First Property Regulatory News (FPO)

First Property Group plc

Interim Results for the six months to 30 September 2019

First Property Group plc (AIM: FPO), the award winning property fund manager and investor with operations in the United Kingdom and Central Europe, today announces its interim results for the six months to 30 September 2019.

Financial Highlights:

·; Profit before tax up 8.0% to £2.98 million (2018 proforma: £2.76 million);

·; Diluted earnings per share up 22.5% to 2.07 pence (2018: 1.69 pence);

·; Adjusted NAV up 3.8% to 59.65 pence per share (31 March 2019: 57.48 pence per share);

·; Interim dividend up 2.3% to 0.45 pence per share (2018: 0.44 pence per share).

Operational Highlights:

·; Total assets under management £698 million (31 March 2019: £706 million);

·; Third party assets under management £602 million (31 March 2019: £611 million);

·; Weighted average unexpired fund management contract term: 5.2 years (31 March 2019: 5.8 years);

·; Approved by the Financial Conduct Authority (FCA) as full-scope Alternative Investment Fund Manager (AIFM) enabling the Group to raise and manage third party funds in excess of €500 million.

Financial Summary:

**Prior to deconsolidation of Fprop Opportunities plc (FOP), which held £2.03 million of cash.

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

"I am pleased to be reporting on another satisfactory six months for the Group.

"Our profit before tax increased by 8% to £2.98 million, mainly due to an increased contribution from our fund management division and Chałubińskiego 8 (CH8), one of the two office towers in Warsaw owned by the Group. In view of this profit growth and the sustainability of the Group's earnings, the directors have once again recommended an increased interim dividend.

The occupational market for properties under our management remains generally healthy. New investment opportunities are harder to find at present but they always exist. As ever, I look forward to the future with confidence."

A briefing for analysts will be held at 10:30hrs today at the headquarters of First Property Group plc, 32 St James's Street, London, SW1A 1HD. Participants can also attend by telephone on +44 330 336 9401, passcode 514362. A copy of the accompanying investor presentation can be accessed simultaneously at http://www.fprop.com/media-news/presentations/. An audio recording of the call will subsequently be posted on the company website, www.fprop.com/audio/.

For further information please contact:

Notes to Investors and Editors:

First Property Group plc is an award winning property fund manager and investor with operations in the United Kingdom and Central Europe. Its focus is on higher yielding commercial property with sustainable cash flows. The company is flexible and takes an active approach to asset management. 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 for third parties in property. FPAM currently manages thirteen funds which are invested across the United Kingdom, Poland and Romania.

·; Group Properties - principal investments by the Group, to earn a return on its own capital, usually in partnership with third parties. Investments comprise nine commercial properties in Poland and Romania and non-controlling interests in ten of the thirteen funds managed by FPAM.

Listed on AIM the Company has offices in London, Warsaw and Bucharest. Around one third of the shares in the Company are owned by management and their families. Further information about the Company and its products can be found at: www.fprop.com.

CHIEF EXECUTIVE'S STATEMENT

Performance:

I am pleased to report interim results for the six months ended 30 September 2019. Please note the 2018 income statement has been recalculated on a "Proforma" basis to enable like for like comparison with the current period, by treating the deconsolidated entity Fprop Opportunities plc (FOP) as an associate rather than a subsidiary. (See Note 2 Reconciliation and Note 3 Segmental Analysis)

Revenue earned by the Group increased by 9.8% on a proforma basis (following the deconsolidation of FOP) to £8.08 million (2018 proforma: £7.36 million) yielding an 8.0% increase in profit before tax of £2.98 million (2018 proforma: £2.76 million). The increase in profit before tax is mainly attributable to higher contributions from the fund management division and Chałubińskiego 8 (CH8), one of the two office towers in Warsaw owned by the Group.

Diluted earnings per share increased by 22.5% to 2.07 pence (2018: 1.69 pence), more than the increase in profit before tax, due to a lower deferred tax charge.

The Group ended the period with net assets under the cost basis of accounting of £46.55 million (31 March 2019: £46.29 million). It is the accounting policy of the Group to carry its 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 (EPRA basis) increased by 3.3% from the financial year-end to £67.68 million (31 March 2019: £65.51 million).

Group cash balances at the period end stood at £8.55 million (30 September 2018: £10.01 million, of which £2.03 million was held by FOP [since deconsolidated]). Capital expenditure on the nine directly owned Group properties which was not recoverable from tenants amounted to £0.78 million (2018: £0.58 million), of which some £0.7 million was incurred on Chałubińskiego 8 (CH8). In addition, the Group purchased 500,000 of its own Ordinary Shares for a total consideration of £214,000. These are now held in treasury.

Dividend:

The Directors have resolved to increase the interim dividend by 2.3% to 0.45 pence per share (2018: 0.44 pence per share) which will be paid on 3 January 2020 to shareholders on the register at 29 November 2019, with an ex-dividend date of 28 November 2019.

Review of Operations:

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

Third party assets under management reduced by 1.6% since the financial year-end to £602 million (31 March 2019: £611 million). The decrease was primarily attributable to the sale of one property in the UK on behalf of the fund managed for SIPS. Some 67% of third party assets under management were located in the UK, 32% in Poland, and 1% in Romania.

Fund management fees are generally levied monthly by FPAM by reference to the value of properties under management. In the case of Fprop Offices LP, the Group is entitled to a share of total profits in lieu of fund management fees and to receive annual payments on account equivalent to 10% of total cumulative income profits and realised capital gains. Under its accounting policy the Group will not recognise unrealised property revaluations above the properties' original cost. These payments are adjusted annually, if necessary, for any overpayments made in previous years up to a maximum of total past cumulative payments received.

Revenue earned by this division increased by 11.5% to £2.03 million (2018 proforma: £1.82 million), resulting in profit before unallocated central overheads and tax increasing by 25.0% to £1.00 million (2018: £0.80 million), representing 24.4% of Group profit before unallocated central overheads and tax (2018 proforma: 20.0%). The increase in revenue and profit earned by this division is mainly due to accrued contributions of £247,000 from Fprop Offices LP (2018: £nil). Future entitlements to payment in respect of this fund are being earned at a rate of some £750,000 - £950,000 per annum before property revaluations and thus act as a buffer against possible refund liabilities in the future.

At the period end FPAM's fund management fee income, excluding performance fees and the profit share from Fprop Offices LP, was being earned at an annualised rate of £3.56 million (31 March 2019: £3.34 million).

FPAM's weighted average unexpired fund management contract term at the period end was 5.2 years (2018: 6.3 years).

On 1 November 2019 FPAM's application to be a full scope Alternative Investment Fund Manager (AIFM) was approved by the Financial Conduct Authority (FCA), enabling the Group to raise and manage third party funds in excess of €500 million.

The reconciliation of movement in third party funds under management during the period is shown below:

At the period end FPAM managed 12 (2018: 12) closed-end third party funds. A brief synopsis of the value of assets and maturity of each of these vehicles is set out below:

* Not subject to recent revaluation

GROUP PROPERTIES

At the period end Group Properties comprised:

1. Nine directly owned commercial properties in Poland and Romania which are accounted for under the cost model as set out in the table below:

*Prior to the deduction of direct overhead and unallocated central overhead expenses.

2. Non-controlling interests in ten of the thirteen funds managed by FPAM of which seven are accounted for as Associates under the cost model and three are accounted for as Investments in funds:

* Representing the Group's share of the loss from its associate share in RPT/E AND S prior to its consolidation into the Group's accounts on 1 August 2018.

Revenue from Group Properties increased by 9.2% to £6.05 million (2018 proforma: £5.54 million), generating a profit before unallocated central overheads and tax of £3.10 million (2018 proforma: £3.20 million) and representing 75.6% (2018 proforma: 80.0%) of Group profit before unallocated central overheads and tax. Of this, £1.83 million (2018 proforma: £1.84 million) was contributed by the Group's nine directly owned properties and £1.27 million (2018 proforma: £1.36 million) was contributed by the Group's non-controlling interests in ten of its thirteen funds. The reduction in profit from the Group's non-controlling interests in funds was mainly attributable to the non-repeat of profit on sale (2018: £216,000) by an Associate (Fprop Romanian Supermarkets).

The yield (annualised net operating income divided by market value) of all nine directly owned properties is some 10%. Total gross debt secured against them amounted to £67.5 million (31 March 2019: £66.7 million). Interest expense in the first half in respect of them amounted to some £0.67 million. The current weighted average borrowing cost is 1.84% (31 March 2019: 2.15%) per annum. In order to mitigate the effects of potential interest rate rises, we have fixed the interest rate on some 42% of the loans by value. A one percentage point increase from current interest rates on the balance of the loan interest which is not fixed would increase the Group's interest bill by £460,000 per annum (31 March 2019: £485,000).

Loan repayments in respect of the nine directly owned properties in the first half amounted to some £2.75 million.

A summary of the three largest directly owned properties is below:

1. Chałubińskiego 8, Warsaw (CH8, value circa €40 million) - prime location in Warsaw's central business district, some 300 metres from Warsaw's central station. In recent years the property has benefitted from capital expenditure to upgrade the lobby, the mechanical and electrical equipment and thirteen of the eighteen floors owned by the Group. The property is now around 80% let (2018: circa 60% let). Net operating income is being earned at an annualised rate of €1.3 million (2018: €0.7 million) and should rise to some €3.2 million once fully let;

2. Prokom Building, Gdnyia (net book value circa €30 million) - has been let to Warsaw Stock Exchange listed Asseco since it was first built in 2005. It contributes some €2.6 million per annum to Group profit before tax Asseco's lease is scheduled to expire on 28 October 2020. It is no longer in full occupation of the building and has sub-let some of it. We have begun negotiations to re-lease the property, some of which we would hope to conclude prior to the end of the current lease period. However, it is likely that there will be some vacancy from November 2020, with a consequent reduction in operating income generated by the property, until all the vacant space can be re-leased;

3. Blue Tower, Warsaw (value circa €25 million) - prime location in Warsaw's central business district. The Group owns 48% of the tower and 90% of Corp Sp. z o.o., the company which is constitutionally tied to manage the building. The Group's 48% share is virtually fully let. In recent years the property has benefited from capital expenditure to upgrade the ground floor reception and retail area and all of the fifteen floors owned by the Group. Net operating income is being earned at an annualised rate of some €1.83 per annum (2018: €1.74 million).

Commercial Property Markets Outlook

Poland:

GDP continues to grow at some 3.5% per annum or more.

The scale of commercial property development which has accompanied this economic growth has resulted in pressure on rents and capital values. There are signs, however, that the balance of pricing power may be changing in favour of landlords in some sub-sectors, such as offices in Warsaw, where take-up has exceeded supply for some time now.

Investor demand for commercial property remains high with volumes expected to finish 2019 at around €7 billion (2018: €7.1 billion).

Banking terms for commercial property loans are comparable to those obtainable in Western Europe.

Romania:

GDP growth is expected to slow in 2019 to 4.1% per annum, and to slow further still in 2020 and 2021 to around 3.5% per annum.

The occupier market is growing with the economy but, as in Poland, rental growth remains elusive given the scale of new development.

Investor demand for commercial property continues to improve but volumes remain below larger peers in CEE. Around €1 billion of commercial property is expected to transact in 2019, as it did in 2018. Bank lending margins continue to be under downward pressure, which should boost investment demand for commercial property (although bank appetite for long exposures remains low). Some regional cities are starting to become more attractive for secondary market investors with Cluj-Napoca leading the pack.

United Kingdom:

GDP growth has slowed to an annualised rate of around 0.5%, not helped by political uncertainty.

The commercial property market generated total returns of only 1.9% in the year to 30 September, mainly due to a reduction in capital values in the retail sector. However, secondary older office buildings are performing well because they are diminishing in number as conversions to residential use take place, which is leading to rental growth.

Total transaction volumes over the same period are around a third lower compared to the previous year. Our sense is that a standoff exists between buyers, who require a discount in compensation for political uncertainty, and sellers who are generally unwilling to sell at such prices.

We remain broadly positive about the prospects of the UK commercial property market.

Current Trading and Prospects

I am pleased to be reporting on another satisfactory six months for the Group.

Our profit before tax increased by 8% to £2.98 million, mainly due to an increased contribution from our fund management division and Chałubińskiego 8 (CH8), one of the two office towers in Warsaw owned by the Group. In view of this profit growth and the sustainability of the Group's earnings, the directors have once again recommended an increased interim dividend.

The occupational market for properties under our management remains generally healthy. New investment opportunities are harder to find at present but they always exist. As ever, I look forward to the future with confidence.

Ben Habib

Chief Executive

21 November 2019

CONSOLIDATED INCOME STATEMENT

for the six months to 30 September 2019

* Recalculated on a Proforma basis in order to enable like for like comparison with the current period, by treating the deconsolidated entity Fprop Opportunities plc (FOP) as an associate rather than a subsidiary. (See Note 2 Reconciliation and Note 3 Segmental Analysis).

All operations are continuing.

CONDENSED CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

for the six months to 30 September 2019

* Recalculated on a Proforma basis in order to enable like for like comparison with the current period, by treating the deconsolidated entity Fprop Opportunities plc (FOP) as an associate rather than a subsidiary. (See Note 2 Reconciliation and Note 3 Segmental Analysis).

All operations are continuing. 

CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 September 2019

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months to 30 September 2019

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months to 30 September 2019

NOTES TO THE ACCOUNTS

for the six months ended 30 September 2019

1. Basis of Preparation

·; These interim consolidated financial statements for the six months ended 30 September 2019 have not been audited or reviewed and do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. They have been prepared in accordance with the Group's accounting policies as set out in the Group's latest annual financial statements for the year ended 31 March 2019 and are in compliance with IAS 34 "Interim Financial Reporting". 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).

·; The comparative figures for the financial year ended 31 March 2019 are not the full statutory accounts for the financial year but are abridged 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 interim financial statements were approved by a committee of the Board on 20 November 2019.

2. Reconciliation of prior period to Proforma Income Statement and Proforma Statement of Comprehensive Income (6 months to 30 September 2018)

Reconciliation for adjustment to Share of results in associates:

3. Segmental Analysis

Segment reporting for the six months to 30 September 2019

Direct costs incurred by First Property Group plc relating to the cost of the Board and the related share listing costs are shown separately under unallocated central costs. The staff incentive accrual is included under unallocated central costs but will be reallocated across all segments at the year end.

Revenue for the six months to 30 September 2019 from continuing operations consists of revenue arising in the United Kingdom 12% (2018: 10%) and Central and Eastern Europe 88% (2018: 90%) and all relates solely to the Group's principal activities.

Segment reporting for the six months to 30 September 2018 (PROFORMA)

The proforma figures for the six months ended 30 September 2018 have included the removal of FOP as a separate segment and replaced it with a new segment entitled 'Associates and investments'. The new segment includes the percentage share of FOP had it been accounted for as an associate for the first six months 30 September 2018 together with the Group's interests in associates and distribution income from its other investments (both previously included within Group Properties). The intercompany elimination of FOP's asset management charge has been reversed for the proforma period.

Segment reporting six months to 30 September 2018 (as originally reported)