Fusion Antibody Regulatory News (FAB)

3 Aug 2007 13:58

Fabian Romania Property Fund Ltd03 August 2007 3 August 2007 Fabian Romania Limited (FAB.LN) Net asset value as at 30 June 2007 Highlights • As of 30 June 2007, the Net Asset Value ("NAV") per share of theCompany as determined in accordance with its Articles of Association was €1.548(at 31 March 2007: €1.390) an increase of 11.4 per cent. over the first quarter. • Adjusting the current NAV for the estimated future development profitsof €0.37 per share indicates a potential future NAV ("Development Profit NAV" or"DPNAV") of €1.92 per share. • Executed two investments during the quarter committing a total of €24.9million. The Company's share of the market valuations of these investments(before deferred income tax liabilities) was €30.6 million at 30 June 2007before deducting the outstanding non-recourse bank financing of €15.0 million.On gross assets, this represents an uplift of 23 per cent. from the originalinvestment. • Announced a further three investments committing a total ofapproximately €22 million or around €15 million in equity post debt drawdown.These investments are not included in the 30 June 2007 valuation. • The five investments executed or announced are expected to requirearound €21million (after refinancing) of equity from the net proceeds of theDecember 2006 AIM fundraising of €38.1 million. As at 30 June 2007, theDirectors estimate the Company has approximately €17.0million left to invest • Further yield convergence for the Company's fully let office buildingsto 7.0 and 7.1 per cent. as at 30 June 2007. • In total, nine investments executed or committed, with 61,300 squaremetres ("sqm") of lettable office space in Bucharest secured together with 443residential apartments • Post quarter end, fixed price construction contract agreed with MivanKier for the Company's New Town residential scheme and sales commenced. • The investment manager believes office market rents in Bucharest haveincreased by approximately €2.0 sqm/month apparent by quarter end. To the shareholders of Fabian Romania, Fabian Romania Limited ("Fabian", "Fabian Romania" or the "Company"), the AIMquoted dedicated Romanian real estate investor announces its NAV as at 30 June2007 was €1.548 per share. This represents a rise of 11.4 per cent. from thepreceding first quarter NAV of €1.390 per share. For the year to date, the NAVof the company has risen 14.2 per cent. per cent from €1.356 per share as at 31December 2006. The published NAV was calculated according to the Company's Articles ofAssociation and the results is summarised below: 30 June 2006 30 June 2006 30 June 2006 Market Value Bank (debt) Net Worth Original Investment •m •m •m •mCascades 15.1 (9.4) 5.7 12.2Banu 15.6 (9.1) 6.5 12.3New Town * (^) 15.8 (1.9) 13.9 5.8Lakeview * 8.3 (5.3) 3.0 5.4Cubic Centre 5.0 - 5.0 5.0Baneasa Business Centre 27.6 (13.2) 14.4 23.9Timisoara * 3.0 (1.8) 1.2 1.0Net Cash 29.4Other assets/(liabilities) ** (0.4)Sub-total 90.4 (40.8) 78.7 65.5Shares (#) 50,831,130NAVPS (•) 1.548 * represents Fabian's share of the development, and in the case of Lakeview,after post-acquisition debt financing drawdown ** includes deposits on Evocenter & Romana plus deferred tax liabilities addedback (^) includes development WIP financed by bank debt Future Development Profit Under the Red Book methodology of the Royal Institute of Chartered Surveyors,residual land valuations for development projects provided to Companies such asFabian Romania, exclude the net present value of future development profits. Inorder to provide transparency to investors as to the potential level of suchfuture development profits that may accrue to the Company, DTZ Echinox ("DTZ")have been asked to provide estimates of these development profits. Shareholdersmay then choose to discount these profits to estimate their net present value intoday's terms based on current market conditions. The forecast developmentprofit figures are stated gross and do not include all costs that may beincurred by Fabian over the course of the projects (in particular transactionfees and any carried interest payable to the investment manager). The impliedshare of future development profit figures for the New Town, Lakeview andTimisoara schemes based on the DTZ estimates are highlighted in the table below. Project Implied Fabian share of future development profit Final year of from DTZ estimates (•m) development *New Town 8.8 2009Lakeview 6.0 2009Timisoara 4.2 2010NAV contribution (•m) 19.0 NAVPS contribution (•) 0.37 * Fabian Romania estimates Adding these forecast development profits of €19.0m or €0.37 per share to theNAV produces what the Directors have called the DPNAV of €1.92 per share. Acquisitions After a period of intensive due diligence on a wide variety of potentialinvestments in the first quarter of 2007, the Company began April with only thefour core investments acquired in 2006. The second quarter has been a highlyactive period in due diligence, acquisitions, negotiating leasing contracts,publishing the 2006 annual reports and accounts and arranging financing. Fabianannounced and completed the acquisition of both the Baneasa Business Centre anda 50 per cent. stake in a residential land plot in the City of Timisoara. TheCompany also announced that it had entered into agreements to: acquire a plot ofland in central Bucharest for a turn-key office building, purchase the Evocentreoffice building in North Bucharest and to forward purchase the Cubic Centreoffice building in the Pipera district of Bucharest once completed. The majorhighlights for the Company during the period are as follows. The Baneasa Business Centre On 18 June 2007, the Company was pleased to announce that it had entered into anagreement to purchase the Baneasa Business Centre office building from theAustrian developer Immoconsult Leasinggesellschaft m.b.H. The transaction valuewas €23.9 million. As at 30 June 2007, the building was valued by DTZ at €27.6million. This represents a satisfactory gain of 15 per cent. over the purchaseprice agreed in late 2006. The building is a Class A office building comprising 9,600 sqm of net lettablearea. It is located in the rapidly emerging office district of North Bucharest.The building hosts a range of multinational tenants including Wrigley, Colgate,Fresenius, Cargill and Volksbank thereby meeting the targeted tenant profile ofthe Company. The average lease length is around three years with variety ofreversionary leases at rents between €12 per sqm /month to €16 per sqm/month. The acquisition gives the Company further exposure to a high quality officebuilding located in the heart of the emerging business district of NorthBucharest. The investment manager believes there is rising demand for space byboth existing multinational tenants seeking to expand and new multinationaltenants entering Romania. The investment manager is confident that as leasescome up for renewal, upward revisions in rents per square metre per month areachievable. The gain in the value of the property of some €3.7 million can be explained bytwo factors. Firstly, the purchase yield used for the acquisition withImmoconsult was 7.74 per cent. negotiated in the second half of last year. DTZused an up to date market yield of 7.1 per cent. as at 30 June 2007. On rents of€1.85 million per annum at the time the commercial terms with Immoconsult werefirst agreed, yield convergence from 7.74 per cent to 7.1 per cent has equatedto a gain of some €2.2 million. Secondly, since the commercial terms wereagreed, rents benefited from indexation to Eurozone inflation as from 1 January2007. The investment manager was able to secure for the Company's benefit, thevalue of this indexation as well as other rental increases. Annualised rentalincome as at 30 June 2007 amounted to €1.96 million per annum a gain of€110,000. Capitalised, this increase in rents delivered a further €1.5 millionof value. Since the quarter end, the Company has drawn down on a debt facility withInvestkredit to increase total borrowings secured against Baneasa to almost€19.7 million. This has resulted in a net equity in the company of approximately€4.2 million pre revaluation. With a gain of €3.7 million since acquisition, theCompany will have achieved a highly satisfactory pro forma return on equityinvested of 88 per cent. Timisoara On 25 June 2007, the Company purchased a 50 per cent interest in a residentialdevelopment site to build 250 apartments in Timisoara for €4.7 million. Theacquisition is structured through a development company that owns a 1.1 hectaresite in north Timisoara. The equity consideration amounts to approximately€1million. The land has urban zoning approval to build over 250 apartments(subject to building permits) comprising over 30,000 sqm of residentialdevelopment space. Coltex, the co-shareholder holding the other 50 per cent.interest, has entered into a partnership agreement with Fabian. Coltex will alsobe the development manager and has a known track record, having developed andsold the successful Banu Antonache office building to the Company in late 2005. The acquisition is the Company's first purchase outside Bucharest. It givesFabian further exposure to the rising residential sector as well as toTimisoara. The City is Romania's third largest city with a population of over300,000 and is located in the West close to the Hungarian border. The area isthe focus of a large amount of foreign direct investment in manufacturingindustry, particularly from German and Italian companies. The investment managerbelieves the city has attractive characteristics for supply of modernresidential apartments. The purchase price for the land including acquisitionexpenses was €4.7 million. This equates to around €427 per square metre for theland and €157 per built square metre over ground, assuming 30,000 sqm. Thedevelopment company has already secured and fully drawdown on a land financefacility from Banca Romanesca for €3.6 million. Including near term workingcapital needs, this leaves an initial net equity requirement of approximately €1million for Fabian. DTZ forecast that the Timisoara project will have total development profits of€10.1 million on a development value in excess of €50 million and after totalcosts, excluding land, of approximately €34 million. The land valuation as at 30June 2007 is €5.9 million of which 50 per cent. is owned by Fabian. Thisrepresents a gain ex acquisition costs of some €1.2m or 26 per cent.. TheCompany forecasts the development to be completed by the end of 2010. Cubic Centre On 30 April 2007, the Company announced that it had entered into an agreement topurchase at practical completion the Cubic Centre office building in the Piperadistrict of North Bucharest. The building will be a Class A office building witha gross area of approximately 44,000 square metres, located in north Bucharest.The building is being developed by Kendama, an experienced local developer inRomania. Construction has commenced and completion is anticipated in the secondquarter of 2009. Upon completion, the building will provide a net lettableoffice area of 26,000 sqm over 12 floors, together with 533 car spaces. Thebuilding is located in a prominent location in the Pipera district and is likelyto attract international tenants seeking Class A office space. The Company will pay a first instalment of €12.25 million upon the developersecuring full construction finance and building consent. Of the €12.25 million,€5 million has already been paid in the form of a secured loan. At practicalcompletion of the building by the developer, the Company will pay the finalinstalment based upon a forward purchase yield of 7.4 per cent. - 7.8 per cent.applied to rents achieved. Based upon current rental estimates, the total valueof the transaction is estimated to be approximately of €60 million. The totalequity requirement for the Company is estimated to be €12 million. The agreement to forward purchase the Cubic Centre office building gives theCompany exposure to an Class A office building in the Pipera district of theBucharest secured at an attractive yield. Kendama is responsible for findingtenants, managing the general contractor and financing the project therebyensuring the Company is not taking development risk. The transaction is expectedto close during the third quarter of 2007. Evocentre On 4 June 2007, the Company announced that it had reached agreement to purchasethe Evocenter office building in the Pipera / Voluntari district of Bucharestfor a forecast yield of 9 per cent. The Company had initially proposed topurchase the building empty, thereby taking the letting risk. However, duringthe due diligence process, the Adama Group from Israel, the developer, signed alease taking half of the available space. The building will be completed insummer 2007 to a Class A standard and comprises 3,000 sqm of net lettable area,18 covered car parking spaces and ancillary parking close by. The Company willmeet the consideration of €4.9 million from its own resources. Debt drawdown isanticipated to be during the third quarter 2007 which will reduce the ongoingequity requirement to around €1 million. Although the transaction size, involving around €1.0m of equity, would normallybe too small for Fabian Romania, we decided to pursue the acquisition for theCompany due to the prospective yield on offer. As with the Banu Antonacheacquisition, the Company is taking letting risk. This enables the Company topurchase modern buildings at a more attractive price as a compensation for therisk. However, as current vacancy rates in the City are sub 3 per cent., theletting risk as such is much reduced. In this instance, the letting risk hasbeen reduced further by the decision of Adama to rent half the space. Thetransaction is expected to close during the third quarter. Romana On 14 June 2007, the Company announced the acquisition of the Romana officeproject. This will be the Fund's sixth office building or scheme in Bucharest.The Romana office building will be built for Fabian Romania by Hil C Constructon a centrally located site on Dacia Boulevard. The building will be built toClass A specifications 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. Including non developer related costs, thetotal purchase price is forecast to be €8.0 million. On assumed office rents of€19 sqm/month, the purchase price and total development costs equate to a yieldof 8.9%. Fabian Romania's equity requirement is expected to be €2 million withdebt finance to fund the balance. Completion is conditional on the attainment ofthe final building permit by the developer which is currently expected at theend of August 2007. New Town During the quarter, much time was committed to working with the Company's jointventure partner, Mivan Ltd, to secure a fixed price contract with Mivan Kier Ltdfor the construction of the New Town residential scheme. New Town is a scheme of72,000 sqm above ground involving the constructing of over 635 apartmentstargeted at Bucharest's emerging middle class. The scheme was granted finalbuilding consent at the start of the quarter. Since the quarter end, the Companyannounced that its joint venture development company, Phoenix Park SRL, hasagreed a fixed price build contract with Mivan Kier. In tandem with the discussions with Mivan Kier, the finishing touches werebeing put in place with Mivan for the sales launch. A sales and marketing suitewas created by Mivan in central Bucharest and a full launch started after thequarter end. To date, the first release of 119 apartments with parking from thefirst of two phases have been offered for sale. City wide newspaper and radioadvertising has been taken to support the launch and sales are going well. DTZ forecast the project to have a development value in excess of €122 millionand total costs, excluding land, of approaching €70 million. The land valuationas at 30 June 2007 is €27.9 million of which 50 per cent. is owned by Fabian.DTZ's forecast imply future development profits amounting to €8.8 million orsome €0.17 per share. The Company currently forecasts project completion to beachieved by the end of 2009. Lake View During the quarter, the Company's development partner on the Lake View officescheme in North Bucharest, AIG/Lincoln, has continued to drive forward thedevelopment. The PUD planning consent has been achieved and the application forbuilding consent is in the process of being lodged with the city authorities.This consent is expected over the summer with building work forecast to commencesoon after. In order to pre-let the building, Colliers were appointed during thequarter to exclusively represent the joint venture and a number of tenants havebeen contacted with a view to pre-lets. The building is expected to be deliveredin the third quarter of 2009. For the purposes of calculating the future development profits to the Companyfrom the Lakeview scheme, the Company's directors have used the calculationconducted by DTZ as at 30 September 2006 for the purposes of the AIM listing.DTZ forecast the project to have a development value of around €58 million andtotal costs, excluding land, of approximately €30 million. The Company's shareof the land valuation within the NAV remains the same as at 31 December 2006 ofsome €8.3 million. DTZ's forecast imply future development profits amounts to ashare of €6 million or some €0.12 per share. The Economy Romania continued to prosper during the quarter with 2007 GDP growth nowexpected to be 6.5 per cent according to ING Bank and 6.3 per cent. in 2008.This continues the trend for the country to be one of the fastest growingeconomies in Europe. High real interest rates and a strengthening currencyagainst the Euro have driven down inflation from to an annualised rate of 4.9per cent. on 31 December 2006 to 3.8 per cent. as at June 2007. On the back offalling inflation, the NBR has cut interest rates to 7 per cent. where they areforecast to remain for the rest of the year. The fiscal deficit is expected byING Bank to remain within the Maastricht criteria at -2.8 per cent. of GDP.Mortgage rates in both local currency and in Euros have continued to fall withintroductory rates in Euros as low as 5.75 per cent. thereby providing furthersupport for the residential market. The Property Market The main trend to emerge during the second quarter has been a marked upturn inoffice rents over the first half of the year. According to office agents, primerents per square metre in the City centre have risen to €19-21 sqm/month from€17-19 sqm/month at the end of 2006. The upward rise in rents has been driven bycontinuing low vacancy rates of sub 3 per cent. as well as continued strongforeign direct investment by new multinationals to Romania and by the expansionof existing multinationals. The investment manager has experienced this directlywith the majority of tenants in the Baneasa Business Centre office buildingseeking additional space. In terms of new supply of office space according to DTZ estimates, some 115,000sqm of modern Class A was delivered in 2006 somewhat lower than the 180,000 sqmof space that was forecast during the period. The shortfall was caused byproblems over land title, permitting and other issues that impacted the amountof announced space that was actually developed. The investment manager believesthat current forecasts in the second quarter of 300,000 sqm of new Class A spaceto be delivered to the market by the year end of 2007 remain optimistic.Regardless, total modern stock in Bucharest will remain substantially belowcommensurate levels in Warsaw, Prague and Budapest. The office sub sector of the Romanian property market remained as the main focusof Fabian and other investors' interest during the quarter. Yields havecontinued to fall to close to 6.25 per cent. by the quarter end for primebuildings. The investment manager anticipates that yields will fall further inthe second half of the year driven by strong interest upon the part of foreigninvestment funds. Forward purchase yields are around 7.25 - 8.00 per cent.depending on the location. In retail, similar trends are apparent as in the office market. Strong growth inretail sales and real incomes is driving the demand for retail space by bothhigh street retailers and by hypermarkets in both Bucharest and the regionalcities. Nearly all cities with more than 100,000 inhabitants have at least oneshopping centre project planned. Both the Real group and the Spar chain enteredRomania for the first time in 2006 and along with Auchan and Carrefour, continueto seek new hypermarket locations outside Bucharest from developers. Askingyields for investment transactions continue to fall to sub 7 per cent.. Forforward purchases, yields are approximately 7.25 per cent. The residential sector continues to perform well on the back of rising realincomes, increased mortgage volumes and falling interest rates. Residentialsales prices per square metre continue to rise. Reliable statistics are hard tocome by but prices per square metre appear to be rising in double digits. Whilsta number of new residential schemes have been announced, particularly by Spanishdevelopers, it takes time to convert such schemes from the drawing board to theconstruction stage. In the meantime, the shortage of supply of new apartmentsfor sale has meant continued inflation for old style Communist apartments. Saleprices of up to €900 per sqm are reported to have been achieved compared to€1,250 per sqm for new build in comparable parts of Bucharest. The investmentmanager believes this gap to be artificially low. Other activity and outlook As at 30 June 2007, approximately €21 million of equity (after refinancing) fromthe €38.1 million of net proceeds from the AIM listing has been earmarked forinvestment in the five transactions either executed or announced in the quarter.This leaves approximately €17 million of equity to commit to furtherinvestments. Since the publication of the investment manager's report to the 2006 reports andaccounts, the conditions for office co-investment developments continue toimprove. The leasing market continues to favour the developer and thoughvisibility is difficult, the rental market appears well supported until at leastthe middle of 2009. Even then, Bucharest will still have substantially lessClass A space than either Prague or Budapest in today's terms. The benefits tothe developer from rising rents and falling yields continue to more than offsetconstruction inflation. As stated in the 2006 annual reports and accounts, the investment manager nolonger regards fully let offices at yields below 7 per cent. as attractiveeither on an absolute basis or relative to the opportunities available inRomania in other sub-sectors of the market or through co-developmentopportunities. Exciting opportunities continue to be pursued throughparticipation in office co-investment developments and through the forwardpurchase of office buildings for delivery over the next twelve months where thetaking of letting risk by the Company is compensated by attractive prices In residential, the demand for new middle income housing has, if anything,accelerated during the year to date, driven by the growth of real incomes. Saleprice 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 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. 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 remainder of thecurrent year. Mark Holdsworth Fabian Capital Limited 3 August 2007 Contacts: 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 / James Lewis Tel: +44 20 7936 3000 Notes to Editors Fabian Romania Limited is an experienced and well-known investor in theBucharest and wider Romanian real estate market and is quoted on AIM. Fabianseeks 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, an independent investment management firm thatspecialises in Romanian real estate investments advice. (Fabian Capital does notcarry out any regulated activities in the UK) 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