Last checked at 29 Jun 2007 07:01
Fabian Romania Property Fund Ltd29 June 2007 29 June 2007 Fabian Romania Property Fund Limited (FAB.LN) Final results for the year ended 31 December 2006 Fabian Romania Property Fund Limited ("Fabian", "Fabian Romania" or the "Company"), the AIM quoted dedicated Romanian real estate investor announces its results for the year ended 31 December 2006. Highlights • Executed four investments, committing a total of €35.6 million. TheCompany's share of the market valuations of these investments (before deferredincome tax liabilities) was €46.7 million at 31 December 2006, before deductingthe outstanding non-recourse bank financing of €18.6 million • Raised €40 million and admitted to AIM in December 2006 as the onlyinvestment fund quoted on AIM dedicated solely to the Romanian real estatesector • As of 31 December 2006, after taking into account the net proceeds ofthe fundraising of €38.1 million, the Net Asset Value ("NAV") per share of theCompany as determined in accordance with its Articles of Association was €1.356(at 31 December 2005: €0.996 ) an increase of 36 per cent. over the year • An additional amount of €34.9 million has been committed to five newprojects in April and June 2007, resulting in total capital commitments of €70.5million to nine investments, with approximately 73,000 square metres ("sqm") oflettable office space in Bucharest secured together with over 885 residentialapartments Jaroslav Kinach, Chairman of the Company, commented: "These results, coupled with the quality of Fabian's projects, reflect anoutstanding year and demonstrate the Company's ability to create value for itsshareholders. I am confident of further progress in the year ahead." Mark Holdsworth, Managing Director of Fabian Capital Limited, the Company'sinvestment manager commented: "With total capital commitments of over €70 million across nine investments asof the end of June 2007, Fabian Romania has become a well regarded investor inthe Bucharest real estate market. This has opened up interesting opportunitiesfor the Company, in a range of real estate sectors and regions across Romania." Contacts: Fabian Romania Property Fund LimitedJaroslav Kinach Tel: +44 20 7499 9988 Fabian Capital LimitedMark Holdsworth Tel: +44 20 7499 9988 Shore Capital - Broker to FabianDru Danford Tel: +44 20 7408 4090 Deloitte Corporate Finance - Nominated Adviser to FabianJonathan Hinton Tel: +44 20 7936 3000 Notes to Editors Fabian Romania Property Fund Limited is an experienced and well-known investorin the Bucharest and wider Romanian real estate market and is quoted on AIM.Fabian seeks to generate attractive total returns for its shareholders through aportfolio of income producing buildings, co-development projects withexperienced partners and land investments. Fabian receives investment advicefrom Fabian Capital Limited (the "Investment Manager"), an independentinvestment management firm that specialises in Romanian real estate investmentsadvice. (Fabian Capital does not carry out any regulated activities in the UK.) Milestones • Summer 2005 - Fabian raises €21.2 million capital • December 2005 - Banu Antonache building purchased unlet for €12.3million, fully let in August 2006 with an implied yield of 9.2 per cent. • April 2006 - Cascades building purchased for €12.2 million at a yieldof 8.4 per cent. • July 2006 - New Town residential development co-investment with Mivanfor over 635 apartments entered into for €5.75 million • September 2006 - €5.3 million committed to land purchase within ajoint venture for 23,000 square metres ("sqm") Lakeview office development withAIG/Lincoln • December 2006 -Fundraising of €40 million (before expenses) raised at€1.35 per share and Admission to AIM • April 2007 - Cubic Centre forward purchase of 26,000 sqm officebuilding agreed and €12.25 million committed subject to certain conditions • June 2007 - Evocenter building acquired for €4.9 million with 50 percent. of the space let and an estimated yield of 9 per cent. • June 2007 - Dacia Boulevard turnkey office development acquired for €8million • June 2007 - Baneasa Business Centre office building purchased for€23.9 million at an implied yield of 7.7 per cent. and €11.7 million committedprior to refinancing • June 2007 - 50 per cent. interest in a €4.7 million residentialdevelopment site in Timisoara to build around 250 apartments over 30,000 sqmwith Coltex Chairman's Statement It gives me great pleasure to present the first set of annual results for FabianRomania since AIM admission. Fabian has demonstrated an impressive performance during its first full year ofoperation. Over the past 12 months, the Company has established itself as anexperienced and well known investor in the Romanian real estate market. Fabian Romania's total investments as of 31 December 2006 amounted to €35.6million in four projects, namely two fully let office investments, BanuAntonache and Cascades, and two joint ventures, the New Town residentialdevelopment and the Lakeview office development. The valuation of theseinvestments increased to €46.7 million before considering the gearing benefitsto equity resulting from the €18.6 million of bank debt refinancing completedduring the period. The published end of year NAV per share was €1.356 (at 31 December 2005: €0.996)and under IFRS was €1.189 (at 31 December 2005: €0.955), as expected somewhatlower than the first figure due to certain differences in the treatment ofdeferred tax and the way in which NAV is calculated for the purpose of theCompany's Articles of Association. The investment of the proceeds of the Company's €40 million fundraising inDecember 2006 is well under way with an additional €34.9 million committed tothe five new projects announced since 31 December 2006. The above results coupled with the quality of Fabian's projects reflect anoutstanding year and demonstrate the Investment Manager's ability to help theCompany create value for its shareholders and maintain a high-profile positionwithin the Romanian real estate sector. The Company is delivering on its statedstrategy assisted by Romania's accession to the EU from 1 January 2007 and theresulting favourable EU convergence trends and compelling supply/demanddynamics. With significant progress on the exciting investment pipeline, I am confidentthat Fabian Romania will continue its high level of investment activity andsuccess rate during 2007, while in parallel progressing the asset management anddevelopment of the existing projects, seeking to create significant value forshareholders. Jaroslav KinachChairmanFabian Romania Property Fund Limited Investment Manager's Report to Fabian Romania To the shareholders of Fabian Romania, In 2006, Fabian Romania had a good year to achieve a gain in net asset value pershare of 36 per cent. or €9.7 million. We believe the encouraging progress inthis first full year augurs well for continuing the growth in shareholders'funds. My aim in writing this report is to give you both the information you need toestimate Fabian Romania's value and the detail behind the front line numbers. After a period of intensive due diligence on a wide variety of potentialinvestments in the second half of 2005, we began January 2006 having purchasedone office building and contracted to purchase a second. 2006 has been a year ofintensive activity in due diligence, acquisitions, negotiating leasingcontracts, securing excellent property managers and financing. We completed theacquisition of Cascades, leased out Banu Antonache, secured debt financingpackages for both Cascades and Banu Antonache, entered into a residential jointventure with Mivan Limited and purchased a land plot alongside AIG/Lincoln forthe development of a Class A office building. In September, we started theprocess to raise further funds in conjunction with an AIM listing. Admission toAIM became effective on 15 December, when approximately €40 million was raisedbefore expenses. By the end of the year, Fabian Romania owned a total of 9,500sqm of fully let office space, a fifty per cent. share in a 23,000 sqm netlettable office development project and a 50 per cent. stake in a 76,000 sqmresidential development. Before we set out in detail the Company's investment activities, we provide abrief review of Romania's political and economic developments over the year. EU Accession The most momentous event in Romania since the collapse of the Communist regimein 1990 was its accession to the EU which occurred just after the year end on 1January 2007. Throughout 2006, the President, Trian Basescu and Prime Minister,Calin Tariceanu, worked tirelessly to meet the EU's final acquis communitairewhich they did towards the year-end. Economically, accession is important as itwill release substantial structural assistance funds along with financialsupport for the agricultural sector. According to ING Bank estimates, in 2007,excluding agriculture, structural assistance funds are expected to amount to 1.5per cent. of GDP rising to 2.0 per cent. in 2008. Cumulatively, some €17.3billion is expected to come to Romania between 2007-2013 ex agriculture. Moreimportantly still and as was the case with Poland, EU funds and know-how willprovide the impetus behind the construction of the country's first nationalmotorway network and other infrastructure projects. If like us, shareholdershave had to travel around the country on the existing dilapidated A roads, theywill know how important the motorway network promises to be for both individualsand businesses. The Economy Romania continued to prosper during 2006 on the back of a strong consumptionboom, investment growth and exports. GDP grew by 7.7 per cent. making it one ofthe fastest growing economies in Europe. High real interest rates and astrengthening currency against the Euro drove down inflation from 8.6 per cent.at year end 2005 to 4.9 per cent. on 31 December 2006. The average for the yearcame in at 6.6 per cent.. On the back of falling inflation, domestic interestrates fell to 8.75 per cent. by the year end. The fiscal deficit has remainedwell within the Maastricht criteria at -1.7 per cent. of GDP. The onlyindicator not in the robustly healthy category was the current account deficitwhich increased to 10.3 per cent. of GDP from 8.6 per cent. in 2005. Though acause for concern, the deficit is funded mostly by high levels of foreign directinvestment (FDI). During the year, FDI amounted to €11.5bn, an increase of 80per cent. over 2005. The current account plus FDI as a percentage of GDP stoodat just -0.9 per cent. of GDP during the year. Of particular note for theproperty market, real wages grew by an impressive 27 per cent. which isparticularly good news for retailers and vendors of residential apartments.Domestic currency mortgages fell in line with falling interest rates. The Property Market The office sub sector of the Romanian property market remained as the main focusof our and other investors' interest during 2006. Trends observed during 2005continued into 2006. Yields for prime office buildings started the year ataround 8.00 per cent. and finished the year at 7.5 per cent. according toproperty agents DTZ. The market remained a sellers' one as institutionalinvestors continued to chase prices higher taking advantage of the large gapbetween yields and Euro interest rates. The importance of this 'yield gap' cannot be understated when looking at aproperty market. We have calculated that, at the start of the year, three monthsEuribor interest rates plus the country spread stood at around 4.75 per cent.giving a margin of 325 basis points between the cost of debt and property yieldsat 8.0 per cent.. By the year end as interest rates rose and yields contracted,we estimate this margin to have fallen to 200 basis points According to statistics from DTZ, some 180,000 sqm of new Class A office spacewere added to the market during the year. This was up from the 130,000 sqmdelivered in 2005. Although this might appear a large jump, Bucharest's totalamount of Class A space stood at 750,000 sqm at 31 December, which is half theamount existing in Prague and Budapest and one third of the amount in Warsaw.Increased confidence on the part of domestic companies plus continued stronginvestment from foreign multinationals saw nearly all of the increased spacetaken up. Vacancy rates at the year end continued to remain sub 3 per cent..This has underpinned rents which remained at €16-19 per sqm per calendar month("sqm/month") although the Company managed to achieve rents of €21 sqm/monthwhen leasing out the Banu Antonache building in June. New office developments continued to be announced by developers during the year,particularly in the Pipera district of North East Bucharest. Here, plans tend tobe for back office buildings to reflect the slightly out of town nature of thearea as well as growing demand from multinationals for large back office floorplates. The lack of good city centre and central north sites has held backdevelopments of true A class schemes though a number are planned. Local agentsestimate that as few as 50 per cent. of all office schemes announced actuallymove through the permitting phase to construction. Whilst the volume of newoffice space delivered onto the market will rise in 2007, the difficultiesdevelopers face in navigating the Byzantine planning system along with issues ontitle will continue to act as a barrier to entry for many developers. In retail, 2006 saw the announcement of a large number of retail shoppingcentres and hypermarkets to be developed both in Bucharest and the regionalcities. During the year, only two modern shopping centres continued to serve apopulation of two million. By year end, a further six schemes had been announcedfor the capital. In the regions, only three shopping centres serve a populationof twenty million. Soaring retail sales on the back of strong growth in realincomes has fuelled the demand for retail space by both food retailers, banksand non food retailers. This in turn is driving rents for both the limitednumber of high street sites and shopping centre space. Shopping centres comingup for leasing along with gallery space in hypermarkets are all being fullyleased prior to practical completion. Due to the very limited number of finished shopping centres, there were very fewinvestment transactions during the year meaning yields for retail transactionsare hard to ascertain. However, they appeared to have fallen to around 7.25 percent. by the year end. In the offering memorandum in May 2005, the directors of the Company forecastthat Bucharest would see the emergence of a strong and increasingly affluentmiddle class who wanted to move out of their communist era apartments into newbuild. Coming on the back of legislation in 2003 enabling banks to offermortgages, further banking privatization and rising Euro and local currencyinterest rates, 2006 was a strong year for the residential sector. Developersmoved to address the demand by announcing a number of residential schemes aimedat the emerging middle class. Apartment sizes will generally be around 100 sqmselling for between €1,050 per sqm at the low end to €2,000 per sqm at the highend. The shortage of new build available in the market has driven up prices forcommunist era apartments to around €600-800 per sqm by the year end. Investment Strategy The investment strategy of the Company is to purchase both income producingoffice buildings and retail freeholds as well as to seek further co-investmentprojects in the office, retail and residential sub-sectors of the market. Todate the Company has focussed on investments in the Bucharest area, howevergiven the fast moving nature of emerging property markets, it is the InvestmentManager's view that the Company should remain dynamic in both anticipating andreacting to new profit opportunities wherever they might arise in Romania. The ethos of the Investment Manager is focussed on absolute returns, theInvestment Manager will not advise the Company to engage in projects simply toinvest available cash. The Company should only purchase buildings ordevelopment projects where the forecast returns on shareholders' equity to bedeployed in the project match high return on equity and internal rate of returnhurdles. The directors of the Investment Manager have made significant personalinvestments in the Company in support of their belief in its investmentstrategy. We only recommend to the board of the Company transactions where theaim is to make acceptably attractive returns. Acquisitions Pursuant to this strategy, the Company made three acquisitions in Bucharestduring the year. The Cascades office building on Buzesti Street which had beenpresented to investors as a pipeline project at the time of the firstfundraising in 2005 was purchased in April. A 50 per cent. stake alongside Mivanwas acquired in the New Town residential project in East Bucharest and another50 per cent. interest in the Lake View office development in North Bucharest waspurchased alongside AIG/Lincoln. Since the Company's admission to AIM inDecember 2006 and post the year end, the Company has also entered intoagreements to forward purchase the Cubic centre office building in the Piperadistrict of Bucharest, purchase both the Baneasa and the Evocentre officebuildings in North Bucharest. The Company has also entered into agreement toacquire a plot of land in central Bucharest for a turn-key office building and a50 per cent stake in a plot in the City of Timisoara in Western Romania forresidential development. Cascades The Company signed a share purchase agreement to purchase the Cascades officebuilding in November 2005. This was after a series of long drawn outnegotiations with the vendor that stretched back to March 2005. The transactionwas successfully closed in April 2006. The price paid by the fund was €12.2million, giving a headline yield of 8.7 per cent.. Cascades is a high quality office building in a prime location. It was completedin October 2004 and comprises around 4,300 sqm of lettable space with 24underground car parking spaces. The building is fully let to an excellent set oftenants, namely Pro Credit Bank (backed by the IFC and the German Government),Aviva PLC, SC Rompetrol, HBO Romania and the Taiwan Trade Delegation. It islocated just off Victoria Square in the heart of the City's new central businessdistrict. The purchase was initially funded 100 per cent. by the fund's equity. In July2006, we drew down €9.6 million of debt to reduce the fund's equity to €2.6million and since then, the investment has performed well. As at 31 December,the building was valued at €13.8 million based on a yield of 7.4 per cent. Afterthe deduction of debt and other liabilities of €9.5 million, the resultantequity was valued at €4.3 million or 65 per cent. up from the level in July. When the Company originally negotiated the share purchase agreement in November2005, Buzesti Street was very much the emerging business district of the city.As the city has continued to expand to the north since 2005, Buzesti Street'srelative location in the city has correspondingly continued to rise inprominence. We expect Cascades to continue to perform well in 2007. New Town As with the Cascades acquisition, it took us some considerable time to finalisethe purchase of a stake in the New Town residential project. We had initiallyagreed terms with Mivan back in October 2005. We were therefore very pleasedwhen agreement was finally reached in July 2006 to take a 50 per cent. stake inMivan's residential scheme in east Bucharest. The Company paid €5.75 million for 50 per cent. of the development. Mivan arethe joint venture partner in the project as well as the development manager ofthe scheme through their local subsidiary, Ropotamo SRL. The development willinvolve the construction of over 635 residential apartments over two phases. Theplot is 22,000 sqm in size situated close to a nearby metro station. Theapartments will be in the region of 100 sqm per unit and are targeted at middleincome families. Mivan are a UK developer based in County Antrim. They have been involved inRomania since 2000, when they initiated a construction joint venture with Kier.Previously, they have undertaken a number of developments across emergingmarkets including the construction of over 100,000 apartments in Hong Kong andMalaysia. As well as developing the New Town scheme, they are also developing anumber of shopping centres across Romania. Participation in the New Town scheme has given the Company exposure to the fastgrowing residential market. As the directors of the Company have written in boththe original offering memorandum and the AIM admission document, we believe thatexposure to the emerging Romanian middle class, through the housing market, isin the Company's interests. General economic growth and rising personaldisposable incomes should lead to upwards pressure on sale prices per squaremetre given the limited supply of new residential developments focused on middleincome Romanians. At year end, we are pleased to report that our 50 per cent. stake in the schemewas valued at €9.95 representing a €4.2 million or 73 per cent. gain on theinitial investment. Since the year end, final negotiations are nearingcompletion on the construction contract. Once this has been signed, the firstapartments for sale will be released onto the market. Full building consent hasbeen granted and ground work has nearly finished with some €5 million spent onsite to date. The first tranche of the loan with HVB has now been drawn down.Selling prices have risen significantly since acquisition and although buildcosts have also risen, margins are expected to be in line with initial ourexpectations. We see residential construction projects as a useful hedge againstfuture construction cost inflation as rising wages are also reflected in higherconsumer spending. Lake View In September, the Company acquired its first office co-development project inBucharest. The Company purchased a 50 per cent. stake in the company which ownsa 5,048 sqm land plot in central north Bucharest. Initially, the Company wasable to secure exclusivity over the plot which gave us the time to find adevelopment partner for the Company. After a small tender was conducted with theexcellent assistance of DTZ, we chose AIG/Lincoln to partner the Company in theacquisition. AIG/Lincoln is the European real estate development arm of thejoint venture between AIG and Lincoln Properties, both of the United States. The development will involve the construction of a Class A office building of26,000 sqm gross built area above ground. AIG/Lincoln will act as developer onthe project. The Company signed joint venture, development and constructionmanagement agreements with AIG/Lincoln to this effect. The site came withoutline planning consent (PUZ) but required detailed planning (PUD) andconstruction consents from local planners. The Company invested €5.3 million for a 50 per cent. stake in the developmentcompany, BVB SRL through the Luxemburg based joint venture company, AIG/LincolnLakeview. Since the acquisition, we have been pleased with the progress of theNew Town project. As of 31 December 2006, the Company's stake in the scheme wasvalued at €8.3 million representing a gain of €3.0 million or 56 per cent. onthe purchase price. The purchase of the Lake View site is in line with the Company's strategy ofseeking to enhance returns by co-investing in development projects. As with theNew Town acquisition, the Company mitigates risks by partnering with experienceddevelopment partners in high quality sites. All specifications, budgets andproperty related advisors require the unanimous consent of both partners as doall subsequent changes. Throughout the year and into 2007, the office rentalmarket has remained extremely tight. Vacancy rates remain below 3 per cent. andfor Class A space are practically zero. At the end of the year, the total stockof Class A space was 750,000 sqm according to DTZ which remains under half thecomparable level of both Prague and Budapest. Since the year end, AIG/Lincoln has continued to drive forward the development.The PUD has been achieved and the application for building consent is in theprocess of being lodged with the city authorities. This consent is expectedover the summer with building work forecast to commence soon after. In order topre-let the building, Colliers have been appointed to exclusively represent thejoint venture and a number of tenants have been contacted with a view topre-lets. The building is expected to be delivered in the third quarter of 2009.Many thanks are due to the excellent AIG/Lincoln team and in particular, to SvenLemmes and Lance Bosman. Banu Antonache The Company had acquired Banu Antonache in December 2005 from the developer withjust one tenant in place. We took the view at the time that with vacancy ratesin the market so low, Fabian should purchase the building taking on board therental risk. The downside to this strategy was that if the rents that would beachieved failed to meet expectations (set at €17 sqm/month worst case) then theacquisition would have turned out to have been rather expensive. We did not viewthis as likely at the time because of the continuing shortage of Class A officespace in the city. During the year, we successfully rented out the building to a selection ofmultinational tenants including Garanti Bank from Turkey, General Motors andAmway from the U.S. DTZ from the UK, Summa and BNP Paribas from France. As withCascades, all leases are set in Euros, indexed to Eurozone CPI and are set forfive years. In addition, Trend bar signed for the restaurant space on the Groundfloor on a ten year lease. Rents achieved for an individual floor have ranged from the €18 sqm/month,achieved by the developer, to €19 sqm/month achieved since January 2006. In July2006, we decided to split in two the last floor to be let, thereby reducing thelettable area per tenant from approximately 800 sqm to 400 sqm. As a result, weachieved rents of €21 sqm/month for the fourth floor. These rents combined witha rent of €23 sqm/month achieved for the restaurant space mean that the initialpurchase yield was a very pleasing 9.3 per cent.. Throughout the lettingprocess, we dealt with all the major property agents in the market and built upsome considerable experience ourselves as to how the whole office leasing marketactually functions in Bucharest. During the current year, this experience hasbeen very valuable to us as we seek to advise the Company on furtheracquisitions. At the year end, the building was valued by DTZ at €14.6 million, a rise of 19per cent. over the headline purchase price, ex acquisition costs. Aftersubtracting the outstanding debt from a €9.1 million facility drawn down fromInvestkredit Bank, the net asset value for Banu Antonache stood at €5.5 million.This represents a 83 per cent. return on the original equity invested, post debtdrawdown, of €3.0 million. Since the year end, Banu Antonache continues toperform in line with expectations. Net Asset Value In NAV terms, the gain over the year per share amounted to a very satisfactory€0.360 per share over the company's 31 December 2005 NAV per share of €0.9962,equating to a gain of 36 per cent.. The published NAV per share of €1.356 was calculated as at 31 December 2006according to the Company's Articles of Association and the results aresummarised below. 31 Dec'06 31 Dec'06 31 Dec'06 31 Dec'05 Initial Cost of Market Value Bank (debt) Net worth Net worth investment •m •m •m •m •mCascades 12.2 13.8 (9.5) 4.3Banu 12.3 14.6 (9.1) 5.5 12.5New Town (50 per cent.) 5.75 9.95 10.00Lakeview (50 per cent.) 5.3 8.3 8.3Cash 42.2 8.3Other assets/(liabilities) ** (3.1) (0.9)Deferred tax added back 1.8 1.2Sub-total 35.6 46.7 (18.6) 68.9 21.1Shares (#) 50,831,130 212,015NAVPS (•) * 1.356 0.996Growth in 2006 36 % * 2005 comparator adjusted for 100:1 share split in conjunction with admission to AIM** 2005 figure adjusted for rounding However, the reported NAV per share figures do not truly reflect the Company'sactual pace of growth due to the timing of the successful AIM fundraising of €40million at €1.35 per share in December 2006 which effectively diluted the upliftafter placing costs of €1.9 million. As at 31 December 2006, the €35.6 millionalready invested created a total NAV of €46.7 million. After adjusting for the€18.6 million bank debt refinancing and excluding the proceeds from the Decemberfundraising, the NAV per share is approximately €1.455, corresponding to anuplift of over 46 per cent. in the year. Cubic, Baneasa, Romana, Evocentre and Timisoara Following the year end, the Investment Manager has moved fast to assist theCompany in investing the proceeds from its fund-raising in December. Fivetransactions have been entered into and remain subject to final closing. The Cubic Centre will be a Class A office building with a gross area ofapproximately 44,000 square metres, located in north Bucharest. The building isbeing developed by Kendama, an experienced local developer in Romania.Construction has commenced and completion is anticipated in the second quarterof 2009. Upon completion of construction, the building will provide a netlettable office area of 26,000 sqm over 12 floors, together with 533 car spaces.The building is located in a prominent location in the Pipera district and islikely to attract international tenants seeking Class A office space. TheCompany will pay a first instalment of €12.25 million, of which €5 million hasalready been paid in the form of a secured loan. At practical completion of thebuilding by the developer, the Company will pay the final instalment based upona forward purchase yield of 7.4 per cent. - 7.8 per cent. applied to rentsachieved. Based upon current rental estimates, the total value of thetransaction is estimated to be approximately of €60 million. The total equityrequirement for the Company is estimated to be €12 million. The Company has entered into an agreement to purchase the Baneasa Centre officebuilding from Immoconsult Leasinggesellschaft m.b.H, with a transaction value of€23.9 million. Once refinanced, Fabian Romania's net equity investment will be€5 million. The annual rental income is approximately €1.85 million per annum.The building provides 9,600 sqm of lettable space and is fully let to fourteeninternational tenants, including Wrigley, Colgate, Fresenius, Cargill andVolksbank. There are a variety of reversionary leases at rents between €12 persqm to €16 per sqm. Overground and underground parking facilities provide for132 vehicles. Concurrent with signing the acquisition Fabian Romania hasconcluded debt financing with the vendor's parent company Investkredit Bank, viaa debt facility amounting to 80 per cent of the building's acquisition cost. The Romana office project is a turnkey agreement with Hil Construct for FabianRomania to purchase its sixth office project in central Bucharest for aprospective purchase yield of 8.9 per cent. Completion is conditional on theattainment of the final building permit which is currently expected at the endof August 2007. The Romana office building will be built for Fabian Romania on acentrally located site on Dacia Boulevard. The building will be built to Class Aspecifications with a gross area of approximately 3,000 sqm. The projectmanagement will be undertaken by Globus, an experienced local developer inRomania. Construction is due to commence in the fourth quarter 2007 withcompletion anticipated in the third quarter of 2009. Upon completion, thebuilding will provide a net lettable office area of around 2,480 sqm over 7floors, together with 40 car parking spaces. The building is in a prominentposition with views over Plaza Romana and is likely to attract internationaltenants seeking Class A office space. The Company will pay the purchase price of€7.6 million to Hil in 3 instalments; a first instalment of €2.0 million will bemade for the company to acquire ownership of the land; a second instalment forconstruction costs of approximately €3.0 million; and a final payment uponpractical completion of €2.6 million in the form of a bank guarantee. Includingnon developer related costs, the total purchase price is forecast to be €8.0million. Fabian Romania's equity requirement is expected to be €2 million withdebt finance to fund the balance. The Company has also has reached agreement to purchase the Evocenter officebuilding in the Pipera / Voluntari district of Bucharest for a forecast yield of9 per cent. The Company had initially proposed to purchase the building empty,thereby taking the letting risk. However, during the due diligence process, theAdama Group from Israel, the developer, signed a lease taking half of theavailable space. The building will be completed in summer 2007 to a Class Astandard and comprises 3,000 sqm of net lettable area, 18 covered car parkingspaces and ancillary parking close by. The Company will meet the considerationof €4.9 million from its own resources. Debt drawdown is anticipated to beduring the third quarter 2007 which will reduce the ongoing equity requirementto around €1 million. At the end of June, the Company entered into an agreement to purchase a 50 percent. interest in a residential development site to build 250 apartments inTimisoara for €4.7 million. The acquisition will be structured through adevelopment company owning a 1.1 hectare site in north Timisoara. The equityconsideration amounts to approximately €1 million. The land has urban zoningapproval to build over 250 apartments (subject to building permits) comprisingover 30,000 sqm of residential development space. Coltex, the co-shareholderholding the other 50 per cent. interest, has entered into a partnershipagreement with Fabian. Coltex will also be the development manager and has aknown track record, having developed and sold the successful Banu Antonachebuilding to the Company in late 2005. Timisoara is Romania's third largest citywith a population of over 300,000 and is located in the West close to theHungarian border. The Investment Manager believes the city has attractivecharacteristics for supply of modern residential apartments. The purchase pricefor the land including acquisition expenses was €4.7 million. This equates toaround €427 per square metre for the land and €157 per built square metreoverground, assuming 30,000 sqm. The development company has already secured andfully drawdown on a land finance facility from Banca Romaneasca for €3.6million. Including near term working capital needs, this leaves an initial netequity requirement of approximately €1 million for Fabian. Future Valuation This report should make it easier for shareholders and prospective shareholdersto value Fabian Romania. As a company that purchases both fully let buildingsand takes development risk through co-investment development projects, theCompany is set to earn enhanced returns over and above those achieved by otherEastern European property companies that purely buy income producing buildings.The Company's valuers, DTZ, acting through the Red Book methodology of the RoyalInstitute of Chartered Surveyors, exclude future development profits whencalculating the Company's net asset value. It is for both the readers of thisreport and shareholders to decide the valuation of the Company on the AIM marketand specifically, what amount of the net present value of those futuredevelopment profits should be included in today's share price. We have set out some key financial numbers below on the Company's incomeproducing buildings owned at the year end. Investors will be able to calculatethe value of these buildings by applying their own yield calculations to the netoperating income of Banu Antonache and Cascades. The following table sets outkey operating data for Banu Antonache and Cascades as at 31 March 2007 for thepresent year. Investments (as at 31 March 2007) Banu Antonache Cascades Independent valuation per DTZMarket valuation (•'000) 15,200 14,700Core Yield assumed ( per cent.) 7.20 per cent. 7.20 per cent.Implied NOI (•''000) 1,094 1,058 Operating statistics (annualised)Net lettable area (sqm) 4,395 4,300Gross rental revenue (•'000pa) 1,144 1,100 Office space let (sqm) 3,788 3,742Average rent (•pcm/sqm) 19.2 18.5Office rent roll (•'000pa) 871 831 Restaurant/retail rental revenue (•'000pa) 154 171Other rental revenue incl. parking (•'000pa) 119 98Vacancy space ( per cent.) 0 per cent. 0 per cent.Average lease length (years) 4.1 5.0Parking spaces (no.) 85 46 Mortgage Debt (•'000)Principal 9,056.6 9,424.9Annualised interest 550.6 568.0Principal repayments in 2007 250.1 245.3Remaining 2007 principal repayments 187.9 183.8 As soon as the construction contract is agreed for New Town and the buildingpermit is agreed for Lakeview, we shall publish our development assumptions forthe two projects. Investors will then be able to make an easier calculation ofthe value today of the two schemes' future development profits, Once theacquisitions announced since the year end have closed, we shall also bepublishing further numbers to shareholders on these acquisitions. Cost control During the year and since year end, we have continued to focus on the costs tothe Company of doing business. We always strive to negotiate firmly with serviceproviders and counterparts in order for the Company to save costs whereappropriate. A small example of this is the annual report. The first quote for aglossy report with full colour typesetting was €25,500. Given we have 66registered shareholders, this amounted to you each paying €386 per report. As ithappens, by sending the printers a simple PDF, total costs have come in at justunder €8,000. Publicity The Investment Manager believes that the access which it currently enjoys to offmarket property transactions is a critical source of competitive advantage forFabian Romania. To this end, the Investment Manager spends a lot of timecultivating contacts with the Romanian press to ensure good publicity for theCompany and that all transactions are fully written up across Romania's businessand property media. This publicity in turn leads to a growing number of directcalls from land and property vendors seeking to sell assets or conduct jointventures. Not only does the Company frequently get access to these off markettransactions before anybody else but if completed successfully, acquisition feeswith agents are saved. As I write and as an example, Fabian Romania wasmentioned ten times since 1 May in Ziarul Financiar, the Romanian equivalent ofthe Financial Times. Other activity and outlook Throughout the year to 31 December 2006 the Investment Manager looked at over100 potential investments. Many were turned down either due to legal ortechnical problems or simply because advantageous terms could not be agreed withthe vendor. Since the year end, yields have continued to fall in the office subsector and according to DTZ as this report goes to print, are expected to end2007 at around 6.25 per cent. The Investment Manager no longer regards fully letoffices at yields below 7 per cent. as attractive either on an absolute basis orrelative to the opportunities available in Romania in other sub-sectors of themarket and through co-development opportunities given the Company's focus onhigh returns on equity. This is especially the case in a rising interest rateenvironment. Given the post year end increases in Euro zone interest rates, itis hard to justify acquisitions at yields of sub 7 per cent. given the Company'shigh return on investment targets. Exciting opportunities continue to be pursued through participation in officeand residential co-investment developments and through the purchase of fully letbuildings in the retail and logistics sub sectors. In offices, the InvestmentManager believes co-investment development projects offer enhanced returnsthrough exposure to development margins, as well as providing the Company withpre-emption rights over its joint venture partner's stake, thereby securingfurther investment opportunities for the Company at a lower transaction cost.The leasing market continues to favour the developer and though visibility isdifficult, the rental market appears well supported till at least the middle of2009. Even then, Bucharest will still have substantially less Class A space thaneither Prague or Budapest in today's terms. In residential, the demand for new middle income housing is, if anything,accelerating since the year end driven by the strong growth of real incomes.Sale price inflation acts as a useful natural hedge against construction priceinflation. In addition, economic growth in the large regional cities means thatfor the first time, households and first time buyers outside Bucharest can nowafford to purchase new build apartments. The Investment Manager is looking at anumber of opportunities in the regional cities to this end as well as acontinued focus on Bucharest. In retail and logistics, yields for fully let buildings or for forward purchasesof buildings once let continue to offer attractive yields of over 7 per cent..To date, the Company has not purchased any such assets. This is in large partdue to their scarcity value, their large unit price relative to the size ofFabian Romania and legal title issues. However, the Investment Manager islooking at a number of opportunities in both of these sub-sectors. Economically, the country has continued to prosper since its accession to theEuropean Union. According to economists' forecasts, growth looks set to be above6 per cent again for the year and inflation to fall close to 4 per cent by theyear end. The Investment Manager regards the outlook for the Company, the Romanianproperty market and Romania in general as attractive for the current year. Mark HoldsworthFabian Capital Limited Finance Report on the Company In its first full year of trading, Fabian Romania has recorded strong financialresults. At the end of 2006 the Company had made investments of €35.6million onwhich it had raised bank debt of €18.9 million and held cash balances of €42.2mfrom a total of €59.3 million of net equity raised as of 31 December 2006,namely the €21.2 million raised via an initial fundraising in mid-2005 and thefurther €40.0 million in December 2006 (less €1.9 million of placing costs) onthe Company's admission to AIM. Financial Results The Company's operating revenues of €1.45 million for the year to 31 December2006 comprise both rental income from the two office properties for part of theyear (net of a partial void cost underrecovery of service charge whilst BanuAntonache was leased out). The fair value adjustments of €3.6 million relate tothe two income producing office properties. Under IFRS, the goodwill on acquisition of investment properties has been fullyimpaired as the fair value accounting adopted fully recognises the futureexpected value. Legal and professional fees include advisers' fees forassistance in relation to due diligence, acquisitions, structuring and loanfinancing. The share of loss of joint ventures relates to the Lakeview acquisition costsand is considered appropriate recognition given the remaining land paymentcommitment in 2007. In accounting terms, the net profit for the year was €1.4 million, implyingearnings per share equal to of €0.06. Based on the consolidated financial statements of the Company as at 31 December2006 prepared under IFRS, Fabian's total assets are €114.7 million (whichcomprise investment property, property, investment in joint ventures, loansreceivable, plant & equipment and current assets) and total liabilities are€54.3 million. The valuation of the Company's investment property portfolio at 31 December 2006(comprising of Banu Antonache and Cascades) was undertaken by DTZ. Thisvaluation was performed on the basis of market value. The fair market value ofthese investments as at 31 December 2006 has been valued by DTZ at €28.4million. After adjusting for bank debt of approximately €18.6 million, theFund's share of these investments represents €9.8 million versus an investmentof €5.6 million. This represents an uplift of €4.2 million or 75 per cent. ofinvested equity. The investment in joint ventures figure of €5.7 million represents the cost ofthe New Town investment through the 50 per cent. shareholding in the developmentcompany Phoenix Park SRL. Loans receivable comprise €5.4 million of shareholder loans to the AIG/LincolnLakeview Sa rL joint venture and €30.7m from Moulen Beleggingen BV ("Moulen")which are further mentioned below. Current assets are €44.4 million. This figure includes a cash balance of €42.2million. Total liabilities are €54.3 million, of which €1.8 million includes deferredincome tax liabilities, €18.6 million consists of secured bank loans, €30.7million consists of loans to Moulen (which are mentioned below) and €1.4 millioncomprises other payables. Accordingly, the accounting net assets of the Company under IFRS as at 31December 2006 were €60.4 million. The consolidated financial statements have been audited by KPMG Channel IslandsLimited who were appointed on 5 February 2007. Valuation With investments in four projects as at 31 December 2006, namely Banu Antonache,Cascades, New Town and Lakeview, Fabian has witnessed an uplift in marketvaluations since acquisition of these projects over 2006 of approximately €10.9million, driven primarily by: • significant reduction in market yields applied to the Bucharest ClassA office market to 7.4 per cent. at the year end which benefited the carryingvalue of Banu Antonache and Cascades; and • acquiring 50 per cent. stakes in JVs owning development land sites inattractive areas of Bucharest, which have benefited from land priceappreciation when revalued for lending purposes. It should also be noted that the reported deferred tax of €1.8 million isprimarily based on the current fair market value of the investment propertiesand which is only applicable to asset sales. These deferred income taxliabilities are not expected to become payable as, in the event of a propertysale, this will be effected through the sale of the shares of the relevantholding SPV and not the property itself. As such, the Investment Manager addsback the deferred tax in calculating the NAV in order to report a morerepresentative figure of the value which may be realised. The valuations for the New Town and Lakeview joint ventures have been adoptedfor NAV purposes by the Directors based upon the land values attributed withinthe loan facilities secured. These have not been applied to the IFRS accountsto ensure compliance with IFRS. Finance and Capital Structure The Company's loan to value ratio is intended to be kept high to provideenhanced total equity returns to shareholders. At the year end there were cash balances of €42.2 million benefiting from the€40.0 million gross proceeds from the share issue at the time of admission toAIM on 15 December 2006 and two bank loans from Investkredit secured on the BanuAntonache and Cascades properties with €9.1 million and €9.5 million outstandingrespectively. Since the year end, construction finance facilities have been secured anddrawndown on New Town joint venture and a finance facility secured and landfinance drawndown on Lakeview joint venture. The Investment Manager will continue to review all options for gearing up thebalance sheet, in an effort to optimise the Company's capital structure andenhance shareholder returns. The financing structure through Moulen in Holland led to loan assets of €30.7million and also loan liabilities of €30.7 million as at 31 December 2006.Since the year end these loans have been assigned to a new subsidiary of theCompany in the Netherlands, Fabian Finance BV. This removes any potentialcredit risk associated with the Company's former exposure to Moulen and will infuture remove the €30.7 million grossing up effect of the balance sheet loanassets and liabilities of the Group. Tax Fabian's tax structure aims to minimise tax payable across the Group, howeverduring the year tax was payable by the Romanian companies holding the incomeproducing properties. Whilst this tax cannot be totally mitigated the chargewas larger than anticipated due to delay in completing the mergers of theholding companies. This led to some interest expense deductions beingdisallowed and also taxable interest income being recognized on upstream loansrecycling the debt proceeds, both of which are to be addressed in the currentyear. Another contributory factor arose as a consequence of the Romanian fiscal requirement that tax is payable on unrealised translational foreign exchangegains. These arose in the local currency financial statements of the Romanianproperty-owning vehicles on the Euro denominated loans, as a consequence of theRomanian Lei strengthening considerably relative to the Euro. Fabian is seekingadvice on whether this can be effectively mitigated in future. Graham AtkinsonFabian Capital Limited Corporate Governance Statement Compliance The Company recognises the importance of the principles of good corporategovernance. As an AIM quoted company, Fabian is not required to follow theprovisions of the Combined Code on Corporate Governance effective from June 2006(the "Code"). Nonetheless, the Company seeks to comply, where appropriate for acompany of its size and nature, with the principles referred to in section 1 ofthe Code and the guidelines published by the Quoted Companies Alliance. Thestatement set out below describes how the principles identified in section 1 ofthe Code and those guidelines are applied by the Company. Board Constitution and Procedures All of Fabian's eight directors are non-executive directors. Of these, MarkHoldsworth is also a director of the Investment Manager and five are directorsof the JTC Group, the parent company of Fabian's administrator. Theserelationships prevent them from being considered as independent under thecriteria set out in the Code and the guidelines referred to above. The Board is responsible for acquisitions, partnerships, divestments, majorcapital commitments and focuses upon the Company's long-term objectives,strategic direction and dividend policy. The Directors have access to the adviceand services of the Investment Manager and the company's administrator and theDirectors are able to take independent professional advice in the furtherance oftheir duties if necessary. The Directors receive training and advice on theirresponsibilities as appropriate. All Directors will submit themselves forre-election at least once every three years. Board Committees The Board has delegated clearly defined powers to its Audit Committee. Thiscomprises at least two Directors and will be responsible for ensuring that thefinancial performance of the Company is properly reported and monitored. Thecommittee reviews the Company's annual and interim accounts, results,announcements, internal control systems and procedures and accounting policies. In view of the nature of the Company as a Jersey investment fund, the Boarddecided at the time of the Company's admission to AIM not to establishremuneration or nomination committees. Communication with Investors Fabian places a great deal of importance on communication with its institutionaland private shareholders and responds quickly to all queries received. There isregular dialogue with institutional shareholders as well as generalpresentations after the issue of preliminary results. All shareholders are givenat least 21 days' notice of the company's Annual General Meeting each year, atwhich Directors are introduced and available for questions. Internal Control Fabian's control systems are the responsibility of the Board. The Board overseesa system of internal financial controls whose objective is to safeguard groupassets, ensure proper accounting records are maintained, and that the financialinformation generated is reliable. Risks to the business are considered on anongoing basis by the Board. Identified risks are prioritised and agreedprogrammes of minimisation or elimination are monitored as is the ongoing riskprofile. The Board has considered it inappropriate to establish an internal auditfunction given the size of the Group. This decision will be kept under review asthe operations of the Group develop. Directors' reportFor the year ended 31 December 2006 The directors present their report to the members together with the consolidatedfinancial statements and auditors' report for the year from 1 January 2006 to 31December 2006 Incorporation The Company was incorporated in Jersey, Channel Islands on 20 April 2005. Activities and results The principal activity of the Group is that of investing in Romanian propertyvia a Cypriot Holding Company and four Romanian companies and the advancing ofloans to enable such investments to be made. The Group also has two jointventure interests at the year-end. The results of the Group are set out in theconsolidated income statement. Dividends The directors are unable to recommend the payment of a dividend for the year(2005: • Nil). Directors The directors of the Company who held office during the year, and subsequently,were:- Jaroslav Kinach (Chairman) (Appointed 16 February 2007)Mark Benedict HoldsworthNigel Anthony Le QuesneStephen Anthony BurnettMark Houslop (Appointed 31 January 2007)Nigel Charles SyvretPhilip Henry BurginGiles Ballantine (Appointed 20 April 2005, resigned 29 September 2006)Misu Negritoiu (Appointed 20 April 2005, resigned 7 July 2006)Antony Hillman (Appointed 19 January 2007) Secretary The secretary of the Company is JTC Management Limited, who was appointed on 22April 2005. Independent auditors All of the current directors have taken all the steps that they ought to havetaken to make themselves aware of any information needed by the Company'sauditors for the purposes of their audit and to establish that the auditors areaware of that information. The directors are not aware of any relevant auditinformation of which the auditors are unaware. The auditors, KPMG Channel Islands Limited, replaced BDO Alto Limited on 5February 2007 and have expressed their willingness to continue in office. By order of the Board Registered office Elizabeth House 9 Castle Street St HelierFor and on behalf of JerseyJTC Management Limited JE2 3RTSecretary Directors' responsibilities statementFor the year ended 31 December 2006 The directors are responsible for preparing the financial statements inaccordance with applicable law and International Financial Reporting Standards. Company law requires the directors to prepare financial statements for eachfinancial year which give a true and fair view of the state of affairs of theCompany and of the profit or loss of the Company for that period. In preparingthese financial statements the directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - state whether applicable accounting standards have been followed,subject to any material departures disclosed and explained in the financialstatements; and - prepare the financial statements on the going concern basis unless itis inappropriate to presume that the Group and Company will continue inbusiness. The directors are responsible for keeping proper accounting records thatdisclose with reasonable accuracy at any time the financial position of theCompany and to enable them to ensure that the financial statements comply withthe Companies (Jersey) Law 1991. They are also responsible for safeguarding theassets of the Company and hence for taking reasonable steps for the preventionand detection of fraud and any other irregularities. Independent auditors' report to the members of Fabian Romania Property FundLimited We have audited the group and company financial statements (the "financialstatements") of Fabian Romania Property Fund Limited for the year ended 31December 2006 which comprise the Consolidated Income Statement, the Consolidatedand Company Balance Sheets, the Consolidated Cash Flow Statement, theConsolidated Statement of Changes in Equity and the related notes. Thesefinancial statements have been prepared under the accounting policies set outtherein. This report is made solely to the company's members, as a body, in accordancewith Article 110 of the Companies (Jersey) Law 1991. Our audit work has beenundertaken so that we might state to the company's members those matters we arerequired to state to them in an auditor's report and for no other purpose. Tothe fullest extent permitted by law, we do not accept or assume responsibilityto anyone other than the company and the company's members as a body, for ouraudit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As described in the Statement of Directors' Responsibilities, the company'sdirectors are responsible for preparation of the financial statements inaccordance with applicable law and International Financial Reporting Standards. Our responsibility is to audit the financial statements in accordance with therelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a trueand fair view and are properly prepared in accordance with the Companies(Jersey) Law 1991. We also report to you if, in our opinion, the company hasnot kept proper accounting records or if we have not received all theinformation and explanations we require for our audit. We read the Chairman's Statement, the Investment Manager's Report, the FinanceReport, the Corporate Governance Statement and the Directors' Reportaccompanying the financial statements and consider the implications for ourreport if we become aware of any apparent misstatements within it. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgements made by the directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the group's and company's circumstances, consistently applied and adequatelydisclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements: • give a true and fair view, in accordance with International FinancialReporting Standards, of the state of the group's and company's affairs as at 31December 2006 and of the group's profit for the year then ended; and • have been properly prepared in accordance with the Companies (Jersey)Law 1991. KPMG Chanel Islands LimitedChartered Accountants 27 June 2007 Notes: a. The maintenance and integrity of the Fabian RomaniaProperty Fund Limited's website is the responsibility of the directors; the workcarried out by the auditors does not involve consideration of these matters and,accordingly, the auditors accept no responsibility for any changes that may haveoccurred to the financial statements or audit report since they were initiallypresented on the website. b. Legislation in Jersey governing the preparation anddissemination of financial statements may differ from legislation in otherjurisdictions. Consolidated income statementFor the year ended 31 December 2006 Note 01.01.06 to 20.04.05 to 31.12.06 31.12.05 • • Continuing operationsOperational revenues 4 1,450,910 - Total operating revenues 1,450,910 - Fair value adjustment investment properties 6 3,600,000 - ExpensesAmortisation of set up costs 126,648 22,350Goodwill impairment 1,006,563 517,124Investment management fees 588,038 152,219Legal and professional fees 662,284 28,557Other operating expenses 5 418,640 99,912Cost of issuing shares 400,329 - Total operating expenses 3,202,502 820,162 Profit/(loss) from operating expenses 1,848,408 (820,162) Loan interest revenues 1,767,286 46,759Loan interest expense (2,262,033) (47,273)Foreign exchange movement 56,095 (5,656)Bank interest 136,886 121,685 Net financing costs (301,766) 115,515 Share of loss of joint ventures using the equity method of accounting (201,776) - Profit/(loss) before taxation 1,344,866 (704,647) Corporate income tax expense 14 (524,984) (974) Deferred income tax 14 564,870 - Net profit/(loss) for the year/period attributable to equity holdersof Fabian Romania Property Fund Limited 1,384,752 (705,621) Basic earnings per share 20 0.06 (3.33) As at 31 December 2005 and 31 December 2006, there is no difference betweenbasic and diluted earnings per share. The loss of the Company for the year ended 31 December 2006 is €136,850 (periodended 31 December 2005: €83,378). Consolidated statement of changes in equityFor the year ended 31 December 2006 Note Share Capital Share Premium Retained Total Earnings • • • • As at 1 January 2006 312 21,201,288 (705,621) 20,495,979 Profit for the year - - 1,384,752 1,384,752 -Issue of share capital 196 39,999,705 - 39,999,901 Cost of share issue 12 - (1,464,154) - (1,464,154) Balance at 31 December 2006 508 59,736,839 679,131 60,416,478 For the period from 20 April 2005 to 31 December 2005 Share Capital Share Premium Retained Total Earnings • • • • Issue of share capital 312 21,201,288 - 21,201,600 Loss for the period - - (705,621) (705,621) Balance at 31 December 2005 312 21,201,288 (705,621) 20,495,979 Consolidated and Company balance sheetAs at year ended 31 December 2006 Note Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 • • • •ASSETSNon-current assetsInvestment properties 6 28,400,000 - 12,490,756 -Property, plant and equipment 10,700 - 2,970 -Loans receivable 7 36,102,387 17,536,827 13,822,167 14,022,167Investment in subsidiaries 8 - 39,094 - 1,733Investment in joint ventures 9 5,748,812 6,250 - -Deferred tax 14 70,674 - - -Set up costs - - 126,648 126,648 70,332,573 17,582,171 26,442,541 14,150,548Current assetsInventories 2,049 - - -Other receivables 371,167 41,052 1,144,878 420,588Loan receivable - Cardeka - 11,297 - 8,285Loan interest receivable 10 1,769,892 1,159,661 46,759 -Bank interest receivable 52,029 52,029 13,569 -Cash at bank 42,196,171 41,035,342 8,253,787 6,558,887 44,391,308 42,299,381 9,458,993 6,987,760 Total assets 114,723,881 59,881,552 35,901,534 21,138,308 SHAREHOLDERS' EQUITY AND LIABILITIESShareholders' equityShare capital 11 508 508 312 312Share premium account 12 59,736,839 59,736,839 21,201,288 21,201,288Retained earnings 679,131 (620,558) (705,621) (83,378) Total equity 60,416,478 59,116,789 20,495,979 21,118,222 Non-current liabilitiesLong-term borrowings 13 50,360,943 - 13,822,671 -Deferred income tax 14 1,776,288 - 1,243,166 -Other non-current liabilities 205,065 - - - Total non-current liabilities 52,342,296 - 15,065,837 - Current liabilitiesCurrent income tax liabilities and 369,454 - 178,375 -other taxesOther liabilities and payables 15 1,595,653 764,763 161,343 20,086 Total current liabilities 1,965,107 764,763 339,718 20,086 Total equity and liabilities 114,723,881 59,881,552 35,901,534 21,138,308 The financial statements were approved and authorised for issue on behalf of theboard of directors on 27 June 2007 and signed on its behalf by Mark Holdsworth Nigel SyvretDirector Director Consolidated cash flow statementFor the year ended 31 December 2006 Note Group Group 01.01.06 to 20.04.06 to 31.12.06 31.12.05 • • Operating activitiesNet cash flow from operating activities 16 426,232 (1,242,168) Net cash outflow from operating activities 426,232 (1,242,168) Investing activitiesAcquisition of subsidiary investments (7,514,723) (11,298,179)Investment in joint venture undertakings (5,750,000) -Loans advanced (24,130,220) (13,822,167)Loan repayments received 1,850,000 -Interest received 150,025 108,115Acquisition of property and equipment (218,456) - Net cash outflow from investing activities (35,613,374) (25,012,231) Financing activitiesSet up costs - (148,998)Proceeds from borrowings 35,836,622 13,822,671Loan repayments (5,057,526) -Interest paid (711,846) (7,987)Proceeds from shares issued 40,359,000 20,842,500Expenses in relation to share issue (1,296,724) - Net cash inflow from financing activities 69,129,526 34,508,186 Net increase in cash and cash equivalents 33,942,384 8,253,787 Cash and cash equivalents at start of year/period 8,253,787 - Cash and cash equivalents at end of year/period 42,196,171 8,253,787 Notes to the accountsFor the year ended 31 December 2006 1. Incorporation and principal activities Fabian Romania Property Fund Limited (the "Company") is a Company domiciled inJersey. The address of the Company's registered office is Elizabeth House, 9Castle Street, St Helier, Jersey. The consolidated financial statements of theCompany as at and for the year ended 31 December 2006 comprise the Company andits subsidiaries (the "Group") and the Group's interest in joint ventures. TheGroup invests in Romanian property. 2. Basis of Preparation The consolidated financial statements and Company balance sheet have beenprepared in accordance with International Financial Reporting Standards (IFRSsand IFRIC interpretations) issued by the International Accounting StandardsBoard (IASB). These financial statements have been prepared on the historicalcost basis, except for investment properties which are measured at fair value. The preparation of financial statements requires management to make judgements,estimates and assumptions that affect the application of accounting policies andthe reported amounts of assets, liabilities, income and expenses. Estimates andunderlying assumptions are reviewed on an ongoing basis. Revisions to theaccounting estimates are recognised in the period in which the estimate isrevised and in any future periods affected. In particular, information aboutsignificant areas of estimation uncertainty and critical judgements in applyingaccounting policies that have the most significant effect on the amountrecognised in the financial statements is described in note 7 "Investmentproperty". 3. Principal accounting policies The principal accounting policies adopted in the preparation of these financialstatements are set out below. These policies have been consistently applied toall years presented in these financial statements unless otherwise stated. The following new standard has been issued but is not effective for 2006 and hasnot been adopted:- IFRS 7 "Financial instruments; and the related amendment toIAS 1 on capital disclosures" The standard requires disclosures about the significance of financialinstruments for an entity's financial position and performance. IFRS 7 requiresinformation about the extent to which the entity is exposed to risks arisingfrom financial instruments, and a description of management's objectives,policies and processes for managing those risks Consolidation Subsidiaries are entities controlled by the Group. Control exists when theGroup has the power, either directly or indirectly, to govern the financial andoperating policies of another entity or business so as to obtain benefits fromits activities. The consolidated financial statements present the results of theCompany and its subsidiaries as if they formed a single entity. Intercompanytransactions and balances between Group companies are therefore eliminated infull. Business combinations The consolidated financial statements incorporate the results of businesscombinations using the acquisition method. In the consolidated balance sheet,the acquiree's identifiable assets, liabilities and contingent liabilities areinitially recognised at their fair values at the acquisition date. The resultsof acquired operations are included in the consolidated income statement fromthe date on which control is obtained. Goodwill Goodwill represents the excess of the cost of a business combination over theinterest in the fair value of identifiable assets, liabilities and contingentliabilities acquired. Cost comprises the fair values of assets given,liabilities assumed and equity instruments issued, plus any direct costs ofacquisition. Goodwill is capitalised as an intangible asset and is reviewedannually for impairment. Where goodwill is not recoverable any impairment isimmediately recognised in the income statement. Wherever negative goodwillarises it is recognised immediately through the income statement. Joint ventures Joint ventures are those entities over whose activities the Group has jointcontrol, established by contractual agreement and requiring unanimous consentfor strategic financial or operating decisions. The consolidated financialstatements include the Group's share of the total recognised gains and losses ofjointly controlled entities on an equity accounted basis after adjustments toalign accounting policies. When the Group's share of losses exceeds itsinterest in an equity accounted investee, the carrying amount of that interest(including any long-term investments) is reduced to nil and the recognition offurther losses is discontinued except to the extent that the Group has anobligation or has made payments on behalf of the investee. Investment property Property held for long-term rental yields or for capital appreciation or both isclassified as an investment property and the provisions of IAS 40, "InvestmentProperty" apply. Investment property comprises freehold land and freehold buildings. Investmentproperty is measured initially at its fair value and changes in fair value arepresented in the income statement. Investment property under development Property that is being constructed or developed for future use as investmentproperty is classified as investment property under development and stated atcost until construction is complete, at which time it is reclassified andsubsequently accounted for as investment property. At the date of transfer, thedifference between fair value and cost is recorded as income in the consolidatedincome statement. All costs directly associated with the purchase and construction of a property,and all subsequent capital expenditures for the development qualifying asacquisition costs, are capitalised. Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulateddepreciation and impairment losses. Cost includes expenditures that are directlyattributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different usefullives, they are accounted for as separate items (major components) of property,plant and equipment. Depreciation is charged on a straight-line basis so as to write off the cost ofproperty, plant and equipment to their residual value over the expected usefullives. Depreciation is recognised in "other operating expenses" The estimateduseful lives are as follows: Furniture and office equipment 5 - 15 years The cost of replacing part of an item of property, plant and equipment isrecognised in the carrying amount of the item if it is probable that the futureeconomic benefits embodied within the part will flow to the Company and itscosts can be measured reliably. The costs of day-to-day servicing of property,plant and equipment are recognised in the income statement as incurred.Property, plant and equipment has not been disaggregated into classes as per IAS1 "Presentation of Financial Statements" as disaggregation is not deemedsignificant. Cash and cash equivalents Cash and cash equivalents comprises cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Taxation Income tax expense comprises current and deferred tax. Income tax expense isrecognised in the income statement except to the extent that it relates to itemsrecognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year,using tax rates enacted or substantively enacted at the reporting date, and anyadjustment to tax payable in respect of previous years. Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. However,the deferred income tax is not accounted for if it arises from initialrecognition of an asset or liability in a transaction other than a businesscombination that at the time of the transaction affects neither accounting nortaxable profit or loss. Deferred income tax is determined using tax rates (andlaws) that have been enacted or substantially enacted by the balance sheet dateand are expected to apply when the related deferred income tax asset is realisedor the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred income tax is provided on temporary differences arising on investmentsin subsidiaries and associates, except where the timing of the reversal of thetemporary difference is controlled by the Group and it is probable that thetemporary difference will not reverse in the foreseeable future. Foreign exchange (i) Functional and presentation currency The Group operates in Romania, whose economy is considered to have exited thehyperinflation period starting 2004. Management have assessed that the functional currency of the Group is the Eurodue to the fact that sources of finance are denominated in Euro, revenue isdenominated in Euro, investing costs are denominated in Euro and management usesEuro-based reports to monitor the Group's financial performance. Therefore themanagement have elected to prepare the Group's financial statements in Euro. (ii) Transactions and balances Transactions undertaken in foreign currencies are translated to the functionalcurrency of the Group at the exchange rate ruling on the date of thetransaction. Monetary assets and liabilities denominated in foreign currenciesare translated to Euros at the rate ruling on the balance sheet date.Non-monetary assets denominated in foreign currencies are translated to Euros atthe rate ruling on the date of acquisition. Profits and losses on exchange aretaken directly to equity. (iii) Overseas operations On consolidation, the results of overseas operations are translated into Eurosat rates approximating to those ruling when the transactions took place. Allassets and liabilities of overseas operations are translated at the rate rulingat the balance sheet date. Exchange differences recognised in the incomestatement of Group entities' separate financial statements on the translation oflong-term monetary items forming part of the Group's net investment in theoverseas operation concerned are reclassified to the foreign exchange reserve ifthe item is denominated in the functional currency of the Group or the overseasoperation concerned. Financial assets The Group classifies its financial assets into one of the following categories,depending on the purpose for which the asset was acquired. Financial assets arerecognised when the Group becomes party to the contractual obligations of theinstrument. The Group's accounting policy for each category is as follows: (i) Loans receivable Loans receivable are recorded initially at fair value and subsequently accountedfor at amortised cost using the effective interest rate method which ensuresthat any income over the period to repayment is recognised at a constant rate onthe balance of the loan receivable carried in the balance sheet. (ii) Trade and other receivables Trade and other receivables are recognised at fair value on initial recognition.Appropriate allowances for estimated irrecoverable amounts are recognised inprofit or loss when there is objective evidence that the asset is impaired. (iii) Equity instruments Equity instruments comprise ordinary share capital. Equity instruments issuedby the Group are recorded at the proceeds received. Those costs directlyattributable to the issuing of equity instruments are taken to the share premiumaccount. Financial liabilities (i) Bank borrowings These liabilities are initially recognised at the amount advanced net of anytransaction costs attributable to the issue of the instrument. Such interestbearing liabilities are subsequently measured at amortised cost using theeffective interest method, which ensures that any interest expense over theperiod to repayment is recognised at a constant rate on the balance of theliability carried in the balance sheet. Operating income and expenditure All operating income and expenditure is accounted for on an accruals basis. Rental income Revenue includes gross rental income, service charge and management chargesearned from investment property. The Group rental contracts expire between fiveand ten years and are structured as operating leases. The majority of contractsrequire fixed minimum lease payments and are dominated in Euros. Rental incomefrom investment property leased out under operating leases is recognised in theincome statement on a straight-line basis over the term of the lease. Leaseincentives are recognised as an integral part of the total rental income. Service and management charges are recognised on a gross basis in the accountingperiod in which the services are rendered. When the Group is acting as an agent,the commission rather than gross income is recorded as revenue. Segmental reporting Additional disclosures with regard to segmental reporting is not provided as allGroup activity is conducted in Romania in relation to investment property.Further disclosure by geographical and business segment is therefore notrequired 4. Operational revenues 01.01.06 to 20.04.05 to 31.12.06 31.12.05 • • Rental income 1,564,327 -Service charge expenses (533,327) -Revenue from service charges 419,910 - 1,450,910 - 5. Other operating expenses 01.01.06 to 20.04.05 to 31.12.06 31.12.05 • • Property costs - 12,085Administrative costs 113,065 39,061Auditors' fees 77,120 5,086Accountancy fees 22,220 -Directors' fees 23,012 -Bank charges 3,298 -Exempt company fee 882 -Other operating expenses 179,043 43,680 418,640 99,912 6. Investment property Group as at 31 Company as at 31 Group as at 31 Company as at Dec 06 Dec 06 Dec 05 31 Dec 05 • • • • Brought forward 12,490,756 - - -Additions due to business combinations 12,100,000 - 12,490,756 -Revaluation (fair value adjustment) 3,600,000 - - -Cost to completion 209,244 - - - 28,400,000 - 12,490,756 - At 31 December 2006 the fair value of the investment properties is based on avaluation performed by an independent valuer, DTZ Echinoix. The valuationmethod applied is the capitalisation of rental income based on the rents payableunder the existing lease agreements and average market rental values. 7. Loans receivable Group as at 31 Company as at 31 Group as at 31 Company as at Dec 06 Dec 06 Dec 05 31 Dec 05 • • • • Moulen Beleggingen BV 30,748,887 11,972,167 13,822,167 13,822,167Cardeka Holdings Limited - 211,160 - 200,000AIG/Lincoln Lakeview S.a.r.L 5,353,500 5,353,500 - - 36,102,387 17,536,827 13,822,167 14,022,167 Loans receivable at 31 December 2006 includes two loans of equal amounts of€4,800,000 which were granted by Cascade Consulting Romania S.R.L. and CascadeImobiliare Consult S.R.L. to Moulen Beleggingen BV. The agreements wereconcluded on 1 July 2006. Loans receivable at 31 December 2006 also include a loan of €9,450,000 of which€9,176,720 has been granted by Romulex Technology S.R.L. to Moulen BeleggingenBV following an agreement concluded in March 2006. Loans receivable at 31 December 2006 further includes a facility of €29,600,000of which €11,972,167 has been granted by the Company to Moulen Beleggingen BV. The loans described above bear an interest rate of 5.75% per annum (6.75% until1 July 2006) and are repayable in one instalment not earlier than 31 December2009. 8. Investment in Group companies The subsidiaries of Fabian Romania Property Fund Limited, all of which have beenincluded in these financial statements, are as follows: Name Country of Proportion of Activity incorporation ownership Cardeka Holdings Limited Cyprus 100% Holding CompanyFabian One S.R.L. Romania 100% Holding CompanyFabian Two S.R.L. Romania 100% Holding CompanyFabian Three S.R.L. Romania 100% Holding CompanyFabian Four S.R.L. Romania 100% Holding CompanyCascade Consulting Romania S.R.L. Romania 100% Leasing of owned or rented propertiesCascade Imobiliare Consult S.R.L. Romania 100% Leasing of owned or rented propertiesRomulex Technology Construct S.R.L. Romania 100% Leasing of owned or rented properties Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 • • • • Cardeka Holdings Limited - 1,715 - 1,715Cascade Imobiliare Consult S.R.L. - 37,360 - -Fabian One S.R.L. - 6 - 6Fabian Two S.R.L. - 6 - 6Fabian Three S.R.L. - 6 - 6Fabian Four S.R.L. - 1 - - - 39,094 - 1,733 The Company owns 100% of the issued share capital and voting rights of CardekaHoldings Limited, an investment holding Company incorporated in Cyprus andstated at cost. In the opinion of the directors, the value of the investment isnot less than cost. The Company owns 1% of the issued share capital of Fabian One S.R.L., aninvestment holding Company incorporated in Romania and stated at cost. In theopinion of the directors, the value of the investment is not less than cost. The Company owns 1% of the issued share capital of Fabian Two S.R.L., aninvestment holding Company incorporated in Romania and stated at cost. In theopinion of the directors, the value of the investment is not less than cost. The Company owns 1% of the issued share capital of Fabian Three S.R.L., aninvestment holding Company incorporated in Romania and stated at cost. In theopinion of the directors, the value of the investment is not less than cost. The Company owns 1% of the issued share capital of Fabian Four S.R.L., aninvestment holding Company incorporated in Romania and stated at cost. In theopinion of the directors, the value of the investment is not less than cost. The Company owns 0.9% of the issued share capital of Cascade Imobiliare ConsultS.R.L., a property leasing Company incorporated in Romania and stated at cost.In the opinion of the directors, the value of the investment is not less thancost. 9. Investments in joint ventures The Group has the following investments in joint ventures: Ownership Country of incorporation Group as at 31 Company as at 31 Dec 05 Dec 05 • • AIG/Lincoln Lakeview S.a.r.L Luxembourg 50% -Phoenix Park S.R.L. Romania 50% - The Group has a 50% interest in joint ventures AIG/Lincoln Lakeview S.a.r.L andPhoenix Park S.R.L., whose principal activities are investment in property.Summary financial information for equity accounted investees, not adjusted forthe percentage ownership held by the Group is presented below: Non-Current Non-Current Current Assets Current Liabilities Assets Liabilities Total Assets Revenue Expenses • • • • • • • Phoenix Park 413,140 12,885,258 13,298,398 2,716,064 - - 2,366S.R.L.AIG/LincolnLakeviewS.a.r.L 431,802 10,600,000 11,031,802 1,249,173 10,694,766 48,609 973,246 844,942 23,485,258 24,330,200 3,965,237 10,694,766 48,609 975,612 10. Loan interest receivable Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 • • • • Moulen Beleggingen BV 1,553,304 943,073 46,759 -AIG/Lincoln Lakeview S.a.r.L 216,588 216,588 - - 1,769,892 1,159,661 46,759 - 11. Share capital Group as at 31 Company as at Group as at Company as at 31 Dec 06 31 Dec 06 31 Dec 05 Dec 05 • • • •Authorised20 management shares of €1.00 each - - 20 2080 voting shares of €1.00 each - - 80 801,000,000,000 investment shares of €0.00001 10,000 10,000 10,000 10,000each 10,000 10,000 10,100 10,100 Group as at 31 Company as at Group as at Company as at 31 Dec 06 31 Dec 06 31 Dec 05 Dec 05 • • • •Issued and not paid up20 management shares of €1.00 each - - 20 2080 voting shares of €1.00 each - - 80 80 - - 100 100 Issued and fully paid up212,015 investment shares of €0.001 each - - 212 21250,831,130 investment shares of €0.00001 each 508 508 - - Total issued 508 508 312 312 The holders of ordinary shares are entitled to receive dividends as declaredfrom time to time and are entitled to one vote per share at meetings of theCompany. On 15 December 2006 the Group became listed on the Alternative InvestmentMarket. The Group raised €40,000,000 (before expenses) through the issue of29,629,630 new ordinary shares at €1.35 per share. Prior to AIM listing, a resolution was passed on the 1 November 2006, for allmanagement and voting shares to be transferred to the Company for their parvalue and dissolved. It was also decided that every existing investment sharebe sub-divided into 100 ordinary shares with a par value of €0.00001 each. A reconciliation is provided below: Reconciliation of number of shares outstanding at the beginning and end of theyear: Voting Management Investment Ordinary Shares Total Shares Shares Shares Shares Number of shares brought forward asat 1 Jan 2006 80 20 212,015 - 212,115Redemption of voting and managementshares (80) (20) - - (100)Conversion of investment shares toordinary shares - - (212,015) 21,201,500 20,989,485Issue of ordinary shares - - - 29,629,630 29,629,630 Number of shares carried forward asat 31 December 2006 - - - 50,831,130 50,831,130 12. Share premium Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 • • • • 212,015 investment shares issued at apremium of €99.999 each 21,201,288 21,201,288 21,201,288 21,201,28829,629,630 placement shares of €1.34999 39,999,705 39,999,705 - -eachCost of placement (1,464,154) (1,464,154) - - Total Share Premium 59,736,839 59,736,839 21,201,288 21,201,288 The share premium account is a disclosure account only and does not have anyrights attached. 13. Long-term borrowings Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 • • • • Loan from Moulen Beleggingen BV 30,749,066 - 13,822,671 -Loan from Investkredit Bank AG 18,010,179 - - -Interest on loan from Moulen Beleggingen 1,601,698 - - -BV 50,360,943 - 13,822,671 - 14. Taxation The Company is an "exempt company" for Jersey tax purposes so that its liabilityto Jersey taxation is limited to a flat fee, currently levied at £600 sterlingper annum. Tax on profits of the Group arising in Romania are computed using the tax rateof 16% (2005: 16%), both for current and deferred tax. 15. Other liabilities and payables Group as at 31 Company as at 31 Group as at Company as at 31 Dec 06 Dec 06 31 Dec 05 Dec 05 • • • • Investment in Fabian Four S.R.L. - 1 - -Accounts payable and accrued expenses 788,142 758,512 100,485 -Short term borrowing 458,295 - 40,773 -Deferred revenues 56,919 - - -Other liabilities and payables - - 20,085 20,086Amounts payable in respect of AIG Lincoln - -Lakeview S.a.r.L 200,588 6,250Trade payables 91,709 - - - 1,595,653 764,763 161,343 20,086 16. Net cash flow from operating activities Reconciliation of operating profit/(loss) from continuing operations to net cashflow from operating activities: 01.01.06 to 20.04.05 to 31.12.06 31.12.05 • •Operating profit/(loss) for the year/period 1,848,408 (820,162)Adjustments for:Amortisation 126,648 22,350Revaluation gains on properties (3,600,000) -Goodwill impairment 1,006,563 517,124Corporate income tax paid (213,017) -Other non-cash items 71,240 (3,530)Depreciation 1,469 - Changes in working capital:Other payables 756,807 (368,645)Other receivables 428,114 (589,305) Net cash flow from operating activities 426,232 (1,242,168) 17. Related party transactions For the purposes of these financial statements, a related party is an entity orentities who are able to exercise significant influence directly or indirectlyon the Group's operations. Transactions between the Company and itssubsidiaries, which are related parties, have been eliminated on consolidationand are not disclosed in this note, however they are presented in the notes tothe accounts which present Company only balances as well as those of the Group. There is an investment management agreement between the ultimate parent of theGroup and Fabian Capital Limited for the day to day management of the Group.Mark Holdsworth is a director of both the Fabian Romania Property Fund Limitedand Fabian Capital Limited. The principal related party transactions which were carried out during theperiod are: An investment management fee is payable to the investment manager, FabianCapital Limited. Prior to AIM admission on 15 December 2006 the fee wascalculated upon the basis of 2.5% p.a. of the Net Asset Value of the Fund.Since admission to AIM the fee is calculated as 2% of Net Asset Value.Investment management fees are payable quarterly in advance. The fee for theperiod 1 January 2006 to 31 December 2006 amounted to €588,038 (period 20 April2005 to 31 Dec 2005: €152,219). Fees paid to JTC Fund Services Limited, the Group's administrators, amounted to€103,505 for the period from 1 January 2006 to 31 December 2006 (period 20 April2005 to 31 Dec 2005: €30,411) and have been charged to the income statement. Stephen Burnett and Nigel Le Quesne are directors of both the Company and JerseyTrust Company. Directors' fees for the year were €22,220 (2005: • Nil). Joint Venture Agreements During the year the Group acquired a 50% investment in Phoenix Park S.R.L, aCompany domiciled in Romania. This investee was established for the purpose ofdeveloping and selling real estate residential projects. The purchase price asper the Share Transfer Agreement amounted to €5,750,000, which was financedentirely by means of a loan from Moulen Beleggingen BV, a Dutch company. Theshare transfer was effective on 28 July 2006. During the year the Group acquired a 50% investment in AIG/Lincoln LakeviewS.a.r.L, a Company domiciled in Luxembourg. This investee was established forthe purpose of developing and selling real estate residential projects. Theshares were subscribed at a cost of €12,500 to each of the joint ventures. On 7September 2006 the Group lent €5,125,000 to the Joint Ventures. Subsequentadvances have been made and a repayment of the loan was made to the Group on 19March 2007. Amounts outstanding to the Group at the time of issuing thefinancial statements were €516,300. 18. Acquisition of subsidiaries Year ended 31 December 2006 On 31 March 2006, Fabian One S.R.L acquired 100% of the issued share capital ofCascade Consulting Romania S.R.L. and 99.1% of Cascade Imobiliare Consult S.R.L.for cash consideration of €7,514,723. This transaction has been accounted forusing the purchase method of accounting. Book Value Fair value Fair Value adjustment • • •Net assets acquiredProperty, plant and equipment 6,637,431 5,462,569 12,100,000Deferred tax asset 4,553 - 4,553Trade and other receivables 17,668 - 17,668Cash and cash equivalents 95,023 - 95,023Trade and other payables (81,092) - (81,092)Bank loans (4,625,990) - (4,625,990)Deferred tax liabilities - (874,011) (874,011) Total net assets 2,047,593 4,588,558 6,636,151 Net assets attributable to minority interests (32,969) Net assets acquired by Fabian One S.R.L. 6,603,182 Goodwill 1,006,563 Total consideration 7,609,745 Satisfied by cash 7,609,745 Net cash flow arising on acquisition Cash consideration 7,609,745 Cash and cash equivalent acquired (95,023) 7,514,722 Minority interest of 0.9% in Cascade Imobiliare Consult S.R.L. was acquired byFabian Romania Property Fund Limited on 31 March 2006. As a result thesefinancial statements do not include a minority interest because 100% of theshare capital is owned by the Group. The acquisition of 0.9% of Cascade Imobiliare Consult S.R.L. was accounted forby Fabian Romania Property Fund Limited as an investment, which was eliminatedagainst the minority interest shown in Fabian One S.R.L.. Year ended 31 December 2005 On 13 December 2005, Fabian Two S.R.L. acquired 100% of the issued share capitalof Romulex Technology Construct S.R.L. for cash consideration of €11,713,930.This transaction has been accounted for using the purchase method of accounting. Book Value Fair value adjustment Fair Value • • • Net assets acquiredInvestment property 4,721,036 7,769,720 12,490,756Equipment 3,014 - 3,014Trade and other receivables 196,473 - 196,473Cash and cash equivalents 415,753 - 415,753Trade payables (488,660) - (488,660)Tax liabilities (177,364) - (177,364)Deferred tax liabilities - (1,243,166) (1,243,166) Total net assets 4,670,252 6,526,554 11,196,806 Goodwill 517,124 Total consideration 11,713,930 Satisfied by cash 11,713,930 Net cash flow arising on acquisition Cash consideration 11,713,930 Cash and cash equivalents acquired (415,753) 11,298,177 On 22 December 2006 the Group purchased the entire share capital of Fabian FourS.R.L. for €60. The net assets of Fabian Four S.R.L. on this date amounted to€60. 19. Ultimate controlling party In the directors' opinion, there is no controlling party. 20. Earnings per share The calculation of basic and diluted earnings per share at 31 December 2006 wasbased on the profit attributable to ordinary shareholders of €1,384,752 (2005:€705,261 loss) and a weighted average number of shares of 22,581,510 (2005:212,115) calculated as follows: Note Group Group 2006 2005 Brought forward at 1 January 212,115 -Effect of shares issued April 2005 - 212,115Effect on calculation of converting investment shares to 14 20,989,385 -ordinary shares and dissolving management and investmentsharesEffect on shares issued December 2006 14 1,380,010 - Balance as at 31 December 22,581,510 212,115 21 Subsequent events As at 10 March 2007, Romulex Technology Construct S.R.L. merged with Fabian TwoS.R.L.. On 15 January 2007 the Group acquired 100% of the ordinary share capital ofFabian Five S.R.L..The net assets of Fabian Five S.R.L. on this date amounted to€60. On 15 January 2007 the Group acquired 100% of the ordinary share capital ofFabian Six S.R.L.. The net assets of Fabian Six S.R.L. on this date amounted to€60. On 27 April 2006 Fabian Five S.R.L. entered into a commitment to purchase theCubic Centre Development S.R.L. on completion of the Cubic office development.A secured loan of €5 million was made by Fabian Five S.R.L. to the target. Afurther €7.255 million is expected to be committed before the end of 2007,subject to certain conditions. On 30 May 2007, Fabian Six S.R.L. entered into a binding commitment to purchaseC.H.F. Investitii S.R.L. for €4,900,000 on completion of the Evocenter Oneoffice development in Pipera. Completion is expected during the second half of2007. On 8 June 2007, Cardeka Holdings Limited entered into an agreement to purchaseMarcomto Holdings Limited ("Marcomto") subject to certain conditions for €4.6million and a subsidiary of Marcomto entered into a €3.0 million constructioncontract to deliver an office building. On 13 June 2007, Fabian Four S.R.L. entered into an agreement to purchaseBaneasa Center S.R.L. for a €11.7 million together with a new €19.68 milliondebt facility to allow refinancing at completion. On 16 May 2007, Fabian Romania Property Fund Limited purchased ToparesInvestments BV ("Topares") for €24,000. The name of Topares was subsequentlychanged to Fabian Finance BV. On 15 June 2007, a loan assignment agreement wasentered into between a number of the Fabian Group companies and MoulenBellingengen BV ("Moulen") transferring the relevant Moulen assets andliabilities to Fabian Finance BV. On 20 June 2007, Cardeka Holdings Limited concluded a share transfer agreementto acquire 50 per cent. of Coltex Invest Construct SRL and a shareholder loan of€1 million. This information is provided by RNS The company news service from the London Stock Exchange
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