First Property Regulatory News (FPO)

First Property Group plc

Interim Results for the six months to 30 September 2017

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 2017.

Financial Highlights:

· Profit before tax up 11% to £4.98 million (2016: £4.47 million);

· Contribution to profit by Group Properties was £6.08 million (2016: £5.84 million) prior to deduction of unallocated central overheads and tax;

· Fund management fee revenue up 63% to £1.49 million (2016: £0.92 million);

· Cash reduced to £10.00 million (2016: £14.12 million) due to investments and capital expenditure of £5.14 million;

· Interim dividend up 5% to 0.42 pence per share (2016: 0.40 pence per share);

· Adjusted NAV per share up 12% to 51.25 pence per share (2016: 45.86 pence per share);

· Growth in adjusted NAV, together with dividends paid, since 2006 has equated to 26% per annum on an annualised basis.

Operational Highlights:

· Total assets under management up 37% to £554 million (2016: £405 million);

· Third party assets under management up 63% to £382 million (2016: £235 million);

· Weighted average unexpired fund management contract term: 6.08 years (2016: 6.42 years);

· New fund management contract, Fprop Offices LP: £182 million in equity (of which £51 million has been invested so far) to be invested in office properties in England.

Financial Summary:

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

"This has been another excellent six months for First Property.

"All our funds under management and the properties we own are performing well and third party assets under management have increased by 63% since last year.

"Our prospects are excellent, underpinned by our bedrock of recurring income streams and the opportunities open to us in the various markets in which we operate.

"We look forward to delivering continued growth and increasing levels of profitability for our clients and shareholders."

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 9104, passcode 787807. 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. Around one third of the shares in the Company are owned by management and their families.

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 twelve 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 include ten directly held properties in Poland and Romania (including five held by Fprop Opportunities plc [FOP], in which the Group is currently the majority shareholder), and non-controlling interests in nine other funds managed by FPAM.

Listed on AIM the Company has offices in London, Warsaw and Bucharest. 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 2017.

Revenue earned by the Group amounted to £12.09 million (2016: £11.12 million) yielding a profit before tax of £4.98 million (2016: £4.47 million). Diluted earnings per share were 2.84 pence (2016: 2.40 pence).

The Euro was on average 7.2% stronger versus Sterling during the period at an average rate of £0.881 (2016: £0.822). This resulted in Group profit before tax being £392,000 higher than it would have been on a constant currency basis.

The Group ended the period with reported net assets of £44.91 million (2016: £36.43 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, stood at £60.84 million (2016: £54.43 million). The growth in adjusted net assets, together with dividends paid, since 2006 has equated to 26% per annum on an annualised basis.

Group cash balances stood at £10.00 million (2016: £14.12 million) at the period end. The reduction in cash balances was primarily attributable to investments of £3.48 million and capital expenditure of £1.66 million. Of the cash held, £2.83 million (2016: £5.34 million) was held by FOP (67.3% owned by the Group) and £750,000 was held by Corp Sp. z o.o. (90% owned by the Group), the property management company for Blue Tower in Warsaw.

Dividend:

The Directors have resolved to increase the interim dividend by 5% to 0.42 pence per share (2016: 0.40 pence per share) which will be paid on 30 December 2017 to shareholders on the register at 2 December 2017, with an ex-dividend date of 1 December 2017.

Review of Operations:

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

As at 30 September 2017 aggregate assets under management, calculated by reference to independent third party property valuations, stood at £554 million (2016: £405 million), including some £172 million (2016: £170 million) of properties held by the Group and FOP. Of these 57% were located in the UK, 41% in Poland, and 2% 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 does not receive any fees but instead shares in the profits earned by the fund.

Revenue earned from fund management amounted to £1.49 million (2016: £0.92 million), resulting in a profit before unallocated central overheads and tax of £804,000 (2016: £273,000). This represents 11.7% (2016: 4.5%) of Group profit before unallocated central overheads and tax.

At the period end FPAM's fund management fee income, excluding performance fees, was being earned at an annualised rate of £2.64 million (2016: £1.90 million), a year on year increase of 38.9%.

FPAM's weighted average unexpired fund management contract term at the period end was 6.08 years (2016: 6.42 years).

Third party funds under management grew by some 22% since 31 March 2017 to £382 million, and by some 63% since 30 September 2016.

During the period we were awarded a new fund management contract by Fprop Offices LP, to invest in office properties in England. The fund received equity commitments of £182 million and is entitled to borrow up to a further £80 million enabling it to invest up to £262 million in property. Of this amount we have thus far invested £51 million, leaving a further £211 million to be invested.

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

FPAM now manages twelve (2016: nine) closed-end 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

Group Properties comprises ten commercial properties in Poland and Romania, five of which are held by FOP (in which the Group is currently the majority shareholder), and non-controlling interests in nine of the twelve funds managed by FPAM, as set out in the tables below.

It is the Group's policy to carry its properties and interests in associates at the lower of cost or market value for accounting purposes, and to recognise dividends when received.

1. Directly held properties (including five held by FOP) held at 30 September 2017:

2. Non-controlling interests in funds and joint ventures managed by FPAM at 30 September 2017:

Revenue from Group Properties amounted to £10.60 million (2016: £10.20 million), generating a profit before unallocated central overheads and tax of £6.08 million (2016: £5.84 million) and representing 88.3% (2016: 95.5%) of Group profit before unallocated central overheads and tax.

The contribution to earnings by the Group's ten properties, including the five held by FOP (in which the Group held 67.3%), is detailed below. The table below excludes the Group's non-controlling interests in funds managed by FPAM. The reduction in net operating income is very largely as a result of the sale of a Group property located in Ploiesti, Romania in March 2017.

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

In order to mitigate the effects of potential interest rate rises we have fixed the interest rate on around 40% of the loans. A one percentage point increase from current market interest rates would increase the annual interest bill by £563,000 per annum (2016: £602,000). The current weighted average borrowing cost is 2.46% (2016: 2.59%) per annum.

Fprop Opportunities plc (FOP):

The contribution by FOP to Group profit before tax amounted to £1.51 million (2016: £1.65 million).

Galeria Ostrowiec, FOP's largest asset, was revalued by CBRE at €35.1 million, an uplift of €7.1 million (£6.26 million) from its previous appraised value, following the completion of the works to create some 4,800 m2 of additional retail space at the centre. Capital expenditure incurred to date in this development amounted to £3.2 million, all of which has been capitalised. The net uplift in value is not reflected in the Group's accounts because of the Group's accounting policy to hold its assets at the lower of cost or market value. The new tenants are now completing their respective fit-outs and are expected to commence trading over the next few months. FOP's net operating income will increase as a result of this expansion and the new tenancies.

The Group has continued to sell shares held by it in FOP because it is not the Group's business model to be a controlling shareholder in funds which it manages and to simplify the Group's structure. Sales of shares in FOP during the period resulted in a capital profit for the Group of £101,000 (2016: £144,000). At the period end the Group held 67.3% (31 March 2017: 69.2%) of the issued share capital in FOP.

Associates and Investments:

The Group's non-controlling interests in funds managed by FPAM contributed £740,000 (2016: £271,000) to Group profit before tax prior to the deduction of unallocated central overheads. The bulk of this increase (£397,000) was received from Fprop Romanian Supermarkets Ltd, which sold three of its nine properties and distributed the profit to shareholders.

Commercial Property Markets Outlook

Poland:

GDP growth in Poland is expected to exceed 4% in 2017 and continues to exceed that of most other EU nations. Inflation has picked up but at just over 2% per annum is manageable. Government debt remains low by international standards at some 54% of GDP.

Investor demand for commercial property remains high. Volumes are expected to match or exceed that of 2016 (around €5 billion), itself the second highest year on record. Rental growth has been more elusive, particularly in some sub sectors, such as offices in Warsaw, where there has been considerable new development in recent years. Capital values for good secondary property remain attractive, yielding around one third more than equivalent property in Western Europe at around 7-9% per annum.

Romania:

The economic outlook for Romania is at its best since before the credit crunch. GDP growth accelerated to 8.8% year on year in the third quarter just ended and is comfortably set to exceed 4% for the year.

Investor demand for commercial property continues to improve but volumes remain slim. Around €1 billion of commercial property is expected to transact in 2017. The occupier market is picking up too, as the economy continues to expand but, as in Poland, rental growth remains elusive given the scale of new development.

Bank lending margins are beginning to reduce, which should boost investment demand for commercial property.

United Kingdom:

The Bank of England's recent decision to raise interest rates by 0.25% should have little impact on the commercial property market given the Bank's continued loose monetary policy program, and the continued limited availability of bank debt.

The buying window for commercial property which we identified last year following the UK's referendum on its membership of the EU remains opens for specific kinds of property, in particular the larger institutional lot sizes.

We therefore remain bullish about the prospects of the UK commercial property market and particularly Fprop Offices LP which is currently in the process of investing its capital commitments.

Current Trading and Prospects

This has been another excellent six months for First Property.

All our funds under management and the properties we own are performing well and third party assets under management have increased by 63% since last year.

Our prospects are excellent, underpinned by our bedrock of recurring income streams and the opportunities open to us in the various markets in which we operate.

We look forward to delivering continued growth and increasing levels of profitability for our clients and shareholders.

Ben Habib

Chief Executive

23 November 2017

CONSOLIDATED INCOME STATEMENT

for the six months to 30 September 2017

CONDENSED CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

for the six months to 30 September 2017

All operations are continuing. 

CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 September 2017

CONSOLIDATED STATEMENT OF

CHANGES IN EQUITY

for the six months to 30 September 2017

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months to 30 September 2017

NOTES TO THE ACCOUNTS

for the six months ended 30 September 2017

1. Basis of Preparation

· These interim consolidated financial statements for the six months ended 30 September 2017 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 2017 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 2017 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 22 November 2017.

2. Segmental Analysis

Segment reporting six months to 30 September 2017

Head office costs and overheads that are common to all segments 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 2017 from continuing operations consists of revenue arising in the United Kingdom 8% (2016: 6%) and Central and Eastern Europe 92% (2016: 94%) and all relates solely to the Group's principal activities.

Segment reporting six months to 30 September 2016

Segment reporting year to 31 March 2017

3. Interest Income/ (Expense)

4. Tax Expense

The tax charge is based on a combination of actual current and deferred tax charged at an effective rate that is expected to apply to the profits for the full year.

5. Earnings/ NAV Per Share

The basic earnings per ordinary share is calculated on the profit on ordinary activities after taxation and after non-controlling interests on the weighted average number of ordinary shares in issue, during the period.

Figures in the table below have been used in the calculations.

The following numbers have been used to calculate both the net assets and adjusted net assets per share.

6. Investment Properties