Adams Regulatory News (ADA)

Carpathian PLC

Preliminary results for the year ended 31 December 2010

Carpathian PLC (AIM: CPT), the commercial property investment company focused on retail properties within Central and Eastern Europe, today announces its preliminary results for the year ended 31 December 2010.

Financial Highlights 

- Profit after tax of €15 million (2009: loss after tax of €104.5 million)

- Earnings per share of 6.5 euro cents for the year (2009: loss per share of 45 euro cents)

- Net Asset Value per share of 39.1 euro cents (32.6 euro cents as at 31 December 2009)

- Adjusted loss after tax* of €0.2 million (2009: adjusted profit after tax of €3.5 million)

- Net rental income of €22.2 million (2009: €27.5 million)

- Total cash of €26.8 million as at 31 December 2010 (as at 31 December 2009: €39.9 million) and €38.9 million as at 31 March 2011

- Group uncommitted cash of approximately €19.1 million as at 31 March 2011, equating to approximately 8.2 euro cents per share

- The non-core Plaza portfolio of four shopping centres and the Antana logistics warehouse in Hungary met the criteria for derecognition from the Group's consolidated financial statements and were no longer consolidated as of 31 March 2010 and 30 June 2010 respectively. The consolidated profit on derecognition of these non-core investments was €5.3 million.

*Adjusted profit and loss after tax and adjusted earnings per share exclude fair value, deferred tax, disposal, derecognition and foreign exchange adjustments

Operational Highlights

- In line with the Company's revised business strategy, four property sales were completed within the core portfolio representing 88% of its year end valuation as described below.

- The sale of the Agrokor portfolio of six supermarkets in Croatia completed on 1 December 2010. As announced on 24 November 2010, the portfolio was sold for a total consideration of €45 million plus a small adjustment for net working capital. After repayments to Erste Bank and transaction costs, approximately €3.5 million was realised before any corporate taxation from the sale, of which approximately €1.1 million is to be retained for six months to cover the purchaser against any liabilities arising through misrepresentations by the vendor.

- As announced on 9 March 2011, three out of the four properties in the Blue Knight portfolio of assets in Poland have been sold for a gross consideration of €40.2 million. The initial net equity amount realised and to be transferred from Poland to the Company from the partial Blue Knight sale will be 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 agreed during the DPB debt restructuring in June 2009 and a further €0.6 million loan repayment agreed in connection with obtaining their consent for the corporate restructuring which is intended to deliver substantial tax benefits to the Group.

- The Promenada shopping centre in Warsaw, Poland has been 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 insurance and modification of the of the trademark license. An escrow account has been established of €0.6 million, the majority of which is expected to be recovered within six months from closing. Carpathian also expects to receive additional consideration of €1.5 million as and when the VAT is reimbursed to the purchaser. The total bank debt and related fees payable to DPB is approximately €108.1 million, which includes a loan repayment of €0.9 million against the Gdansk property and an additional €2.3 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 to be realised from the sale after transaction costs is approximately €58 million to €59.5 million depending on the receipt of the additional VAT consideration as described above.

- The single tenanted property in Slupsk, Poland was sold for a consideration of €0.75 million on 18 April 2011. The property had no external debt and the net equity proceeds after transaction costs are approximately €0.7 million.

- The last remaining asset of the Blue Knight portfolio - Osowa shopping centre in Gdansk - is under offer with the Preliminary Sale Agreement signed, as announced on 31 March 2011. The centre is being sold for a consideration of €34.5 million and is subject to a €3 million retention based on resolving questions related to the occupancy permit. The transaction is anticipated to close by the end of May 2011.

- Other core properties of Carpathian such as the Macromall Centre and Satu Mare development land in Romania are in varying phases of sales processes.

- In line with the conclusions of the Strategic Review completed in January 2010, the Board intends to distribute the cash received from asset sales to shareholders. Assuming the above transactions proceed as contemplated, the Board intends that the Company should distribute at least 5 euro cents per share by 30 September 2011. In addition, a further and more substantial distribution is intended to be made towards the end of the fourth quarter of this year.

- A new portfolio management agreement has been in place from 1 March 2010 with a fixed termination date of 31 December 2011, designed to incentivise the property investment adviser to focus on delivering the Company's revised strategy of maximising shareholder value in the short to medium-term in addition to achieving significant administrative cost savings for the Company.

- The Board of Carpathian has changed the designation of Babilonas Shopping Centre in Lithuania from a non-core to a core investment property based on the improvement of the overall asset performance in 2010 and the pre-agreed debt repayments amounting to a total of €3 million to be made from the sale proceeds of the Blue Knight portfolio and Promenada Shopping Centre in 2011.

- As announced on 7 May 2010, a new financing structure and debt arrangement was put in place which permitted completion of the prime city centre retail scheme in Riga, Latvia. As a result, this project is now open and trading although it is currently underperforming and may require further capital investment to attract key tenants.

- Carpathian disposed of certain subsidiaries holding the non-core developments of Arad Shopping Centre and Cluj development land and the Romanian development management platform to related parties for a nominal sum as announced on 23 March 2010. In addition, Carpathian disposed of the non-core Plaza portfolio in Hungary to the financing bank of MKB Zrt. in Hungary on 19 April 2011.

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

"During 2010 and this year, we have made substantial steps towards the successful completion of our value realisation programme from the core portfolio in line with the revised strategy of the Company. We are also within the targets set for minimising administrative expenses and optimising overall tax liabilities from the sales.

"As a result, we are able to announce an intention to distribute at least a further 5 euro cents per share by 30 September 2011, and are aiming to make a further and more substantial distribution before the end of 2011. We will continue to maintain only the cash levels within the Group needed to meet essential operational requirements and future termination costs."

-Ends-

Enquiries:

Notes to Editors

Chairman's Statement

I am pleased to report that during 2010, the Company made substantial progress towards achieving its business objectives of realising value from its core portfolio while reducing operating expenses as far as possible as set out in its Strategic Review completed in January 2010.

During this period our investment market in Central Europe continued its slow recovery from the wider economic crisis, with Poland remaining the strongest economy within the region.

Financial results

In 2010, the Group's net rental and related income was €22.2 million (2009: €27.5 million). This is in line with our expectations, and the variance from 2009 was driven by the derecognition of the non-core assets of the Plaza portfolio and the Antana retail warehouse in Hungary as described below.

The adjusted loss after tax excluding any fair value, deferred tax, disposal, derecognition and foreign exchange movements, for the year was €0.2 million, compared to an adjusted profit of €3.5 million for the same period a year earlier. The main contributors to this decrease are the corporate restructuring costs of the Polish portfolio and due diligence costs relating to future sales. These costs combined with the reduced net rental and related income resulted in a net profit before tax of €0.6 million. In addition, the Group had a net tax credit balance of €1 million in 2009, arising from a refund in respect of prior years, while the tax expense for 2010 is approximately €0.8 million.

The adjusted earnings per share are nil euro cents (2009: adjusted earnings of 1.5 euro cents).

Profit after tax is €15 million for the year, while the Group generated a loss of €104.5 million during 2009. Earnings per share are 6.5 euro cents (2009: negative earnings per share of 45 euro cents).

The disposal of the non-core Atrium JV developments of Arad Shopping Centre and the Cluj development land in Romania in March 2010 resulted in an accounting profit of €23.1 million following the elimination of debt less asset value from the balance sheet.

During 2010, the Plaza portfolio of four shopping centres and the Antana logistic warehouse (all located in Hungary) were derecognised as at 31 March 2010 and 30 June 2010 respectively from the Group's consolidated financial statements. The economic risks and rewards of the ownership of these assets are no longer within the Group. The profit realised from the derecognition of the Plaza portfolio was €8.9 million, while the loss on the derecognition of the Antana asset was €3.6 million.

Administrative expenses in 2010 were €6 million (2009: €5.4 million). The administrative expenses for the year included one-off items relating to the sold and derecognised assets, and corporate restructurings of approximately €0.6 million. The restructuring of various group companies is expected to deliver substantial reductions in corporate income tax liabilities from the sales of the core property portfolio.

The expenses relating to the Property Investment Adviser decreased from €6.4 million in 2009 to €4.1 million in 2010 - below the maximum amount set out by the Property Management Agreement. This expense is allocated substantially within property operating expenses in the consolidated statement of comprehensive income (or consolidated profit and loss statement).

The Group's net asset value per share is 39.1 euro cents as at 31 December 2010 (as at 31 December 2009: 32.6 euro cents) based on the latest independent property valuations as at 31 December 2010. This valuation has remained materially the same as the previous year end valuation on a like-for-like basis.

Total Group cash as at 31 December 2010 was €26.8 million (as at 31 December 2009: €39.9 million) and €38.9 million as at 31 March 2011. The Group's uncommitted cash position as at 31 March 2011 was approximately €19.1 million equating to approximately 8.2 euro cents per share. The previously reported uncommitted cash position was €15.1 million as at 13 August 2010. The increase is due mainly to the completed sales of three of the assets from the Blue Knight portfolio.

The Group's consolidated debt position was €221.3 million (as at 31 December 2009: €364.8 million), a decrease of €143.5 million from a year before. Further detail on the Group's debt facilities can be found in the Property Investment Adviser's Report.

The deferred tax expense for the year amounts to €5.5 million (2009: €3.0 million credit). This mainly arises from expenses accrued on the Promenada property and the Blue Knight portfolio both located in Poland. Deferred tax is provided on the excess of the fair values of the investment properties over their corresponding tax base values. Whilst fair values have not changed materially during the year as described above, the excess has increased as a result of the tax depreciation.

Key achievements for the year and post year-end events

In line with the priorities set out in the Strategic Review, the Company has disposed of four core investment assets and portfolios representing approximately 88% of the overall value of the core investment portfolio as at 31 December 2010. We are also in an advanced stage of completing the sale of the last core investment property of Gdansk in Poland, and the sale of Macromall Centre in Romania is in a due diligence phase with a buyer identified and non-refundable deposit paid.

The total headline price for the assets sold was approximately €257 million against the independent valuation of approximately €260 million as at 31 December 2010.

The sale of the Agrokor portfolio of six supermarkets in Croatia was completed on 1 December 2010. As announced on 24 November 2010, the portfolio was sold for a total consideration of €45 million plus a small adjustment for net working capital. After repayments to Erste bank and transaction costs, approximately €3.5 million was realised before any corporate taxation from the sale of which approximately €1.1 million will be retained for six months to cover the purchaser against any liabilities arising through misrepresentations by the vendor.

As announced on 9 March 2011, three out of the four properties in the Blue Knight portfolio of assets in Poland have been sold for a gross consideration of €40.2 million. The initial net equity amount realised and to be transferred from Poland to the Company from the partial Blue Knight sale will be 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 agreed during the DPB debt restructuring in June 2009 and a further €0.6 million loan repayment agreed in connection with obtaining their consent for the corporate restructuring which is intended to deliver substantial tax benefits to the Group.

The Promenada shopping centre in Warsaw, Poland has been 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 insurance and modification of the trademark license. An escrow account has been established of €0.6 million, the majority of which is expected to be recovered within six months from closing. Carpathian also expects to receive additional consideration of €1.5 million as and when the VAT is reimbursed to the purchaser. The total bank debt and related fees payable to DPB is approximately €108.1 million, which includes a loan repayment of €0.9 million against the Gdansk property and an additional €2.3 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 to be realised from the sale after transaction costs is approximately €58 million to €59.5 million depending on the receipt of the additional VAT consideration as described above.

The single tenanted property in Slupsk, Poland was sold for a consideration of €0.75 million on 18 April 2011. The property had no external debt and the net equity proceeds after transaction costs are approximately €0.7 million.

The last remaining asset of the Blue Knight portfolio - Osowa shopping centre in Gdansk - is under offer with the Preliminary Sale Agreement signed, as announced on 31 March 2011. The centre is being sold for a consideration of €34.5 million and is subject to a €3 million retention based on resolving questions related to the occupancy permit. The transaction is anticipated to close by the end of May 2011.

The cash realised from the above and forthcoming sales will need to be repatriated from the asset owning companies in the respective jurisdictions to Carpathian PLC. We have been progressing a corporate restructuring in order to facilitate this repatriation and optimise the corresponding tax liabilities in all of our jurisdictions. This process requires several months to complete - so far progress made is in line with our plans.

The Babilonas Centre in Lithuania has been reclassified from a non-core to a core asset from 1 April 2011 based on the improvement of overall performance in 2011 and the pre-agreed debt repayments amounting to €3 million to be made following the sales of the Blue Knight portfolio and Promenada Shopping Centre as described above.

Our development joint venture relating to the Riga shopping centre in Latvia has a new financing structure and debt arrangement as announced on 7 May 2010. This project is now completed, open and trading. This retail scheme is currently underperforming and may require further capital investment to attract key tenants.

Carpathian also sold certain subsidiaries holding the non-core developments of Arad Shopping Centre and Cluj development land and the Romanian development management platform to related parties for a nominal sum as announced on 23 March 2010. All debt obligations of approximately €51.7 million encumbering these non-core development assets were taken on by the acquirer. In addition, Carpathian disposed of the non-core Plaza portfolio in Hungary to the financing bank of MKB Zrt. in Hungary on 19 April 2011.

These sales transactions and derecognitions enable the Company to focus on the remaining core investment and development assets and further reduce administrative and management costs. The analysis of the individual asset performance can be found in the Property Investment Adviser's report.

The new portfolio management agreement was signed on 1 March 2010 and expires on 31 December 2011 with the Company's Property Investment Adviser, CPT LLP. This agreement incentivises the existing management team to achieve higher short-term returns to shareholders through performance related compensation in relation to the realisation of the Company's core portfolio of assets.

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 at least 5 euro cents per share by 30 September 2011. In addition, the Company aims to make a further and more substantial distribution before the end of 2011. However, the Board needs to further define the liquidity requirements for the Company and the remainder of the core portfolio before the amount can be finally determined.

Note on going concern

The Board continues to focus on value preservation and realisation of its remaining core investment portfolio together with reduction of its cost base, in order to maximise cash returns to shareholders.

The Board has reviewed a detailed cash flow and underlying assumptions for the period until the end of 2012, which projects that the Group and Company have adequate resources for that period. 

During that period the Company must focus upon its operational efficiencies and maintain income streams, with the intention of returning cash from asset sales to shareholders (with distributions planned to be made shortly after the receipt of significant proceeds), having due regard to the requirement to maintain sufficient liquidity within the Group to successfully execute its business plan.

All investment properties continue to generate positive cash flows, with cash sweeps operating in favour of the banks. Marketing of the properties continues, but in the event that sales are not achieved by 31 December 2011 there is nothing to currently suggest that the facilities will not be extended.

In the view of the Board and its Property Investment Adviser, the Company's remaining core investment and development portfolio retain enduring equity value. A number of assets are subject to sustainable loan facilities and the Group has cash reserves that may be used prudently to maintain the asset base.

Since 31 December 2010 the Group has repaid €136.8 million of its bank loans.

The Group is also exposed to a number of risks, including interest rate risk, currency risk, market risk, credit risk and liquidity risk.

The Board has overall responsibility for establishment and oversight of the Group's risk management framework. It oversees how management monitors compliance with the Group's risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.

The Group's risk management policies are established, in conjunction with the Property Investment Adviser, to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities.

The Directors recognise that these circumstances represent an uncertainty that casts doubt upon the Group's and Company's ability to continue as a going concern. However after making suitable enquiries and based upon the factors described above and in particular the agreements with its lending banks, as described in the review of debt financing contained in the Property Investment Adviser's Report, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue their operations for at least the next 18 months. For these reasons, the Directors continue to adopt the going concern basis in preparing the Annual Report and financial statements.

Board change

Mr Andrew Shepherd resigned as a Non- executive Director of Carpathian with effect from 1 April 2010.

Other corporate matters

At the Annual General Meeting held on 6 August 2010, the Company adopted new Articles of Association, which provides for the creation of new share classes. This allows the Board to issue such shares in separate tranches in respect of future return of cash. Each Shareholder (save for certain Shareholders who will only be able to elect for the dividend option) shall be afforded the opportunity to elect to receive each material return of cash in one of two ways (share buyback or dividend), as further described in the circular dated 14 July 2010 which convened that Annual General Meeting. A copy of this circular is available for download from the Company's website: www.carpathianplc.com 

Rory Macnamara

Chairman

10 May 2011

Property Investment Adviser's Report

Overview

The majority of our current investment markets in Central and Eastern Europe ('CEE') emerged from recession in 2010, including Hungary and Lithuania.

Each of the CEE economies is projected to have positive economic growth in 2011. The strongest economy is expected to be Poland (3.7%), while Romania is projected to be the weakest (1.5%).

On the employment front, Latvia and Lithuania are suffering from high unemployment levels - 20% and 18%, respectively - which continue to hinder overall economic growth in those countries. The remaining investment countries such as Poland, Hungary, and Romania have unemployment rates in line with the overall Euro area average of 10%. (Source: IMF)

Property transaction volumes in CEE during the first three quarters of 2010 saw significant increases over the same period in 2009 as investors began to rethink the risks inherent in some of these markets. Poland has emerged in 2010 as the number one destination for investment in CEE, with volumes up over 200% from 2009. (Source: CBRE)

The central theme of institutional investors is to target quality core products and capital cities. This is unlikely to broaden in the near future.

Portfolio valuation as at 31 December 2010 was independently carried out by Colliers International UK plc. This overall portfolio valuation showed a marginal increase of approximately 1% over the previous portfolio valuation as at 31 December 2009 (like-for-like basis). Valuations in Poland increased by approximately 8% from the previous year end, most of which occurred at the Promenada shopping centre in Warsaw due to the sale price coming in €13.5 million higher than last year's valuation figure. All properties that were under offer as at 31 December 2010 have their offer price shown as their year end valuation.

Key events

Our key objective during 2010 was to start to realise value from the core portfolio as agreed by the Board in the Strategic Review completed at the beginning of 2010.

As also described in the Chairman's statement, four property sales transactions were completed within the core portfolio representing 88% of its year end valuation as described below. In addition, the non-core developments of Arad Shopping Centre and Cluj development land, and the Romanian development management platform were sold. 2010 also saw the derecognition of the Plaza portfolio and the Antana property.

The core portfolio sales were all completed generating equity above the minimum thresholds defined by the outcome of the Strategic Review.

More recently in 2011, the Babilonas shopping centre has been reclassified as a core asset with the Board's approval. This is the combined result of better asset performance and loan repayments amounting to €3 million from the sale proceeds of the Promenada shopping centre and the Blue Knight portfolio.

Property management fees charged to the Group by the Property Investment Adviser fell by approximately 36% to €4.1 million for the year ending 31 December 2010 as compared to €6.4 million a year before. This is within the thresholds defined by the new portfolio management agreement agreed in 1 March 2010. This agreement has a fixed termination date of 31 December 2011.

More detail can be found regarding the above transactions in the Chairman's Statement and the portfolio overview below.

Portfolio Overview

Set out below are the key parameters of the portfolio together with the year end valuation figures.

* 31 Dec 2009 valuation (€'000): €234,500

All of the above properties with the exception of Biedronka and Macromall are financed by DPB with a loan expiry date of 31 December 2011.

The second table shows a summary of the key performance indicators of the core investment portfolio as at 31 December 2010. This includes the Agrokor portfolio, which was sold as at 1 December 2010.

The third table shows the core development assets.

The NOI in the core portfolio has decreased by 2% due to a loss of €0.4 million of income from the Macromall property in Romania. The top 10 tenants in the core portfolio represent 23% of the total rent paying an annual sum of €4.3 million for the year 2010. The remaining 77% is comprised of 393 tenants paying approximately €14.1 million gross rent per annum.

The Polish properties maintained a steady NOI unchanged from the prior year. The Polish assets were the largest contributors to core NOI in 2010, representing 79% of the total. Within the Polish portfolio, Promenada contributed the most, with an annual NOI in 2010 of €10.5 million, or 50% of core NOI. The Croatian portfolio had an NOI of €4.3 million, which increased 1% over the previous year (after adjusting for its sale in November 2010). The weighted average lease length of the core portfolio is 4.2 years, which is an improvement from 3.5 years at 31 December 2009. This is partly due to the derecognition of Antana, which had a large number of tenants on short-term leases.

The foremost asset of the core portfolio, Promenada, experienced solid growth for the third straight year. NOI increased €0.5 million to €10.5 million, as a result of lease renewals at rents far exceeding previous levels. On target with previously stated expectations, the contracted rental income of the centre is now in excess of €12 million per annum.

As mentioned in the Chairman's Statement, Promenada was sold to a subsidiary of Atrium European Real Estate in May 2011, for a headline figure of €169.5 million subject to a €1.5m top up after recovery of VAT. This price was subject to a net deduction of €1 million arising principally from payments for insurance and modification of the of the trademark license. An escrow account has been established of €0.6 million, the majority of which is expected to be recovered within six months from closing. The net equity to be realised from the sale after transaction costs is approximately €58 to €59.5 million depending on the receipt of the additional VAT consideration as described above.

The Blue Knight portfolio's performance remained stable in 2010. 20 of 28 expiring leases were renewed, representing 16% of total rent. Those renewals achieved rental levels 6% above previous levels. The weighted average lease length of the Blue Knight properties was 4.1 years, which is unchanged from a year ago.

As announced on 9 March 2011, three out of the four properties of the Blue Knight portfolio in Poland have been sold for a gross consideration of €40.2 million. The initial net equity amount realised and to be transferred from Poland to the Company from the partial Blue Knight sale will be approximately €7.6 million.

The Osowa property in Gdansk is also under offer with a preliminary sale agreement executed as announced on 31 March 2011, and the transaction is anticipated to close by the end of May 2011. The centre is being sold for a consideration of €34.5 million and is subject to a €3 million retention based on resolving questions related to the occupancy permit.

We successfully completed the sale of the Slupsk property in Poland for a price of €0.75 million in April 2011.

We also announced earlier that on 1 December 2010, Agrokorwas sold to W.P. Carey for a headline price of €45 million. The net equity to be returned to shareholders is approximately €3.5 million.

The cash realised from the above and forthcoming sales will need to be repatriated from the asset owning companies in the respective jurisdictions to Carpathian PLC. We have been progressing a corporate restructuring in order to facilitate this repatriation and optimise the corresponding deferred tax liabilities in all of our jurisdictions. This process requires several months to complete and so far the progress made is in line with our plans.

The Macromall Shopping Centre, in Brasov, Romania has been hit hard by severe economic conditions in the Romanian economy as a whole. Income has dropped approximately 80% due to increased voids, poor rent payment, and rental rebates or rent-free periods granted to tenants in financial difficulty. This property is also being marketed for sale together with the core development land sites in Romania.

*Note that as at 31 Dec 10 the €60.9 million debt includes a €1 million short-term overdraft facility. In addition to the stated loan amounts, there is debt to our joint venture partner of €4.4 million, and a two year zero coupon swap of €1.4 million p.a. with the option to extend for another two years. Potential total indebtedness assuming fully drawn loan facilities and maximum swap term is €70.9 million.

Galleria Riga Shopping Centre in downtown Riga, Latvia opened in October 2010. The newly built centre comprises six floors of retail, a restaurant floor and a roof terrace with restaurants and an ice rink. Anchor tenants include Rimi, NS King, Pizza Italia, and Future Invest.

The centre opened with 72% of floor space let of which 40% was trading. By March 2011 the leasing had achieved 74% occupancy, of which 55% was trading and a further 19% signed but not yet open. An additional 1% was under offer.

The achieved NOI to date has been significantly below forecasts due to a combination of vacancy (leading to shortfalls on running and marketing costs) and achieved rents and retailer turnover being below forecasts. The NOI is forecast to increase in the second year of operation as turnover only rents convert to minimum base rents and occupancy continues to grow.

The centre's tenant mix needs improvement by major fashion retailers offering affordable products. Prior to opening, the retailers' strategy was observe the trading performance first or demand substantial landlord contributions upfront. Since opening, there has been further interest from some international brands and discussions are progressing.

The Riga property is not consolidated in the year end results as the owning company is a joint venture partnership and Carpathian PLC does not have majority management control.

* 31 Dec 2009 valuation (€'000): €75,000

** The property was moved to the core portfolio from 1 April 2011.

** The property was moved to the core portfolio from 1 April 2011.

In 2010, the non-core assets were reduced considerably due to derecognition of the Plaza portfolio and the Antana Logistics Park. Remaining among the non-core assets are the MID portfolio - consisting of two centres in Czech Republic and two in Hungary - and the Babilonas Centre in Lithuania.

All these properties have full cash sweeps in place to repay the outstanding loans to the financing banks. The properties' cash flows are covering direct management costs but not contributing to the net operating income of the Company.

Among the non-core assets, the top 10 tenants pay €5.2 million, or 73% of the total rent, while the remaining 27% is paid by 152 tenants with combined gross rental income of €2 million per annum.

The MID properties in Czech Republic and Hungary experienced an NOI increase of 3.5% to €4.8 million per annum. Otherwise, no material changes occurred in 2010, although in Hungary there is still pressure from tenants to grant rent reductions.

Babilonas centre in Lithuania improved noticeably in 2010. New centre management helped increase rent collection significantly from 82% in 2009 to 96% in 2010. A number of tenants were granted temporary rent concessions and turnover top-ups in return for settling their arrears. The majority of these concessions are due to expire in 2011, the tenant's rent affordability has improved which makes it unlikely that the rebates will be extended.

A new tenant, New Yorker took over a 960 sqm retail unit in October 2010 and has been trading very well since its opening. This in turn is helping to bring in tenants for the remaining vacant space. The goal of stabilising NOI has been achieved and an increase of 5% to 10% in 2011 is attainable.

Footfall at the centre was down by 4% from 2009, but is up 35% from 2008 and 46% from 2007.

Valuation of the centre has increased 11% from €22.5 million to €25 million, reflecting an increased NOI expectation in 2011 due to expiring rent rebates and decreasing vacancy. The centre has been reclassified from a non-core to a core asset from 1 April 2011 based on the improvement of overall performance in 2011 and the pre-agreed debt repayments amounting to €3 million to be made from the sales proceeds of the Blue Knight portfolio and Promenada Shopping Centre as described above.

The Antana Logistics Park was de-recognised in June 2010 and is no longer included in the financial results.

Carried interest

CPT LLP, the Company's Property Investment Adviser, is entitled to a sales fee of 0.5% of the gross property sale value (including debt but as reduced by certain retentions and warranty claims) for each asset within the core portfolio that is sold, rising to a maximum of 1.0% if no other brokers or agents are engaged on the sale. The sales fee is conditional on equity value being released for the benefit of the Company as part of any disposal and cash received on disposals being made available for distribution to shareholders. Additionally, any payment of the sales fee is pro rata to cash available for return to shareholders arising from the sale on a 50:50 basis until the entire sales fee has been paid in full. If the Portfolio Management Agreement is terminated on a takeover, a fixed fee of €0.7 million will become payable in lieu of any further sales fees. In the event that the core properties are disposed of at their values included in the Statement of Financial Position at 31 December 2010 without any material tax becoming payable, the total sales fee payable is estimated to be €1.3 million.

CPT LLP is also entitled to receive a capital performance payment, based upon actual cash available for return to shareholders. CPT LLP will receive 10% of any return above a distribution available to shareholders in excess of a 17.25 euro cents per share hurdle and 25% of any returns available to shareholders above a 34.5 euro cents per share hurdle. However, to avoid the capital performance payment reducing the 34.5 euro cents per share hurdle below this level following payment, the effective hurdle is set at 36.4 euro cents per share in order to accommodate any capital performance payment. Such capital performance payment shall be payable in cash but accumulated and deferred until the earlier of (i) the completion of the sale of the core portfolio and (ii) the termination of the Portfolio Management Agreement. In the event that the core properties are disposed of at their values included in the Statement of Financial Position at 31 December 2010 without any material tax becoming payable, the total capital performance payment payable is estimated to be €8.0 million.

Please note that the above fees are estimates and their final value could be lower or higher depending on the outcome of future events.

Paul Rogers

Managing Partner

CPT LLP

10 May 2011

Report of the Independent Auditors, KPMG Audit LLC

to the members of Carpathian plc

We have audited the financial statements of Carpathian plc for the year ended 31 December 2010 which comprise the Group and Company Statements of Comprehensive Income, the Group and Company Statements of Financial Position, the Group and Company Statements of Cash Flows and the Group and Company Statements of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs).

This report is made solely to the Company's members, as a body. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and Auditor

As explained more fully in the Directors' Responsibilities Statement set out on page 14, the Directors are responsible for the preparation of financial statements that give a true and fair view. Our responsibility is to audit, and express an opinion on, the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements.

Opinion on the financial statements

In our opinion the financial statements:

·; give a true and fair view of the state of the Group's and Parent Company's affairs as at 31 December 2010 and of the Group's profit for the year then ended; and

·; have been properly prepared in accordance with IFRSs.

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street

Douglas

Isle of Man IM99 1HN

10 May 2011

ABBREVIATED Notes to the financial statements

1 General information

Carpathian PLC (the "Company") is a company domiciled and incorporated in the Isle of Man on 2 June 2005 for the purpose of investing in the retail property market in Central and Eastern Europe. On 24 July 2009 the Company re-registered as a company governed by the Isle of Man Companies Act 2006 and redenominated the par value of it's ordinary shares from pounds Sterling 0.01 to Euro 0.01.

The consolidated financial statements include the share capital of the Company denominated in Euro. As from 24 July 2009 the share capital was converted from pounds Sterling, based on the exchange rate prevailing on that date.

The Company's registered address is IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP.

The Company was admitted to the AIM of the London Stock Exchange and commenced trading its shares on 26 July 2005. The Company raised approximately £140 million at listing and a further £100 million in May 2007 (before admission costs).

2 Significant accounting policies

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS's") and its interpretations adopted by the International Accounting Standards Board ("IASB"). Details of the accounting policies adopted by the Group can be found in the financial statements.

Basis of preparation

The functional currency of the consolidated financial statements is the Euro as it is the currency of the primary economic environment in which the Group operates.

The Group applies revised IAS1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas non-owner changes in equity are presented in the consolidated statement of comprehensive income.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets including the revaluation of investment property and financial instruments. The accounting policies have been consistently applied to the results, gains and losses, assets, liabilities and cash flows of all entities included in the consolidated financial statements.

The preparation of financial statements in conformity with IFRS requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. These estimates and associated assumptions are based on historical experience and various other factors which are believed to be reasonable under the circumstances, and are reviewed on an ongoing basis; they may have a significant impact on the financial statements, and actual results may differ from these estimates. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision effects both current and future years.

The activities of Group are subject to a number of risk factors. The global financial crisis and the deteriorating economic environment in the jurisdictions within which the Group operates have increased the intensity of these risk factors. The Directors, who are advised by professionally qualified external valuers, consider that the future economic outlook presents specific challenges, in terms of the significant reduction in the volume of property transactions in the jurisdictions within which the Group operates, the significant reduction in the availability of loan finance for property transactions in those jurisdictions, enhanced risk of tenant default and the consequent impact on the valuations of the properties held by the Group.

The financial statements have been prepared on a going concern basis, taking into consideration the level of cash and cash equivalents presently held by the Company. The Directors therefore have a reasonable expectation that the Company will have adequate resources for its continuing operational existence for the foreseeable future, and for these reasons, continue to adopt the going concern basis in preparing the 2010 financial statements.

3 Operating segments

The Group has three reportable segments, as described below, which are the Groups business units. The business units are managed separately because they represent the varying strategic objectives of the Group. For each of these strategic business units the Board reviews internal management accounts on at least a quarterly basis.

The Fund segment comprises the holding companies in Isle of Man and Luxembourg.

Core assets are those which are considered to retain significant enduring equity value, to protect on a prudent basis. All other assets are classified as non-core.