First Property Regulatory News (FPO)

Date: 9 June 2016

On Behalf of: First Property Group plc ("First Property", "the Company" or "the Group")

Embargoed: 0700hrs

First Property Group plc

Preliminary Results for the twelve months to 31 March 2016

First Property Group plc (AIM: FPO), the property fund manager and investor, today announces its preliminary results for the twelve months ended 31 March 2016.

Financial Summary:

Highlights:

· Total assets under management grew by 8% to £353 million, despite major fund expiry;

· UK PPP fund life extended by five years to February 2022;

· Two new investment companies established which invested €24.08 million in a shopping centre in Swinoujście, in Poland and €10.31 million in nine Lidl supermarkets in Romania respectively;

· Good cash generation - Group cash balances decreased by £3.26 million but would have increased by some 15.4% to £14.13 million had the loan of €6.5 million (£5.15 million) made to Fprop Romanian Supermarkets Ltd been included. This loan was repaid after the year-end;

· Improved earnings visibility - 94.8% of revenue now of a recurring nature (2015: 81.8%);

· Total annualised fund management fees of £1.68 million at the year-end (2015: £1.35 million), with a weighted average unexpired fund management contract term of 6 years, 6 months (2015: 2 years, 10 months);

· Final dividend increased to 1.115 pence per share (2015: 1 penny per share), an increase of 11.5%, which together with the interim dividend of 0.385 pence per share (2015: 0.35 pence per share) equates to a dividend for the year of 1.50 pence per share (2015: 1.35 pence per share);

· The impact of a weaker Euro versus Sterling during the year resulted in profit before tax being some £671,000 lower than if translated at last year's rate;

· Funds under management once again ranked No.1 versus MSCI's Investment Property Databank (IPD) Central & Eastern Europe (CEE) Benchmark, now for the ten years from 2005 to 31 December 2015, and for the annualised periods from 2005 to the end of each of the years between 31 December 2008 and 31 December 2015.

Commenting on the results, Ben Habib, Chief Executive of First Property Group, said:

The Group is trading well across the board and the number and value of assets under management is increasing.

In the financial year just ended the Group benefitted from a full year of contributions from the investments made by it and Fprop Opportunities plc in the previous financial year, all of which have yielded income at or above our expectations at the time of their purchase and are, without exception, valued at levels exceeding their acquisition prices. The recurring nature of these earnings should enable us to build on the impressive increase in adjusted net assets, which together with dividend payments has averaged 21% per annum since 1 April 2008, the onset of the credit crunch.

The markets in which we operate are generally buoyant and offer interesting investment opportunities which we hope to capitalise on in due course.

A briefing for analysts will be held at 10.30hrs today at the Group's headquarters, 32 St James's Street, London, SW1A 1HD. A conference call facility will also be available on +44 (20) 3364 5721, passcode: 811985. A copy of the accompanying investor presentation can be accessed simultaneously at http://www.fprop.com/plc-results/81/88/. A recorded copy of the call will subsequently be posted on the Company website, www.fprop.com.

For further information please contact:

Notes to investors and editors:

First Property Group plc is a property fund manager and investor with operations in the United Kingdom and Central Europe. Its earnings are derived from:

· Fund management - via its FCA regulated and AIFMD approved subsidiary, First Property Asset Management Ltd (FPAM), which earns fees from investing on behalf of third parties in property;

o Management fees are levied by reference to the value of properties under management;

o Performance fees are levied where appropriate, usually payable upon realisation of profits above an agreed hurdle.

· Group Properties - principal investments by the Group to earn a return on its own capital, usually in partnership with third parties.

FPAM funds rank No.1 versus MSCI's Investment Property Databank (IPD) Central & Eastern Europe (CEE) Benchmark for the ten years from the commencement of its operations in Poland in 2005 to 31 December 2015, and for the annualised periods from 2005 to the end of each of the years between 31 December 2008 and 31 December 2015.

First Property Asset Management Limited is authorised and regulated by the Financial Conduct Authority. Further information about the Company and its products can be found at: www.fprop.com.

CHIEF EXECUTIVE'S STATEMENT

Financial Results

I am pleased to report final results for the twelve months ended 31 March 2016.

Revenue earned by the Group increased to £21.96 million (2015: £18.52 million) yielding a profit before tax of £7.35 million (2015: £8.08 million). The decrease in profit before tax is principally attributable to the reduction in the contribution made by Fprop PDR which has now wound down its activities. This reduction was, to a material extent, offset by the increased contribution made by Group Properties.

Diluted earnings per share were 4.28 pence (2015: 6.93 pence), the decrease being principally due to a one off deferred tax credit of £992,000 relating to acquisitions in 2015.

The Group ended the period with reported net assets of £34.09 million (2015: £31.02 million). It is the accounting policy of the Group to carry its direct properties and interests in associates at the lower of cost or market value. The net assets of the Group when adjusted to their market value less any deferred tax liabilities, stood at £51.03 million (2015: £42.41 million). The increase in net assets is attributable mainly to higher property values and a stronger Euro versus Sterling at the year-end.

Group cash balances stood at £8.98 million (2015: £12.24 million) at the year-end but would have been some £14.13million had the loan of €6.5 million (£5.15 million) made to Fprop Romanian Supermarkets Ltd been included. This loan was repaid after the year-end. Of the cash balances at year-end, £4.76 million (2015: £3.26 million) was held by Fprop Opportunities plc (FOP, 76.2% owned by the Group) and £635,000 (2015: £573,000) was held by Corp Sp. z o.o. (the property management company for Blue Tower in Warsaw, 90% owned by the Group).

Dividend

The Directors have resolved to recommend increasing the final dividend to 1.115 pence per share (2015: 1 penny per share), an increase of 11.5%, which together with the interim dividend of 0.385 pence per share (2015: 0.35 pence per share) equates to a dividend for the year of 1.50 pence per share (2015: 1.35 pence per share).

The proposed final dividend will be paid on 30 September 2016 to shareholders on the register at 2 September 2016, and is subject to shareholder approval at the forth coming annual general meeting.

REVIEW OF OPERATIONS

Key Points

The year just ended marked a period of financial consolidation for the Group during which the visibility of its earnings has increased, with some 94.8% (2015: 81.8%) of revenue now of a recurring nature. This increase in the level of recurring earnings is primarily the result of a full year of contributions from the investments made by the Group and Fprop Opportunities plc (FOP).

The average €/ £ rate during the year was 6.1% lower at €1.363 (2015: €1.285). This resulted in Group profit before tax being £671,000 lower than if translated at last year's rate.

PROPERTY FUND MANAGEMENT (First Property Asset Management Ltd or FPAM)

As at 31 March 2016 aggregate assets under management, calculated by reference to independent third party valuations, stood at £353 million (2015: £327 million), including some £156 million (2015: £142 million) of properties owned directly by the Group. Of these, 51% (2015: 65%) were located in Poland, 44% (2015: 33%) in the UK, and 5% (2015: 2%) in Romania.

 The reconciliation of movement in funds under management during the year is shown below:

Fund management fees are levied monthly by FPAM by reference to the value of funds under management excluding cash and cash commitments, with the exception of Fprop PDR (which levies performance fees on realised profits only).

Revenue earned by this division amounted to £2.90 million (2015: £6.14 million), resulting in a profit before unallocated central overheads and tax of £1.38 million (2015: £4.44 million) and representing 14% (2015: 40%) of Group profit before unallocated central overheads and tax.

The decline in revenue was principally the result of lower fees earned from the following funds:

1. Fprop PDR - from which we earned performance fees of £0.9 million (2015: £3.37 million). We have sold all eight investments made by this fund and we do not expect to earn further fees from it.

2. USS Fprop Managed Property Portfolio - from which we earned fees of £301,000 (2015: £1.54 million) prior to the expiry of the fund management contract in August 2015.

At the year-end FPAM's fund management fee income, excluding performance fees, was being earned at an annualised rate of £1.68 million (2015: £1.35 million), with a weighted average unexpired fund management contract term of 6 years, 6 months (2015: 2 years, 10 months).

First Property Asset Management Ltd (FPAM) now manages nine (2015: eight) closed-end funds and joint venture investments. A brief synopsis of the value of assets and maturity of each of these vehicles is set out below:

* Not subject to recent revaluation

Independent Fund Performance Analysis:

Our investments in Poland and Romania once again ranked No.1 against MSCI's Investment Property Databank (IPD) Central & Eastern Europe (CEE) Benchmark, now for the ten years from the commencement of our operations in Poland in 2005 to 31 December 2015, and for the annualised periods from 2005 to the end of each of the years between 31 December 2008 and 31 December 2015.

We were also:

· awarded "Best fund manager" by Alternative Investment Awards and by Acquisition International; and

· shortlisted for awards by Pensions Age, Property Week and Property Investor Europe.

GROUP PROPERTIES

Group Properties comprise eleven commercial properties held directly by the Group (including five held by FOP (in which the Group is a 76.2% shareholder), and non-controlling interests in six of the nine funds and joint ventures managed by FPAM, as set out in the tables below. It is the Group's policy to carry its direct properties and interest in associates at the lower of cost or market value for accounting purposes and to recognise dividends when received.

1. Directly held Properties at 31 March 2016:

2. Non-controlling interests in funds and joint ventures managed by FPAM at 31 March 2016:

Revenue from Group Properties, including FOP, amounted to £19.06 million (2015: £12.38 million), generating a profit before unallocated central overheads and tax of £8.85 million (2015: £6.57 million) and representing 87% (2015: 60%) of Group profit before unallocated central overheads and tax. The increase in revenue and profit before tax prior to the deduction of unallocated central overhead costs was primarily attributable to a full year of income from investments made by the Group and FOP.

The contribution to Group earnings by the eleven directly held properties is detailed below:

* reflects partial contributions to NOI from the six acquisitions not held for the full year.

The loans secured against these properties are each held in separate non-recourse special purpose vehicles.

In order to mitigate potential interest rate rises we have fixed the interest rate on a proportion of the loans. A one percentage point increase from current market interest rates would increase the annual interest bill by £663,000 per annum. The current weighted average borrowing cost is 2.96% (2015: 3.10%)

The income return from our six minority shareholdings in funds managed by FPAM contributed £393,000 to Group profit before tax prior to the deduction of unallocated central overheads, representing 3.8% of the contribution by Group Properties. This should increase as we benefit from a full period contribution from the two new investments in Fprop Romanian Supermarkets Ltd and Fprop Galeria Corso Ltd, which were established in the second half of the year.

Commercial property markets outlook

Poland:

GDP is forecast to grow by 3.9% in 2016 and 3.5% in 2017, maintaining its status as one of Europe's fastest growing economies. Inflation is beginning to trend upwards and is expected to turn positive later this year. Government debt as a percentage of GDP remains relatively low at some 52%.

The election of a new populist government in October 2015 has, however, resulted in increased fiscal risks which have led to increased volatility in the price of Polish government bonds and the Zloty and the downgrading of the country's credit rating by S&P from A- to BBB+.

Rent levels for office property in Warsaw and other main cities have generally softened over the past couple of years, as the pace of new development has increased. Capital values for prime property have increased but for good secondary property, of the sort we favour, values remain largely unchanged from their credit crunch lows, yielding some 2% per annum more than equivalent property in Western Europe. Transaction volumes in 2016 are expected to exceed the €4 billion recorded in 2015, which was the second highest year on record in Poland and the highest since the onset of the credit crunch.   

Romania:

GDP is forecast to grow by 4.2% in 2016 and 3.7% in 2017, as the economy recovers from the credit crunch. Average net wages grew by some 20% in 2015 and private consumption is accelerating, aided by cuts in VAT from 24% to 20%, and from 24% to 9% on food sales. Inflation is not expected to turn positive until 2017. Government debt as a percentage of GDP is low at 38%, the fifth lowest in the EU. Anti-corruption measures are being implemented with zeal - in 2015 the former Prime Minister Victor Ponta was forced to resign, five other ministers were indicted, as were twenty one members of the combined Houses of Parliament, and the Bucharest Mayor.

Such an economic and political backdrop should provide a favourable environment for property investment.

Occupier demand for commercial property is improving as the economy recovers and rent levels are broadly stable, subject to location. Transaction data in the investment market is thin but rising. Generally the mismatch between buyer and seller expectations which has been prevalent through the credit crunch still persists. However the banking market is improving and commercial property investment volumes in 2016 are expected to exceed those of 2015.

United Kingdom:

GDP growth slowed to 2.1% per annum in the first quarter and is forecast to grow at just over 2% per annum for the next few years, a figure which could be higher but for the continued scale of fiscal tightening required to eliminate the budget deficit. Occupier demand for commercial property continues to gradually improve, particularly in the South East. Yields for well let investment property are at post credit crunch lows and we are of the view that in general there is little room for further yield compression, but rather that future gains are more likely to come from rental growth. Transaction levels for investment property have declined in recent months. Attractive investment opportunities are hard to find and tend to require active management in order to add value.

Current Trading and Prospects

The Group is trading well across the board and the number and value of assets under management is increasing.

In the financial year just ended the Group benefitted from a full year of contributions from the investments made by it and Fprop Opportunities plc in the previous financial year, all of which have yielded income at or above our expectations at the time of their purchase and are, without exception, valued at levels exceeding their acquisition prices. The recurring nature of these earnings should enable us to build on the impressive increase in adjusted net assets, which together with dividend payments has averaged 21% per annum since 1 April 2008, the onset of the credit crunch.

The markets in which we operate are generally buoyant and offering interesting investment opportunities which we hope to capitalise on in due course.

Ben Habib

Chief Executive

9 June 2016

CONSOLIDATED INCOME STATEMENT

for the year ended 31 March 2016

All operations are continuing.

CONSOLIDATED SEPARATE STATEMENT

OF OTHER COMPREHENSIVE INCOME

for the year ended 31 March 2016

CONSOLIDATED BALANCE SHEET

As at 31 March 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 March 2016

CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 March 2016

1. Basis of preparation

These preliminary financial statements have not been audited and are derived from the statutory accounts within the meaning of section 434 of the Companies Act 2006. They have been prepared in accordance with the Group's accounting policies that will be applied in the Group's annual financial statements for the year ended 31 March 2016. These are consistent with the policies applied for the year ended 31 March 2015. These accounting policies are drawn up in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and as adopted by the European Union (EU). Whilst the financial information included in this preliminary statement has been prepared in accordance with IFRS, this announcement does not itself contain sufficient information to fully comply with IFRS. The comparative figures for the financial year ended 31 March 2015 are not the statutory accounts for the financial year but are derived from those accounts prepared under IFRS which have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include references to any matter to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

These preliminary financial statements were approved by the Board of Directors on 8 June 2016.

2. Revenue

Revenue from continuing operations consists of revenue arising in the United Kingdom 10% (2015: 20%), Poland 82% (2015: 74%) and Romania 8% (2015: 6%). All revenue relates solely to the Group's principal activities.

3. Segment reporting 2016

Segment reporting 2015-

4. Interest income

5. Tax expense

The tax charge includes actual current and deferred tax for continuing operations.

As in prior years, brought forward and current UK tax losses have not been recognised as a deferred tax asset due to insufficient foreseeable taxable income being earned in the UK. As a result of this treatment the effective tax rate for the Group has increased to 23% (2015: -4.1%), which is higher than both the main stream corporation tax rates of 19% in Poland and 16% in Romania.

The deferred tax credit in the prior year was largely attributable to three acquisitions made during that year, amounting to £992,000. This was created as a result of the nil value paid for the deferred tax asset on acquisition. The deferred tax asset has been restricted to two years worth of profits.

6. Earnings/ NAV per share

The following numbers of shares have been used to calculate both the basic and diluted earnings per share:

The following earnings have been used to calculate both the basic and diluted earnings per share:

7. Goodwill

The Directors have carried out an annual impairment test and concluded that no impairment write down is necessary because the estimated recoverable amount was higher than the value stated.

8. Investment properties

Investment properties owned by the Group, and indirectly via FOP are stated at cost less depreciation and accumulated impairment losses. The properties were valued by CBRE, Polish Properties and BNP Paribas at the Group's financial year-end at €177.73 million (2015: €176.73 million), the Sterling equivalent at closing foreign exchange rates being £140.91 million (2015: £127.86 million). On acquisition of the Gdynia Podolska property the Directors took the decision to depreciate the property over the lease term. In the Director's opinion the property's estimated residual value at the end of the period of ownership will be lower than the carrying value. No other property has been depreciated as the estimated residual value is expected to be higher than the carrying value.

9. Investment in associates and other financial assets and investments

The Group has the following investments:

The Group's investments in associated companies is held at cost plus its share of post-acquisition profits assuming the adoption of the cost model for accounting for investment properties under IAS40 and comprises the following:

If the Group had adopted the alternative fair value model for accounting for investment properties, the carrying value of the investment in associates would have increased to £3,551,159 (2015: £1,175,000).

The Group holds two unlisted investments in funds managed by it. Both are held at fair value. All of the assets have been classified as available for sale. In the Directors' view the fair value has been estimated to be not materially different from their carrying value. Fair value has been arrived at by applying the Group's percentage holding in the investments of the fair value of their net assets.

10. Inventories - land and buildings

The Group's total interest in Blue Tower (an office block in Warsaw) is 48.2% with a fair value of £16.01 million (2015: £14.18 million), and is shown at cost under inventories.

11. Trade and other receivables

12. Trade and other payables

13. Financial liabilities