.80% (2007: 4.26%). 

The fair value of these fixed and floating-rate borrowings approximated their carrying values at 31 December 2007 and 2008. All bank borrowings are denominated in Euro. The Group has undrawn fixed rate borrowings, expiring within one year, of €7,924,000 (2007: €14,725,493).  

The Company has no borrowings.

22     Other loans

					Group	Group
					2008	2007
					€'000	€'000
Non-current
Long term loans					200	1,063
Current
Short term loans					10,048	6.075
Total other loans					10,248	7,138

The long term loans are unsecured and interest free.  

In 2008 the short term loan of €10,048,000 (2007: €6,075,000) is unsecured and bears interest at the 3 month EURIBOR rate plus 2% per annum (2007: 9.5% - 10% per annum). This loan is further discussed in Note 1 (d).

Long term loans all mature between 2 and 5 years (2007: between 2 and 5 years).

23     Derivative financial instruments

Interest rate swaps

The notional amount of the outstanding floating-to-fixed interest rate swap contracts at 31 December 2008 was €80,080,000 (2007: €96,100,000).

At 31 December 2008 the average fixed interest rates on the outstanding interest rate swaps were 4.5% (2007: 4.20%), and the floating rates were primarily 3 month EURIBOR. Gains and losses on interest swaps are recognised in the income statement within finance income.

		Group	Group
		2008	2007
		€'000	€'000
Interest rate swaps		(2,995)	756
Total		(2,995)	756

The fair value of interest rate swaps at 31 December 2008 is included within trade and other payables and  within trade and other receivables at 31 December 2007.

24     Trade and other payables

					Group	Group	Company	Company
					2008	2007	2008	2007
					€'000	€'000	€'000	€'000
Trade payables					1,844	5,124	146	-
Property tax payable					-	78	-	-
Other payables					3,078	1,151	-	1,147
Rents received in advance					1,550	1,982	-	-
Deposits received from tenants					-	32	-	-
Interest payable					247	872	74	-
Accrued expenses					2,222	2,033	276	-
Deferred consideration					-	8,000	-	-
Provisions for liabilities					752	-	-	-
At 31 December					9,693	19,272	496	1,147

Trade payables are interest free and have settlement dates within one year.

25     Net asset value per share

		Group 2008	Group 2007
		€'000	€'000
Net assets attributable to ordinary shareholders of the Company		128,681	208,315
Number of ordinary shares outstanding at 31 December 2008		140,000	140,000
Basic net assets per share		€0.92	€1.49

Net asset value per share is calculated by dividing the net assets attributable to the ordinary shares of the Company by the number of ordinary shares in issue at 31 December 2008 and 2007.

EPRA net asset value per share at 31 December 2008 is as follows:

		Group 2008	Group 2007
		€'000	€'000
Net asset attributable to ordinary shareholders of the Company		128,681	208,315
Deferred Tax Liability		1,976	5,123
Deferred Tax Asset		(440)	(893)
Directors' valuation of acquired building rights owned by Man-Construct (2007: CBRE valuation)		1,750	8,633
Fair Value of acquired building rights at acquisition		(3,457)	(3,457)
EPRA adjusted net asset value		128,510	217,721
EPRA NAV per share		€0.92	€1.56

26     Share capital

The total number of authorised and issued ordinary shares of the Company at 31 December 2008 and 2007 together with their rights are explained below.

		Number of shares	Ordinary shares	Total
Company		'000	€'000	€'000
Authorised at 31 December 2008 and 2007		300,000	3,000	3,000
Issued at 31 December 2008 and 2007		140,000	1,400	1,400

On 29 June 2007 at the Company's Annual General Meeting a resolution was passed to increase the authorised share capital of the Company by 100,000,000 ordinary shares of €0.01 each to 300,000,000 ordinary shares of €0.01 each.  

All shares are fully paid and each ordinary share carries one vote on a poll vote.

27     Cash used by operations

Company Company 2008 Company 2007  € '000  € '000 (Loss)/profit for the year  (5,455) 11,442  Adjustments for:    - finance income                 (11,976)  (17,490)  - finance costs 10,151 52 Changes in working capital:  - decrease in receivables                  71 767 - increase in payables              (724)    606 Cash used by operations (7,933) (4,623)
Group Group  2008 Group  2007  € '000  (restated)  € '000  (Loss)/profit for the year before tax (64,338) 3,472 Adjustments for:  - share of profit in associate (restated) (966) (4,612)  - net loss/(gain) from fair value adjustment on property assets 20,838 (14,523)  - finance income  (437) (935)  - finance costs 11,245 7,160  - foreign exchange loss 9,662 6,607 - loss on sale of subsidiaries 14,807 -  - amortisation of acquired business rights and prepaid operating leases 69 146  - depreciation of property, plant and equipment 68 70  - goodwill impairment  382 4,973 -  impairment of acquired building rights 1,701 - impairment of loans 4,307 -  - fair value movement on interest rate swaps 4,764 (658) - other provisions 750 -  Changes in working capital (excluding the effects of disposals):  - increase in receivables (4,974) (2,961)  - (decrease)/increase in payables (897) 4,251 Cash (used by)/generated from operations    (1,885)    (3,019)    2,990

28     Commitments

The Group has no capital commitments as at 31 December 2008 (2007: €7,777,000).

29     Related party transactions

The following have been identified as related parties: 

• Subsidiaries; 

• Associates; 

• Individuals including the Directors of the Company, and certain partners, directors and senior managers of Equest Property Management Limited and Equest Partners Limited who meet the definition of 'key management personnel' in IAS24; 

• Close family members of key management personnel and companies controlled by, or associated with, key management personnel or their close family members; 

Group

(a) Directors

The directors of the Company received fees during the year as set out in Note 6. None of the directors had any interest in shares of the Company or interest in any material contract for the provision of services to the Group during the year.

(b) Key management personnel

The Company is managed by Equest Property Management Limited ('the Investment Manager') which receives advice from Equest Partners Limited ('the Investment Advisor'). Certain partners, directors and senior managers of the Investment Manager and the Investment Advisor are regarded as key management personnel. The Investment Manager provides property management, investment management and advisory services to the Group and receives an advisory and performance fee under the terms of the Property Management and Advisory agreement. A summary of the terms of the agreement, together with the amount of fees paid in 2008 and 2007 and any amounts due to or prepaid to the Investment Manager at 31 December 2008 and 2007 are included in Note 32. The Investment Advisors' fees are met by the Investment Manager.

Certain subsidiaries have appointed directors who are key management personnel. George Teleman, a partner of the Investment Advisor, was the administrator of all the Romanian subsidiaries and received annual administrator remuneration of €33,000 in 2008 (2007: €44,000).  

The Investment Manager owned 676,264 shares in the Company at 31 December 2008 (2007: 676,264).

Company

The Company has entered into loans with its subsidiaries (Note 16).

30   Acquisition and disposal of subsidiaries 

During the years ended 31 December 2008 and 31 December 2007 all of the Group's purchases have been accounted for as asset combinations and there have been no acquisitions that meet the definition of business combinations.  

Asset acquisitions

There were no asset acquisitions during 2008. During 2007 the Group acquired a number of subsidiaries that have been accounted for as asset acquisitions. The Group acquired investment property of €47,637,000, building rights of €3,457,000, borrowings of €19,965,000 and other net liabilities of €5,096,000 and paid €25,200,000 net of cash acquired. 

Asset disposals

During 2008 the Group disposed of a number of subsidiaries.  These subsidiaries do not qualify under IFRS5 as discontinued operations, and hence have not been presented as discontinued operations in the consolidated financial statements.  The loss on sale of subsidiaries has been presented on the income statement and analysed in Note 5 to the financial statements. 

The assets held by these subsidiaries include investment property of €116,724,000, development property of €2,665,000, building rights of €3,302,000, prepaid operating leases of €5,116,000, borrowings of €64,697,000 and other net liabilities of €22,651,000 and received €41,654,000 of cash.

31    Management, performance and administration fees

Details of the management, performance and administration fees are as follows: 

Management and performance fees

On 10 July 2007, the Company entered into an amended and restated Property Management and Advisory Agreement ('the Amended Management Agreement') with Equest Property Management Limited ('the Investment Manager'). The Amended Management Agreement amends and restates the Property Management and Advisory Agreement between the Company and the Investment Manager dated 8 December 2005 ('the Original Management Agreement'). Pursuant to the terms of the Amended Management Agreement the Investment Manager is responsible for, inter alia, the provision of property management services to the Company in relation to the portfolio of assets held by it from time to time as well as for instructing other providers to furnish the Company with services that the Investment Manager is unable (for regulatory or other reasons) to provide.  

(a)    Management fee

Under the terms of the Original Management Agreement the Investment Manager was entitled to a management fee equal to 1.8% per annum of the Company's Euro placing proceeds at its admission to the AIM Market of the London Stock Exchange plc ('the Euro Placing Proceeds'). Once the aggregate Euro Pacing Proceeds had been invested by the Company, the fee would be equal to 1.8% per annum of the gross property assets of the Group as shown in the valuation statement prepared by the Company's property appraiser as at 30 June and 31 December each year. Under the terms of the Amended Management Agreement, effective from the valuation statement issued for the period ended 31 December 2006, the Investment Manager is entitled to a management fee equal to 1.5% per annum of the gross property assets of the Group as shown in the valuation statement prepared by the Company's property appraiser as at 30 June and 31 December each year. Management fees are payable semi-annually in advance within 30 days of the date of the relevant valuation statement. Following completion of any subsequent placing of shares of the Company, the annual management fee shall be reduced to 1.25% per annum of the gross property assets of the Group effective from the valuation statement next due immediately following completion of such placing.

The Investment Manager received fees for the year ended 31 December 2008 of  €5,712,000    (2007: €4,373,000) and none of them was included as accrued expenses at 31 December 2008 as the management fees are billed and paid in advance.  At 31 December 2007 €266,000 was included in accrued expenses.

(b)      Performance fee

In addition to the annual management fee, under the Original Management Agreement, the Company agreed to pay to the Investment Manager a performance fee. Subject to the Company paying (or setting aside for payment) to shareholders an amount equal to 10% of the Euro placing price multiplied by the number of shares sold in the placing each year from the date of admission ('the Hurdle'), the Investment Manager was entitled to 20% of (i) net distributable income (after deducting amounts paid/set aside for distributions necessary to meet the Hurdle), and (ii) the difference between the uplift or cumulative gains on properties as at the end of the current year, and the uplift or cumulative gains on properties in the immediately preceding year. Net distributable income was calculated as the Company's net profit for the year, adjusted to reverse the effects of net gains or losses (realised or unrealised) on investment properties recognised in the income statement. Further details on the calculation of the performance fee under the Original Management Agreement are set out in the Company's AIM Admission Document dated 9 December 2005.

 

Under the Amended Management Agreement, the Investment Manager is entitled to an annual performance fee equal to 20% of the excess total return over a 10% cumulative annual return. In addition to achieving such a hurdle, the payment of the performance fee will be subject to a 'high watermark' test. To achieve a performance fee, the net asset value ('NAV') of the Company at the end of the relevant financial period must be higher than the NAV at the end of the previous financial period, or the highest previously recorded NAV at the end of the financial period in relation to which a performance fee was last earned. The first period for calculating a performance fee under the Amended Management Agreement began on 1 January 2007 and ended on 31 December 2007. Each subsequent calculation period is a period of twelve months ending on 31 December.

No performance fee was payable for the year ended 31 December 2008 (2007: nil). 

Administration fees

On 3 July 2006 the original administration and registrar agreement dated 8 December 2005 ('the Administration Agreement') between the Company and Northern Trust International Fund Administration Services (Isle of Man) Limited was novated to IOMA Fund and Investment Management Limited ('IOMA') . Under the terms of the novated Administration Agreement, IOMA is entitled to receive an annual fee of €80,000 plus VAT payable quarterly in arrears and an accounting fee calculated on a time spent basis.

On 1 October 2007, Equest Partners Limited ('the Investment Advisor') assumed responsibility from IOMA for (i) the preparation of the Company's interim reports and annual reports and accounts and (ii) the implementation and adherence to such financial reporting procedures as are necessary for the Company to compile all financial information which is, or could be, relevant to the market.

Administration and accounting fees for the year ended 31 December 2008 were €168,000 (2007: €161,000), of which €23,500 were included in trade creditors at 31 December 2008 (2007: €56,000 was included in accrued expenses).

32 Post balance sheet events

Post year-end, the Group has received notice of events of default on loan obligations from its lender at the Moldova Mall and Vitantis properties.  These events of default are discussed further in the Chairman's statement and the Investment Manager's Update. The Group also entered into negotiations to dispose of a property, Elan, post year-end, which has indicated that it is not appropriate to carry this property at CBRE values.  The Group has therefore impaired the carrying value of this property to its expected sale value, as discussed in Note 11.  

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