Fusion Antibody Regulatory News (FAB)

4 Feb 2008 07:00

Fabian Romania Limited04 February 2008 4 February 2008 Fabian Romania Limited (FAB.LN) Net asset value as at 31 December 2007 Highlights • Fabian Romania Limited ("Fabian", "Fabian Romania" or the "Company"), is an experienced and leading investor in the Bucharest and wider Romanian real estate market and is quoted on AIM. • Fabian seeks to generate attractive total returns for its shareholders through a portfolio of income producing buildings, co-development projects with experienced partners and land investments. Fabian receives investment advice from Fabian Capital Limited, an independent investment management firm that specialises in Romanian real estate investments advice. (Fabian Capital does not carry out any regulated activities in the UK) • As at 31 December 2007, the Net Asset Value ("NAV") per share of the Company as determined in accordance with its Articles of Association was €1.700 (at 30 September 2007: €1.607) an increase of 5.79 per cent. over the third quarter and 25.37 per cent. for the full year (at 31 December 2006: €1.356) • Adjusting the current NAV for the estimated future development profits of €0.514 per share indicates a potential future NAV ("Development Profit NAV" or "DPNAV") of €2.214 per share (at 30 September 2007: €2.142) an increase of 3.36 per cent. over the third quarter and 43.21 per cent over the year (at 31 December 2006: €1.546) • Lakeview, the office joint venture development with AIG/Lincoln, is subject to heads of terms with prospective tenants for 90 per cent of the building's space. Construction tendering is nearing completion and work is expected to start on site towards the end of the first quarter • Four new leases have been signed at Baneasa Business Centre contributing to a value uplift of €1.1 million in the 31 December valuation compared with the previous quarter. The leases represent a total of 2,421 square metres (" sqm") of offices, 127 sqm of storage and 38 parking spaces. The average lease length in the building has jumped from 1.7 years unexpired to 3.9 years • Strong rental growth in the Bucharest office market has led to a valuation gain over the quarter of €2.5 million from the company's ownership of the Cascades and Banu Antonache office buildings • The New Town residential scheme continues to experience strong forward sales of its residential units. Sales commenced in July and 227 apartments have now been reserved off plan comprising 94 per cent. of the two first releases of 241 apartments. The sale of the third release of 75 units will start on 1 March with a further price uplift of 10 per cent. • The acquisition of the Evocentre office building comprising 3,213 sqm of office and retail space was completed on 21 November for €5.16 million. The building is 52 per cent. let to Adama, the Israeli developer which constructed the building. The building is now valued at €6.07 million contributing to a net asset value uplift of €0.91 million in less than two months since Fabian has owned the building. • DPNAV is continue to grow driven by the contribution of the Timisora deal with Fabian's share representing €4.8 million, €4.4 million contribution from the Cubic Center forward purchase valued at 7.15 per cent. yield, a €1.6 million uplift of the valuation of New Town and an uplift of €0.33 million in the valuation of the Lakeview office joint venture. • The 50 per cent. joint venture residential project, acquired in the second quarter of 2007 in Timisoara, to develop 350 apartments together with local developer Coltex is reaching final architectural stages. A new planning application ("PUZ") has been lodged with the city planning authorities to upgrade the permissible volume above ground • In total, nine investments executed or committed, with 62,850 sqm of lettable office space in Bucharest secured together with two residential developments (in Bucharest and Timisoara) with a total of approximately 1000 residential apartments in the process of development To the shareholders of Fabian Romania Fabian Romania Limited the AIM quoted dedicated Romanian real estate investor ispleased to announce that its NAV as at 31 December 2007 is €1.70 per share. Thisrepresents a rise of 5.79 per cent. from the preceding third quarter NAV of€1.607 per share. For 2007 as a whole, the NAV of the company has risen 25.37per cent. from €1.356 per share as at 31 December 2006. The published NAV was calculated according to the Company's Articles ofAssociation and the results are summarised below: Fabians' (as at 31 share of Bank Original December'07) Market Value (debt) Net Worth Investment •m •m •m •m Cascades 18.5 (9.2) 9.3 12.2 Banu 17.7 (8.9) 8.8 12.3 New Town * ^ 20.7 (5.2) 15.5 5.8 Lakeview * ^ 10.8 (5.6) 5.1 5.4 Cubic Center 12.4 0.0 12.4 12.3 Baneasa Business 29.5 (19.5) 10.0 23.9 Center Timisoara * ^ 4.0 (2.5) 1.5 1.6 Evo 6.1 (3.7) 2.4 5.2 Net Cash 23.9 Other assets / (liabilities) ** (2.5) Sub-total 119.7 (54.7) 86.4 78.5 Shares (#) 50,831,130 NAVPS (•) 1.7001 Growth in Q3 2007 5.79% * represents Fabians' share of the development, Lakeview after post-acquisition debt financing** includes deposits on Evocenter & Romana plus deferred tax liabilities added back^ includes development WIP financed by bank debt increase in original investment in the period as set out in text Future Development Profit Under the Red Book methodology of the Royal Institution of Chartered Surveyors,residual land valuations for development projects provided to Companies such asFabian Romania exclude the net present value of future development profits. TheDirectors believe this approach whilst logical for valuing land plots betweenbuyers and sellers is not ideal for shareholders in quoted property companieswhere development is a key component of the company's activities. In order toprovide transparency to our shareholders as to the potential level of suchfuture development profits that may accrue to the Company, DTZ Echinox ("DTZ")is asked every quarter to provide estimates of these development profits.Shareholders may then choose to discount these profits to estimate their netpresent value in today's terms based on current market conditions. The forecast development profit figures are stated gross and do not include allcosts that may be incurred by Fabian over the course of the projects (inparticular transaction fees and any carried interest payable to the investmentmanager). The implied share of future development profit figures for the NewTown, Lakeview, Timisoara and Cubic Centre schemes based on the DTZ estimates ishighlighted in the table below. Project Implied Fabian Share of future Development Profit Final Year of from DTZ estimates (•m) Development *New Town 8.1 2009Lakeview 8.9 2009Timisoara 4.8 2010Cubic Center 4.4 2009NAV contribution (•m) 26.1 NAVPS contribution (•) 0.514 * Fabian Romania estimates Adding these forecast development profits of €26.1 million or €0.514 per shareto the NAV produces what the Directors have called the DPNAV of €2.214 pershare. This represents a rise of 3.36 per cent. over the 30 September 2007 DPNAVof €2.142 and 43.21 per cent. over the DPNAV comparative figure as at 31December 2006 of €1.546. Portfolio Mix As at 31 December 2007, the portfolio of the Company comprised the followingtype of investments as a percentage of the net asset value of the Company. NetPortfolio mix worth(as at 31 Dec'07)Income 35%Developments 44%Cash & Other assets/liabilities 21% 100% Lakeview building now 90 per cent. pre-let In September, final building consent was granted for the Lakeview officebuilding. During the quarter, extensive work has been undertaken by ourdevelopment partner, AIG/Lincoln, to prepare the site for the start ofconstruction. Construction tendering is on-going and building is forecast tostart on site during the first quarter. Detailed negotiations are nearing conclusion to pre-let the majority of thebuilding to a small number of multi-national tenants. At present, 90 per cent.of the building's space is subject to heads of terms with prospective tenants.Leases are expected to be signed during the first quarter at rents in line withthe investment manager's expectations. DTZ, the Company's valuers, have given a land valuation, as at 31 December 2007,of €8.8 million for the 50 per cent. share owned by Fabian. Adding work inprogress of €1.97 million, the total value of the company's 50 per cent. shareof the investment stands at €10.8 million. This has been financed by €2.43million of equity and bank debt drawn down from MKB Bank of €5.64 million. Theresultant gain of €2.73 million equates to a satisfactory 112 per cent. returnto date on the company's invested equity of €2.43 million. The forecast gross development value of the scheme, according to DTZ, is €71.8million at 31 December 2007. This is based on a core yield of 6.8 per cent. andforecast office rents of €15 per sqm per month. After deducting forecastdevelopment costs, DTZ's forecast implies future development profits for thecompany amounting to €8.9 million or some €0.18 per share. The Company currentlyforecasts project completion to be achieved by the end of 2009. Sales update at New Town The directors are pleased to announce that as of the time of writing, 227apartments in the New Town residential scheme have now been sold. A full saleslaunch for New Town commenced in mid July 2007 with the release of the firstrelease, out of six, comprising 119 apartments. All apartments in the firstrelease have now been sold and 108 out of 122 in the second release have,likewise, been sold. The first release had an average selling price of €1,299per sqm and we are currently selling at an average price of €1,437 per sqm(excluding VAT) New Town is a scheme of 72,000 sqm above ground involving the construction of636 apartments targeted at Bucharest's emerging middle class. The scheme wasgranted final building consent at the start of April 2007. The joint venturedevelopment company, Phoenix Park SRL, has agreed a fixed price build contractwith Mivan Kier. The land value for the company's 50 per cent. share in New Town given by DTZ for31 December 2007 is €15.5 million, an increase on the 30 September 2007valuation of €13.95 million. Adding work in progress of €8.6 million, butsubtracting advances from customers of €3.47 million, the value of the company'sinvestment stands at €20.7 million. This has been financed by €5.75 million ofequity and bank debt drawn down from HVB of €5.22 million. The resultant gain of€9.73 million equates to a 169 per cent. return on the company's invested equityof €5.75. DTZ's forecast imply future development profits amounting to €8.1 million orsome €0.16 per share. The Company currently forecasts project completion to beachieved by the end of 2009. Timisoara new planning application submitted Fabian's first joint venture residential development project outside Bucharestis reaching final stages in the architectural process with work planned tocommence on site in the fourth quarter of this year. A new planning application("PUZ") has been lodged with the city planning authorities to upgrade thepermissible volume above ground. A firm of UK architects has been employed bythe development joint venture to develop the concept design and to work withlocal architects to finalise the planning on the site. To date, the investmentmanager has been extremely impressed with the quality of the design ideasproduced by the architects engaged. The plans seek to advance the quality ofdesign of residential apartments currently undertaken in Romania withoutsacrificing commercial considerations. During the quarter, the Company, in conjunction with its development partner,Coltex, purchased a further 500 sqm of land to take the total size of the plotto 13,245 sqm of land. This should allow the joint venture to construct 35,000sqm of residential space above ground, subject to planning. The total purchaseprice for all the plots purchased between June and October 2007 amounts to €6.54million representing a price of €494 per sqm of land or €187 per sqm built aboveground. The company is planning to target sales of flats to local residents inTimisoara, one of the richest cities in Romania, close to the Hungarian boarderwith a large ex-patriate Italian population. The City is the centre for manyinternational companies entering Romania preferring a base in the west of thecountry towards Hungary and the rest of the European Union. The land value for the company's 50 per cent. share in the Timisoara schemegiven by DTZ for 31 December 2007 is €3.7 million, up from the 30 September 2007valuation of €3.5 million. Adding work in progress of €0.34 million, the totalvalue of the company's investment stands at €4.04 million. This has beenfinanced by €1.6 million of equity, and a proportionate share of bank debt drawndown from Banca Romanesca of €2.53 million Adding in cash balances of €0.48million results in a small gain to date of €0.39 million on the company'sinvested equity of €1.6 million. DTZ's forecast imply future development profits amounting to €4.8 million orsome €0.09 per share. The Company currently forecasts project completion to beachieved by the end of 2010. Completion of the Evocentre acquisition in Pipera, north Bucharest During the second quarter 2007, Fabian announced the acquisition of theEvocentre office building from its developers, the Adama Group of Israel. On 21November, the company completed the acquisition of the building for a purchaseprice of €5.16 million. In December, the company drew down on an investment loanfrom Investkredit Bank AG for €3.68 million resulting in net equity postdrawdown of €1.49 million. The building comprises 3,213 sqm of office and retail space and is 52 per cent.let to Adama. The building is located in a predominately residential area justnorth of the major development area of Pipera. By agreeing to purchase thebuilding empty, the company took 'letting risk' enabling it to acquire thebuilding at a more advantageous price. This transaction was very similar to themanner in which the company had previously purchased the Banu Antonache buildingalso empty from a developer. As is stated later, vacancy rates in the cityremain sub three per cent. according to DTZ. and the office leasing marketcontinues to favour the landlord, thereby much reducing the supposed lettingrisk. The letting of the reminding space is well under way with the investmentmanager working in-house and with external agents. The building was valued at €6.07 million by DTZ in the 31 December valuationrepresenting an uplift of €0.91 million or 18 per cent. from the purchase pricein the 1.5 months Fabian has owned the building. On actual equity invested byFabian of €1.49m, the gain equates to a 61 per cent. return. Re-letting at Baneasa Business Centre As was reported in the September update, the Company's purchase of the Baneasaoffice building in June 2007, was an opportunity for Fabian to acquire anothergood quality office building at an attractive price offering the possibility forthe investment manager to renegotiate existing leases as they came up forrenewal. The directors are pleased to report that three new leases have beensigned with existing tenants increasing the average remaining unexpired leaselengths for the building from 1.7 years as at 30 September to 3.5 years as at 31December. New leases had been signed with Fresenius, one of the world's leading suppliersof dialysis products, Schering Plough, the international pharmaceutical companyand Johnson Diversey, one of the worlds leading providers of cleaning andhygiene products. Combined, the three new leases have added a further €264,000to the annual rent roll at acquisition of €1.8 million, or 14.6 per cent. Of thegain, €102,000 had been achieved by 31 December. Since the year end, a further tenant, has taken a further 288 sqm for five yearsat rents just below €20 per sqm and extended the lease over the company'sexisting space at the same rent for a further three years taking all their letspace to five years unexpired.The net annual gain for the company from the newVolksbank lease amounts to a further €56,000 per annum as from 1 February 2008.The average lease length unexpired for the building has now risen to 3.9 years. As at 31 December 2007, the building was valued by DTZ at €29.5 million,representing a gain of €1.1 million over the third quarter valuation or a 23 percent. gain over the purchase price of €23.9 million in late June 2007. As previously announced, the Company, in July, had drawn down on a debt facilitywith Investkredit to increase total borrowings secured against Baneasa to almost€19.7 million. This has resulted in a net equity invested by the company ofapproximately €4.2 million pre revaluation. With a gain of €5.6 million sinceacquisition, the Company will have achieved a pleasing pro forma return onequity invested of 133 per cent by the year end. Further gains on Banu Antonache and Cascades The company's first two office buildings, Banu Antonache and Cascades, have seenfurther gains in value over the quarter. DTZ has valued Cascades at €18.5million representing a gain of €1.9 million or 11 per cent. over the thirdquarter valuation of €16.6 million. On the original equity investment of €2.6million, post debt drawdown, the return on the company's equity invested inCascades has now grown to 257 per cent. since acquisition in April 2006. The Banu Antonache investment has also shown growth. The value by year end,according to DTZ, amounted to €17.7 million, a gain of €600,000 over the quarteror 3.5 per cent.. On the original invested equity of €3.4 million, the return onthe company's equity has grown to 158 per cent. since acquisition in December2005. The growth in value during the fourth quarter has come mainly from the Company'svaluers taking the view that both buildings are now 'under-rented' compared tothe average achievable office rents in the market for similar quality andlocated buildings if they were being leased out today. This rate, based oncurrent market indicators, is termed the estimated rental value ("ERV"). DTZ believe Cascades could now achieve rents of €22 per sqm per month comparedto the actual rents of €18.5, Banu Antonache could achieve €20 per sqm per monthversus actual rent of €19.2, Baneasa could achieve €17.5 per sqm per monthversus actual rents of €15.6 and Evocentre could achieve €14 per sqm per monthversus actual rents of €13. To value this imputed surplus rental income, DTZhave applied "reversionary" yields as set out in the table below. However, if the buildings were actually leased out now and achieved the expectedERV rent, the rental income would clearly cease to be theoretical and becomeactual. As such, actual income is valued using the current yield or "core"yield. If one was, therefore, to apply the core yield to the ERV rent, one cancalculate the value of the buildings as if they were rented today and achievedthe full ERV rent. The final column of the table below shows the value of eachbuilding under this scenario. This, the directors believe, is the furtherpotential upside from the portfolio. Using DTZ's assumptions, this amounts to afurther €1.75 million of potential total value for the four income producingbuildings or €0.034 per share. Valuation Current Yield on Reversionary ERV rent, ERV rent ERV / core Future Value Income existing yield •sqm/ yield uplift income month • • • • •Banu 17,700,000 1,175,616 6.8% 7.8% 20 1,221,462 18,042,275 342,275 Cascades 18,500,000 1,130,860 6.8% 7.8% 22 1,305,886 19,204,206 704,206 Baneasa 29,500,000 1,936,378 6.8% 8.0% 18 2,032,302 30,108,178 608,178 Evo Centre 6,070,000 261,682 7.8% 9.8% 14 478,245 6,170,903 100,903 Total 71,770,000 4,504,536 6.9% 8.0% 19 5,037,895 73,525,562 1,755,562 Cubic Centre on time and on budget The construction of the building for the company is now well under way and isproceeding according to plan and to budget. The developer estimates practicalcompletion to be achieved during the second quarter of 2009. Fabian has paid aninitial instalment of €12.2 million towards the anticipated purchase price. Thisis also expected to be the total equity requirement for the company. At thepractical completion of the building, Fabian will pay the final instalment basedupon a forward purchase yield of 7.4 per cent. to 7.8 per cent. applied to therents achieved by the developer. DTZ, has estimated the future value of the Cubic Centre at €64.8 million basedon a yield of 7.15 per cent. as at 31 December 2007. After deducting the balanceof the purchse price still to be paid by the company, DTZ estimates a futuredeveloper's profit of €4.4 million to Fabian or €0.09 per share. The Property Market The sub-prime lending crisis in the US has had a limited impact on the Romanianproperty market so far. There is anecdotal evidence that some investors, whoseinvestment strategy involves high levels of gearing, have stepped back fromtransactions at the more speculative end of the office investment market. Inaddition, some overseas developers seeking to enter Romania or add to existingland holdings have become more cautious in the size of schemes they are seekingto develop. The investment manager believes this may be somewhat beneficial to Fabian. AsRomania continues to develop, it is not in the company's interest for theproperty market to move from boom to bust but rather to exhibit a more steadyrate of growth. If some of the more ambitious plans, from last summer, byforeign developers have been scaled back or cancelled, this is much to thebenefit of the existing players in the Romanian property market such as Fabian. It may also mean some further attractive opportunities for the company to pickup buildings, like Baneasa, where the shorter lease lengths unexpired mean theyno longer fit into the investment grade category. Given the strength of theoffice leasing market to the benefit of the landlord and the investmentmanager's experience in this sub-sector, if opportunities appear to acquire suchbuildings cheaply, they will be actively pursued. The investment manager believes that there is evidence that the credit market istightening. In certain instances, banks appear to have increased their fundingcosts by up to 50 basis points ("bp"). However in the investment manager'sopinion the availability of debt is still comfortable and fundamental lendingparameters, such as loan to value, debt service coverage ratios or amortisationperiods have not changed. For offices, headline yields, as reported in the third quarter 2007 NAVstatement, have fallen to around 6 per cent. They are believed to have remainedat similar levels during the fourth quarter. Office rents are continuing toincrease and prime city centre rents are now well above €20 per sqm per monthwith long term sustainable rents of up to €19 per sqm per month for primelocations now believed to be achievable. The vacancy rates remain very low andbelow 3 per cent.. A number of international investors have been active on the market includinginvestors from Austria with Immoeast historically most active but now with UKand German funds having surpassed Austrian investment funds in terms of numberof transactions in the market. Other active funds on the market are APN Funds,Europolis, North Real Estate and Generali. In the beginning of 2007, the forecast new office space to be delivered onto themarket during the year was around 300,000 sqm. Reports from agents suggest thataround half of this volume was actually delivered during 2007, highlighting along term tendency to over optimism upon the part of local agents in respect ofhow much space developers are physically able to construct in a given year.Construction capacity, land title issues, difficulties over financing andplanning delays are all major contributory factors particularly for the lessexperienced local developers. There are a number of new projects in thepipeline, on site, or in advanced planning stages, but in the investmentmanager's opinion it is likely that the delivery volumes will not materiallyincrease in 2008 reflecting some of the caution that is spreading to theRomanian market as well as the specific difficulties highlighted. This should besupportative of an equilibrium in the office leasing market at the very leastalthough further rental rises are expected by local agents. In the medium term,the investment manager believes that Bucharest can sustain two million squaremetres of class A office space compared to the current 800-900,00 square metresat present. Even at two million square metres, it will put Bucharest only levelwith Budapest in today's terms and Budapest is the capital city of a country,Hungary, with a population half that of Romania. Construction costs are forecast by Bucharest based cost consultants to increasefurther in 2008, a trend seen throughout Eastern Europe. This will have someimpact for developers on returns for new projects especially in weaker locationsor where the land is over-priced. On the other hand increases in constructioncosts are anticipated to be more than off-set by continuing growth in rental andsales values. The investment manager continues to be prudent in selectingprojects for consideration by the Fabian's directors, having turned down at theappraisal stage upwards of 100 opportunities in 2007 alone. Other activity and outlook As at 31 December 2007, approximately €23 million of equity (after refinancing)from the €38.1 million of net proceeds from the AIM listing has been earmarkedfor investment in the five transactions either executed or announced during theyear. After allowing for a cash reserve at the Jersey level, this leavesapproximately €11 million of equity to commit to further investments. Fabian is working actively in the market to source new projects and is inadvanced negotiations to finalise a number of important transaction. The companywill continue its successful development strategy acting together with local andinternational development partners. The Timisoara deal which represented thefirst deal for Fabian outside Bucharest, has marked the start of a greater focusgoing forward for the company both on the residential sub-sector and theregional cities. With real wages growing 26 per cent in 2006 and again in doubledigits in the first nine months of 2007, Romanian consumers are now increasinglyable to afford new apartments of around 100 square metres selling for between€1,100 to €2,000 a square metre plus VAT. The growing availability of mortgagefinance has further accelerated this trend. In most regional cities, there hasbeen virtually no large scale residential development, aimed at the country'semerging middle class, since 1990. As stated previously, the investment manager no longer regards fully let officesat 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 or through co-development opportunities. Exciting opportunities continueto be pursued through participation in office co-investment developments. Theinvestment manager will continue to look at a number of opportunities arising topurchase high quality offices with short lease lengths offering activemanagement opportunities. In retail and logistics, yields for fully let buildings or for forward purchasesof buildings once let continue to offer attractive yields of between 7.25 - 8.00per cent. To date, the Company has not purchased any such assets. This is inlarge part due to their scarcity value, their large unit price relative to thesize of Fabian Romania and legal title issues. However, the investment manageris looking at a number of opportunities in both of these sub-sectors. The threat from a global recession driven by the sub-prime crises and decreasedconsumer spending in the US and the emerging instability in world credit andequity markets may impact to some extent on Romania. The investment manager iskeeping a close watch on the recent changes in the country's trade balances andsigns of increased inflation in Romania in order to be sensitive to potentialsudden and unexpected changes in the market. However Fabian is mitigating majorrisks by having implemented measures to limit any dependency on certain marketevents. For example in financing, the investment manager is working actively onspreading the credit risk to not only different financial institutions but withdifferent and interpolating lengths of the credits and a mix of fixed andfloating loans. On the letting side, Fabian is working to secure pre-lets on anearly stage and to sign up strong and reputable tenants. Constructionprocurement and costs are secured by not relying on a single developer and bylocking in fixed construction contracts once building consent is achieved. Byspreading investment into different sub sectors of the country's propertymarket and between Bucharest and the regions, the company will have achievedsome measure of diversification. The Company's development projects, with strong development partners, continueto make excellent progress and to set standards in the country in theirrespective sub-sectors. Fabian's portfolio of office buildings is set tocontinue to benefit from the strength of the office leasing market. A number ofattractive acquisition opportunities are currently under consideration. Theinvestment manager regards the outlook for the Company, the Romanian propertymarket and Romania in general as attractive for 2008. Mark HoldsworthFabian Capital Limited31 January 2008 The directors of Fabian accept responsibility for the information contained inthis announcement. To the best of the knowledge and belief of the directors ofFabian (who have taken all reasonable care to ensure that such is the case) theinformation contained in this announcement is in accordance with the facts anddoes not omit anything likely to affect the import of such information. This information is provided by RNS The company news service from the London Stock Exchange