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Carpathian PLC

Interim results for the six months ended 30 June 2011

Carpathian PLC (AIM: CPT), the commercial property investment company focused on retail properties within Central and Eastern Europe, today announces its interim results for the six month period ended 30 June 2011.

Financial Highlights 

- Profit after tax of €6.6 million (six months to 30 June 2010: €23.4 million)

- Earnings per share of 2.9 euro cents for the period (six months to 30 June 2010: 10.1 euro cents)

- Net asset value per share of 41.9 euro cents (39.1 euro cents as at 31 December 2010)

- Net rental income of €7.6 million (six months to 30 June 2010: €11.2 million)

- Total cash of €110.9 million as at 30 June 2011 (as at 30 June 2010: €26.1 million)

- As at 31 August 2011, total cash at holding company level was approximately €89.1 million

- The net deferred tax liabilities are €1.6 million (30 June 2010: €22.4 million)

- Intention to distribute 25 euro cents per ordinary share via a B Share bonus issue with a record date of 30 September 2011

- The ordinary shares will be marked ex-entitlement to the B Share bonus issue on 28 September 2011

Operational Highlights

- Six property sales were completed within the core portfolio representing 97% of its year end valuation as described below.

- Adequate cash reserves retained for all applicable actual and contingent liabilities.

- Arrangements will also be made to deal with any assets not sold by the end of the current Portfolio Management Agreement, expiring on 31 December 2011.

- Three out of the four properties in the Blue Knight portfolio of assets in Poland were sold for a gross consideration of €40.2 million. The initial net equity amount realised from the partial Blue Knight sale was approximately €7.6 million.

- Last remaining asset in the Blue Knight portfolio - Osowa shopping centre in Gdansk - was sold for a consideration of €34.5 million in cash.

- Promenada shopping centre in Warsaw, Poland was sold for a gross consideration of €169.5 million as announced on 6 May 2011. The net equity realised from the sale after transaction costs was approximately €59.5 million.

- The single tenanted property in Slupsk, Poland was sold for a consideration of €0.75 million on 18 April 2011 delivering net equity proceeds of approximately €0.7 million.

- The remaining core properties of the Babilonas Shopping Centre in Lithuania, Macromall Centre and Satu Mare and Baia Mare development land plots in Romania are in varying stages of sales processes.

- The joint venture project of the Riga Shopping Centre in Latvia continues to underperform. We are exploring alternatives for co-operating with the joint venture partner and the financing bank, enabling the further investment that is required for the project's longer term success on terms acceptable to our shareholders, and, entertaining interest from potential longer term investment buyers.

- Carpathian disposed of the non-core Plaza property portfolio in Hungary for a nominal sum to the financing bank in Hungary on 19 April 2011.

Rory Macnamara, Non-executive Chairman of Carpathian, said:

"A significant part of the programme for realising value from the core portfolio has been completed this year in line with the revised strategy of the Company. As a result, the Board is able to announce an immediate distribution of 25 euro cents per share - we are also aiming to make a further distribution before the end of 2011. We will continue to maintain the cash levels within the Group needed to meet essential operational requirements and future termination costs."

-Ends-

Enquiries:

Notes to Editors

Chairman's Statement

During the first six months of 2011, the Company has achieved significant progress towards completing its value realisation programme of the core property portfolio as outlined in its Strategic Review completed in January 2010.

At 30 June 2011, the Group retained 4 core properties (Babilonas, Macromall and the 2 development assets at Baia Mare and Satu Mare), 4 non-core properties comprising the MID portfolio and the non-consolidated investment in the Galleria Riga joint venture. All properties continue to be actively marketed for sale and are at varying stages of the sales cycle, as more fully described in the Property Investment Adviser's Report.

Financial results

As a consequence of the substantial disposals completed during the first six months of 2011, the Company has presented its Consolidated Statement of Comprehensive Income in accordance with International Financial Reporting Standard 5 ('IFRS 5'), and therefore now separately discloses the operations sold during the period as discontinued.

Profit after tax for the period is €6.6 million, while the Group generated a profit of €23.4 million during the first six months of 2010. Earnings per share are 2.9 euro cents (2010: Earnings per share of 10.1 euro cents). The substantially higher accounting profit for the first six months of 2010 was the result of the sale and derecognitions of loss-making non-core assets (the Plaza and Atrium portfolios).

The profit after tax for the period was the result of investment realisations - the remaining assets owned as at 30 June 2011 created a loss after tax of €1.8 million for the period.

During the first six months of 2011, the Group's net rental and related income was €7.6 million (six months to June 2010: €11.2 million). This is in line with our expectations; the variance was driven by the sale of the Agrokor portfolio in December 2010 and the Blue Knight portfolio along with the Promenada and Biedronka properties in 2011.

Administrative expenses for the period were €2.9 million (2010: €2.7 million). The administrative expenses for the period included one-off items relating to the sold assets as well as corporate restructuring costs of approximately €0.6 million. This restructuring of various group companies has delivered reductions in corporate income tax liabilities from the sales of the core property portfolio as shown in the movement of the net deferred tax liabilities (described below).

The expenses relating to the Property Investment Adviser decreased from €2.3 million in the six months to June 2010 to €1.5 million in 2011. On a cumulative basis, this is approximately €0.5 million below the maximum amount set out in the Property Management Agreement signed in February 2010. This expense is allocated substantially within property operating expenses in the Consolidated Statement of Comprehensive Income.

Based on the sales completed as at 30 June 2011, the Company has made an accrual for a capital performance payment of €9.5 million, though not all conditions are yet satisfied for the payment to be made.

The Group's net asset value per share is 41.9 euro cents as at 30 June 2011 (as at 31 December 2010: 39.1 euro cents) based on the latest independent property valuations as at 31 December 2010. There is no fair value adjustment of the property portfolio for the first six months of 2011. Independent property valuations are only performed at the year-end. The Board has assessed the property valuations and believes that the valuation at 31 December 2010 is a reasonable estimate for the 30 June 2011 fair value.

Total Group cash as at 30 June 2011 was €110.9 million (as at 31 December 2010: €26.8 million) and €107.8 million as at 31 August 2011. The Group had approximately €89.1 million cash at holding company level including its entities in Isle of Man and Luxembourg.

The Group has reclassified all of its long-term assets to current assets as they are held for sale. The Group also has no long-term liabilities, as each of its debt facilities expire at the end of 2011.

The Group's consolidated debt position as at 30 June 2011 was €75.7 million (as at 31 December 2010: €221.3 million), a decrease of €145.6 million. Further detail on the Group's debt facilities can be found in the Property Investment Adviser's Report.

The Group has no goodwill as at 30 June 2011 (as at 31 December 2010: €6.6 million).

The Group's net deferred tax liabilities are €1.6 million (as at 31 December 2010: €21.0 million). The change is the result of the progress made on the corporate restructuring of the Group.

Key operational matters for the period

In line with the priorities set out in the Strategic Review, the Company has disposed of six core investment assets representing approximately 97% of the core investment portfolio valued at €238.6 million as at 31 December 2010.

As announced on 9 March 2011, three out of the four properties in the Blue Knight portfolio of assets in Poland were sold for a gross consideration of €40.2 million. The initial net equity amount realised from the partial Blue Knight sale was approximately €7.6 million. The financing bank, Deutsche Pfandbriefbank ('DPB') retained approximately €9.4 million in addition to the allocated loan amount of approximately €22 million to cover an additional loan repayment against the fourth property in Gdansk of €7.9 million and the Babilonas shopping centre of €0.9 million, as had been agreed during the DPB debt restructuring in June 2009 and a further €0.6 million loan repayment agreed in connection with obtaining DPB's consent for the corporate restructuring which has delivered substantial tax benefits to the Group.

On 18 May 2011, the sale of the fourth and last remaining asset in the Blue Knight portfolio - Osowa shopping centre in Gdansk - was completed for a consideration of €34.5 million in cash. The sale price includes a €3 million retention to be held pending the resolution of questions related to the occupancy permit. At this stage, realisation of this retention is uncertain. The initial net equity released after transaction costs was approximately €9.8 million. Further to this, DPB released retained funds of €8.9 million previously held from the sale of the first three assets in the Blue Knight portfolio and Promenada.

The Promenada shopping centre in Warsaw, Poland was sold for a gross consideration of €169.5 million as announced on 6 May 2011. This price was subject to a net deduction of €1 million arising principally from payments for warranty insurance and modification of the trademark licence. An escrow account was established of €0.6 million, all of which has already been released. Carpathian also received an additional consideration of €1.5 million in August 2011 when the purchaser reclaimed the relevant VAT. Total bank debt and related fees payable to DPB were approximately €108.1 million, which included a loan repayment of approximately €1 million against the Gdansk property, an additional €2.1 million against the Babilonas shopping centre in Lithuania and a further €0.2 million repayment in relation to the corporate restructuring. The initial net closing payment was €59.8 million, while the net equity realised from the sale after transaction costs was approximately €59.5 million.

The single tenanted property in Slupsk, Poland was sold for a consideration of €0.75 million on 18 April 2011 delivering net equity proceeds of approximately €0.7 million.

The remaining core properties of the Babilonas Shopping Centre in Lithuania, Macromall Centre and Satu Mare and Baia Mare development land plots in Romania are in varying stages of sales processes.

The joint venture project of the Riga Shopping Centre in Latvia continues to underperform. We are exploring alternatives for co-operating with the joint venture partner and the financing bank, enabling the further investment that is required for the project's longer term success on terms acceptable to our shareholders, and, entertaining interest from potential longer term investment buyers.

The only remaining non-core investment portfolio of the MID properties in Czech Republic and Hungary is also in the due diligence phase of a sales process.

Carpathian disposed of the non-core Plaza property portfolio in Hungary to the financing bank in Hungary for a nominal sum on 19 April 2011. This portfolio was derecognised from our balance sheet in 2010.

Dividend

In line with the business plan set by the Strategic Review in January 2010, the Company intends to distribute the cash received from asset sales to shareholders. Based on the progress made following the above transactions and the transfer of the net proceeds through various jurisdictions to the holding company, Carpathian intends to distribute 25 euro cents per ordinary share via a B Share bonus issue with a record date of 30 September 2011. The ordinary shares will be marked ex-entitlement to the B Share bonus issue on 28 September 2011. In addition, the Company aims to make a further distribution before the end of 2011.

Adequate cash reserves will be retained for all applicable actual and contingent liabilities. Arrangements will be made to deal with any assets of which the Company has been unable to dispose by the end of the current Portfolio Management Agreement, expiring 31 December 2011.

At the Annual General Meeting held on 6 August 2010, the Company adopted new Articles of Association, which provide for the creation of new share classes. In respect of such distribution of 25 euro cents, your Board proposed to implement the proposals then outlined. This would result in an issue of new B shares pro rata to existing shareholders, offering qualifying shareholders the opportunity to elect for a conventional dividend (income) distribution or for a share sale and purchase (capital) distribution. The details were described in the circular dated 14 July 2010 that convened the above Annual General Meeting. A copy of this circular is available for download from the Company's website: http://www.carpathianplc.com/Attachments/000033/Circular%202010.pdf

Further particulars and a form of election will be circulated in the next few weeks.

Note on going concern

At some time after 31 December 2011, the Company intends to effect a further distribution to shareholders of any residual surplus cash balance and to seek shareholders' approval to de-list the Company from the Alternative Investment Market of the London Stock Exchange and in due course thereafter to commence and implement an orderly members voluntary liquidation, of itself and its then remaining subsidiaries.

The Board expects that this process will be initiated within the next 12 months. In the meantime, and based on these proposed steps, no material uncertainties that cast significant doubt about the ability of the Company to continue as a going concern have been identified by the Directors.

Rory Macnamara

Chairman

21 September 2011

PROPERTY INVESTMENT ADVISER'S REPORT

Overview

During 2011, the Company has successfully disposed the majority of its core assets as outlined in the Strategic Review in January 2010.

As a result of the sales, the Company has now exited the Polish and Croatian markets. The remaining countries where we are invested and their weighted values are Czech Republic (25%), Hungary (16%), Latvia* (34%), Lithuania (19%), and Romania (6%).

*Latvia is a JV in which Carpathian PLC has an 80% equity stake, but not majority management control.

Transactions

As mentioned in the Chairman's Statement, six property sales were completed during the period within the core portfolio representing 97% of its 2010 year-end valuation.

Now the outstanding matters in relation to these sales processes are minimal. All of the retained funds from the Promenada sale have now been released. From the sales of the first three assets of the Blue Knight portfolio, we are still working with the Purchaser to release amounts relating to tenant deposit transfers and additional documents. This amount represents approximately €0.6 million, and expected to be realised before year-end.

From the sale of the fourth and last remaining asset in the Blue Knight portfolio - Osowa shopping centre in Gdansk, €3 million retention is kept on a separate account pending the resolution of questions related to the occupancy permit. At this stage, realisation of this retention is uncertain.

The Agrokor sale transaction which closed in December 2010 kept €1.1 million on escrow for a six months period should any claims against the warranties arise. That period has now passed with no claims from the Purchaser, and the funds have been released to the Company.

Core assets

The core portfolio now only consists of two assets: the Babilonas Centre in Lithuania and the Macromall Centre in Romania. The weighted average lease length is 2.2 years, which is a decrease from the 4.16 years reported as at 31 December 2010 as a result of the sale transactions completed. Vacancy is concentrated at the Macromall Centre at approximately 30%, while the Babilonas Centre has a very low level of 3%. The majority of expiring leases are at the Babilonas Centre with 86 expiring leases in the next 12 months with an annual rent of €0.9 million. The Net Operating Income ('NOI') decrease of 3% was substantially realised at the Macromall Centre.

* €3.8 million of loan paid down or held on a blocked account, as part of the Blue Knight and Promenada sale agreements

** Net Operating Income ('NOI') for the six months ended 30 June 2011

*** Independent valuation as at 31 December 2010

The Babilonas Centre was re-classified to a core asset on 1 April 2011. The Net Operating Income ('NOI') for the first six months of 2011 shows a 20% increase from the same period a year earlier. The increase is due to expired rent rebates granted to tenants during difficult trading periods in 2010, decreased vacancy from 7.1% to 3.5% as at 30 June 2011, and improved collection virtually eliminating any bad debt provision. Rent collection is at 99% for the period. The weighted average lease length of the property is 2.35 years.

As part of the cross-collateralisation agreed with DPB bank during the re-finance, a cumulative sum of €3.8 million of the loan is to be repaid out of the proceeds of the Blue Knight portfolio and Promenada Shopping Centre sales. Of this amount, €2.3 million has been repaid in September.

The property is currently under offer, with the purchaser completing its due diligence. Final negotiations are currently taking place aiming a deal to be closed shortly.

The Macromall Centre continues to struggle with high vacancy (30%) and poor rent collection (77%). The Company recently settled a lawsuit with the building contractor related to the installation of the air conditioning units brought by the installer in 2008.

The property is currently under offer to a local buyer. Due diligence is complete and the sale contract has been agreed. A ruling from the Romanian tax office regarding the Vat treatment of the sale is expected by late September, with closing scheduled to take place shortly afterwards.

The Satu Mare land is under offer, and we expect the transaction to be closed before year-end. The Satu Mare land is actively marketed at the moment.

Non-core assets

The non-core assets are represented only by the MID portfolio. Other assets, comprising the Antana logistics warehouse and the Anglo Irish Bank portfolio are derecognised, as the management control has been taken over by the financing banks. All four properties of the MID portfolio are anchored by Interspar on long-term leases, which is the reason for the long lease length of 7.34 years. Collection is 100% and there is very little vacancy or upcoming expiries. A cash sweep is in place with the bank.

The portfolio is currently under offer, with the purchaser undertaking initial due diligence. If due diligence / contract negotiations are successful, then closing is forecast to take place at the end of October.

* Net Operating Income ('NOI") for the six months ended 30 June 2011

** Independent valuation as at 31 December 2010

Galleria Riga is a non-consolidated investment property as Carpathian PLC is a joint venture partner and does not have majority management control.

The centre opened with greater vacancy than anticipated, and the focus has been on attracting major international retailers to enhance the retail offer of the centre. Discussions are ongoing with a number of major brands who have expressed interest in the centre and are monitoring the management and marketing of the centre together with the progress made upgrading the tenant mix.

Since opening in October 2010, the occupancy has improved from 40% to its current level of 75%. However, two of the anchor tenants in the centre have failed and will shortly close due to problems with the franchisees; this will reduce the occupancy to 67%.

Until further anchor tenants and international brands are in place, existing retailers will continue to experience trade the potential offered by the city centre location. The current trading conditions require rental concessions being granted to support tenants and have given rise to high levels of arrears.

In April 2011, EMCM (now CBRE) were appointed as property manager and leasing agent of the shopping centre; the change has been positively received by tenants and rental collection rates have improved. Heads of Terms have recently been signed with a major UK fashion retailer who will open their first Latvian store at Galleria Riga in February 2012; this is expected to catalyse further interest from major retailers.

Paul Rogers

Managing Partner

CPT LLP

21 September 2011