TIDMAISI
RNS Number : 1178A
Aisi Realty Public Limited
27 March 2012
AISI REALTY PUBLIC PLC
("AISI", the "Group" or the "Company")
FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
FIRST RESULTS UNDER NEW MANAGEMENT SHOW IMPROVED OPERATIONAL
PERFORMANCE AND STRONGER FINANCIAL POSITION
Aisi Realty Public PLC (AIM: AISI), a South Eastern European
focused property and investment company, today announces its full
year results for the year ended 31 December 2011. This is the
Company's first set of results since the new management was
introduced in August, and the results show improved operational
performance, a stronger financial position and provide a clear
strategy for growth.
Financial highlights:
-- Operating Profit of $0.8 million (2010: loss $25.4 million)
increasing to $1.4 million ( 2010: $5.3 million loss) when asset
revaluations are excluded
-- Basic and diluted loss per share fell 86% to $0.25 (2010:
$6.02 loss)
-- Gross Rental Income increased to $526.000 (2010:$nil) as a
result of improved occupancy at Terminal Brovary, the Group's key
income producing asset in Kiev
-- Net Equity increased by 273% to $31.4 million in the second
half of the year (HY 2011: $8.4 million) as a result of improved
property occupancy, the settling of Group liabilities and the
conversion of the Narrowpeak bond into shares
-- NAV per share increased by 67% in the second half to $3.39
($2.88 fully diluted) (HY 2011: $2.03)
-- Balance sheet significantly strengthened as a result of an
agreement with Narrowpeak, an affiliate of the SECURE Group, which
provided rescue financing through an $8 million convertible loan,
allowing Aisi to move forward with a stronger financial footing.
Additional improvements to the balance sheet included:
- Negotiation and then settlement of circa $17 million of
liabilities as at June 2011 resulting in an 82% reduction to circa
$4,2 million at the year end
- Improved cash position of $0.8 million (2010: $0.3 million)
- $15.5 million EBRD loan successfully refinanced
- Stabilised gearing ratio at 0.50x (FY 2010: 0.62x).
-- Cost savings of more than 60% in like-for-like operating
expenses generated through improved operational efficiencies,
including:
- 32% net reduction in headcount as part of management restructuring
- Streamlining and consolidation of third party advisors
- Initiating tendering procedures and other cost monitoring and
control internal operating processes.
Operational highlights:
-- Occupancy at Terminal Brovary increased by over 100% from 20%
in August 2010 to 43% at year end, following the signing of 3 new
leases across 10,980 sq m
-- New management team, introduced as part of the Narrowpeak
transaction, currently implementing a clear growth strategy,
comprising:
- Emphasis on acquiring income yielding assets which will
provide the Group with cashflow and reduce its development exposure
from 100% to a target of 50%
- Increasing geographic diversification. Expanding into other
regional markets, such as Romania and Bulgaria, where the new
management has extensive property development and investment
experience, and where high quality income producing assets can be
acquired at attractive yields
- Focus on risk minimisation and cost control through strong
corporate governance and improved internal procedures.
Lambros Anagnostopoulos, Chief Executive Officer at Aisi,
commented:
"Having identified Aisi as a company which has significant
growth potential, particularly given its presence in South East
Europe, where the real estate market is relatively undersupplied
and underdeveloped, we have successfully undertaken a number of
important initiatives throughout the year. To put the Company on a
more secure financial footing, as evidenced by this much improved
set of results, good progress has been made across all areas of the
business, in particular, the settlement of pre-acquisition
liabilities, and the consolidation of the Company's finance and
accounting practices.
"We are now keen to progress our strategy for growth by both
further improving the Group's trading performance and by de-risking
its operations. This may also include a capital increase during
which we aim to expand the shareholder base by bringing in new
investors and provide funds to finance opportunities for
growth."
Further information can be found on Aisi's website
www.aisicap.com or from:
Aisi Realty Public Limited:
Lambros Anagnostopoulos +30 210 72 26470
FTI Consulting Inc: +44 (0)20 7831 3113
Richard Sunderland / Toyah Simpson
Richard.Sunderland@fticonsulting.com/
Toyah.Simpson@fticonsulting.com
Seymour Pierce Limited (Nominated Adviser): +44 (0)20 7107
8000
Nandita Sahgal / David Foreman
26 March 2012
1. Chairman's Statement
2011 was a pivotal year for Aisi Realty Public Ltd, due to the
transaction with SECURE Management completed on 8 August. Under the
terms of this transaction, Narrowpeak Consultants injected US$8m
into Aisi through a convertible note, which it duly converted into
equity in the Company in December leaving it with a 57% stake in
the Company. The funds were used to pay off current liabilities,
including a settlement of the Management contract, which was ended
as a part of the deal, effectively internalising the management of
the Company.
This transaction was the culmination of months of hard work on
due diligence and negotiation between Aisi and Secure, which the
Board pursued aggressively because it was clear from the outset
that this approach was being made in a manner and on terms that
were fair to shareholders and management alike, and would secure
the future of the Company, with the financial and management
support that it desperately needed. The Board, the majority of
whose pre-August 2011 members have waived their fees for the past
few years, worked tirelessly on this transaction.
Six months after the deal was done in August, Aisi is
transformed. The Company's finances have stabilised, and its Board
and management have been strengthened considerably. Its property
assets in Ukraine are intact, and it is in a better position to
exploit its valuable assets - a portfolio of property and
considerable operating knowledge in one of the fastest growing
economies in Europe.
_______________________
Paul Ensor
Chairman
2. Chief Executive's Statement
Dear shareholders,
2011 was a year to remember for many reasons, not all of them
good, but the important point is that it ended positively for our
Company, with Aisi having successfully completed the first phase of
its rehabilitation. Amid a Eurozone crisis which was accentuated in
the second half of the year, substantial uncertainty as to the
future of the common European currency, a looming recession over a
number of European economies despite measures announced by the
European leaders targeting further fiscal discipline and
integration, Aisi went through its own rollercoaster year but
emerged stronger and healthier than it has been for a long
time.
During the first half of the year, Aisi, having run out of cash
in late 2010 and consequently unable to pay its mounting
liabilities, flirted with a default until mid-year when an
agreement with Narrowpeak was signed. This agreement was approved
by the Shareholders during an extraordinary meeting on 1 July and
comprised:
-- an $8 million cash injection into the Company, in the form of
a convertible loan, to be used to address immediate payables and
cover the operating expenses of the Company until year end;
-- a $4 million further equity cash injection to cover the 2012
operating cash needs of the Company;
-- the settlement and discontinuation of the third party
management agreement that saw the Investment Manager replaced by a
new internal management structure.
The agreement became effective on 8 August 2011 with the new
management bringing to the table extensive experience and expertise
in investing in and developing properties throughout South East
Europe.
In such a difficult environment, Aisi's new management put
forward a four step resurrection/rejuvenation plan:
1. Consolidation of the Company's finance and accounting
practices. A new finance director in Kyiv and the new Group Chief
Financial Officer, undertook a thorough review and accurate
presentation of the Company's finances, identifying in the process
additional liabilities to those which had previously been assumed
(and included in the Aisi-Narropeak agreement documents). In
parallel, a budgeting and cost cutting exercise was initiated with
a view to substantially reducing operating expenses from an average
of around $5.0 million in 2009 and 2010, down to an expected circa
$2.5 million in 2012.
2. Settlement of all existing liabilities. The management
negotiated a reduction in the Company's payables from around $17
million at half-year to around $4 million at the year end. As of
February 2012 the majority of the long-term liabilities which had
plagued the Company for some time have been settled, while the
remaining current payables in the Company's books refer to future
staged payments for already agreed settlement plans.
3. Improve capital returns of Terminal Brovary, Aisi's main
operating asset more than doubling the August occupancy rate of 20%
to 45% by the year-end, while at the same time increasing the
average unit rent by 20%.
4. Prepare a strategy for growth, to guide the Company into a
new era, with a focus on identifying and investing in projects with
high value added potential.
As a result of the successful implementation of this structured
plan, the Company's net equity today is almost four times higher
than it was six months ago, while its potential for future growth
stands high among its peers.
Amid difficulties there are always opportunities. As such, Aisi
grabbed its opportunity and, in tandem with its new investors, is
now well positioned to take the next step and reap the benefits of
its growth strategy. In an environment where debt liquidity is
scarce and real estate values have dropped, but in geographic areas
like Ukraine and other countries in South East Europe where
economic growth is faster than elsewhere in Europe and where
property markets are undersupplied in respect of good quality,
modern real estate products, opportunities to invest in high yield
assets abound. Consequently, Aisi's strategy is now to identify and
acquire undervalued assets, with a view to investing at a low point
in the market cycle and ahead of the eventual recovery. Three
pillars form the cornerstones of such strategy:
1. Emphasis on income yielding assets which will provide the
Company with cashflow and reduce its development exposure from 100%
to around 50%;
2. Increase geographic diversification through expanding into
other regional markets, such as Romania and Bulgaria, where the new
management has extensive property development and investment
experience, and where high quality income producing assets can be
acquired;
3. Focus on risk minimisation and cost control through strong
corporate governance and improved internal procedures.
In order to implement its growth strategy, Aisi expects to
undertake a fundraising effort in due course. The timing for
raising capital is considered opportune with equity liquidity
commanding premiums and providing a distinct competitive advantage
when negotiating acquisitions.
The Company has already identified a number of interesting
investment opportunities in Ukraine, Romania and Bulgaria, and
commenced the necessary due diligence. In addition, the Company has
been approached by a number of large and renowned EU based
retailers, with regard to helping them roll-out in Ukraine, which
have indicated their readiness to commit to long term rental
agreements, backed by substantial guarantees. Finally, the
distressed environment created by the Eurozone sovereign debt
issues and the resulting bank deleveraging, has started creating
interesting opportunities to acquire both single assets and, in
some cases, entire portfolios of assets at attractive prices.
In parallel, Aisi intends to focus on effective and efficient
asset management of its current asset portfolio by leveraging the
extensive asset management expertise introduced through the
Narrowpeak transaction. The Company intends to both further
increase the occupancy of its core asset, Terminal Brovary, as well
as analyse and evaluate the opportunities of utilisation of its
other assets. Through careful risk management and under a strict
cost control policy, together with an efficient use of its assets,
the Company will aim to not only increase revenues in 2012, but
also provide opportunities for capital appreciation. With the
Company in a more secure position than it has been for some time
and, following an extensive streamlining of its human resources
overhead, Aisi is now in a position to attract quality real estate
professionals and has hired an experienced new commercial director
in January 2012.
Finally, the difficult global economic environment that Europe
is experiencing at the dawn of 2012, may offer opportunities but
also presents substantial risks. The implementation of a culture of
thorough and hands-on Risk and Asset Management is paramount and is
an obligation to our shareholders that we take very seriously. Our
plan is to manage prudently, guided by professional corporate
governance processes, mitigating risk and, at the same time,
focusing on identifying and executing opportunities for future
growth. Having managed to reverse the negative trend in the
Company's financial position during the last few months and being
confident that our shareholders share our vision for Aisi's future,
we commit to allocate all resources available to safeguard and
increase the value of our assets and achieve our mutual
objectives.
Best regards,
_______________________
Lambros G. Anagnostopoulos
Chief Executive Officer
3. Management Report
3.1. Corporate Overview & Financial Performance
For the Company, the first half of 2011 was characterised
by a substantial liquidity crunch, following Aisi
having run out of cash towards the end of 2010 and
becoming unable to pay its creditors. The small amount
of revenue derived from Terminal Brovary, as well
as ad hoc cash injections in the form of personal
loans by the Company's Directors enabled the Company
to continue operating until a permanent solution
could be found. The EBRD loan, which consequently
went in default, was refinanced (at a higher rate
and with a deferred penalty) allowing for a breathing
space of 18 months, until October 2012.
During this difficult period, the Directors met frequently
to evaluate the situation and identify possible solutions.
In that context, the Company initiated discussions
with Narrowpeak, an affiliate of the SECURE Group
(a property development and investment platform specialising
in South East Europe), regarding a capital injection
that would cover the Company's liabilities and support
its operations in the immediate future. An agreement
was reached in June and was approved by the Company's
shareholders in July 2011. As a fundamental pre-condition
of this agreement, the Company's contract with its
external Investment Manager was terminated and settled
and the management was internalised.
On 8 August 2011, Narrowpeak subscribed to an $8
million convertible loan issued by the Company, while
Lambros Anagnostopoulos, founder of the SECURE Group,
and Constantinos Bitros were appointed as CEO and
CFO respectively, of the Company.
Having established a more stable financial footing,
the Company was able to use the last five months
of the year to:
a) negotiate, settle and pay the liabilities that
had previously been amassed;
b) progress the letting of the Company's key asset,
Terminal Brovary;
c) rationalise its operating expenses and prepare
a budget for going forward.
By the year end, the vast majority of the pre-requisition
liabilities had been settled and Terminal Brovary
was 45% let. Narrowpeak converted its loan into equity
at the end of December and became the largest shareholder
in the Company at 55.35%.
Following a roller-coaster year, the Company finds
itself in a much healthier financial condition at
the year-end than it was at the start. The Company
now has settled most of the circa $17 million of
liabilities it had at the half year, and has refinanced
the EBRD loan. Cash availability is no longer an
operating hindrance and Aisi has a streamlined and
efficient staffing overhead following a 32% net reduction
in headcount during the year. Since August, the Company
has recruited two highly experienced executives to
replace four executives that have left and is now
well placed to seize the opportunities which present
themselves as Europe slowly emerges from the current
economic crisis.
Corporate Governance
Aisi places increased value on prudent and professional
corporate governance. Following the internalisation
of management in August 2011, four new Board members
were appointed and two Board committees, the Audit
Committee and the Remuneration Committee were formed.
The creation of standardized operating procedures
is in process.
The Board's Audit Committee comprises Ian Domaille
and Antony Kaffas, both stemming from the audit profession.
The Committee's first task was to prepare new audit
procedures to enhance the Board's supervisory and
controlling role.
The Board's Remuneration Committee is formed of Anthony
Achilleoudis and Ian Domaille. The composition of
the Committee ensures continuity with the supervisory
bodies under the previous management structure. Its
first task was to prepare a new incentive and compensation
scheme that will be offered to the Company's management
executives and directors and will help align interests
while rewarding for high performance and creation
of shareholder value.
The Board is ultimately responsible for the Group's
financial reporting, internal control and risk management
systems. The Financial Department prepares detailed
budgets and cash flow projections, which are approved
annually by the Board and updated regularly throughout
the year. Ongoing financial control is the responsibility
of the management. A control structure is in place
with defined delegated authorities and signatory
rights for both management decisions and cash payments
throughout the Group.
Financial performance
Against a challenging macro-economic backdrop and
during a turbulent time for the Company, Aisi has
successfully managed to turn-around its financial
performance. 2011 saw the Group return to profitability,
albeit on a small-scale, generating an operating
profit of $0.8 million compared to a loss of $25.4
million in 2010. If one excludes revaluation losses
of the properties, profit increases to $1.4 million
(2010: loss $5.4 million). The bulk of the profitability
improvement stems from the one-off reduction of the
Company's accumulated liabilities, but an increasing
contribution is derived from improving rental revenue
at Terminal Brovary.
3.2. Property Holdings
Property Assets
The Company's portfolio comprises one income producing
property and four development projects at different
stages in the development process.
Terminal Brovary Logistic park consists of a 49,180
sq m Class A warehouse and associated office space,
situated on the junction of the main Kyiv - Moscow
highway and the Borispil road. The facility has been
in operation since Q1 2010 and is currently 45% leased.
Bela Logistic Centre is a 22.4 ha plot in Odessa
situated on the main highway to Kyiv. Following the
issuance of permits in 2008, below ground construction
for the development of a 103,000 sq m GBA logistic
centre commenced. Construction was put on hold in
2009 due to the global economic crisis.
Kiyanovsky Lane consists of four adjacent plots of
land, totaling 0.55 ha earmarked for a residential
development, which are well located, overlooking
the scenic Dnipro River, St. Michaels's Spires and
historic Podil neighborhood.
Tsymlianskiy Lane is a 0.36 ha plot of land located
in the historic Podil District of Kyiv earmarked
for the development of a residential complex.
Balabino project is a 26.38 ha plot of land situated
on the south entrance of Zaporozhye, a city in the
south of Ukraine with a population of 800,000 people.
Balabino is zoned for retail and entertainment development.
Property Asset Valuations
In 2011, the Company appointed BNP Paribas as its
valuer in order to remove any potential conflict
of interest, arising from extensive brokerage work
being undertaken on behalf of Terminal Brovary by
DTZ, the previous incumbent.
The valuations have been carried out by the appraisers
on the basis of Market Value in accordance with the
appropriate sections of the current Practice Statements
contained within the Royal Institution of Chartered
Surveyors ("RICS") Appraisal and Valuation Standards,
7(th) Edition (the "Red Book").
At the year-end, the Company's property assets held
a net value of $44 million, an increase of 20% from
the June 2011 valuation. This increase can be attributed
to:
a) the lifting of provisions that the Board had taken
in June 2011, to reflect the estimated at the time
legal, contractual, financial and technical risks,
which were substantially reduced following the settlement
of most liabilities, and
b) the much higher occupancy of the Terminal Brovary
Logistics Park.
The NAV per share as at 31 December 2011 stood at
$3.39 ($2.88 fully diluted) representing a 67% increase
over the June 2011 ($2.03) non audited figure.
The Company's property holdings are currently all
in Ukraine, however, as the management begins to
execute the new investment strategy, the geographic
diversification is expected to expand into other
South East European Countries. This increased regional
spread also offers risk diversification, and helps
mitigate foreign exchange, market and economic risks.
3.3. Financial and Risk Management
Leverage-Interest Rate Risk
The Group's overall debt exposure comprises at the
reporting date of an EBRD construction loan to Aisi
Brovary of $15.8 million which was restructured
in June 2011. As a result, the Group's gearing ratio
(debt/equity) stands at 0,49x. The interest rate
of the loan is tied to USD Libor and, consequently,
little variance is expected.
Liquidity Management-Cash Flow Risk
Post August 2011, a thorough audit of all of the
Company's outstanding liabilities was initiated
and was subsequently followed by a process of negotiation
and settlement. As a result of this effort, the
$17.3 million of liabilities, excluding bank debt
and financial leasing, which were included in the
June 2011 report were reduced by 75% to $4.2 million
at the end of the year. Some of these were negotiated
down to zero, while others were settled at 30-60%
of their original value. Additional liabilities
valued at a further $4 million, were identified
post-August (and therefore not included in the June
2011 results), have also been negotiated and settled.
Simultaneously the management focused on preserving
liquidity and minimising cash outflows, which were
prioritised in accordance with their ability to
enhance the value of the Group's assets.
Operating Expenses
As part of the overall restructuring, and in view
of the Company's liquidity constraints, management
effected a cost control plan which targeted a 45%
reduction in the operational expenses of the Group,
compared with the previous year (2010). The management
will continue this effort with a view to minimising
costs, while at the same time increasing efficiency
and retaining a high quality of services.
3.4. 2012 and beyond
Real Estate Market
2012 started with a high degree of uncertainty being
felt across all global markets. With the Eurozone
trying to overcome its toughest challenges yet, the
US looking towards a presidential election, China
facing a possible slowdown and parts of the Arab
world still in turmoil, there are few places where
one can predict certainty and stability as a base
case scenario. Having said that, such uncertainty
brings opportunities and South East Europe, as a
large, well-populated European region, outside the
beleaguered Eurozone, with a lack of, and high appetite
for new property product, as well as an oil driven
Russian economy advancing nearby, could become the
star of tomorrow. The European Football championship
that takes place in the stadia of Ukraine and Poland
in June 2012 will give a further boost to our region
and its profile, which will be further enhanced if
Ukraine manages to overcome the recently heightened
political uncertainty.
The Company
2012 can become the turning point in the Group's
history. Having averted financial disaster in 2011,
the Company is putting together an investment plan
that, if implemented, will generate substantial revenues
and profits in both the near- and the mid-term. The
timing of acquiring high income yielding assets and/or
portfolios potentially together with their operating
platforms, can not be better from a fundamentals
point of view. Simultaneously, and whilst continuing
the letting momentum of Terminal Brovary and enforcing
a strong cost control and risk management culture,
management will focus on further stabilizing Aisi's
financial performance over and above any benefits
derived by the implementation of its growth strategy.
Finally, the management will look to advance opportunistic
and profitable disposals of non core assets, bolstering
further the Company's cash position and its ability
to focus on its core interests.
4. Regional Economic Developments
The Ukrainian economy recorded growth of 6.6% year
on year ("YoY") in Q3-11, the fastest pace since
Q1-08. Domestic output was propelled by capital
investments ahead of preparations for Euro 2012
(European Football Championship), which has and
will benefit the construction and tourism sectors
and strengthen private consumption. Despite the
fiscal austerity and a still-fragile banking sector
constraining growth in domestic demand, Gross Domestic
Product, ("GDP"), is expected to grow by 4.4% YoY
in 2012 as a whole.
Foreign Direct Investment ("FDI") inflows grew by
35.7% in the first ten months of 2011, reaching
$5.5bn against $4.0bn in the same period last year.
In November, the Consumer Price Index ("CPI") slowed
to 5.2% YoY (the lowest since May 2003), down from
a multi-month high of 11.9% in June. Headline inflation
is expected to average 8.0% YoY for 2011.
At the end of 2011, the average Ukrainian unemployment
rate was expected to reach 7.8%, varying significantly
from a low of 5.9% in Kyiv and increasing to 11.5%
in the remote regions of the country.
The increasing need for external financing, coupled
with the decrease in domestic confidence in the
local currency created a trend of foreign exchange
reserve losses as the National Bank of Ukraine defended
the Hyrvnia ("UAH"). This had a negative impact
on the banking sector's liquidity as well as government's
issuance of USD-denominated debt. This, on one hand,
re-instated the National Bank of Ukraine ("NBU")
as the largest holder of domestic debt by Q3 2011
while, on the other hand, the absorption of domestic
liquidity drove up deposit and lending rates as
the lending availability further contracted.
The political cost of currency devaluation ahead
of the parliamentary elections planned for October
2012 is among the main causes of the domestic authorities'
willingness to defend UAH.
In November 2011, the IMF announced a decision to
postpone the unlocking of the next tranch of its
loan (on hold since spring 2011) to Ukraine until
the finalisation of Ukraine's negotiations with
Russia on lowering gas prices. Failing this, a substantial
uplift in household utility tariffs will be needed
in order for the IMF requirements to be fulfilled.
Macroeconomic data and forecasts
-------------------------------------------------------------
2009 2010 2011e 2012f 2013f
---------------------- ------ ----- ------ ------ ------
GDP (EUR bn) 84.2 86.6 98.0 112.5 109.4
---------------------- ------ ----- ------ ------ ------
Population (mn) 46.0 45.8 45.5 45.3 44.8
---------------------- ------ ----- ------ ------ ------
GDP (contrast prices
YoY) -14.8 4.2 4.4 3.0 3.9
---------------------- ------ ----- ------ ------ ------
CPI (average YoY%) 16.0 9.4 8.0 6.6 11.5
---------------------- ------ ----- ------ ------ ------
Unemployment rate
(%) 9.0 8.4 7.5 6.9 6.5
---------------------- ------ ----- ------ ------ ------
Net FDI (EUR bn) 3.2 4.5 6.0 5.0 4.5
---------------------- ------ ----- ------ ------ ------
FDI % GDP 3.8 5.2 6.1 4.4 4.1
---------------------- ------ ----- ------ ------ ------
Sources : Unicredit Bank, Eurobank EFG
5. Real Estate Market Developments
General
In spite of the lingering Eurozone debt crisis,
the large potential of the real estate market in
Ukraine undoubtedly remains and is underpinned by
its immaturity in terms of quality and types of
property products offered, the country's large size
and population, the perceived high retail brand
awareness and the population's propensity to spend,
despite its comparatively low income.
During 2011, a further improvement in investor sentiment
was witnessed, which was driven by high yields compared
to other European countries, strong rental growth
prospects as well as generally positive economic
dynamics in the country.
Logistics Market
Gross rents for prime warehouse space in the Greater
Kyiv area varied from $5.5 to $6.5 per sq m per
month depending on various factors, including the
quality of space, location and general lease terms.
In general, the rents for prime warehouse space
in the Greater Kyiv area are comparable to those
registered in the suburbs of Bucharest (Romania),
Prague (Czech Republic) and Krakow (Poland).
Logistics warehouse vacancy rate dropped from 31%
in 2008 to 12% in 2011, while new supply also dropped
substantially. Kyiv has the lowest warehouse stock
per capita in Europe, estimated at 0.4 sq m per
capita.
Residential Market
Despite the effects of the global economic crisis,
the first signs of recovery are already apparent,
especially in the high-end segment, which has almost
recovered from the 15-20% downfall at the nadir
of this crisis. The turnaround is driven by the
fact that "luxury" clients are generally not dependent
on mortgages.
The middle- or business-class segment, is expected
to begin its recovery in 2012, when supply and demand
reach equilibrium, while the low-cost residential
property market is not expected to start taking
off in the near future due to a supply demand imbalance.
Current average prices of luxury new built units
in Kyiv vary from $6,000 to $10,000 per sq m while
in the business-class segment prices vary from $1,500
to $3,500.
Office Market
The deficiency of modern supply in the office property
market in Kyiv will remain given that no new large
scale projects are expected to commence prior to
mid/late 2012 and that the projects planned for
delivery during 2012 are not expected to fulfill
the increased demand. The undersupply of prime CBD
offices, combined with the increased occupier demand
pushed rental prices upwards in 2011.
The amount of office space in Kyiv stands at circa
450 sq m / 1,000 residents, less than one-quarter
of the amount available in Warsaw and well below
other regional cities, such as Bucharest and Prague.
Retail Market
The retail property market remains underdeveloped
in terms of both supply and the formats offered.
The existing retail stock consists mostly of first
generation schemes with regional/destination properties
remaining in shortage. New retail supply during
2011 was low in Kyiv as well as in the regional
cities of Ukraine.
Kyiv, Dnipropetrovsk, Odessa, Kharkiv, Donetsk and
Lviv, all cities with more than one million inhabitants,
have been attracting particular interest from major
retailers, developers and investors. In November
2011, total existing modern retail stock in these
six cities exceeded 2.6 million sq m, on average
amounting to 325 sq m per 1,000 inhabitants, less
than half the amount available in other major cities
in CEE.
6. Property Assets
1.1. Aisi Brovary - Terminal Brovary Logistic Park (Kiev)
The Brovary Logistics Park consists of a 49,180
sq m GLA Class A warehouse and associated office
space. The building has large facades to Brovary
ring road, at the intersection of Brovary ( -95/
-01 highway), and Boryspil ring road. It is located
10 km from Kyiv city border and 5 km from Borispol
international airport.
The building is divided into six independent sections
(each at least 6,400 sq m), with internal clear
ceiling of 12m height and industrial flooring constructed
with anti - dust overlay quartz finish. The terminal
accommodates 90 parking spaces for cars and trucks,
as well as 24 hour security and municipal provided
sewage, water and garbage collection.
As of the end of 2011, the building is 45% let
with the aggregate monthly rental income to approximately
USD 110,000. The majority of the leases, which
have been entered into with large, multinational
corporate tenants, have a five year duration.
1.2. Aisi Bela - Bela Logistic Center (Odessa)
The site consists of a 22.4 ha plot of land with
zoning allowance to construct industrial properties
of up to 103,000 sq m GBA, is situated on the main
Kyiv - Odessa highway, 20km from Odessa port and
in an area of high demand for logistics and distribution
warehousing.
Following the completion of planning and issuance
of permits in 2008, construction commenced with
column foundation and peripheral walls for 100,000
sq m being completed in 2009. Development was then
put on hold due to lack of funding and deteriorating
market conditions. Currently the option to sell
to a third party interested to develop is being
evaluated.
1.3. Kiyanovsky Lane - Land for Residential Complex
The project consists of 0.55 ha of land located
at Kiyanovskiy Lane, near Kyiv city centre. It
is destined for the development of business to
luxury residences with beautiful protected views
overlooking the scenic Dnipro River, St. Michaels's
Spires and historic Podil.
The concept design of the project is under review
with proposed development to include circa 100
residential apartments with office and retail space
on the lower floors (GBA of circa 21,000 sq m)
and 100 parking spaces across two levels of basement.
1.4. Tsymlyanski Lane - Land for Residential Complex
The 0.36 ha plot, is located in the historic and
rapidly developing Podil District in Kyiv. The
Company owns 55% of the plot, with one local co-owner
owning the remaining 45%.
In 2009, all necessary documents were submitted
to relevant authorities for approval and the issuance
of a construction permit. The plan was to develop
circa 10,000 sq m GBA of 40 high end residential
units and office spaces on lower floors, as well
as 41 parking spaces in three underground levels.
Since then, the project has been frozen and the
land lease fee to the state was not paid last year.
The Company is negotiating with the authorities
the level of this land lease fee, while it is evaluating
the options of going forward which include inter
alia an outright sale as well as a contribution
in kind to a larger development.
1.5. Balabino-Land for Retail/Entertainment Development
The site, consisting of 26.38 ha land is situated
on the south entrance of the city, 3 km away from
the administrative border of Zaporozhye. It borders
the Kharkov-Simferopol Highway (which connects
eastern Ukraine and Crimea and runs through the
two largest residential districts of the city)
as well as another major artery accessing the city
centre.
The site is zoned for retail and entertainment
and various development options are being evaluated
as per the market's needs. The Company is also
evaluating a proposal to sell a corner part of
the plot (circa 1 ha) to a restaurant developer.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2011
Note 2011 2010
US$ US$
Valuation losses from investment property 2 (628.720) (19.965.122)
Operational income 2 526.520 -
----------- ------------
(102.200) (19.965.122)
Administration expenses 3 (5.445.162) (5.978.087)
Other income, net 4 6.348.354 587.025
Operating profit/(loss) 800.992 (25.356.184)
Finance income/(costs), net (1.644.991) 115.527
Profit/(loss) before tax (843.999) (25.240.657)
Income tax expense 5 (249.715) -
Profit/(loss) for the year (1.093.714) (25.240.657)
Other comprehensive income
Exchange difference on translation of foreign
operations (100.222) 22.430
Total comprehensive income for the year (1.193.936) (25.218.227)
Profit/(loss) attributable to:
Owners of the parent (1.084.023) (24.934.873)
Non-controlling interests (9.691) (305.784)
----------- ------------
(1.093.714) (25.240.657)
----------- ------------
Total comprehensive income attributable to:
Owners of the parent (1.141.331) (24.933.034)
Non controlling interests (52.605) (285.193)
----------- ------------
(1.193.936) (25.218.227)
----------- ------------
Earnings/(losses) per share ($cent
per share): 1
Basic loss for the year attributable
to ordinary equity owners of the parent (0,25) (6,02)
Diluted loss for the year attributable
to ordinary equity owners of the parent (0,25) (6,02)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
For the year ended 31 December 2011
Note 2011 2010
US$ US$
ASSETS
Non--current assets
Investment properties 6 35.937.000 33.631.000
Investment property under construction 6 8.100.000 10.300.000
Prepayments made for investments 6 5.000.000 6.000.000
Long-term VAT recoverable, net - 2.926.939
Property, plant and equipment 21.788 54.783
49.058.788 52.912.722
Current assets
Prepayments and other current assets 5.005.135 3.487.598
Cash and cash equivalents 754.640 291.053
------------ ------------
5.759.775 3.778.651
Total assets 54.818.563 56.691.373
EQUITY AND LIABILITIES
Issued share capital 7 5.507.276 5.431.918
Share premium 102.447.925 94.523.283
Advances from shareholders - 223.118
Other reserves - 68.390
Foreign currency translation reserve (1.230.671) (1.068.153)
Accumulated losses (75.301.995) (74.217.972)
------------ ------------
Equity attributable to equity holders of the
parent 31.422.535 24.960.584
Non controlling interests 1.083.398 1.030.793
------------ ------------
Total equity 32.505.933 25.991.377
------------ ------------
Non--current liabilities
Interest bearing borrowings 8 - 15.529.412
Finance lease liabilities 652.397 591.245
Trade and other payables 9 364.032 642.374
Deposits from tenants 196.669 30.704
------------ ------------
1.213.098 16.793.735
Current liabilities
Interest bearing borrowings 8 15.813.857 41.237
Trade and other payables 9 4.094.357 13.158.570
Taxes payable 815.076 586.575
Provisions 348.734 74.910
Finance lease liabilities 27.508 44.969
21.099.532 13.906.261
Total liabilities 22.312.630 30.699.996
------------ ------------
Total equity and liabilities 54.818.563 56.691.373
$ Net Asset Value (NAV) per share: 1
Basic NAV attributable to equity holders of the
parent 3,39 6,03
Diluted NAV attributable to equity holders of
the parent 2,88 6,03
On 26 March 2012 the Board of Directors of AISI REALTY PUBLIC
LTD authorised these financial statements for issue.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2011
Attributable to equity holders of the
Parent
----------- -------------------------------------------------------- ------------ -------------
Share Share Accumulated Other Advances Foreign Total Non Total
capital premium losses, net reserves for issue currency controlling
of of shares translation interests
non-controlling reserve
interest
US$ US$ US$ US$ US$ US$ US$ US$ US$
----------- ------------- ----------------- --------- ----------- ------------ ------------- ------------ -------------
Balance - 1
January
2010 5.431.918 94.523.283 (49.283.099) 68.390 - (1.069.992) 49.670.500 1.315.986 50.986.486
----------- ------------- ----------------- --------- ----------- ------------ ------------- ------------ -------------
Loss for the
period - - (24.934.873) - - - (24.934.873) (305.784) (25.240.657)
Advances from
shareholders - - - - 223.118 - 223.118 - 223.118
Foreign
currency
translation
reserve - - - - - 1.839 1.839 20.591 22.430
Balance - 31
December
2010/ 1
January
2011 5.431.918 94.523.283 (74.217.972) 68.390 223.118 (1.068.153) 24.960.584 1.030.793 25.991.377
----------- ------------- ----------------- --------- ----------- ------------ ------------- ------------ -------------
Profit
/(Loss)
for the
period - - (1.084.023) - - - (1.084.023) (9.691) (1.093.714)
Issue of
share
capital 75.358 7.924.642 - - - - 8.000.000 - 8.000.000
Return of
advances
for issues
of shares - - - - (223.118) - (223.118) - (223.118)
Reverse of
other
reserve - - - (68.390) - - (68.390) - (68.390)
Foreign
currency
translation
reserve - - - - - (162.518) (162.518) 62.296 (100.222)
Balance - 31
December
2011 5.507.276 102.447.925 (75.301.995) - - (1.230.671) 31.422.535 1.083.398 32.505.933
=========== ============= ================= ========= =========== ============ ============= ============ =============
Companies which do not distribute 70% of their profits after
tax, as defined by the relevant tax law, within two years after the
end of the relevant tax year, will be deemed to have distributed as
dividends 70% of these profits. Special contribution for defence at
20% will be payable on such deemed dividends to the extent that the
shareholders (companies and individuals) are Cyprus tax residents.
The amount of deemed distribution is reduced by any actual
dividends paid out of the profits of the relevant year at any time.
This special contribution for defence is payable on account of the
shareholders.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2011
Note 2011 2010
US$ US$
CASH FLOWS FROM OPERATING ACTIVITIES
Profit/(loss) before tax and non controlling
interests (843.999) (25.240.657)
Adjustments for:
Loss on revaluation of investment property 2 628.720 19.965.122
Other non-cash movements in investment
property 1.168.306 (3.541.458)
Prepayments for investments impairment
loss/(reversal) 4 1.000.000 (780.267)
Impairment loss/(reversal) for VAT recoverable 4 417.645 (1.050.843)
Prepayments and other current assets impairment
loss 4 316.592 111.899
Trade and other payables written off 4 (8.628.135) -
Depreciation of property, plant and equipment 32.875 81.183
Interest income (8.164) (84.694)
Interest expense 1.402.333 1.150.869
Provisions 273.824 -
Other reserves (68.390) -
Write off advances (223.118)
Effect of foreign exchange difference 117.484 (263.388)
----------- ------------
Cash flows used in operations before working
capital changes (4.414.027) (9.652.234)
Decrease in prepayments and other current
assets 256.371 (1.311.790)
Change in trade and other payables 9 (251.748) 4.637.844
Changes in other taxes and duties 73.619 94.817
Increase in deposits from tenants 165.963 30.704
Income tax paid (97.162) -
----------- ------------
147.043 3.451.575
----------- ------------
Net cash flows used in operating activities (4.266.984) (6.200.659)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures on investment property 6 (889.947) (1.946.719)
Decrease in payables for construction 9 (573.199) (156.212)
Change in VAT recoverable (714.704) (871.735)
Increase/(Decrease) in financial lease
liabilities 43.691 (26.710)
Changes in property, plant and equipment 120 (2.498)
Decrease in prepayments for investments 6 - 4.640.494
Interest received 8.164 84.694
Net cash flows from (used in) investing
activities (2.125.875) 1.721.314
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of share capital /
shareholders advances 7 8.000.000 223.118
Interest paid (1.142.794) (470.588)
Proceeds from other borrowings - 12
Net cash flows from (used in) financing
activities 6.857.206 (247.458)
Effect of foreign exchange rates on cash (760) (2.801)
Net increase/(decrease) in cash at banks 463.587 (4.729.604)
Cash:
At beginning of the year 291.053 5.020.657
----------- ------------
At end of the year 754.640 291.053
=========== ============
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2011
1. Earnings and net assets per share attributable to equity
holders of the parent
a. Weighted average number of ordinary shares
2011 2010
--------------------------------------------------- ---------- ----------
Issued ordinary shares capital 9.277.727 4.142.727
--------------------------------------------------- ---------- ----------
Weighted average number of ordinary shares (Basic) 4.297.480 4.142.727
--------------------------------------------------- ---------- ----------
Diluted weighted average number of ordinary shares 4.297.480 4.142.727
--------------------------------------------------- ---------- ----------
b. Basic diluted and adjusted earnings per share
Earnings per share 31/12/2011 31/12/2010
-------------------------------------------------------------- ------------ -------------
US$ US$
-------------------------------------------------------------- ------------ -------------
Profit/(Loss) after tax attributable to owners of the parent (1.084.023) (24.934.873)
-------------------------------------------------------------- ------------ -------------
Basic (0,25) (6,02)
-------------------------------------------------------------- ------------ -------------
Diluted (0,25) (6,02)
-------------------------------------------------------------- ------------ -------------
c. Net assets per share
Net assets per share 31/12/2011 31/12/2010
--------------------------------------------------------- ----------- -----------
US$ US$
--------------------------------------------------------- ----------- -----------
Net assets attributable to equity holders of the parent 31.422.535 24.960.584
--------------------------------------------------------- ----------- -----------
Number of ordinary shares 9.277.727 4.142.727
--------------------------------------------------------- ----------- -----------
Diluted weighted number of ordinary shares 10.900.111 4.142.727
--------------------------------------------------------- ----------- -----------
Basic 3,39 6,03
--------------------------------------------------------- ----------- -----------
Diluted 2,88 6,03
--------------------------------------------------------- ----------- -----------
2. Revenues
Operational income in the amount of US$526.520 represents rental
and service charged income generated during the reporting period by
the rental agreements concluded with tenants of the Terminal
Brovary Logistics center. Vacancy rate of the Terminal has gone
down to 55% as at the reporting date (Note 12 in the full
report).
Valuation gains/losses from investment property represents the
adjustment for the period of the fair value of the Investment
Property.
Project Name Valuation gains/(losses) Valuation gains/(losses)
2011 2010
----------------------- ------------------------- -------------------------
US$ US$
----------------------- ------------------------- -------------------------
Brovary Logistic Park 3.337.770 (7.835.830)
----------------------- ------------------------- -------------------------
Bela Logistic Center (2.836.174) (563.045)
----------------------- ------------------------- -------------------------
Kiyanovskiy Lane (905.192) (10.892.827)
----------------------- ------------------------- -------------------------
Tsymlianskiy Lane 8.817 (673.420)
----------------------- ------------------------- -------------------------
Balabino (233.941) -
----------------------- ------------------------- -------------------------
Total (628.720) (19.965.122)
----------------------- ------------------------- -------------------------
3. Administration Expenses
The below table presents the breakdown of the administration
expenses. As the Group underwent a reorganization period,
Management opted to present the 2011 expenses in 2 categories:
a. Recurring category includes expenses that are expected to
appear in the financial statements also in the future and are
related to the ongoing activities of the Group.
b. Non-recurring/One-off category includes expenses that are
either related to one-off events mainly emanating from the
restructuring of the Group, or related to past years charges
resulting from contracts/operations not previously recorded.
2011 2010
------------------------------- ---------------------------------- ----------
US$ US$
------------------------------- ---------------------------------- ----------
Recurring Non Recurring-One-off
Expenses Expenses
------------------------------- ---------- ---------------------- ----------
Management fees - 1.403.501 3.492.678
------------------------------- ---------- ---------------------- ----------
Salaries and Wages 785.337 164.898 688.160
------------------------------- ---------- ---------------------- ----------
Consulting fees 261.654 478.495 335.885
------------------------------- ---------- ---------------------- ----------
Legal fees 332.338 380.807 239.162
------------------------------- ---------- ---------------------- ----------
Taxes and duties 70.726 410.094 60.704
------------------------------- ---------- ---------------------- ----------
Audit 129.522 117.745 91.316
------------------------------- ---------- ---------------------- ----------
Public group expenses 115.039 92.923 117.617
------------------------------- ---------- ---------------------- ----------
Directors remuneration 143.130 - 185.385
------------------------------- ---------- ---------------------- ----------
Security 79.500 48.069 337.842
------------------------------- ---------- ---------------------- ----------
Travelling expenses 63.793 47.342 13.144
------------------------------- ---------- ---------------------- ----------
Office rent 60.746 27.720 142.550
------------------------------- ---------- ---------------------- ----------
Apartment rent - 45.722 25.842
------------------------------- ---------- ---------------------- ----------
Accounting fees 19.045 21.467 67.751
------------------------------- ---------- ---------------------- ----------
Other office expenses 37.223 - 119.073
------------------------------- ---------- ---------------------- ----------
Depreciation 32.875 - 20.303
------------------------------- ---------- ---------------------- ----------
Other expenses 75.451 - 40.675
------------------------------- ---------- ---------------------- ----------
2.206.379 3.238.783 5.978.087
------------------------------- ---------- ---------------------- ----------
Total Administration Expenses 5.445.162 5.978.087
------------------------------- ---------------------------------- ----------
3.1 Non recurring/ One-off Expenses
Management fee refers to the Investment Management contract
between the Company and AISI Realty Capital LLC, which as of
1/7/2011 is no longer in effect. The amount expensed covers the
period from 1/1/2011 until 30/06/2011 and has been part of the
Settlement Agreement between the two entities (Note 24 in the full
report).
Consulting, legal and audit fees, represent one-off expenses
paid during the year in relation to the Company's restructuring and
other extraordinary events.
Public Group, security, office rentals, apartment rentals, taxes
and duties and accounting fees represent previous years' expenses,
that have not been accrued and were invoiced during the relevant
past periods or expenses incurred in 2011 up to July that because
of their nature (apartment rental) will not be incurred in the
future.
3.2 Recurring Expenses
Expenses classified under the recurring category represent
on-going expenses corresponding to the current operational activity
of the Group.
4. Other income, net
2011 2010
-------------------------------------------- ------------ ----------
US$ US$
-------------------------------------------- ------------ ----------
Accounts payable written off 8.450.252 -
-------------------------------------------- ------------ ----------
Provision on advance payments -gain/(loss) (1.000.000) 770.940
-------------------------------------------- ------------ ----------
Provision on prepayments and other current
assets impairment loss (316.592) (111.899)
-------------------------------------------- ------------ ----------
Impairment loss of VAT recoverable (417.645) -
-------------------------------------------- ------------ ----------
Penalties (194.379) (1.788)
-------------------------------------------- ------------ ----------
Other expenses, net (173.282) (70.228)
-------------------------------------------- ------------ ----------
Total 6.348.354 587.025
-------------------------------------------- ------------ ----------
Accounts payable written off represent the total amount of
creditors' payables written off as a result of negotiations and
settlement during the reorganization of the Group.
Provision for advance payments reflects an allowance estimate
made by the Management. The Group has advanced US $12 mil. in 2007
as a loan to a company who would sell its Podol property asset to
the Group, taking as collateral an asset of 42 ha at Kiev
Oblast-Rozny (Kiev Oblast property). As Management estimated
already from August 2008 that the deal has limited probability to
be effected, it has reduced the amount of the advance throughout
the years and presents it at the valued amount of the collateral
plot. Consequently and in view of the valuation performed in
December 2011 by BNP Paribas an impairment provision of US
$1.000.000 over the carrying amount as of the reporting period
ending at 31/12/2010 was mandated.
Provision for prepayments and other current assets impairment
represent difference between allowances for prepayments and other
current assets estimated previously by the Management and the
amounts which have been finally settled. The amount includes a 100%
provision made by Management on the interest receivable over the
loan granted to IFO Swiss Gmbh for the acquisition of a project in
Podol (see paragraph just above, also Notes 13 and 12c), following
the default of the debtor.
Impairment loss for VAT recoverable relates to VAT receivable of
Aisi Bela LLC fully written off as of 31/12/2011 due loss of
corporate tax status of "VAT payer" in July 2011.
Penalties incurred by the Group were mainly caused as a result
of delayed payments of its liabilities during the first semester of
2011.
5. Tax
2011 2010
---------- -------- -----
US$ US$
---------- -------- -----
Taxes 249.715 -
---------- -------- -----
Total Tax 249.715 -
---------- -------- -----
The income tax rate for the Company's Ukrainian subsidiaries is
25% for the year ended 31/12/2011. The corporate tax that is
applied to the qualifying income of the Company and its Cypriot
subsidiaries is 10% for the year ended 31/12/2011 (years ending 31
December 2010 and 2009: 10%).
The tax on the Group's results differs from the theoretical
amount that would arise using the applicable tax rates as
follows:
2011 2010
------------------------------------------- ----------------- ------------------
US$ US$
------------------------------------------- ----------------- ------------------
Profit / (loss) before tax 651.518 (25.240.657)
------------------------------------------- ----------------- ------------------
Tax calculated on applicable rates 65.152 (5.819.619)
------------------------------------------- ----------------- ------------------
Allowances for tax losses carry forward - 1.494.522
------------------------------------------- ----------------- ------------------
Expenses not recognized for tax purposes 985.637 276.569
------------------------------------------- ----------------- ------------------
Income/ (loss) on revaluation not subject
to tax 62.872 4.991.281
------------------------------------------- ----------------- ------------------
Tax allowances not subject to tax (884.320) (942.753)
------------------------------------------- ----------------- ------------------
10% additional tax 20.374 -
------------------------------------------- ----------------- ------------------
Total Tax 249.715 -
------------------------------------------- ----------------- ------------------
As from 1 January 2008, deferred tax is not provided for in
respect of the revaluation of the investment property and
investment property under construction as the Management expects
that the properties that are held by subsidiary companies in
Ukraine will be realised through a share deal rather than through
an asset deal and consequently expects that the gains generated
from the disposal of subsidiaries will be exempt from any tax. The
respective reversal of previously accrued Deferred Tax Liabilities
has been made in 2008.
6. Investment Property (all)
Investment Property consists of the following assets:
Terminal Brovary Logistic park consists of a 49.180 sq.m Class A
warehouse and associated office space, situated on the junction of
the main Kiev - Moscow highway and the Borispil road. The facility
is in operation since Q1 2010 and is currently 45% leased.
Bela Logistic Center is a 22,4Ha plot in Odessa situated on the
main highway to Kiev. Following the issuance of permits in 2008,
below ground construction for the development of a 103.000 sq.m GBA
logistic center commenced. Construction was put on hold in 2009
following adverse macro-economic developments at the time.
Kiyanovsky Laneconsists of four adjacent plots of land, totaling
0,55 Ha earmarked for a residential development, overlooking the
scenic Dnipro River, St. Michael's Spires and historic Podil
neighbourhood.
Tsymlianskiy Lane,is a 0,36 Ha plot of land located in the
historic Podil District of Kiev and is destined for the development
of a residential complex.
Asset Name Description/ Principal Related Companies Carrying Carrying
Location activities/ amount as amount as
Operations at 31/12/2011 at 31/12/2010
US$ US$
-------------- ------------- -------------------- ---------------------- --------------- ---------------
Terminal Brovary, Warehouse TERMINAL BROVARY 20.937.000 17.461.000
Brovary Kiev Oblast AISI BROVARY
Logistics AISI LOGISTICS
Park
-------------- ------------- -------------------- ---------------------- --------------- ---------------
Bela Logistic Odessa Land and AISI BELA 8.100.000 10.300.000
Center Development
Works for
Warehouse
-------------- ------------- -------------------- ---------------------- --------------- ---------------
Kiyanovskiy Podil, Land for AISI UKRAINE 8.000.000 8.920.000
Lane Kiev City residential TORGOVIY CENTR
Center development
-------------- ------------- -------------------- ---------------------- --------------- ---------------
Tsymlianskiy Podil, Land for ALMAZ PRES 2.500.000 2.500.000
Lane Kiev City residential UKRAINE
Center development
-------------- ------------- -------------------- ---------------------- --------------- ---------------
Balabino Zaporozhie Land for INTERTERMINAL 4.500.000 4.750.000
retail development MERELIUM INVESTMENTS
-------------- ------------- -------------------- ---------------------- --------------- ---------------
TOTAL 44.037.000 43.931.000
-------------- ------------- -------------------- ---------------------- --------------- ---------------
Carrying amounts of the properties represent fair value
estimates as of 31 December 2011 as provided by BNP Paribas an
external valuer. In June 2011, prior to the Group's restructuring,
in the absence of a then current valuation and with certain
contingent liabilities appearing, the Board opted to take a
significant provisional reduction, amounting to US$7.833.811 from
the December 2010 carrying amounts, thus reducing the June 2011
carrying amount of the investment properties to the total of
US$36.129.132.
Following the restructuring in August 2011, and during the
settlement process of liabilities related to the investment
properties of the Group, various issues that would have otherwise
adversely impacted the valuation of the portfolio, have been
quantified, managed, negotiated and settled, thus reducing the
overall uncertainty. As a result, the provisional amount in June
2011 has been reversed.
In late 2011, the Group has received some offers for certain of
its properties which further increased the Board of Directors
reliance on the valuation figures representing the true and fair
estimate of the investment portfolio.
a. Investment Property Under Construction
2011 2010
--------------------------------------------- ------------ -------------
US$ US$
--------------------------------------------- ------------ -------------
At 1 January 10.300.000 35.319.000
--------------------------------------------- ------------ -------------
Transfer to investment property - (23.490.000)
--------------------------------------------- ------------ -------------
Capital expenditures on investment property 666.402 (1.003.062)
--------------------------------------------- ------------ -------------
Revaluation losses on investment property (2.836.175) (563.045)
--------------------------------------------- ------------ -------------
Translation difference (30.227) 37.107
--------------------------------------------- ------------ -------------
At 31 December 8.100.000 10.300.000
--------------------------------------------- ------------ -------------
As at 31 December 2011 investment property under construction
represents the carrying value of Bela Logistic Center project,
which has reached the +10% construction projects in late 2008 but
it is stopped since then.
Following the restructuring of the Group in August 2011, a
settlement has been agreed regarding a contingent liability with
the main contractor of the said project, who was claiming at the
time an amount ranging between US$3.000.000-US$5.000.000, not
previously recorded in the accounting books of the Group. The
ensuing settlement, which resulted to a total of US$1.000.000, 70%
of which is a conditional future payment, releases the Group of any
other potential claim by the contractor and is shown in the
liabilities of the Group (Note 20 in the full report).
In late December 2011, the Group has signed a Preliminary
Agreement for the sale of the shares of the subsidiary owing the
plot/asset for US$9.000.000 minus any liabilities arising during
the due diligence process.
b. Investment Property
2011 2010
------------------------------------------------ ----------- -------------
US$ US$
------------------------------------------------ ----------- -------------
At 1 January 33.631.000 22.873.000
------------------------------------------------ ----------- -------------
Transfer from investment property under - 23.490.000
construction
------------------------------------------------ ----------- -------------
Capital expenditure on investment property 223.545 6.491.239
------------------------------------------------ ----------- -------------
Revaluation gain/(loss) on investment property 2.207.455 (19.402.077)
------------------------------------------------ ----------- -------------
Translation difference (125.000) 178.838
------------------------------------------------ ----------- -------------
At 31 December 35.937.000 33.631.000
------------------------------------------------ ----------- -------------
Terminal Brovary, Kiyanovskiy Lane, Tsymliansky Lane and
Balabino village are included in the Investment Property
category.
c. Advances for Investments
31/12/2011 31/12/2010
--------------------------------------- ------------ ------------
US$ US$
--------------------------------------- ------------ ------------
Advances for investments 11.840.547 11.847.043
--------------------------------------- ------------ ------------
Impairment provision (cumulative as of (6.840.547) (5.847.043)
the reporting period)
--------------------------------------- ------------ ------------
Total 5.000.000 6.000.000
--------------------------------------- ------------ ------------
The Group has made an advance payment of US$12m (representing
principal plus interest) for the acquisition of a project in Podol
(Kiev) in 2007. As of the end of the reporting period the
Management does not expect such acquisition to proceed while the
seller has already defaulted on his credit to the Group (Note 10 in
the full report).
As a consequence, the Group has commenced legal proceedings for
the transfer of the collateral (land plot of 42 ha in Kiev Oblast)
in the Group's name. The said plot, as per the valuation by BNP
Paribas in December 2011 is valued at US$5.000.000.
7. Share capital
Number of 31/12/2010 17/7/2011 9/8/2011 9/8/2011 20/12/2011 31/12/2011
Shares (as at)
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Increase of Conversion of Conversion of Conversion
Share Capital Share Capital Share Capital exercised/
Issue of Share
Capital
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Authorised
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Ordinary shares
of EUR0,01 each 875.000.000 1.400.000.000 8 989.869.935 989.869.935 989.869.935
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Ordinary shares
of EUR1 each - - 13.999.999 - - -
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Ordinary Shares
of EUR0,92
each - - 1 1 1 1
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Deferred Shares
of EUR0,99 each - - - 4.142.727 4.142.727 4.142.727
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Total 875.000.000 1.400.000.000 14.000.008 994.012.663 994.012.663 994.012.663
================ ============== ================= =============== ================ =============== =============
Issued and
fully paid
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Ordinary shares
of EUR0,01 each 414.272.792 414.272.792 4.142.727 5.135.000 9.277.727
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Ordinary shares
of EUR1 each - - 4.142.727 - - -
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Ordinary Shares
of EUR0,92
each - - - 1 - 1
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Deferred Shares
of EUR0,99 - - - 4.142.727 4.142.727 4.142.727
each
---------------- -------------- ----------------- --------------- ---------------- --------------- -------------
Total 414.272.792 414.272.792 4.142.727 8.285.455 13.420.455 13.420.455
================ ============== ================= =============== ================ =============== =============
Value (as at) 31/12/2010 17/7/2011 9/8/2011 9/8/2011 20/12/2011 31/12/2011
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Increase of Share Conversion of Conversion of Conversion
Capital Share Capital Share Capital exercised/
Issue of Share
Capital
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Authorised (EUR)
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Ordinary shares
of EUR0,01 each 8.750.000 14.000.000 0.08 9.898.699 9.898.699 9.898.699
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Ordinary shares
of EUR1 each - - 13.999.999 - - -
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Ordinary Shares
of EUR0,92 each - - 0.92 0.92 0.92 0.92
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Deferred Shares
of EUR0,99 each - - - 4.101.300 4.101.300 4.101.300
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Total 8.750.000 14.000.000 14.000.000 14.000.000 14.000.000 14.000.000
================= ============ ================== ================ ================ ================ ===========
Issued and fully paid ($)
--------------------------------------------------- ---------------- ---------------- ---------------- -----------
Ordinary shares
of EUR0,01 each 5.341.918 - - - 75.358 5.507.276
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Ordinary shares
of EUR1 each - - - - - -
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Ordinary Shares
of EUR0,92 each - - - - - -
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Deferred Shares
of EUR0,99 each - - - - - -
----------------- ------------ ------------------ ---------------- ---------------- ---------------- -----------
Total 5.431.918 5.431.918 5.431.918 5.431.918 5.507.276 5.507.276
================= ============ ================== ================ ================ ================ ===========
7.1 Authorized share Capital
Following a decision of the shareholders of the Company on 17
July 2011, the authorized share capital was increased to
EUR14.000.000 divided into 1.400.000.000 Ordinary Shares of EUR0,01
each.
On 9 August 2011, the authorized share capital of the Company
amounting to EUR14.000.000 divided into 1.400.000.000 Ordinary
Shares of EUR0,01 each, was consolidated and converted to
13.999.999 Ordinary Shares of EUR1 each, 1 Ordinary Share of
EUR0,92 and 8 Ordinary Shares of EUR0,01 each.
On the same date, the authorized share capital of the Company
amounting to EUR14.000.000 was subdivided and converted to
989.869.935 Ordinary Shares of EUR0,01 each, 1 Ordinary Share of
EUR0,92 and 4.142.727 Deferred Shares of EUR0,99 each.
7.2 Issued Share Capital - Capital Reorganization - New Ordinary
Shares
Further to the resolutions approved at the EGM of 24 July 2011
and pursuant to the capital reorganization resolutions the Company
has restructured its share capital from the then 414.272.792
existing ordinary shares to 4.142.727 new ordinary shares of
EUR0,01 nominal value, having the same rights as the then existing
ordinary shares, 4.142.727 deferred shares of EUR0,99 nominal value
having no rights whatsoever, and 1 existing ordinary share of
EUR0,92 nominal value. The new ordinary shares have been effected
as of 15 August 2011.
7.3 Convertible Bond-Financial Restructuring
On 1 July 2011 the Company signed an agreement with an
independent third party, namely Sec South East Continental Unique
Real Estate (SECURE) Management, under which the Company entered
into a subscription agreement with Narrowpeak Consultants Limited
(Narrowpeak), a member of the SECURE Management group, for a
substantial investment in the Company on certain terms.
Under the agreement, Narrowpeak conditionally agreed to
subscribe for Bonds issued by the Company with aggregate value of
US$8 million which were convertible, in certain circumstances, into
5.135.000 new ordinary shares and would be issued with class B
warrants to subscribe for up to 1.091.000 new ordinary shares (see
below).
The principal term of the bonds was eight months and the annual
interest during this eight month period is 1% per annum. The bond
was collateralized by all the freehold assets of the Group which
were not mortgaged. The Company has issued the convertible bond to
Narrowpeak on 15 August 2011.
On 20 December 2011 Narrowpeak converted the bond into equity,
receiving 5.135.000 shares of nominal value of EUR0,01, together
with the right to exercise its class B warrants (as defined below).
The shares have been issued at a share premium of EUR1,0516 each.
Following the conversion of the bond the Company has initiated the
procedure to cancel the mortgages held by Narrowpeak. As at the
publishing date of this report all mortgages have been lifted.
7.4 Future Capital Increase
The Board has also taken authority from Shareholders from the
EGM of 17 July 2011 to allot up to 2.619.790 new ordinary shares at
a price of GBP0,95 per Share and is in the process to raise up to
$4m of capital without further shareholder's approval. This
authority will expire on the date of the first anniversary of
conversion of the bond, on 20 December 2012. For further details
please revert to the Circular of 1 July 2011.
7.5 Director's Option scheme
Under the said scheme each of the directors serving at the time,
which is still a Director of the Company is entitled to subscribe
for 2.631 Ordinary Shares exercisable as set out below:
Exercise Price Number of
-------------------------------- --------------- ----------
US$ Shares
-------------------------------- --------------- ----------
Exercisable till 1 August 2017 57 1.754
-------------------------------- --------------- ----------
Exercisable till 1 August 2017 83 877
-------------------------------- --------------- ----------
Director Franz M. Hoerhager Option scheme, 12/10/2007
Under the said scheme, director Franz M. Hoerhager is entitled
to subscribe for 1.829 ordinary shares exercisable as set out
below:
Exercise Price Number of
-------------------------------- --------------- ----------
GBP Shares
-------------------------------- --------------- ----------
Exercisable till 1 August 2017 40 1.219
-------------------------------- --------------- ----------
Exercisable till 1 August 2017 50 610
-------------------------------- --------------- ----------
The above option schemes were approved by the shareholders of
the Company in General Meeting on 31 March 2008. As of the
reporting date the Company has reversed the reserved equity (from
past periods) for the share options in the statement of financial
position as at 31 December 2011 in the amount of US$ 68.390 as the
options are well out of the money.
7.6 Warrants issued
On 8 August 2011, the Company has issued 273.000 Class A
Warrants (equivalent to 2,5% of the issued share capital of the
Company at the time) to AISI Realty Capital LLC, former Investment
Manager of the Company. Each Class A Warrant entitles the holder to
receive one Ordinary Share. The Class A Warrants may be exercised
at any time until the third anniversary of the issuance date of the
Class A Warrant Instrument. The exercise price of the Class A
Warrant will be the nominal value per Ordinary Share as at the date
of exercise.
On 8 August 2011 the Company has issued 1.091.000 Class B
Warrants to Narrowpeak Consultants Ltd and is about to issue
273.000 Class B warrants to Mr. Besik Sikharulidze and Nugzar
Kachukhashvili (for an aggregate equivalent to 12,5% of the issued
share capital of the Company). Each Class B Warrant entitles the
holder to receive one Ordinary Share. The Class B Warrants may be
exercised at any time until the third anniversary of the issuance
date of the Class B Warrant Instrument. The exercise price of the
Class B Warrants will be the nominal value per Ordinary Share as at
the date of exercise. The Class B Warrant Instruments have
anti-dilution protections so that, in the event of further share
issuances by the Company, the number of Ordinary Shares to which
the holder of a Class B Warrant is entitled will be adjusted so
that he receives the same percentage of the issued share capital of
the Company (as nearly as practicable), as would have been the case
had the issuances not occurred. This anti-dilution protection will
lapse on the earlier of (i) the expiration of the Class B Warrants;
and (ii) capital increase(s) undertaken by the Company generating
cumulative gross proceeds in excess of US$100.000.000.
Pursuant to the reorganization of the share capital of the
Company, the conversion of the bond by Narrowpeak into equity and
the issuance of the Warrants the Company's share capital is as
follows
Number of (as at) 31/12/2011
---------------------------- --------------------- -------------------
Ordinary shares of EUR0,01 Listed in AIM 9.277.727
---------------------------- --------------------- -------------------
Class A Warrants 273.000
--------------------------------------------------- -------------------
Class B Warrants 1.364.000
---------------------------- --------------------- -------------------
Total number of Shares Non Dilutive Basis 9.277.727
---------------------------- --------------------- -------------------
Total number of Shares Full Dilutive Basis 10.914.727
---------------------------- --------------------- -------------------
Ordinary Share EUR0,92 1
--------------------------------------------------- -------------------
Options 4.460
--------------------------------------------------- -------------------
8. Borrowings
31/12/2011 31/12/2010
------------------------------------------- ----------- -----------
US$ US$
------------------------------------------- ----------- -----------
Principal 15.529.412 15.529.412
------------------------------------------- ----------- -----------
Principal due to related parties (Note 24
in the full report) - 4.333
------------------------------------------- ----------- -----------
Interests 284.445 36.904
------------------------------------------- ----------- -----------
Total 15.813.857 15.570.649
------------------------------------------- ----------- -----------
8.1 Current borrowings
8.1.1 EBRD
In March 2011 the Group failed to make payment of the relevant
instalments of the construction loan that had been signed with EBRD
for the construction of Terminal Brovary Logistics Park. In May
2011 the Group signed a restructuring agreement with EBRD for the
US$15,5m outstanding. The agreement provides Aisi with a grace
period on the principal repayments until September 2012 (interest
is to be paid quarterly), and extends the duration of the loan by
18 months compared with the original term.
The loan bears interest at 3 months LIBOR plus 6,75%, and the
principal is repayable in 33 instalments of US$470.588. In
addition, the loan bears a 2% margin over the effective interest
rate for the duration of the grace period, payable upon the
termination of such period.
Following the loan restructuring, the Group failed to effect the
first interest payment due on 17 June 2011, due to inadequate
liquidity. Pending the issue of the convertible loan to Narrowpeak,
the Directors and Narrowpeak came into contact with EBRD and
secured its collaboration until such time that the convertible loan
was signed (8 August 2011). From late August 2011, when the
interest due was repaid, the loan has been current.
As at 31 December 2011 the Group pledged through the June 2011
financing agreement, as collateral to secure the bank loan the
following:
1. LLC Terminal Brovary pledged all movable property with the carrying value more than US$25.000.
2. LLC Terminal Brovary pledged its Investment property, Brovary
Logistics Centre that was finished construction in 2010 (Note 12),
and all property rights on the centre.
3. Aisi Realty Public Ltd pledged 100% corporate rights in Aisi
Logistics Ltd, a Cyprus Holding Company for the Shareholder of LLC
Terminal Brovary, LLC Aisi Brovary.
4. Aisi Logistics Ltd pledged 99% corporate rights in LLC Aisi Brovary.
5. LLC Aisi Brovary pledged 100% corporate rights in LLC Terminal Brovary.
6. LLC Terminal Brovary pledged all current and reserved
accounts opened by LLC Terminal Brovary in Erste Bank, Ukraine.
7. LLC Aisi Brovary entered into a call and put option agreement
with EBRD, Aisi Realty Public Ltd and LLC Terminal Brovary pursuant
to which
a. Following an Event of Default (as described in the Agreement)
EBRD shall have the right (Call option) to purchase at the Call
Price from LLC Aisi Brovary, 20% of the Participatory Interest held
by LLC Aisi Brovary on the relevant Settlement Date,
b. EBRD shall have the right (Put Option), exercisable in its
sole discretion, to sell to LLC Aisi Brovary all but not less than
all of the Participatory Interest in the Charter Capital of LLC
Terminal Brovary held by EBRD on the relevant Settlement Date at
the Put Price.
8. LLC Terminal Brovary has granted EBRD a second ranking
mortgage in relation to its own and LLC Aisi Brovary's obligations
under the call and put option agreement.
Also the Company issued the corporate guarantee dated 12 January
2009 to guarantee all liabilities and fulfilment of conditions
under the loan agreement signed with EBRD. The maturity of the
guarantee is equal to the maturity of the loan.
The credit agreement with EBRD includes among others the
following requirements for LLC Terminal Brovary and the Group as a
whole:
1. Consolidated total liabilities to audited equity of the
Company, adjusted for deferred tax and independent valuation,
should not exceed 60% over the life of Aisi Realty Public
Guarantee.
2. At all times minimum value of unencumbered assets and cash of
the Company should not be less than US$30.000.000 (based on the
Group consolidated results).
3. At all times Brovary Logistics shall maintain a balance in
the Debt Service Reserve Amount (DSRA) account equal to not less
than the sum of all payments of principal and interest on the Loan
which will be due and payable during the next six months on and
after the Project Completion Date provided, however, that (A) LLC
Terminal Brovary shall deposit not less than 50% of the DSRA before
the end of the Grace Period and (B) the DSRA shall be fully funded
on or before 18th December 2012.
4. LLC Terminal Brovary shall achieve a "CNRI"(Contract Net
Rental Income is the aggregate of monthly lease payments, net of
value added tax, contracted by the Borrower pursuant to the Lease
Agreements as of the relevant testing date and converted into
Dollars at the official exchange rate established by the National
Bank of Ukraine as of such testing date) according to the following
schedule:
a) on 18th September, 2011, the CNRI of more than US$
75.000;
b) on 18th December, 2011, the CNRI of more than US$ 150.000;
and
c) on and after 18th March, 2012 until the end of the Grace
Period, the CNRI of more than US$200.000.
9. Trade and other payables
31/12/2011 31/12/2010
------------------------------------------ ----------- -----------
US$ US$
------------------------------------------ ----------- -----------
Payables to related parties (Note 24 in 925.704 7.939.294
the full report)
------------------------------------------ ----------- -----------
Guarantee reserve on construction works,
current 751.419 815.951
------------------------------------------ ----------- -----------
Guarantee reserve on construction works,
non-current - 642.374
------------------------------------------ ----------- -----------
Payables for construction, current 480.027 521.945
------------------------------------------ ----------- -----------
Payables for construction, non-current 364.032 -
------------------------------------------ ----------- -----------
Payables for services 240.601 1.677.313
------------------------------------------ ----------- -----------
Provision for reimbursements 1.550.000 1.504.390
------------------------------------------ ----------- -----------
Accruals 146.606 679.581
------------------------------------------ ----------- -----------
Long-term notes - 20.096
------------------------------------------ ----------- -----------
Total 4.458.389 13.800.944
------------------------------------------ ----------- -----------
The fair values of trade and other payables due within one year
approximate to their carrying amounts as presented above.
Guarantee reserve on construction works, represents the portion
of the guaranteed amount payable to the contractor of Brovary
Logistics Park upon finalization of the works and of the snagging
list.
Payables for construction represent amounts payable to the
contractor of Bella Logistics Park in Odessa. In December 2011, the
Group has settled a probable cause for litigation with the said
contractor who was claiming US$3.000.000-US$5.000.000. The
settlement was reached on the basis of maintaining the construction
contract in an inactive state (to be reactivated at the option of
the Group) with the Group agreeing to pay UAH2.400.000 (US$300.000)
within Q1-2012, while upon reactivation of the contract or
termination of it (because of the sale of the asset) the Group
would have to pay an additional UAH5.400.000 (US$ 700.000) payable
upon such event occurring. Since it is uncertain when the latter
amount is to be paid it has been discounted at the current discount
rates in Ukraine and is presented as a non current liability.
Payables for services represent amounts payable to various
service providers including auditors, legal advisors, consultants
and third party accountants.
Provision for reimbursements represents the potential Group's
liability towards UVK, first tenant of Brovary Logistics Park. The
amount which is in dispute is also backed by a mortgage on the AISI
Bella's Odessa plot which UVK attempts to enforce.
10. Events after the end of the reporting period
In January 2012, EBRD notified the Group that certain of the
covenants of the Terminal Brovary loan are still in breach, namely
covenants related to the required at specific point of time minimum
Contract Net Rental Income (CNRI).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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