First Property Regulatory News (FPO)

First Property Group plc

Interim Results for the six months to 30 September 2018

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 2018.

Financial Highlights:

· Profit before tax of £3.82 million (2017: £4.98 million);

· Cash unchanged at £10.01 million (2017: £10.00 million) after cash outflows from investments (over the past year) of £5.17 million;

· Adjusted NAV per share of 62.21 pence per share (2017: 51.25 pence per share);

· Interim dividend of 0.44 pence per share (2017: 0.42 pence per share).

Operational Highlights:

· Assets under management £730 million (2017: £554 million);

· Third party assets under management £551 million (2017: £382 million);

· Weighted average unexpired fund management contract term: 6.30 years (2017: 6.08 years);

· Two new funds established (one invested in Poland, the other in Romania, together amounting to some €80 million) with investors including a client of Willis Towers Watson and Oxbridge colleges.

Post period-end Highlight:

· Deconsolidation of subsidiary, Fprop Opportunities plc (FOP), from 12 October 2018 following the sale of a 6.74% interest.

Financial Summary:

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

"This has been a good six months for First Property.

"The reduction in profit before tax should only be temporary and is due virtually entirely to the expiry of Citi Group's lease at one of our two towers in Warsaw, CH8 (previously known as Oxford Tower), as previously flagged. We expect this vacant space to be leased in the near future.

"Third party funds under management increased by 44% from the prior year and the Group's adjusted net assets per share increased by 21% over the same period.

"We are particularly excited by the investments we are acquiring on behalf of Fprop Offices in the UK and the prospects of Eximius Park in Krakow, both of which should result in material contributions to group profits in due course.

"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 9401, passcode 613421. 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. It has grown its adjusted net assets, together with dividends paid, by some 28% per annum since 2006.

The Group's 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 nine 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 2018.

Revenue earned by the Group amounted to £11.16 million (2017: £12.09 million) yielding a profit before tax of £3.82 million (2017: £4.98 million). Diluted earnings per share were 1.69 pence (2017: 2.84 pence). The reduction in revenue and profit before tax was virtually entirely due to the expiry of Citi Group's lease at one of our two towers in Warsaw, CH8 (previously known as Oxford Tower). We expect this vacant space to be leased in the near future.

The Group ended the period with reported net assets of £50.76 million (2017: £44.91 million), an increase of 13.0%. 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 £70.89 million (2017: £60.84 million), an increase of 16.5%.

Group cash balances at the period end were unchanged versus the prior year at £10.01 million (2017: £10.00 million) and reduced by £5.31 million from the financial year end (31 March 2018: £15.32 million). Of the cash held, £2.03 million (2017: £2.83 million) was held by FOP (51.02% owned by the Group until 12 October 2018) and £684,000 was held by Corp Sp. z o.o. (90% owned by the Group), the property management company for Blue Tower in Warsaw. During the period the Group purchased 4,775,000 of its own Ordinary Shares for a total consideration of £2.2 million and made additional investments in its funds of £1.6 million.

Dividend:

The Directors have resolved to increase the interim dividend by 4.8% to 0.44 pence per share (2017: 0.42 pence per share) which will be paid on 28 December 2018 to shareholders on the register at 30 November 2018, with an ex-dividend date of 29 November 2018.

Review of Operations:

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

As at 30 September 2018 aggregate assets under management amounted to £730 million (2017: £554 million), an increase of 32% from the prior year. Of this £551 million was managed on behalf of third parties (2017: £382 million), an increase of 44% from the prior year and an increase of £97 million or 21% from the 2018 financial year-end. The increase since the 2018 financial year-end was attributable to two additional investments in the UK and the establishment of two new funds, Fprop Phoenix Ltd and Fprop Cluj Ltd, which are invested in Poland and Romania respectively.

58.0% of aggregate assets under management were located in the UK, 39.9% in Poland, and 2.1% 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 does not receive any fees but instead shares in the profits earned by the fund. Revenue growth inevitably lags the growth in assets under management because investments made during a given period do not benefit from full period fee or profit contributions, and in the case of Fprop Offices LP also needs to overcome standard property purchase costs in the UK of 6.8% of a given property's value before a profit share can be earned.

Revenue earned from fund management increased by 4% to £1.55 million (2017: £1.49 million), resulting in a profit before unallocated central overheads and tax of £798,000 (2017: £804,000). This represents 15.8% (2017: 11.7%) of Group profit before unallocated central overheads and tax. The Group has not yet recognised any profits from Fprop Offices LP pursuant to the profit share agreement but expects to do so in the second half of the current financial year.

At the period end FPAM's fund management fee income, excluding performance fees, was being earned at an annualised rate of £2.90 million (2017: £2.64 million).

FPAM's weighted average unexpired fund management contract term at the period end was 6.30 years (2017: 6.08 years).

FPAM now has over 100 clients of which pension funds represent 76% by value, endowments funds represent 10% by value and private clients represent 9% by value. The balance is represented by the Group's investments in its funds (which are accounted for as investments and associates).

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

At the period end FPAM managed thirteen (2017: twelve) 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

**With effect from 1 August 2018 RPT/E&S were consolidated into Group Properties

GROUP PROPERTIES

At the period end Group Properties comprised:

· Fourteen commercial properties in Poland and Romania, five of which were held by FOP (in which the Group was the majority shareholder until 12 October 2018), and four of which (with effect 1 August 2018) were jointly held by Regional Property Trading Ltd (RPT) and E&S Estates Ltd (E&S). These fourteen properties are accounted for under the cost model at £152 million. Their fair value is £178 million. See table 1 below.

· Non-controlling interests in nine of the thirteen funds managed by FPAM as set out in table 2 below. Of these:

o Six are accounted for as Associates under the cost model, resulting in a carried value of £5.99 million. If the Group were to adopt the fair value model, the carrying value of its investments in Associates would increase to £16.53 million;

o Three are accounted for as Investments in funds and are carried at fair value of £3.54 million (2017: £3.26 million).

1. Fourteen properties (including five held by FOP and four held by RPT/E&S) as at 30 September 2018:

*Prior to the deduction of unallocated central overheads.

2. Non-controlling interests in nine funds managed by FPAM as at 30 September 2018:

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

Revenue from Group Properties amounted to £9.61 million (2017: £10.60 million), generating a profit before unallocated central overheads and tax of £4.26 million (2017: £6.08 million) and representing 84.2% (2017: 88.3%) of Group profit before unallocated central overheads and tax.

The reduction in revenue and profit compared to the same period last year was virtually entirely due to the expiry of Citi Group's lease at Chałubińskiego 8, Warsaw (CH8, previously known as Oxford Tower), as explained in fuller detail below.

The contribution to earnings by the Group's fourteen properties, including the five held by FOP (in which the Group held 51.02% as at 30 September 2018) and the four held jointly by RPT and E&S, is detailed below. The table below excludes the Group's non-controlling interests in nine of the thirteen funds managed by FPAM.

The loans secured against these fourteen properties are 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 some 40% of the loans by value. A one percentage point increase from current interest rates would increase the Group's interest bill by £650,000 per annum (2017: £563,000). The current weighted average borrowing cost is 2.83% (2017: 2.46%) per annum.

Chałubińskiego 8 (CH8, previously known as Oxford Tower)

Until February 2018 Citi Group leased some 10,000 m2 of office space in CH8, equating to just over half the space we own in this tower.

Since the expiry of Citi's lease we have signed new leases over 3,049 m2 (around a third of the vacated space) and are in advanced negotiations over a further 4,936 m2. We expect the remaining vacant space to be fully leased in the near future.

Fprop Opportunities plc (FOP)

The contribution by FOP to Group profit before unallocated central overheads and tax amounted to £1.78 million (2017: £1.51 million).

The Group has continued to sell shares held by it in FOP. Sales during the period resulted in a capital profit for the Group of £32,000 (2017: £101,000). At the period end the Group held 51.02% (31 March 2018: 51.46%) of the issued share capital. The Group intends to continue to sell its shares until its interest has reduced to some 25%-30%.

After the period end, following further share sales, the Group's share in FOP reduced to 44.3% which permits its deconsolidation from the accounts of the Group. With effect from 12 October 2018 the Group will account for its remaining share of the profits of FOP as an associate undertaking.

Regional Property Trading Ltd (RPT) and E&S Estates Ltd (E&S)

With effect from 1 August 2018 the results of RPT and E&S, which jointly own four properties in Poland, were consolidated into the accounts of the Group, following the Group acquiring full ownership of RPT and 77% of E&S.

Associates and Investments:

The Group's non-controlling interests in funds managed by FPAM contributed £483,000 (2017: £740,000) to Group profit before tax. The reduction compared to the prior year was mainly due to the sale of three supermarkets by Fprop Romanian Supermarkets Ltd (FRS) in the previous financial year, which resulted in a reduced contribution by FRS in the period just ended of £275,000 (2017: £482,000).

The Group made two new associate investments totalling some £1.46 million during the period in the two new funds established by FPAM, Fprop Phoenix Ltd and Fprop Cluj Ltd.

Fprop Phoenix Ltd is the holding company for Eximius Park (previously known as Krakow Business Park). In late May/ early June 2018 the Group refinanced the loan secured against the properties, which was previously in default, and obtained new equity commitments totalling some €33 million. The Group is not participating in the new equity commitments made resulting in its share in Phoenix reducing to 23.4%.

Commercial Property Markets Outlook

Poland:

GDP growth in Poland is expected at 5% in 2018 and to exceed 4% in 2019, again putting it at the forefront of EU member states. Inflation has picked up but at just over 2% per annum should be manageable. Government debt remains low by international standards at some 54% of GDP.

Investor demand for commercial property remains high. Volumes are expected to climb to €6 billion in 2018, a new record. Rental growth has been more elusive in recent years due to the volume of new development, but there are signs that this may be changing in some sub sectors, such as offices in Warsaw, due to high take up levels. 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:

In 2017 Romania was the fastest growing country in the European Union, recording GDP growth of over 7%. GDP growth is expected to slow in 2018 to 3.5%, a level which it is forecast to sustain into 2019 and 2020.

Investor demand for commercial property continues to improve but volumes remain slim. Around €1 billion of commercial property is expected to transact in 2018, as it did in 2017, but volume is expected to be more concentrated in the second half of this year. 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 decision to raise the base rate by 0.25% to 0.75% in August has had limited impact on the commercial property market so far and nor do we expect it to given the Bank's continued loose monetary policy.

We 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 a good six months for First Property.

The reduction in profit before tax should only be temporary and is due virtually entirely to the expiry of Citi Group's lease at one of our two tower's in Warsaw, CH8 (previously known as Oxford Tower), as previously flagged. We expect this vacant space to be leased in the near future.

Third party funds under management increased by 44% from the prior year, and the Group's adjusted net assets per share increased by 21% over the same period.

We are particularly excited by the investments we are acquiring on behalf of Fprop Offices in the UK and the prospects of Eximius Park in Krakow, both of which should result in material contributions to group profits in due course.

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

Ben Habib

Chief Executive

22 November 2018

CONSOLIDATED INCOME STATEMENT

for the six months to 30 September 2018

CONDENSED CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

for the six months to 30 September 2018

All operations are continuing. 

CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 September 2018

CONSOLIDATED STATEMENT OF

CHANGES IN EQUITY

for the six months to 30 September 2018

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months to 30 September 2018

NOTES TO THE ACCOUNTS

for the six months ended 30 September 2018

1. Basis of Preparation

· These interim consolidated financial statements for the six months ended 30 September 2018 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 2018 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 2018 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 21 November 2018.

2. Segmental Analysis

Segment reporting six months to 30 September 2018

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 2018 from continuing operations consists of revenue arising in the United Kingdom 10% (2017: 8%) and Central and Eastern Europe 90% (2017: 92%) and all relates solely to the Group's principal activities.

Segment reporting six months to 30 September 2017

Segment reporting year to 31 March 2018

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.

The period's charge for current tax includes an under accrual from last year of £131,000.

5. Business Acquisitions