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Rutley European Prop (RTY)

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Friday 29 August, 2008

Rutley European Prop

Interim Results

RNS Number : 2546C
Rutley European Property Limited
29 August 2008
 



Rutley European Property Limited

Unaudited Interim Results for the period ended 30 June 2008


Rutley European Property Limited today announces its unaudited interim results for the period ended 30 June 2008.  


Highlights:


  • NAV per share up 2.7% to 70.4p (FY 2007 68.5p) mainly driven by property income, fair value gains on interest rate swaps and foreign exchange gains

  • Adjusted NAV, excluding the effect of deferred tax, up 3.3% to 73.7p per share (FY 2007 71.4p).

  • Net loss before tax for the period of £0.9 million, compared to a £5.6 million loss before tax for the six month period ended 30 June 2007

  • Increased cash inflow from operating activities £15.0 million (30 June 2007 £10.1 million).

  • Dividend of 2.01 pence per share totalling £4,756,901 paid on 3 January 2008.

  • The independent valuation of the property portfolio as at 30 June 08 is 1.8% lower than the valuation as at 31 December 07. A robust performance in challenging market conditions.

  • Gross rents increased by 11.6% as a result of new leases and indexation uplifts since inception.

  • Weighted average gross yield across the investment portfolio increased to 7.36% p.a. as a result of active asset management (FY 2007 6.52%). 

  • Weighted average cost of debt of 5.32% (weighted average fixed rate of 4.37%) and a weighted average loan to value of 73.8% across the investment portfolio.

  • There is no refinancing risk on the portfolio until the first loan agreement comes to maturity on 30 June 2011.

  • Real estate portfolio valued at £527.8 million comprising 58 properties in 6 countries. 

  • Occupancy level remained high at 97% across the portfolio with over 700 leases.













Performance Summary: 



Six months ended 30 June 2008

Six months ended 30 June 2007

Year ended 31 December 2007 

unaudited

unaudited

audited

NAV

£166.6 million

£142.4 million

£162.2 million

NAV Per Share 

£0.704

£0.607

£0.685

(Loss)/profit Per Share After Tax

£(0.01)

£0.03

£(0.01)

Dividends paid in the period

2.01p per Redeemable Preference Share


Nil

1.74p per Redeemable Preference Share

3.149p per C share

Gearing (debt/gross assets)

67.63%

40.85%

66.48%





David Pinckney, Chairman of Rutley European Property Limited commented:  


'I am pleased to report our unaudited interim results for the six months ended 30 June 2008With the investment programme substantially completed, the Company continues to enhance the value of its existing assets through focused asset management programmes. Significant opportunities are available through investment in capital projects and management and re-negotiation of leases. 


Active asset management has led to increased net rental income and robust property portfolio valuations in a challenging environment. The Manager conducts a regular hold / sell analysis on the property portfolio as part of the ongoing management and maintenance of its assets. As a result of this the composition of the portfolio is continually monitored with a view to realising assets at optimal valuations.  Consequently this process may result in disposals. 


Although the Company's shares continue to suffer a discount to net asset value along with its peer group, the Directors consider that the quality of the Company's assets and their underlying cash flows, in combination with active asset management, should help the Company to meet its performance objectives despite current market conditions.'












RUTLEY EUROPEAN PROPERTY LIMITED

UNAUDITED INTERIM REPORT AND ACCOUNTS

AS AT 30 JUNE 2008









TABLE OF CONTENTS



Company Summary

1

Chairman's Statement

2

Manager's Report

5

Independent Review Report to Rutley European Property Limited

10

Unaudited Consolidated Income Statement

11

Unaudited Consolidated Balance Sheet

12

Unaudited Consolidated Statement of Changes in Equity

13

Unaudited Consolidated Cash Flow Statement

14

Notes to the Unaudited Interim Accounts

15

Statement of Directors' Responsibilities

21

Management and Administration

22










Company summary


Rutley European Property Limited ('the Company') and its subsidiaries ('the Group') constitute a core-plus commercial real estate fund with a primary geographical focus on Central and Western Europe and an objective of generating for Shareholders a geared net IRR of not less than 12% per annum on the issue price of its share capital from both capital growth and dividend income.  Capital growth and dividend income are derived from a portfolio of European real estate assets primarily in the office and retail sectors.


Through the resources of its Manager, Rutley Capital Partners LLP, a member of the Knight Frank Group, the Group focuses its activities across GermanyBelgium, the NetherlandsFranceSweden and Poland.  The Company believes that its Manager's platform of internationally experienced resources enables it to proactively manage the Company's property portfolio using efficient asset management techniques to identify opportunities for rental growth, mitigation of risk through restructuring, maintenance of low vacancy rates and close relationships with tenants.


  

Chairman's statement


Your Board of Directors is pleased to present the unaudited Interim Report and Accounts of Rutley European Property Limited for the six months ended 30 June 2008. The Company has a diversified, continental European portfolio of real estate assets with a market value assessed by independent external valuers of £527.8 million as at 30 June 2008.  



Results

Financial highlights are as follows:





Six months ended

30-06-2008

Unaudited

Six months ended

30-06-2007

Unaudited

Year ended


31-12-2007

Audited


£ 

£

£

(Loss)/profit before tax

(935,510)

(5,643,322)

456,032

Loss after tax

(1,770,705)

(6,799,722)

(1,041,845)

Total assets

575,676,287

449,124,925

545,284,092

Net assets

166,624,273

142,371,499

162,188,854

Net asset value per share (2007: Redeemable Preference Share)

0.704

0.607

0.685

Adjusted net asset value per share (2007: Redeemable Preference Share)


0.737


0.615


0.714


Note: adjusted net asset value per share is calculated using Group net assets after eliminating deferred tax assets and liabilitiesThe Directors believe this is relevant additional information due to the Group's corporate structure which should minimise tax on capital gains. 


The result for the period reflects the fact that the property portfolio has increased in size since 30 June 2007. As a result rental income has risen substantially and this has been enhanced through active management to reduce vacancy rates and increase average rental values. 


Property operating expenses and administrative expenses for the period are consequently significantly lower proportionally, at 42% of rental income compared to 80% for the six months ended 30 June 2007.  


The Group's overall net asset position has also benefited from the movement in the Euro-Sterling conversion rate. Although the functional currency of the majority of group entities is the Euro, the Interim Accounts are prepared in Sterling. The resulting differences in translation of assets and liabilities at balance sheet dates are credited or debited to the translation reserve, and in the current financial period these differences have resulted in a positive movement of £11.0 million.


The Interim Consolidated Cash Flow Statement demonstrates that cash inflow from operating activities has increased since the comparable period in 2007. 

  



Chairman's statement (Continued)


Financing

The Group average loan to value ratio is 73.8% (31 December 2007: 72.4%), and at the balance sheet date no external loans had breached their facility covenants.  Medium term financing is in place for each property, covering anticipated hold periods and with recourse only to the special purpose vehicles holding the assets. As a result there is no refinancing risk on the portfolio until the first loan agreement comes to maturity on 30 June 2011


The result for the period has benefited from the fair value adjustment of the interest rate contracts entered into by the Group to swap its floating rate bank borrowings into a weighted average fixed rate of 4.37%.  The fair value adjustment of these swaps represents a net asset of €12.2 million (£9.6 million) as at 30 June 2008 compared to a net asset of €1.6 million (£1.2 million) as at 31 December 2007. The resulting credit of €10.6 million (£8.2 million) to Finance Income is a reflection of the recent strong increase in medium term interest rates throughout Europe. Financing costs have meanwhile remained constant throughout the period due to these interest rate swap contracts.   


Foreign currency exposure is mitigated by entering into matched funding wherever possible. The Group has not entered into any hedging instruments to hedge foreign exchange exposure but this is constantly under review.


Portfolio Synopsis


Overall, the valuation of the portfolio has decreased by 1.8in Euro terms since 31 December 2007, an encouraging figure in the light of prevailing market conditions. Certain properties in Poland and Germany have achieved increases in fair value over the period, underlining the quality of assets within the portfolio and of the associated tenants. In addition the Manager's efforts to increase rental income (gross rents have increased by over 11% since acquisition) and to improve lease terms, tenant composition and the quality of rented space have helped portfolio valuations to remain relatively stable.  


The result is that the weighted average gross yield of the Company's portfolio has been increased to 7.36% per annum (31 December 2007: 7.31%), a figure which should in turn be seen against a weighted average cost of debt of 5.32% (31 December 2007: 5.28%).  The weighted average unexpired lease term has meanwhile improved to 4.36 years as a30 June 2008 (31 December 2007: 4.32 years).


The portfolio has defensive characteristics in that it is favourably diversified in terms of geography and sector. The Company has no exposure to those European countries worst hit by recessionary pressures and valuation falls such as Spain and Italy, as well as Ireland and the UK.  The portfolio's sector weighting is still in favour of offices, which make up 63% of the total by valuation (31 December 2007: 64%), with retail assets representing 24% of the portfolio (31 December 2007: 25%) and mixed use schemes making up 13% of the portfolio (31 December 2007: 11%). The Manager conducts a regular hold / sell analysis on the property portfolio as part of the ongoing management and maintenance of the portfolio. As a result of this the composition of the portfolio is continually monitored with a view to realising assets at optimal valuations.  Consequently this process may result in disposals. The Directors are kept fully informed of these reviews and stand ready to take whatever action is necessary to increase shareholder value.


Dividends

During the first half of 2008 the Company paid an interim dividend amounting to £4,756,901 or 2.01 pence per share in respect of the 2007 financial year. On 10 July 2008, the Board recommended a dividend payment of £2,366,618 or 1.00 pence per share as an interim dividend in respect of the 2008 financial year. As at 30 June 2008  the target annual dividend of 3.8p was fully covered by forecast net cash flows. In light of current market conditions the dividend policy remains under review.



  

Chairman's statement (Continued)


Summary and Prospects

With the investment programme substantially completed, the Company continues to enhance the value of its existing assets through focused asset management programmes. Significant opportunities present themselves through investment in capital projects and management and re-negotiation of leases.    


However share prices in the property sector in general have continued to suffer largely as a result of anticipated and in some cases real falls in property valuations and investor sensitivities over debt covenants.  Although the Company's shares continue to suffer a discount to net asset value along with its peer group, the Directors consider that the quality of the assets and their underlying cash flows, in association with active asset management, should help the Company to meet its performance objectives despite current market conditions. In addition the policy of share buy back is under review by the Board.


The Board would like to draw your attention to the Company's website www.rutleyeuropean.com  where comprehensive information about the Company, including the latest share price and public announcements, can be viewed.  








David Pinckney                            

Chairman 


28 August 2008

  Manager's report


Manager

Rutley Capital Partners LLP has acted as Manager to the Company throughout the period under review. The Manager's principal objective is to protect and enhance income and value through active asset management including reducing vacancy, increasing net lettable areas and increasing lease lengths and average rental value. The Manager has an experienced international property team working alongside a local property management network established by the Manager to achieve the Company's objective.


Commercial Property Market Commentary

The Continental European economy experienced reasonably solid growth during the period under review, and this was a positive signal for the Company, particularly given its exposure to stronger performing countries. Since the period end, however, the ECB has lifted interest rates to counter inflationary pressures emanating largely from abroad, while at the same time the overall growth outlook has weakened. 


In addition the unwinding of the credit boom continues, resulting in tighter lending and increased borrowing costs. As a result property transaction volumes are down, and there is a disparity between the expectations of vendors and buyers.  


That said, it is important to distinguish between individual European country markets and sectors. The Company's absence of exposure to SpainPortugalItalyIreland and Greece is a positive. So too is the exposure to the office and retail sectors. Opportunities to adjust the portfolio mix and to manage the portfolio more efficiently are bound to arise in the prevailing climate.


Portfolio Activity

Following the conclusion of the acquisition phase of the investment strategy at the end of 2007, the portfolio now enjoys diversification through 58 assets in six countries and income derived from close to 700 tenancies.  The portfolio's office buildings continue to receive strong interest from new tenants for the limited vacant parts and a dialogue continues with several existing tenants to restructure their leases. We conclude from this activity that the existing income is stable and can be replaced should unexpected void periods be suffered. The portfolio's retail assets are predominantly in western Germany and leased to strong tenants on long lease terms. Due to the recent increase in the German consumer price index reversionary rental increases will be enjoyed earlier. Discount retailers in Germany continue to expand to satisfy demand which is positive to the occupational security of the retail portfolio.  


The portfolio has been structured to provide secure income from institutional grade assets together with opportunities to increase rentals, extend lease terms and reduce vacancy and costs. This asset management focus has been intensively driven since the first purchase, and gross rents have increased by 11.6% as a result of newly created leases and indexation uplifts since inception. Likewise, the portfolio enjoys a low vacancy rate - the weighted average is 3.0% (31 December 2007: 2.3%). Vacancies primarily relate to office assets in Sweden and Germany where occupational demand remains robust.


Even more notably, the portfolio's value in PolandGermany and France  has increased in value since acquisition.  This has contributed in part to stabilising the portfolio's overall valuation, limiting the decline over the six months to 1.8% at a time of deteriorating capital markets.  


In addition to the above, the following specific initiatives have been, or are in the process of being implemented, with a view to enhancing assets' income and capital values.


  

Manager's report (Continued)


Portfolio Activity (Continued)

Mosse ZentrumBerlinGermany:  the business plan for this asset has included refurbishment works to the entrance halls together with an active marketing campaign to reduce vacancy. As a consequence of this initiative, vacancy has reduced from 21.7% to 14.6% (shortly after the first half of 2008 the vacancy rate was reduced further by 3.1%). Since Mosse Zentrum I and II were combined 15 months ago a healthy pipeline of further new leases has been identified for the second half of 2008. Negotiations are in the final stages with two major tenants to restructure their leases to lengthen the income stream. The property provides a current yield of 6.8% per annum and the anticipated fully leased position for the year ended 31 December 2008 is 6.9% per annum, whiccompares favourably with the purchase yield of 6.5% per annum.


Karolinen Portfolio, Karlstad, Sweden:  a portfolio of five properties located in the city of Karlstad in Western Sweden. A significant proportion (approximately 60%) of the income is secured against government institutions and the portfolio also provides a number of value-added asset management opportunities over the medium term. The Manager is currently evaluating development opportunities for an additional 7,000 square metres of office accommodation on surplus land, which would indicatively provide a higher yield on cost and thus increasing the overall returns from this investment not only in revenue, but also capital terms.  


In addition to the above, the Manager is also seeking to enhance the net operating income by both increasing rental levels and reducing non-recoverable costs. The market for office accommodation in this area is in the range of SEK 1,000 to 1,200 psm/annum. The current average rental within the subject assets is approximately SEK 1,000 psm/ annum illustrating the scope for upward rental increases. 


All maintenance costs are being scrutinised and during the course of the second half of 2008 all maintenance contracts are being put out to tender with a view to reducing costs and thereby enhancing distributable income. A saving to the cost base of 10% would enhance distributable income by approximately SEK 3.0 million (€0.3 million) per annum.


We believe that, given the lack of new supply in this evolving market, a positive increase in the net operating income in excess of 10% per annum will be achievable over the term of the business plan for this asset. 


'Project ForestPortfolio (office)Germanythe portfolio consists of four office buildings, one mixed use building and a retail scheme. The business plan for this portfolio has been to enhance income through the reduction of vacancy and enhancement of rental values.  Several smaller leases have been extended within the portfolio.  Since acquisition the occupancy has increased from 93.0% to 98.6% and the income yield has increased to 7.36% per annum. 



  Manager's report (Continued)



Portfolio Activity (Continued)

'RetailPortfolioGermany November 2007 purchased portfolio of 15 retail assets and two mixed use buildings in 16 locations in Western Germany. The properties are predominantly single storey supermarkets with surface car parking. The portfolio is diversified through over 50 tenancies with occupancy at 95.3% and a weighted average unexpired lease term of over six years. These assets provide excellent diversification to the otherwise office oriented portfolio and also offer a positive contribution to the Group's overall weighted average unexpired lease term. 


Prima CourtWarsawPolanda very well located multi occupied building with excellent rental growth potential. The rental value of the building has increased over the year from €15 psm/month to approximately €30 psm/month. As tenants' leases expire or opportunities to amend their leases arise (through expansion) the income profile is being enhanced. Through a mixture of increased actual income and reversionary potential, the valuation as at 30 June 2008 compared to the total acquisition cost has increased by 27.4% to €14.5 million (£11.5 million). 


Buma SquareKrakowPolanda large office and retail scheme located in a market that is expanding rapidly. The asset was acquired for its value-add potential as international tenants seek accommodation in this rapidly developing market. The lack of supply of suitable accommodation in this region is allowing the Manager to negotiate higher rents and longer lease terms.  As a consequence of the Manager's active management of this asset, the rental income has increased by €0.6 million per annum and the valuation at 30 June 2008 is 10.4% above total acquisition cost. 


Equinox BuildingWemmelBelgiuman office building of 7,614 square metres located to the north east of Brussels within close proximity to the capital's ring road.  The Manager is in advanced discussions with one of the four tenants to substantially expand in the building and extend its lease length. The property was acquired at a total acquisition cost of €16.0 million (£12.7 million) and as at 30 June 2008 was valued at €18.4 million (£14.6 million), representing an increase of 15.0%. The valuation as at 30 June 2008 is based on the assumption of a share transaction, with purchaser's costs at 2.5%.




Portfolio cost and valuation




€ millions

£ millions




Initial price at purchase*

652.3

516.0

Acquisition costs

37.4

29.6

Total acquisition cost

689.7

545.6




Valuation as at 30 June 2008

667.2

527.8




Capital growth (initial price at purchase*)

14.9

11.8

 %

2.3%

2.3%

Capital growth (total acquisition cost)

(22.5)

(17.8)

 %

(3.3%)

(3.3)%

* exclusive of acquisition costs



  Manager's report (Continued)


Asset Management

Whilst the valuation as at 30 June 2008 is 1.8% lower than the valuation as at 31 December 2007, this compares favourably with more significant market declines of 10% to 20% associated with the UK, Italy and Spain, and is largely due to the impact of positive management and quality stock selection in defensive markets  


The Manager strives to have an excellent relationship with all tenants, and several negotiations are on-going to restructure leases in order to lengthen secure income streams, resulting in a portfolio designed to withstand wider economic stresses. Refurbishment initiatives, particularly in Sweden and Germany, are also expected to create additional value. The developed asset-level strategies will aim to increase rental income from both existing tenancies and the creation of new lettable areas. This is not only expected to increase the portfolio's annual income return but also to increase capital values.


Key Statistics


Largest tenants (top ten by income)

Tenant 

Sector

Property

% of portfolio

Lease Expiry

Real Markt

Retail

German retail units

8.80%

31 December 2009*

Total Deutschland GmbH

Oil

Mosse ZentrumBerlin

4.81%

31 December 2011

Rewe Grossflaechenanhdels GmbH

Retail

German retail leases

3.28%

31 October 2009*

DEGES Deutsche Einheit Fernstassenplanungs-und-bau GmbH

Infrastructure

Mosse ZentrumBerlin

3.43%

31 December 2010

Statens Räddningsverk

State - Rescue Agency

Karolinen 2, Karlstad

3.10%

31 March 2010

Toom Baumarkt GmbH

Retail

Rheinfelden

2.67%

30 April 2018

Elvia

Financial services

PoeldijkstraatAmsterdam

2.61%

30 September 2010

Landstinget i Värmland

State  

Bryggaren 12, Karolinen 2, Karlstadt

1.80%

30 June 2011*

Domstolsverket

Courts

Karolinen 2, Karlstadt

1.72%

30 September 2021*

SOPEXA

Food Agency

Toricelli, Paris

1.71%

21 June 2015

Total

 


33.93%


Remaining tenants

 


66.07%


*the tenant has several leases and the date quoted is that of the earliest material lease expiry


  Manager's report (Continued)


Key Statistics (continued)

The first and third largest tenants are convenience retail, generally considered a safe-haven in uncertain economic times, the second largest tenant is an oil company and the majority of the remainder tenants are state organisations. 


Of the top 20 tenants, which represent approximately 50% of rental income, less than 3is generated from the financial services sector. 


Property portfolio summary


Country

Sector

Lettable area

ERV

Vacancy rate

Market value

June 2008

Current gross yield (€)




square m

£ per annum 

% area

(£) million 

% per annum 

Germany


Office

92,126

8,351,449

6.32%

144.2

6.80%

Germany


Retail

110,276

9,604,742

3.35%

128.6

7.23%

Germany


Mixed use

52,366

3,647,862

0.76%

59.0

7.30%

Poland


Office

32,090

3,669,545

0.00%

57.2

8.11%

Sweden


Office

75,085

6,387,984

2.54%

84.2

8.56%

Belgium


Office

7,614

955,645

0.00%

14.6

7.68%

Netherlands


Office

13,954

2,034,566

0.00%

28.6

6.66%

France


Office

1,863

614,905

0.00%

11.4

5.72%



  

Independent Review Report to Rutley European Property Limited



Introduction 

We have been engaged by the Company to review the condensed set of financial statements in the interim report for the six months ended 30 June 2008 which comprises the Consolidated Income Statement, the Consolidated Balance Sheet, the Consolidated Statement of Changes in Equity, the Consolidated Cash Flow Statement and the related notes 1 to 9. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 


This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.


Directors' Responsibilities 

The interim financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 


As disclosed in note 3, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union. 


Our Responsibility 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the interim report based on our review. 


Scope of Review 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. 


Conclusion 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the interim report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority. 





Ernst & Young LLP

London

28 August 2008


  Consolidated Income Statement










Six months ended 

Six months ended 

Year ended



30-06-2008

30-06-2007

31-12-2007



unaudited

unaudited

audited


Notes

£

£

£

   Rental income


21,968,611

6,645,977

21,935,327

   Property operating expenses


(5,415,355)

(1,315,049)

(4,742,718)






NET RENTAL INCOME


16,553,256

5,330,928

17,192,609






  Administrative and other expenses


(3,796,538)

(3,983,019)

(8,549,317)

   Fair value decrease in investment properties

6

(12,033,527)

(9,812,480)

(1,362,667)






OPERATING PROFIT/(LOSS)


723,191

(8,464,571)

7,280,625






  Finance income


8,825,637

5,357,895

3,545,475

  Finance costs


(10,484,338)

(2,536,646)

(10,370,068)






(LOSS)/PROFIT BEFORE TAX


(935,510)

(5,643,322)

456,032






   Tax charge on (loss)/profit for the period


(835,195)

(1,156,400)

(1,497,877)






LOSS AFTER TAX


(1,770,705)

(6,799,722)

(1,041,845)






(Loss)/profit for the period attributable to:





Redeemable Preference Shareholders


(1,770,705)

3,461,120

(1,041,845)

C Shareholders


-

(10,260,841)

-






Basic and diluted (loss)/profit per:





Redeemable preference share


(0.01)

0.03

(0.01)

C Share


-

(11.75)

-

















  Consolidated Balance Sheet









As at 

As at

As at



30-06-2008

30-06-2007

31-12-2007



unaudited

unaudited

audited


Notes

£

£

£

Non-current Assets





   Investment property

6

527,844,383

373,551,624

500,961,747

   Intangible assets


8,040,851

1,124,344

7,551,337

   Other non-current assets


593,354

-

552,649

   Deferred tax asset


5,033

-

111,477



536,483,621

374,675,968

509,177,210






Current Assets





   Derivative financial instruments


9,625,316

3,152,136

1,563,711

   Trade and other receivables


1,630,907

2,885,861

2,893,773

   Cash and cash equivalents


27,936,443

68,410,960

31,649,398



39,192,666

74,448,957

36,106,882






TOTAL ASSETS


575,676,287

449,124,925

545,284,092






Equity





   Share capital


1

1

1

   Share premium


1,353,867

136,329,028

1,353,867

   Retained earnings


139,790,141

4,621,284

146,317,747

   Translation reserves


25,480,264

1,421,186

14,517,239

Total Equity


166,624,273

142,371,499

162,188,854






Non-current Liabilities





   Deferred taxation


7,850,269

1,930,083

6,839,820

   Borrowings

7

387,244,568

182,848,974

360,302,569



395,094,837

184,779,057

367,142,389






Current Liabilities





   Derivative financial instruments


-

-

355,371

   Trade and other payables


13,492,285

121,932,136

15,233,779

   Income tax


464,892

42,233

363,699



13,957,177

121,974,369

15,952,849






TOTAL LIABILITIES


409,052,014

306,753,426

383,095,238






TOTAL EQUITY AND LIABILITIES


575,676,287

449,124,925

545,284,092






Number of Redeemable Preference Shares


236,661,750

114,022,500

236,661,750

Number of Shares


-

87,300,000

-






Net asset value:





Per Redeemable Preference Share


0.704

0.607

0.685

Per C Share


-

0.838

-



  


Consolidated Statement of Changes in Equity





Share

Share

Retained

Translation 




Capital

Premium

Earnings

Reserve

Total


Notes

£

£

£

£

£








EQUITY AT 1 JANUARY 2007 (audited)


1

136,329,028

15,805,747

(12,312)

152,122,464








Foreign exchange gain


-

-

-

1,433,498

1,433,498

   Profit attributable to Redeemable Preference Shareholders


-

-

3,461,120

-

3,461,120

  Loss attributable to C Shareholders


-

-

(10,260,841)

-

(10,260,841)

  Interim dividend


-

-

(4,384,742)

-

(4,384,742)








EQUITY AT 30 JUNE 2007 (unaudited)


1

136,329,028

4,621,284

1,421,186

142,371,499








  Issue of Redeemable Preference Shares


-

1,319,498

-

-

1,319,498

Issue costs


-

(7,745)

-

-

(7,745)

  Conversion of share premium account 


-

(136,286,914)

136,286,914

-

-

  Foreign exchange gain 


-

-

-

13,096,053

13,096,053

  Profit attributable to Redeemable Preference Shareholders 


-

-

5,757,876

-

5,757,876

  Bonus dividend


-

-

(348,327)

-

(348,327)








EQUITY AT 31 DECEMBER 2007 (audited)


1

1,353,867

146,317,747

14,517,239

162,188,854








   Loss attributable to Redeemable Preference Shareholders


-

-

(1,770,705)

-

(1,770,705)

  Foreign exchange gain


-

-

-

10,963,025

10,963,025

   Interim dividend

5

-

-

(4,756,901)

-

(4,756,901)








EQUITY AT 30 JUNE 2008 (unaudited)


1

1,353,867

139,790,141

25,480,264

166,624,273




  


Consolidated Cash flow Statement







Six months ended 

Six months ended

Year ended


30-06-2008

30-06-2007

31-12-2007


unaudited

unaudited

audited


£

£

£





Cash flows from operating activities




(Loss)/profit before tax for the period

(935,510)

(5,643,322)

456,032

Adjustments:




   Net finance costs

10,149,614

532,790

6,833,282

  Income tax paid

(105,969)

(183,546)

(121,487)

   Movement in working capital

(174,657)

6,965,032

16,126,401

Non-cash items:




   Fair value decrease in investment properties

12,033,527

9,812,480

1,362,667

   Fair value adjustments on interest rate swaps

(8,209,546)

(2,767,803)

(824,007)

   Exchange rate differences

2,195,099

1,411,803

1,576,752

NET CASH INFLOW FROM OPERATING ACTIVITIES

14,952,558


10,127,434


25,409,640





Cash flows from investing activities




  Acquisition of investment property

(3,712,807)

(154,945,902)

(293,014,560)

  Acquisition of subsidiary, net of cash acquired

-

-

(18,977,850)





NET CASH OUTFLOW FROM INVESTING ACTIVITIES

(3,712,807)

(154,945,902)

(311,992,410)





Cash flows from financing activities




  Proceeds from the issue of Shares

-

9,305,540

10,625,038

  Issue costs paid on issue of Shares

-

-

(1,606,921)

  Finance income 

321,156

1,765,055

2,617,778

  Finance costs

(9,850,031)

(2,841,584)

(6,170,369)

  Drawdown of bank loans

(666,930)

110,391,273

282,179,554

  Repayment of borrowings

-

-

(59,288,987)

  Dividends paid

(4,756,901)

-

(4,733,069)





NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES

(14,952,706)

118,620,284

223,623,024





DECREASE IN CASH AND CASH EQUIVALENTS

(3,712,955)

(26,198,184)

(62,959,746)





CASH AND CASH EQUIVALENTS AT THE START OF THE PERIOD

31,649,398

94,609,144

94,609,144





CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD


27,936,443


68,410,960


31,649,398














  

Notes to the Interim Accounts


1. GENERAL INFORMATION

Rutley European Property Limited ('the Company') and its subsidiaries (together, 'the Group') is principally involved in investment in commercial property in Europe.  


The Company is a limited liability, closed-ended investment company incorporated in Guernsey on 17 November 2005, registration number 43943. The address of its registered office is Trafalgar Court, Les Banques, St. Peter PortGuernsey. The Company has its primary listing on the Official List of the London Stock Exchange.


These Interim Accounts were authorised for issue by the Board of Directors on 28 August 2008.


2. STATEMENT OF COMPLIANCE

The information in these Interim Accounts is unaudited and does not constitute statutory accounts. The statutory accounts as at 31 December 2007 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified.  


The Interim Accounts set out the results for the six months to 30 June 2008 and, unless otherwise stated, comparisons are for the six months to 30 June 2007.


3.  BASIS OF PREPARATION AND ACCOUNTING POLICIES

Basis of preparation

The Interim Accounts for the six months ended 30 June 2008 have been prepared in accordance with IAS 34 Interim Financial Reporting, applicable Guernsey Law and the Listing Rules of the UK Listing Authority.


The Interim Accounts are condensed financial statements and do not include all the information and disclosures required in the Annual Financial Statements, and should be read in conjunction with the Consolidated Financial Statements as at 31 December 2007.


The Interim Accounts are presented in Sterling. The preparation of Interim Accounts in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies.  Although these estimates are based on the Directors' best knowledge of the amounts, events or actions, actual results ultimately may differ from those estimates.


Accounting Policies

The accounting policies adopted in the preparation of the Interim Accounts are consistent with those followed in the preparation of the Consolidated Financial Statements for the year ended 31 December 2007, except for the adoption of the following new interpretation for the financial year beginning 1 January 2008. This interpretation did not affect the Group during the period.


IFRIC 11 IFRS 2 - Group and treasury share transactions

  


Notes to the Interim Accounts (Continued)


4.  SEGMENTAL INFORMATION

The Directors consider that the Group has only one operational business segment (investment property). However, the Group's operating strategy and operational management are aligned on a geographical basis which represents the primary influence on the risks and returns of the investments. Accordingly segmental information is presented on the basis of a primary geographical analysis and no secondary analysis is prepared.


The Group currently operates in the following principal areas of Europe:

  • Sweden

  • FranceBelgium and The Netherlands

  • Germany

  • Poland 


There are no transactions between the geographical segments. The unallocated costs represent Group items, including operating expenditure (Directors' fees and administration fees) of intermediate and ultimate holding companies. 


The following tables represent segmental information for the six months ended 30 June 2008 and 2007, and the year ended 31 December 2007.


Segment results for the six months ended 30 June 2008 (unaudited) are as follows:



Sweden

France , Belgium and The Netherlands

Germany

Poland

Total


£ 

£

£

£

£

Continuing operations

Rental income

3,713,605

1,820,310

13,477,376

2,957,320

21,968,611

Segment result

1,643,588

(683,678)

(2,130,401)

4,063,284

2,892,793

Unallocated costs





(2,169,602)

Operating profit





723,191

Finance income





8,825,637

Finance costs





(10,484,338)

Loss before tax





(935,510)

Tax charge on loss





(835,195)

Loss for the period from continuing operations





(1,770,705)








  Notes to the Interim Accounts (Continued)


4.  SEGMENTAL INFORMATION (Continued)


Segment results for the six months ended 30 June 2007 (unaudited) are as follows:



Sweden

France , Belgium and The Netherlands

Germany

Poland

Total


£ 

£

£

£

£

Continuing operations

Rental income

449,448

397,931

3,583,710

2,214,888

6,645,977

Segment result

(85,583)

(2,376,603)

(4,844,197)

2,014,623

(5,291,760)

Unallocated costs





(3,172,811)

Operating loss





(8,464,571)

Finance income





5,357,895

Finance costs





(2,536,646)

Loss before tax





(5,643,322)

Tax charge on loss





(1,156,400)

Loss for the period from continuing operations





(6,799,722)









Segment results for the year ended 31 December 2007 (audited) are as follows:



Sweden

France , Belgium and The Netherlands

Germany

Poland

Total


£ 

£

£

£

£

Continuing operations

Rental income

3,703,260

1,414,949

12,099,084

4,718,034

21,935,327

Segment result

2,839,676

(2,347,634)

5,814,415

7,011,114

13,317,571

Unallocated costs





(6,036,946)

Operating profit





7,280,625

Finance income





3,545,475

Finance costs





(10,370,068)

Profit before tax





456,032

Tax charge on profit





(1,497,877)

Loss for the year from continuing operations





(1,041,845)









  

Notes to the Interim Accounts (Continued)


5. DIVIDENDS




Six months ended 

Six months ended

Year ended



30-06-2008

30-06-2007

31-12-2007



unaudited

unaudited

audited



£

£

£

Declared and approved during the period:





Equity dividends on Redeemable Preference Shares:





Interim dividend for 2007: 1.74 pence per share 


-

1,983,992

-






Equity dividends on C Shares:





Interim dividend for 2007: 2.75 pence per share  


-

2,400,750

-






Declared and paid during the period: 





Equity dividends on Redeemable Preference Shares:





Interim dividend for 2008: 2.01 pence per share (20071.74 pence)  


4,756,901

-

1,983,992






Equity dividends on C Shares:





Interim dividend for 20072.75 pence  


-

-

2,400,750

Bonus dividend for 20070.399 pence


-

-

348,327



4,756,901

4,384,742

4,733,069


6. INVESTMENT PROPERTY



Long Leasehold

£ 

Freehold

£ 

Total

£ 

At 31 December 2006 (audited)


38,559,493

87,387,057

125,946,550

   Movement arising from exchange rate variances


3,611,312

8,184,383

11,795,695

   Acquisitions - business


-

77,933,813

77,933,813

   Acquisitions - capital expenditure


-

1,137,121

1,137,121

   Acquisitions - property


14,695,937

270,815,298

285,511,235

   Valuation gains/(losses)


2,086,172

(3,448,839)

(1,362,667)

At 31 December 2007 (audited)


58,952,914

442,008,833

500,961,747

   Movement arising from exchange rate variances


4,356,904

31,753,987

36,110,891

   Acquisitions - capital expenditure


149,896

2,655,376

2,805,272

   Valuation gains/(losses)


668,451

(12,701,978)

(12,033,527)

At 30 June 2008 (unaudited)


64,128,165

463,716,218

527,844,383


The investment properties were revalued at 30 June 2008 at their fair value. The property valuations were carried out by CBRE and King Sturge, who are independent, professionally qualified valuers, in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors and are based upon the expected current price in active markets. Valuation of property is based on a number of factors including existing lease terms, estimates of market rents and estimates of capitalisation rates using comparable market evidence where available. As a result of the level of judgement used in the valuations, the amounts ultimately realised in respect of any given property may differ from the valuations included within the Group's Balance Sheet.

  Notes to the Interim Accounts (Continued)


6. INVESTMENT PROPERTY (Continued)


The movement arising from exchange rate variances has resulted from the retranslation of assets denominated in Euro and Swedish Krona held at 31 December 2007 to the presentation currency (Sterling) at current reporting date rates of exchange.


As at 30 June 2008 £527,844,383 (30 June 2007 £244,114,36031 December 2007 £500,147,510) of investment properties are charged as security against Group borrowings. For details on borrowings see note 7.



7. BORROWINGS

The secured loans for the Group are as follows:



As at 

As at

As at



30-06-2008

30-06-2007

31-12-2007



unaudited

unaudited

audited



£

£

£






Secured loans repayable within five years





  Secured bank loans repayable within five years


389,306,801

183,445,139

362,491,616

  Unamortised loan arrangement fees


(2,062,233)

(596,165)

(2,189,047)

Borrowings


387,244,568

182,848,974

360,302,569


All loans are secured on the relevant properties and are held by the special purpose subsidiary that has title to the property concerned, and are non-transferable between special purpose vehicles. However, within the assets held by the SPV, the security can be transferred across to other assets in the case of an investment property being disposed of. There were no disposals during the period and hence no transfers of security. 


All interest on bank loans is charged at floating rates of LIBOR or EURIBOR plus margins, with the exception of a fixed rate loan at 5.7055% in Zattara BVBA in Belgium. Floating rate margins range between 0.70% and 1.35%. Protection from interest rate movement is provided by interest rate swaps hedging any variable interest rate exposure, and results in effective interest rates ranging from 4.70% to 5.74%.  The weighted average interest rate as at 30 June 2008 was 5.32% (30 June 2007: 5.17%, 31 December: 5.28%).



  

Notes to the Interim Accounts (Continued)


8. RELATED PARTY TRANSACTIONS

During the year, the Group entered into transactions, in the normal course of business, with related parties.  Transactions entered into and balances outstanding with related parties are set out below:





Purchases from related parties


Amounts owed to related parties




£


£







The Manager 






30 June 2008 (unaudited)



1,834,337


865,395

30 June 2007 (unaudited)



1,293,836


690,153

31 December 2007 (audited)



3,378,469


824,400







Affiliates of the Manager






30 June 2008 (unaudited)



57,986


7,723

30 June 2007 (unaudited)



1,776,997


26,377

31 December 2007(audited)



4,807,100


1,142,464








Manager

The Manager, Rutley Capital Partners LLP, is entitled to receive a fee paid in accordance with the Management Agreement.


Affiliates of the Manager

Affiliates of the Manager include other entities within the Knight Frank LLP Group.


9. POST BALANCE SHEET EVENTS

Dividends

An additional interim dividend of 1.00 pence per share totalling £2,366,618 was paid on 31 July 2008.




  Statement of Directors' Responsibilities


The Directors confirm that this set of unaudited Interim Accounts has been prepared in accordance with IAS 34 as adopted by the European Union, and that the Interim Accounts include a fair review of information required by DTR 4.2.7 and DTR4.2.8.


The Directors of Rutley European Property Limited are listed on page 22.


By order of the Board






David Pinckney                            Nicholas Moss

Chairman                                   Director


28 August 2008

  

Management and administration


___________________________________________________________________________________________________________

Directors

    David Pinckney (Chairman)

    David Allison

    Nicholas Moss

    Christopher Sherwell

___________________________________________________________________________________________________________

Registered Office

Trafalgar Court
Les Banques
St. Peter Port
Guernsey

___________________________________________________________________________________________________________

Manager

    Rutley Capital Partners LLP

    55 Baker Street

    London

    W1U 8AN 


___________________________________________________________________________________________________________

Administrator, Secretary and Registrar

    Northern Trust International Fund Administration Services (Guernsey) Limited

    P.O. Box 255

    Trafalgar Court

    Les Banques

    St. Peter Port

    Guernsey

    GY1 3QL

___________________________________________________________________________________________________________­­­­­­­­­­­­­­­­­­­­­­­­­­­­

Auditor

    Ernst & Young LLP

    1 More London Place

    London

    SE1 2AF

___________________________________________________________________________________________________________

Legal Advisers

    Ozannes                          Mayer, Brown, Rowe & Maw LLP

    P.O. Box 186                    11 Pilgrim Street

    1 Le Marchant Street        London

    St. Peter Port                     EC4V 6RW

    Guernsey

    GY1 4HP

___________________________________________________________________________________________________________

Independent valuation agents

    CB Richard Ellis Limited ('CBRE')            King Sturge LLP

    Kingsley House                                       30 Warwick Street

    Wimpole Street                                        London

    London                                                    W1B 5NH

    W1G 0RE

___________________________________________________________________________________________________________


This information is provided by RNS
The company news service from the London Stock Exchange
 
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