Final Results

Fabian Romania Property Fund Ltd 29 June 2007 29 June 2007 Fabian Romania Property Fund Limited (FAB.LN) Final results for the year ended 31 December 2006 Fabian Romania Property Fund Limited ('Fabian', 'Fabian Romania' or the 'Company'), the AIM quoted dedicated Romanian real estate investor announces its results for the year ended 31 December 2006. Highlights â€¢ Executed four investments, committing a total of â‚¬35.6 million. The Company's share of the market valuations of these investments (before deferred income tax liabilities) was â‚¬46.7 million at 31 December 2006, before deducting the outstanding non-recourse bank financing of â‚¬18.6 million â€¢ Raised â‚¬40 million and admitted to AIM in December 2006 as the only investment fund quoted on AIM dedicated solely to the Romanian real estate sector â€¢ As of 31 December 2006, after taking into account the net proceeds of the fundraising of â‚¬38.1 million, the Net Asset Value ('NAV') per share of the Company as determined in accordance with its Articles of Association was â‚¬1.356 (at 31 December 2005: â‚¬0.996 ) an increase of 36 per cent. over the year â€¢ An additional amount of â‚¬34.9 million has been committed to five new projects in April and June 2007, resulting in total capital commitments of â‚¬70.5 million to nine investments, with approximately 73,000 square metres ('sqm') of lettable office space in Bucharest secured together with over 885 residential apartments Jaroslav Kinach, Chairman of the Company, commented: 'These results, coupled with the quality of Fabian's projects, reflect an outstanding year and demonstrate the Company's ability to create value for its shareholders. I am confident of further progress in the year ahead.' Mark Holdsworth, Managing Director of Fabian Capital Limited, the Company's investment manager commented: 'With total capital commitments of over â‚¬70 million across nine investments as of the end of June 2007, Fabian Romania has become a well regarded investor in the Bucharest real estate market. This has opened up interesting opportunities for the Company, in a range of real estate sectors and regions across Romania.' Contacts: Fabian Romania Property Fund Limited Jaroslav Kinach Tel: +44 20 7499 9988 Fabian Capital Limited Mark Holdsworth Tel: +44 20 7499 9988 Shore Capital - Broker to Fabian Dru Danford Tel: +44 20 7408 4090 Deloitte Corporate Finance - Nominated Adviser to Fabian Jonathan Hinton Tel: +44 20 7936 3000 Notes to Editors Fabian Romania Property Fund Limited is an experienced and well-known investor in the Bucharest and wider Romanian real estate market and is quoted on AIM. Fabian seeks to generate attractive total returns for its shareholders through a portfolio of income producing buildings, co-development projects with experienced partners and land investments. Fabian receives investment advice from Fabian Capital Limited (the 'Investment Manager'), an independent investment management firm that specialises in Romanian real estate investments advice. (Fabian Capital does not carry out any regulated activities in the UK.) Milestones â€¢ Summer 2005 - Fabian raises â‚¬21.2 million capital â€¢ December 2005 - Banu Antonache building purchased unlet for â‚¬12.3 million, fully let in August 2006 with an implied yield of 9.2 per cent. â€¢ April 2006 - Cascades building purchased for â‚¬12.2 million at a yield of 8.4 per cent. â€¢ July 2006 - New Town residential development co-investment with Mivan for over 635 apartments entered into for â‚¬5.75 million â€¢ September 2006 - â‚¬5.3 million committed to land purchase within a joint venture for 23,000 square metres ('sqm') Lakeview office development with AIG/Lincoln â€¢ December 2006 -Fundraising of â‚¬40 million (before expenses) raised at â‚¬1.35 per share and Admission to AIM â€¢ April 2007 - Cubic Centre forward purchase of 26,000 sqm office building agreed and â‚¬12.25 million committed subject to certain conditions â€¢ June 2007 - Evocenter building acquired for â‚¬4.9 million with 50 per cent. of the space let and an estimated yield of 9 per cent. â€¢ June 2007 - Dacia Boulevard turnkey office development acquired for â‚¬8 million â€¢ June 2007 - Baneasa Business Centre office building purchased for â‚¬23.9 million at an implied yield of 7.7 per cent. and â‚¬11.7 million committed prior to refinancing â€¢ June 2007 - 50 per cent. interest in a â‚¬4.7 million residential development site in Timisoara to build around 250 apartments over 30,000 sqm with Coltex Chairman's Statement It gives me great pleasure to present the first set of annual results for Fabian Romania since AIM admission. Fabian has demonstrated an impressive performance during its first full year of operation. Over the past 12 months, the Company has established itself as an experienced and well known investor in the Romanian real estate market. Fabian Romania's total investments as of 31 December 2006 amounted to â‚¬35.6 million in four projects, namely two fully let office investments, Banu Antonache and Cascades, and two joint ventures, the New Town residential development and the Lakeview office development. The valuation of these investments increased to â‚¬46.7 million before considering the gearing benefits to equity resulting from the â‚¬18.6 million of bank debt refinancing completed during the period. The published end of year NAV per share was â‚¬1.356 (at 31 December 2005: â‚¬0.996) and under IFRS was â‚¬1.189 (at 31 December 2005: â‚¬0.955), as expected somewhat lower than the first figure due to certain differences in the treatment of deferred tax and the way in which NAV is calculated for the purpose of the Company's Articles of Association. The investment of the proceeds of the Company's â‚¬40 million fundraising in December 2006 is well under way with an additional â‚¬34.9 million committed to the five new projects announced since 31 December 2006. The above results coupled with the quality of Fabian's projects reflect an outstanding year and demonstrate the Investment Manager's ability to help the Company create value for its shareholders and maintain a high-profile position within the Romanian real estate sector. The Company is delivering on its stated strategy assisted by Romania's accession to the EU from 1 January 2007 and the resulting favourable EU convergence trends and compelling supply/demand dynamics. With significant progress on the exciting investment pipeline, I am confident that Fabian Romania will continue its high level of investment activity and success rate during 2007, while in parallel progressing the asset management and development of the existing projects, seeking to create significant value for shareholders. Jaroslav Kinach Chairman Fabian Romania Property Fund Limited Investment Manager's Report to Fabian Romania To the shareholders of Fabian Romania, In 2006, Fabian Romania had a good year to achieve a gain in net asset value per share of 36 per cent. or â‚¬9.7 million. We believe the encouraging progress in this first full year augurs well for continuing the growth in shareholders' funds. My aim in writing this report is to give you both the information you need to estimate Fabian Romania's value and the detail behind the front line numbers. After a period of intensive due diligence on a wide variety of potential investments in the second half of 2005, we began January 2006 having purchased one office building and contracted to purchase a second. 2006 has been a year of intensive activity in due diligence, acquisitions, negotiating leasing contracts, securing excellent property managers and financing. We completed the acquisition of Cascades, leased out Banu Antonache, secured debt financing packages for both Cascades and Banu Antonache, entered into a residential joint venture with Mivan Limited and purchased a land plot alongside AIG/Lincoln for the development of a Class A office building. In September, we started the process to raise further funds in conjunction with an AIM listing. Admission to AIM became effective on 15 December, when approximately â‚¬40 million was raised before expenses. By the end of the year, Fabian Romania owned a total of 9,500 sqm of fully let office space, a fifty per cent. share in a 23,000 sqm net lettable office development project and a 50 per cent. stake in a 76,000 sqm residential development. Before we set out in detail the Company's investment activities, we provide a brief review of Romania's political and economic developments over the year. EU Accession The most momentous event in Romania since the collapse of the Communist regime in 1990 was its accession to the EU which occurred just after the year end on 1 January 2007. Throughout 2006, the President, Trian Basescu and Prime Minister, Calin Tariceanu, worked tirelessly to meet the EU's final acquis communitaire which they did towards the year-end. Economically, accession is important as it will release substantial structural assistance funds along with financial support for the agricultural sector. According to ING Bank estimates, in 2007, excluding agriculture, structural assistance funds are expected to amount to 1.5 per cent. of GDP rising to 2.0 per cent. in 2008. Cumulatively, some â‚¬17.3 billion is expected to come to Romania between 2007-2013 ex agriculture. More importantly still and as was the case with Poland, EU funds and know-how will provide the impetus behind the construction of the country's first national motorway network and other infrastructure projects. If like us, shareholders have had to travel around the country on the existing dilapidated A roads, they will know how important the motorway network promises to be for both individuals and businesses. The Economy Romania continued to prosper during 2006 on the back of a strong consumption boom, investment growth and exports. GDP grew by 7.7 per cent. making it one of the fastest growing economies in Europe. High real interest rates and a strengthening currency against the Euro drove down inflation from 8.6 per cent. at year end 2005 to 4.9 per cent. on 31 December 2006. The average for the year came in at 6.6 per cent.. On the back of falling inflation, domestic interest rates fell to 8.75 per cent. by the year end. The fiscal deficit has remained well within the Maastricht criteria at -1.7 per cent. of GDP. The only indicator not in the robustly healthy category was the current account deficit which increased to 10.3 per cent. of GDP from 8.6 per cent. in 2005. Though a cause for concern, the deficit is funded mostly by high levels of foreign direct investment (FDI). During the year, FDI amounted to â‚¬11.5bn, an increase of 80 per cent. over 2005. The current account plus FDI as a percentage of GDP stood at just -0.9 per cent. of GDP during the year. Of particular note for the property market, real wages grew by an impressive 27 per cent. which is particularly good news for retailers and vendors of residential apartments. Domestic currency mortgages fell in line with falling interest rates. The Property Market The office sub sector of the Romanian property market remained as the main focus of our and other investors' interest during 2006. Trends observed during 2005 continued into 2006. Yields for prime office buildings started the year at around 8.00 per cent. and finished the year at 7.5 per cent. according to property agents DTZ. The market remained a sellers' one as institutional investors continued to chase prices higher taking advantage of the large gap between yields and Euro interest rates. The importance of this 'yield gap' cannot be understated when looking at a property market. We have calculated that, at the start of the year, three months Euribor interest rates plus the country spread stood at around 4.75 per cent. giving a margin of 325 basis points between the cost of debt and property yields at 8.0 per cent.. By the year end as interest rates rose and yields contracted, we estimate this margin to have fallen to 200 basis points According to statistics from DTZ, some 180,000 sqm of new Class A office space were added to the market during the year. This was up from the 130,000 sqm delivered in 2005. Although this might appear a large jump, Bucharest's total amount of Class A space stood at 750,000 sqm at 31 December, which is half the amount existing in Prague and Budapest and one third of the amount in Warsaw. Increased confidence on the part of domestic companies plus continued strong investment from foreign multinationals saw nearly all of the increased space taken up. Vacancy rates at the year end continued to remain sub 3 per cent.. This has underpinned rents which remained at â‚¬16-19 per sqm per calendar month ('sqm/month') although the Company managed to achieve rents of â‚¬21 sqm/month when leasing out the Banu Antonache building in June. New office developments continued to be announced by developers during the year, particularly in the Pipera district of North East Bucharest. Here, plans tend to be for back office buildings to reflect the slightly out of town nature of the area as well as growing demand from multinationals for large back office floor plates. The lack of good city centre and central north sites has held back developments of true A class schemes though a number are planned. Local agents estimate that as few as 50 per cent. of all office schemes announced actually move through the permitting phase to construction. Whilst the volume of new office space delivered onto the market will rise in 2007, the difficulties developers face in navigating the Byzantine planning system along with issues on title will continue to act as a barrier to entry for many developers. In retail, 2006 saw the announcement of a large number of retail shopping centres and hypermarkets to be developed both in Bucharest and the regional cities. During the year, only two modern shopping centres continued to serve a population of two million. By year end, a further six schemes had been announced for the capital. In the regions, only three shopping centres serve a population of twenty million. Soaring retail sales on the back of strong growth in real incomes has fuelled the demand for retail space by both food retailers, banks and non food retailers. This in turn is driving rents for both the limited number of high street sites and shopping centre space. Shopping centres coming up for leasing along with gallery space in hypermarkets are all being fully leased prior to practical completion. Due to the very limited number of finished shopping centres, there were very few investment transactions during the year meaning yields for retail transactions are hard to ascertain. However, they appeared to have fallen to around 7.25 per cent. by the year end. In the offering memorandum in May 2005, the directors of the Company forecast that Bucharest would see the emergence of a strong and increasingly affluent middle class who wanted to move out of their communist era apartments into new build. Coming on the back of legislation in 2003 enabling banks to offer mortgages, further banking privatization and rising Euro and local currency interest rates, 2006 was a strong year for the residential sector. Developers moved to address the demand by announcing a number of residential schemes aimed at the emerging middle class. Apartment sizes will generally be around 100 sqm selling for between â‚¬1,050 per sqm at the low end to â‚¬2,000 per sqm at the high end. The shortage of new build available in the market has driven up prices for communist era apartments to around â‚¬600-800 per sqm by the year end. Investment Strategy The investment strategy of the Company is to purchase both income producing office buildings and retail freeholds as well as to seek further co-investment projects in the office, retail and residential sub-sectors of the market. To date the Company has focussed on investments in the Bucharest area, however given the fast moving nature of emerging property markets, it is the Investment Manager's view that the Company should remain dynamic in both anticipating and reacting to new profit opportunities wherever they might arise in Romania. The ethos of the Investment Manager is focussed on absolute returns, the Investment Manager will not advise the Company to engage in projects simply to invest available cash. The Company should only purchase buildings or development projects where the forecast returns on shareholders' equity to be deployed in the project match high return on equity and internal rate of return hurdles. The directors of the Investment Manager have made significant personal investments in the Company in support of their belief in its investment strategy. We only recommend to the board of the Company transactions where the aim is to make acceptably attractive returns. Acquisitions Pursuant to this strategy, the Company made three acquisitions in Bucharest during the year. The Cascades office building on Buzesti Street which had been presented to investors as a pipeline project at the time of the first fundraising in 2005 was purchased in April. A 50 per cent. stake alongside Mivan was acquired in the New Town residential project in East Bucharest and another 50 per cent. interest in the Lake View office development in North Bucharest was purchased alongside AIG/Lincoln. Since the Company's admission to AIM in December 2006 and post the year end, the Company has also entered into agreements to forward purchase the Cubic centre office building in the Pipera district of Bucharest, purchase both the Baneasa and the Evocentre office buildings in North Bucharest. The Company has also entered into agreement to acquire a plot of land in central Bucharest for a turn-key office building and a 50 per cent stake in a plot in the City of Timisoara in Western Romania for residential development. Cascades The Company signed a share purchase agreement to purchase the Cascades office building in November 2005. This was after a series of long drawn out negotiations with the vendor that stretched back to March 2005. The transaction was successfully closed in April 2006. The price paid by the fund was â‚¬12.2 million, giving a headline yield of 8.7 per cent.. Cascades is a high quality office building in a prime location. It was completed in October 2004 and comprises around 4,300 sqm of lettable space with 24 underground car parking spaces. The building is fully let to an excellent set of tenants, namely Pro Credit Bank (backed by the IFC and the German Government), Aviva PLC, SC Rompetrol, HBO Romania and the Taiwan Trade Delegation. It is located just off Victoria Square in the heart of the City's new central business district. The purchase was initially funded 100 per cent. by the fund's equity. In July 2006, we drew down â‚¬9.6 million of debt to reduce the fund's equity to â‚¬2.6 million and since then, the investment has performed well. As at 31 December, the building was valued at â‚¬13.8 million based on a yield of 7.4 per cent. After the deduction of debt and other liabilities of â‚¬9.5 million, the resultant equity was valued at â‚¬4.3 million or 65 per cent. up from the level in July. When the Company originally negotiated the share purchase agreement in November 2005, Buzesti Street was very much the emerging business district of the city. As the city has continued to expand to the north since 2005, Buzesti Street's relative location in the city has correspondingly continued to rise in prominence. We expect Cascades to continue to perform well in 2007. New Town As with the Cascades acquisition, it took us some considerable time to finalise the purchase of a stake in the New Town residential project. We had initially agreed terms with Mivan back in October 2005. We were therefore very pleased when agreement was finally reached in July 2006 to take a 50 per cent. stake in Mivan's residential scheme in east Bucharest. The Company paid â‚¬5.75 million for 50 per cent. of the development. Mivan are the joint venture partner in the project as well as the development manager of the scheme through their local subsidiary, Ropotamo SRL. The development will involve the construction of over 635 residential apartments over two phases. The plot is 22,000 sqm in size situated close to a nearby metro station. The apartments will be in the region of 100 sqm per unit and are targeted at middle income families. Mivan are a UK developer based in County Antrim. They have been involved in Romania since 2000, when they initiated a construction joint venture with Kier. Previously, they have undertaken a number of developments across emerging markets including the construction of over 100,000 apartments in Hong Kong and Malaysia. As well as developing the New Town scheme, they are also developing a number of shopping centres across Romania. Participation in the New Town scheme has given the Company exposure to the fast growing residential market. As the directors of the Company have written in both the original offering memorandum and the AIM admission document, we believe that exposure to the emerging Romanian middle class, through the housing market, is in the Company's interests. General economic growth and rising personal disposable incomes should lead to upwards pressure on sale prices per square metre given the limited supply of new residential developments focused on middle income Romanians. At year end, we are pleased to report that our 50 per cent. stake in the scheme was valued at â‚¬9.95 representing a â‚¬4.2 million or 73 per cent. gain on the initial investment. Since the year end, final negotiations are nearing completion on the construction contract. Once this has been signed, the first apartments for sale will be released onto the market. Full building consent has been granted and ground work has nearly finished with some â‚¬5 million spent on site to date. The first tranche of the loan with HVB has now been drawn down. Selling prices have risen significantly since acquisition and although build costs have also risen, margins are expected to be in line with initial our expectations. We see residential construction projects as a useful hedge against future construction cost inflation as rising wages are also reflected in higher consumer spending. Lake View In September, the Company acquired its first office co-development project in Bucharest. The Company purchased a 50 per cent. stake in the company which owns a 5,048 sqm land plot in central north Bucharest. Initially, the Company was able to secure exclusivity over the plot which gave us the time to find a development partner for the Company. After a small tender was conducted with the excellent assistance of DTZ, we chose AIG/Lincoln to partner the Company in the acquisition. AIG/Lincoln is the European real estate development arm of the joint venture between AIG and Lincoln Properties, both of the United States. The development will involve the construction of a Class A office building of 26,000 sqm gross built area above ground. AIG/Lincoln will act as developer on the project. The Company signed joint venture, development and construction management agreements with AIG/Lincoln to this effect. The site came with outline planning consent (PUZ) but required detailed planning (PUD) and construction consents from local planners. The Company invested â‚¬5.3 million for a 50 per cent. stake in the development company, BVB SRL through the Luxemburg based joint venture company, AIG/Lincoln Lakeview. Since the acquisition, we have been pleased with the progress of the New Town project. As of 31 December 2006, the Company's stake in the scheme was valued at â‚¬8.3 million representing a gain of â‚¬3.0 million or 56 per cent. on the purchase price. The purchase of the Lake View site is in line with the Company's strategy of seeking to enhance returns by co-investing in development projects. As with the New Town acquisition, the Company mitigates risks by partnering with experienced development partners in high quality sites. All specifications, budgets and property related advisors require the unanimous consent of both partners as do all subsequent changes. Throughout the year and into 2007, the office rental market has remained extremely tight. Vacancy rates remain below 3 per cent. and for Class A space are practically zero. At the end of the year, the total stock of Class A space was 750,000 sqm according to DTZ which remains under half the comparable level of both Prague and Budapest. Since the year end, AIG/Lincoln has continued to drive forward the development. The PUD has been achieved and the application for building consent is in the process of being lodged with the city authorities. This consent is expected over the summer with building work forecast to commence soon after. In order to pre-let the building, Colliers have been appointed to exclusively represent the joint venture and a number of tenants have been contacted with a view to pre-lets. The building is expected to be delivered in the third quarter of 2009. Many thanks are due to the excellent AIG/Lincoln team and in particular, to Sven Lemmes and Lance Bosman. Banu Antonache The Company had acquired Banu Antonache in December 2005 from the developer with just one tenant in place. We took the view at the time that with vacancy rates in the market so low, Fabian should purchase the building taking on board the rental risk. The downside to this strategy was that if the rents that would be achieved failed to meet expectations (set at â‚¬17 sqm/month worst case) then the acquisition would have turned out to have been rather expensive. We did not view this as likely at the time because of the continuing shortage of Class A office space in the city. During the year, we successfully rented out the building to a selection of multinational tenants including Garanti Bank from Turkey, General Motors and Amway from the U.S. DTZ from the UK, Summa and BNP Paribas from France. As with Cascades, all leases are set in Euros, indexed to Eurozone CPI and are set for five years. In addition, Trend bar signed for the restaurant space on the Ground floor on a ten year lease. Rents achieved for an individual floor have ranged from the â‚¬18 sqm/month, achieved by the developer, to â‚¬19 sqm/month achieved since January 2006. In July 2006, we decided to split in two the last floor to be let, thereby reducing the lettable area per tenant from approximately 800 sqm to 400 sqm. As a result, we achieved rents of â‚¬21 sqm/month for the fourth floor. These rents combined with a rent of â‚¬23 sqm/month achieved for the restaurant space mean that the initial purchase yield was a very pleasing 9.3 per cent.. Throughout the letting process, we dealt with all the major property agents in the market and built up some considerable experience ourselves as to how the whole office leasing market actually functions in Bucharest. During the current year, this experience has been very valuable to us as we seek to advise the Company on further acquisitions. At the year end, the building was valued by DTZ at â‚¬14.6 million, a rise of 19 per cent. over the headline purchase price, ex acquisition costs. After subtracting the outstanding debt from a â‚¬9.1 million facility drawn down from Investkredit Bank, the net asset value for Banu Antonache stood at â‚¬5.5 million. This represents a 83 per cent. return on the original equity invested, post debt drawdown, of â‚¬3.0 million. Since the year end, Banu Antonache continues to perform in line with expectations. Net Asset Value In NAV terms, the gain over the year per share amounted to a very satisfactory â‚¬0.360 per share over the company's 31 December 2005 NAV per share of â‚¬0.9962, equating to a gain of 36 per cent.. The published NAV per share of â‚¬1.356 was calculated as at 31 December 2006 according to the Company's Articles of Association and the results are summarised below. 31 Dec'06 31 Dec'06 31 Dec'06 31 Dec'05 Initial Cost of Market Value Bank (debt) Net worth Net worth investment â‚¬m â‚¬m â‚¬m â‚¬m â‚¬m Cascades 12.2 13.8 (9.5) 4.3 Banu 12.3 14.6 (9.1) 5.5 12.5 New Town (50 per cent.) 5.75 9.95 10.00 Lakeview (50 per cent.) 5.3 8.3 8.3 Cash 42.2 8.3 Other assets/(liabilities) ** (3.1) (0.9) Deferred tax added back 1.8 1.2 Sub-total 35.6 46.7 (18.6) 68.9 21.1 Shares (#) 50,831,130 212,015 NAVPS (â‚¬) * 1.356 0.996 Growth in 2006 36 % * 2005 comparator adjusted for 100:1 share split in conjunction with admission to AIM ** 2005 figure adjusted for rounding However, the reported NAV per share figures do not truly reflect the Company's actual pace of growth due to the timing of the successful AIM fundraising of â‚¬40 million at â‚¬1.35 per share in December 2006 which effectively diluted the uplift after placing costs of â‚¬1.9 million. As at 31 December 2006, the â‚¬35.6 million already invested created a total NAV of â‚¬46.7 million. After adjusting for the â‚¬18.6 million bank debt refinancing and excluding the proceeds from the December fundraising, the NAV per share is approximately â‚¬1.455, corresponding to an uplift of over 46 per cent. in the year. Cubic, Baneasa, Romana, Evocentre and Timisoara Following the year end, the Investment Manager has moved fast to assist the Company in investing the proceeds from its fund-raising in December. Five transactions have been entered into and remain subject to final closing. The Cubic Centre will be a Class A office building with a gross area of approximately 44,000 square metres, located in north Bucharest. The building is being developed by Kendama, an experienced local developer in Romania. Construction has commenced and completion is anticipated in the second quarter of 2009. Upon completion of construction, the building will provide a net lettable office area of 26,000 sqm over 12 floors, together with 533 car spaces. The building is located in a prominent location in the Pipera district and is likely to attract international tenants seeking Class A office space. The Company will pay a first instalment of â‚¬12.25 million, of which â‚¬5 million has already been paid in the form of a secured loan. At practical completion of the building by the developer, the Company will pay the final instalment based upon a forward purchase yield of 7.4 per cent. - 7.8 per cent. applied to rents achieved. Based upon current rental estimates, the total value of the transaction is estimated to be approximately of â‚¬60 million. The total equity requirement for the Company is estimated to be â‚¬12 million. The Company has entered into an agreement to purchase the Baneasa Centre office building from Immoconsult Leasinggesellschaft m.b.H, with a transaction value of â‚¬23.9 million. Once refinanced, Fabian Romania's net equity investment will be â‚¬5 million. The annual rental income is approximately â‚¬1.85 million per annum. The building provides 9,600 sqm of lettable space and is fully let to fourteen international tenants, including Wrigley, Colgate, Fresenius, Cargill and Volksbank. There are a variety of reversionary leases at rents between â‚¬12 per sqm to â‚¬16 per sqm. Overground and underground parking facilities provide for 132 vehicles. Concurrent with signing the acquisition Fabian Romania has concluded debt financing with the vendor's parent company Investkredit Bank, via a debt facility amounting to 80 per cent of the building's acquisition cost. The Romana office project is a turnkey agreement with Hil Construct for Fabian Romania to purchase its sixth office project in central Bucharest for a prospective purchase yield of 8.9 per cent. Completion is conditional on the attainment of the final building permit which is currently expected at the end of August 2007. The Romana office building will be built for Fabian Romania on a centrally located site on Dacia Boulevard. The building will be built to Class A specifications with a gross area of approximately 3,000 sqm. The project management will be undertaken by Globus, an experienced local developer in Romania. Construction is due to commence in the fourth quarter 2007 with completion anticipated in the third quarter of 2009. Upon completion, the building will provide a net lettable office area of around 2,480 sqm over 7 floors, together with 40 car parking spaces. The building is in a prominent position with views over Plaza Romana and is likely to attract international tenants seeking Class A office space. The Company will pay the purchase price of â‚¬7.6 million to Hil in 3 instalments; a first instalment of â‚¬2.0 million will be made for the company to acquire ownership of the land; a second instalment for construction costs of approximately â‚¬3.0 million; and a final payment upon practical completion of â‚¬2.6 million in the form of a bank guarantee. Including non developer related costs, the total purchase price is forecast to be â‚¬8.0 million. Fabian Romania's equity requirement is expected to be â‚¬2 million with debt finance to fund the balance. The Company has also has reached agreement to purchase the Evocenter office building in the Pipera / Voluntari district of Bucharest for a forecast yield of 9 per cent. The Company had initially proposed to purchase the building empty, thereby taking the letting risk. However, during the due diligence process, the Adama Group from Israel, the developer, signed a lease taking half of the available space. The building will be completed in summer 2007 to a Class A standard and comprises 3,000 sqm of net lettable area, 18 covered car parking spaces and ancillary parking close by. The Company will meet the consideration of â‚¬4.9 million from its own resources. Debt drawdown is anticipated to be during the third quarter 2007 which will reduce the ongoing equity requirement to around â‚¬1 million. At the end of June, the Company entered into an agreement to purchase a 50 per cent. interest in a residential development site to build 250 apartments in Timisoara for â‚¬4.7 million. The acquisition will be structured through a development company owning a 1.1 hectare site in north Timisoara. The equity consideration amounts to approximately â‚¬1 million. The land has urban zoning approval to build over 250 apartments (subject to building permits) comprising over 30,000 sqm of residential development space. Coltex, the co-shareholder holding the other 50 per cent. interest, has entered into a partnership agreement with Fabian. Coltex will also be the development manager and has a known track record, having developed and sold the successful Banu Antonache building to the Company in late 2005. Timisoara is Romania's third largest city with a population of over 300,000 and is located in the West close to the Hungarian border. The Investment Manager believes the city has attractive characteristics for supply of modern residential apartments. The purchase price for the land including acquisition expenses was â‚¬4.7 million. This equates to around â‚¬427 per square metre for the land and â‚¬157 per built square metre overground, assuming 30,000 sqm. The development company has already secured and fully drawdown on a land finance facility from Banca Romaneasca for â‚¬3.6 million. Including near term working capital needs, this leaves an initial net equity requirement of approximately â‚¬1 million for Fabian. Future Valuation This report should make it easier for shareholders and prospective shareholders to value Fabian Romania. As a company that purchases both fully let buildings and takes development risk through co-investment development projects, the Company is set to earn enhanced returns over and above those achieved by other Eastern European property companies that purely buy income producing buildings. The Company's valuers, DTZ, acting through the Red Book methodology of the Royal Institute of Chartered Surveyors, exclude future development profits when calculating the Company's net asset value. It is for both the readers of this report and shareholders to decide the valuation of the Company on the AIM market and specifically, what amount of the net present value of those future development profits should be included in today's share price. We have set out some key financial numbers below on the Company's income producing buildings owned at the year end. Investors will be able to calculate the value of these buildings by applying their own yield calculations to the net operating income of Banu Antonache and Cascades. The following table sets out key operating data for Banu Antonache and Cascades as at 31 March 2007 for the present year. Investments (as at 31 March 2007) Banu Antonache Cascades Independent valuation per DTZ Market valuation (â‚¬'000) 15,200 14,700 Core Yield assumed ( per cent.) 7.20 per cent. 7.20 per cent. Implied NOI (â‚¬''000) 1,094 1,058 Operating statistics (annualised) Net lettable area (sqm) 4,395 4,300 Gross rental revenue (â‚¬'000pa) 1,144 1,100 Office space let (sqm) 3,788 3,742 Average rent (â‚¬pcm/sqm) 19.2 18.5 Office rent roll (â‚¬'000pa) 871 831 Restaurant/retail rental revenue (â‚¬'000pa) 154 171 Other rental revenue incl. parking (â‚¬'000pa) 119 98 Vacancy space ( per cent.) 0 per cent. 0 per cent. Average lease length (years) 4.1 5.0 Parking spaces (no.) 85 46 Mortgage Debt (â‚¬'000) Principal 9,056.6 9,424.9 Annualised interest 550.6 568.0 Principal repayments in 2007 250.1 245.3 Remaining 2007 principal repayments 187.9 183.8 As soon as the construction contract is agreed for New Town and the building permit is agreed for Lakeview, we shall publish our development assumptions for the two projects. Investors will then be able to make an easier calculation of the value today of the two schemes' future development profits, Once the acquisitions announced since the year end have closed, we shall also be publishing further numbers to shareholders on these acquisitions. Cost control During the year and since year end, we have continued to focus on the costs to the Company of doing business. We always strive to negotiate firmly with service providers and counterparts in order for the Company to save costs where appropriate. A small example of this is the annual report. The first quote for a glossy report with full colour typesetting was â‚¬25,500. Given we have 66 registered shareholders, this amounted to you each paying â‚¬386 per report. As it happens, by sending the printers a simple PDF, total costs have come in at just under â‚¬8,000. Publicity The Investment Manager believes that the access which it currently enjoys to off market property transactions is a critical source of competitive advantage for Fabian Romania. To this end, the Investment Manager spends a lot of time cultivating contacts with the Romanian press to ensure good publicity for the Company and that all transactions are fully written up across Romania's business and property media. This publicity in turn leads to a growing number of direct calls from land and property vendors seeking to sell assets or conduct joint ventures. Not only does the Company frequently get access to these off market transactions before anybody else but if completed successfully, acquisition fees with agents are saved. As I write and as an example, Fabian Romania was mentioned ten times since 1 May in Ziarul Financiar, the Romanian equivalent of the Financial Times. Other activity and outlook Throughout the year to 31 December 2006 the Investment Manager looked at over 100 potential investments. Many were turned down either due to legal or technical problems or simply because advantageous terms could not be agreed with the vendor. Since the year end, yields have continued to fall in the office sub sector and according to DTZ as this report goes to print, are expected to end 2007 at around 6.25 per cent. The Investment Manager no longer regards fully let offices at yields below 7 per cent. as attractive either on an absolute basis or relative to the opportunities available in Romania in other sub-sectors of the market and through co-development opportunities given the Company's focus on high returns on equity. This is especially the case in a rising interest rate environment. Given the post year end increases in Euro zone interest rates, it is hard to justify acquisitions at yields of sub 7 per cent. given the Company's high return on investment targets. Exciting opportunities continue to be pursued through participation in office and residential co-investment developments and through the purchase of fully let buildings in the retail and logistics sub sectors. In offices, the Investment Manager believes co-investment development projects offer enhanced returns through exposure to development margins, as well as providing the Company with pre-emption rights over its joint venture partner's stake, thereby securing further investment opportunities for the Company at a lower transaction cost. The leasing market continues to favour the developer and though visibility is difficult, the rental market appears well supported till at least the middle of 2009. Even then, Bucharest will still have substantially less Class A space than either Prague or Budapest in today's terms. In residential, the demand for new middle income housing is, if anything, accelerating since the year end driven by the strong growth of real incomes. Sale price inflation acts as a useful natural hedge against construction price inflation. In addition, economic growth in the large regional cities means that for the first time, households and first time buyers outside Bucharest can now afford to purchase new build apartments. The Investment Manager is looking at a number of opportunities in the regional cities to this end as well as a continued focus on Bucharest. In retail and logistics, yields for fully let buildings or for forward purchases of buildings once let continue to offer attractive yields of over 7 per cent.. To date, the Company has not purchased any such assets. This is in large part due to their scarcity value, their large unit price relative to the size of Fabian Romania and legal title issues. However, the Investment Manager is looking at a number of opportunities in both of these sub-sectors. Economically, the country has continued to prosper since its accession to the European Union. According to economists' forecasts, growth looks set to be above 6 per cent again for the year and inflation to fall close to 4 per cent by the year end. The Investment Manager regards the outlook for the Company, the Romanian property market and Romania in general as attractive for the current year. Mark Holdsworth Fabian Capital Limited Finance Report on the Company In its first full year of trading, Fabian Romania has recorded strong financial results. At the end of 2006 the Company had made investments of â‚¬35.6million on which it had raised bank debt of â‚¬18.9 million and held cash balances of â‚¬42.2m from a total of â‚¬59.3 million of net equity raised as of 31 December 2006, namely the â‚¬21.2 million raised via an initial fundraising in mid-2005 and the further â‚¬40.0 million in December 2006 (less â‚¬1.9 million of placing costs) on the Company's admission to AIM. Financial Results The Company's operating revenues of â‚¬1.45 million for the year to 31 December 2006 comprise both rental income from the two office properties for part of the year (net of a partial void cost underrecovery of service charge whilst Banu Antonache was leased out). The fair value adjustments of â‚¬3.6 million relate to the two income producing office properties. Under IFRS, the goodwill on acquisition of investment properties has been fully impaired as the fair value accounting adopted fully recognises the future expected value. Legal and professional fees include advisers' fees for assistance in relation to due diligence, acquisitions, structuring and loan financing. The share of loss of joint ventures relates to the Lakeview acquisition costs and is considered appropriate recognition given the remaining land payment commitment in 2007. In accounting terms, the net profit for the year was â‚¬1.4 million, implying earnings per share equal to of â‚¬0.06. Based on the consolidated financial statements of the Company as at 31 December 2006 prepared under IFRS, Fabian's total assets are â‚¬114.7 million (which comprise investment property, property, investment in joint ventures, loans receivable, plant & equipment and current assets) and total liabilities are â‚¬54.3 million. The valuation of the Company's investment property portfolio at 31 December 2006 (comprising of Banu Antonache and Cascades) was undertaken by DTZ. This valuation was performed on the basis of market value. The fair market value of these investments as at 31 December 2006 has been valued by DTZ at â‚¬28.4 million. After adjusting for bank debt of approximately â‚¬18.6 million, the Fund's share of these investments represents â‚¬9.8 million versus an investment of â‚¬5.6 million. This represents an uplift of â‚¬4.2 million or 75 per cent. of invested equity. The investment in joint ventures figure of â‚¬5.7 million represents the cost of the New Town investment through the 50 per cent. shareholding in the development company Phoenix Park SRL. Loans receivable comprise â‚¬5.4 million of shareholder loans to the AIG/Lincoln Lakeview Sa rL joint venture and â‚¬30.7m from Moulen Beleggingen BV ('Moulen') which are further mentioned below. Current assets are â‚¬44.4 million. This figure includes a cash balance of â‚¬42.2 million. Total liabilities are â‚¬54.3 million, of which â‚¬1.8 million includes deferred income tax liabilities, â‚¬18.6 million consists of secured bank loans, â‚¬30.7 million consists of loans to Moulen (which are mentioned below) and â‚¬1.4 million comprises other payables. Accordingly, the accounting net assets of the Company under IFRS as at 31 December 2006 were â‚¬60.4 million. The consolidated financial statements have been audited by KPMG Channel Islands Limited who were appointed on 5 February 2007. Valuation With investments in four projects as at 31 December 2006, namely Banu Antonache, Cascades, New Town and Lakeview, Fabian has witnessed an uplift in market valuations since acquisition of these projects over 2006 of approximately â‚¬10.9 million, driven primarily by: â€¢ significant reduction in market yields applied to the Bucharest Class A office market to 7.4 per cent. at the year end which benefited the carrying value of Banu Antonache and Cascades; and â€¢ acquiring 50 per cent. stakes in JVs owning development land sites in attractive areas of Bucharest, which have benefited from land price appreciation when revalued for lending purposes. It should also be noted that the reported deferred tax of â‚¬1.8 million is primarily based on the current fair market value of the investment properties and which is only applicable to asset sales. These deferred income tax liabilities are not expected to become payable as, in the event of a property sale, this will be effected through the sale of the shares of the relevant holding SPV and not the property itself. As such, the Investment Manager adds back the deferred tax in calculating the NAV in order to report a more representative figure of the value which may be realised. The valuations for the New Town and Lakeview joint ventures have been adopted for NAV purposes by the Directors based upon the land values attributed within the loan facilities secured. These have not been applied to the IFRS accounts to ensure compliance with IFRS. Finance and Capital Structure The Company's loan to value ratio is intended to be kept high to provide enhanced total equity returns to shareholders. At the year end there were cash balances of â‚¬42.2 million benefiting from the â‚¬40.0 million gross proceeds from the share issue at the time of admission to AIM on 15 December 2006 and two bank loans from Investkredit secured on the Banu Antonache and Cascades properties with â‚¬9.1 million and â‚¬9.5 million outstanding respectively. Since the year end, construction finance facilities have been secured and drawndown on New Town joint venture and a finance facility secured and land finance drawndown on Lakeview joint venture. The Investment Manager will continue to review all options for gearing up the balance sheet, in an effort to optimise the Company's capital structure and enhance shareholder returns. The financing structure through Moulen in Holland led to loan assets of â‚¬30.7 million and also loan liabilities of â‚¬30.7 million as at 31 December 2006. Since the year end these loans have been assigned to a new subsidiary of the Company in the Netherlands, Fabian Finance BV. This removes any potential credit risk associated with the Company's former exposure to Moulen and will in future remove the â‚¬30.7 million grossing up effect of the balance sheet loan assets and liabilities of the Group. Tax Fabian's tax structure aims to minimise tax payable across the Group, however during the year tax was payable by the Romanian companies holding the income producing properties. Whilst this tax cannot be totally mitigated the charge was larger than anticipated due to delay in completing the mergers of the holding companies. This led to some interest expense deductions being disallowed and also taxable interest income being recognized on upstream loans recycling the debt proceeds, both of which are to be addressed in the current year. Another contributory factor arose as a consequence of the Romanian fiscal requirement that tax is payable on unrealised translational foreign exchange gains. These arose in the local currency financial statements of the Romanian property-owning vehicles on the Euro denominated loans, as a consequence of the Romanian Lei strengthening considerably relative to the Euro. Fabian is seeking advice on whether this can be effectively mitigated in future. Graham Atkinson Fabian Capital Limited Corporate Governance Statement Compliance The Company recognises the importance of the principles of good corporate governance. As an AIM quoted company, Fabian is not required to follow the provisions of the Combined Code on Corporate Governance effective from June 2006 (the 'Code'). Nonetheless, the Company seeks to comply, where appropriate for a company of its size and nature, with the principles referred to in section 1 of the Code and the guidelines published by the Quoted Companies Alliance. The statement set out below describes how the principles identified in section 1 of the Code and those guidelines are applied by the Company. Board Constitution and Procedures All of Fabian's eight directors are non-executive directors. Of these, Mark Holdsworth is also a director of the Investment Manager and five are directors of the JTC Group, the parent company of Fabian's administrator. These relationships prevent them from being considered as independent under the criteria set out in the Code and the guidelines referred to above. The Board is responsible for acquisitions, partnerships, divestments, major capital commitments and focuses upon the Company's long-term objectives, strategic direction and dividend policy. The Directors have access to the advice and services of the Investment Manager and the company's administrator and the Directors are able to take independent professional advice in the furtherance of their duties if necessary. The Directors receive training and advice on their responsibilities as appropriate. All Directors will submit themselves for re-election at least once every three years. Board Committees The Board has delegated clearly defined powers to its Audit Committee. This comprises at least two Directors and will be responsible for ensuring that the financial performance of the Company is properly reported and monitored. The committee reviews the Company's annual and interim accounts, results, announcements, internal control systems and procedures and accounting policies. In view of the nature of the Company as a Jersey investment fund, the Board decided at the time of the Company's admission to AIM not to establish remuneration or nomination committees. Communication with Investors Fabian places a great deal of importance on communication with its institutional and private shareholders and responds quickly to all queries received. There is regular dialogue with institutional shareholders as well as general presentations after the issue of preliminary results. All shareholders are given at least 21 days' notice of the company's Annual General Meeting each year, at which Directors are introduced and available for questions. Internal Control Fabian's control systems are the responsibility of the Board. The Board oversees a system of internal financial controls whose objective is to safeguard group assets, ensure proper accounting records are maintained, and that the financial information generated is reliable. Risks to the business are considered on an ongoing basis by the Board. Identified risks are prioritised and agreed programmes of minimisation or elimination are monitored as is the ongoing risk profile. The Board has considered it inappropriate to establish an internal audit function given the size of the Group. This decision will be kept under review as the operations of the Group develop. Directors' report For the year ended 31 December 2006 The directors present their report to the members together with the consolidated financial statements and auditors' report for the year from 1 January 2006 to 31 December 2006 Incorporation The Company was incorporated in Jersey, Channel Islands on 20 April 2005. Activities and results The principal activity of the Group is that of investing in Romanian property via a Cypriot Holding Company and four Romanian companies and the advancing of loans to enable such investments to be made. The Group also has two joint venture interests at the year-end. The results of the Group are set out in the consolidated income statement. Dividends The directors are unable to recommend the payment of a dividend for the year (2005: â‚¬ Nil). Directors The directors of the Company who held office during the year, and subsequently, were:- Jaroslav Kinach (Chairman) (Appointed 16 February 2007) Mark Benedict Holdsworth Nigel Anthony Le Quesne Stephen Anthony Burnett Mark Houslop (Appointed 31 January 2007) Nigel Charles Syvret Philip Henry Burgin Giles Ballantine (Appointed 20 April 2005, resigned 29 September 2006) Misu Negritoiu (Appointed 20 April 2005, resigned 7 July 2006) Antony Hillman (Appointed 19 January 2007) Secretary The secretary of the Company is JTC Management Limited, who was appointed on 22 April 2005. Independent auditors All of the current directors have taken all the steps that they ought to have taken to make themselves aware of any information needed by the Company's auditors for the purposes of their audit and to establish that the auditors are aware of that information. The directors are not aware of any relevant audit information of which the auditors are unaware. The auditors, KPMG Channel Islands Limited, replaced BDO Alto Limited on 5 February 2007 and have expressed their willingness to continue in office. By order of the Board Registered office Elizabeth House 9 Castle Street St Helier For and on behalf of Jersey JTC Management Limited JE2 3RT Secretary Directors' responsibilities statement For the year ended 31 December 2006 The directors are responsible for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards. Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements the directors are required to: - select suitable accounting policies and then apply them consistently; - make judgements and estimates that are reasonable and prudent; - state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and - prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and any other irregularities. Independent auditors' report to the members of Fabian Romania Property Fund Limited We have audited the group and company financial statements (the 'financial statements') of Fabian Romania Property Fund Limited for the year ended 31 December 2006 which comprise the Consolidated Income Statement, the Consolidated and Company Balance Sheets, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and the related notes. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the company's members, as a body, in accordance with Article 110 of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As described in the Statement of Directors' Responsibilities, the company's directors are responsible for preparation of the financial statements in accordance with applicable law and International Financial Reporting Standards. Our responsibility is to audit the financial statements in accordance with the relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies (Jersey) Law 1991. We also report to you if, in our opinion, the company has not kept proper accounting records or if we have not received all the information and explanations we require for our audit. We read the Chairman's Statement, the Investment Manager's Report, the Finance Report, the Corporate Governance Statement and the Directors' Report accompanying the financial statements and consider the implications for our report if we become aware of any apparent misstatements within it. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements: â€¢ give a true and fair view, in accordance with International Financial Reporting Standards, of the state of the group's and company's affairs as at 31 December 2006 and of the group's profit for the year then ended; and â€¢ have been properly prepared in accordance with the Companies (Jersey) Law 1991. KPMG Chanel Islands Limited Chartered Accountants 27 June 2007 Notes: a. The maintenance and integrity of the Fabian Romania Property Fund Limited's website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements or audit report since they were initially presented on the website. b. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Consolidated income statement For the year ended 31 December 2006 Note 01.01.06 to 20.04.05 to 31.12.06 31.12.05 â‚¬ â‚¬ Continuing operations Operational revenues 4 1,450,910 - Total operating revenues 1,450,910 - Fair value adjustment investment properties 6 3,600,000 - Expenses Amortisation of set up costs 126,648 22,350 Goodwill impairment 1,006,563 517,124 Investment management fees 588,038 152,219 Legal and professional fees 662,284 28,557 Other operating expenses 5 418,640 99,912 Cost of issuing shares 400,329 - Total operating expenses 3,202,502 820,162 Profit/(loss) from operating expenses 1,848,408 (820,162) Loan interest revenues 1,767,286 46,759 Loan interest expense (2,262,033) (47,273) Foreign exchange movement 56,095 (5,656) Bank interest 136,886 121,685 Net financing costs (301,766) 115,515 Share of loss of joint ventures using the equity method of accounting (201,776) - Profit/(loss) before taxation 1,344,866 (704,647) Corporate income tax expense 14 (524,984) (974) Deferred income tax 14 564,870 - Net profit/(loss) for the year/period attributable to equity holders of Fabian Romania Property Fund Limited 1,384,752 (705,621) Basic earnings per share 20 0.06 (3.33) As at 31 December 2005 and 31 December 2006, there is no difference between basic and diluted earnings per share. The loss of the Company for the year ended 31 December 2006 is â‚¬136,850 (period ended 31 December 2005: â‚¬83,378). Consolidated statement of changes in equity For the year ended 31 December 2006 Note Share Capital Share Premium Retained Total Earnings â‚¬ â‚¬ â‚¬ â‚¬ As at 1 January 2006 312 21,201,288 (705,621) 20,495,979 Profit for the year - - 1,384,752 1,384,752 - Issue of share capital 196 39,999,705 - 39,999,901 Cost of share issue 12 - (1,464,154) - (1,464,154) Balance at 31 December 2006 508 59,736,839 679,131 60,416,478 For the period from 20 April 2005 to 31 December 2005 Share Capital Share Premium Retained Total Earnings â‚¬ â‚¬ â‚¬ â‚¬ Issue of share capital 312 21,201,288 - 21,201,600 Loss for the period - - (705,621) (705,621) Balance at 31 December 2005 312 21,201,288 (705,621) 20,495,979 Consolidated and Company balance sheet As at year ended 31 December 2006 Note Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ ASSETS Non-current assets Investment properties 6 28,400,000 - 12,490,756 - Property, plant and equipment 10,700 - 2,970 - Loans receivable 7 36,102,387 17,536,827 13,822,167 14,022,167 Investment in subsidiaries 8 - 39,094 - 1,733 Investment in joint ventures 9 5,748,812 6,250 - - Deferred tax 14 70,674 - - - Set up costs - - 126,648 126,648 70,332,573 17,582,171 26,442,541 14,150,548 Current assets Inventories 2,049 - - - Other receivables 371,167 41,052 1,144,878 420,588 Loan receivable - Cardeka - 11,297 - 8,285 Loan interest receivable 10 1,769,892 1,159,661 46,759 - Bank interest receivable 52,029 52,029 13,569 - Cash at bank 42,196,171 41,035,342 8,253,787 6,558,887 44,391,308 42,299,381 9,458,993 6,987,760 Total assets 114,723,881 59,881,552 35,901,534 21,138,308 SHAREHOLDERS' EQUITY AND LIABILITIES Shareholders' equity Share capital 11 508 508 312 312 Share premium account 12 59,736,839 59,736,839 21,201,288 21,201,288 Retained earnings 679,131 (620,558) (705,621) (83,378) Total equity 60,416,478 59,116,789 20,495,979 21,118,222 Non-current liabilities Long-term borrowings 13 50,360,943 - 13,822,671 - Deferred income tax 14 1,776,288 - 1,243,166 - Other non-current liabilities 205,065 - - - Total non-current liabilities 52,342,296 - 15,065,837 - Current liabilities Current income tax liabilities and 369,454 - 178,375 - other taxes Other liabilities and payables 15 1,595,653 764,763 161,343 20,086 Total current liabilities 1,965,107 764,763 339,718 20,086 Total equity and liabilities 114,723,881 59,881,552 35,901,534 21,138,308 The financial statements were approved and authorised for issue on behalf of the board of directors on 27 June 2007 and signed on its behalf by Mark Holdsworth Nigel Syvret Director Director Consolidated cash flow statement For the year ended 31 December 2006 Note Group Group 01.01.06 to 20.04.06 to 31.12.06 31.12.05 â‚¬ â‚¬ Operating activities Net cash flow from operating activities 16 426,232 (1,242,168) Net cash outflow from operating activities 426,232 (1,242,168) Investing activities Acquisition of subsidiary investments (7,514,723) (11,298,179) Investment in joint venture undertakings (5,750,000) - Loans advanced (24,130,220) (13,822,167) Loan repayments received 1,850,000 - Interest received 150,025 108,115 Acquisition of property and equipment (218,456) - Net cash outflow from investing activities (35,613,374) (25,012,231) Financing activities Set up costs - (148,998) Proceeds from borrowings 35,836,622 13,822,671 Loan repayments (5,057,526) - Interest paid (711,846) (7,987) Proceeds from shares issued 40,359,000 20,842,500 Expenses in relation to share issue (1,296,724) - Net cash inflow from financing activities 69,129,526 34,508,186 Net increase in cash and cash equivalents 33,942,384 8,253,787 Cash and cash equivalents at start of year/period 8,253,787 - Cash and cash equivalents at end of year/period 42,196,171 8,253,787 Notes to the accounts For the year ended 31 December 2006 1. Incorporation and principal activities Fabian Romania Property Fund Limited (the 'Company') is a Company domiciled in Jersey. The address of the Company's registered office is Elizabeth House, 9 Castle Street, St Helier, Jersey. The consolidated financial statements of the Company as at and for the year ended 31 December 2006 comprise the Company and its subsidiaries (the 'Group') and the Group's interest in joint ventures. The Group invests in Romanian property. 2. Basis of Preparation The consolidated financial statements and Company balance sheet have been prepared in accordance with International Financial Reporting Standards (IFRSs and IFRIC interpretations) issued by the International Accounting Standards Board (IASB). These financial statements have been prepared on the historical cost basis, except for investment properties which are measured at fair value. The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to the accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements is described in note 7 'Investment property'. 3. Principal accounting policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented in these financial statements unless otherwise stated. The following new standard has been issued but is not effective for 2006 and has not been adopted:- IFRS 7 'Financial instruments; and the related amendment to IAS 1 on capital disclosures' The standard requires disclosures about the significance of financial instruments for an entity's financial position and performance. IFRS 7 requires information about the extent to which the entity is exposed to risks arising from financial instruments, and a description of management's objectives, policies and processes for managing those risks Consolidation Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities. The consolidated financial statements present the results of the Company and its subsidiaries as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full. Business combinations The consolidated financial statements incorporate the results of business combinations using the acquisition method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated income statement from the date on which control is obtained. Goodwill Goodwill represents the excess of the cost of a business combination over the interest in the fair value of identifiable assets, liabilities and contingent liabilities acquired. Cost comprises the fair values of assets given, liabilities assumed and equity instruments issued, plus any direct costs of acquisition. Goodwill is capitalised as an intangible asset and is reviewed annually for impairment. Where goodwill is not recoverable any impairment is immediately recognised in the income statement. Wherever negative goodwill arises it is recognised immediately through the income statement. Joint ventures Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial or operating decisions. The consolidated financial statements include the Group's share of the total recognised gains and losses of jointly controlled entities on an equity accounted basis after adjustments to align accounting policies. When the Group's share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Investment property Property held for long-term rental yields or for capital appreciation or both is classified as an investment property and the provisions of IAS 40, 'Investment Property' apply. Investment property comprises freehold land and freehold buildings. Investment property is measured initially at its fair value and changes in fair value are presented in the income statement. Investment property under development Property that is being constructed or developed for future use as investment property is classified as investment property under development and stated at cost until construction is complete, at which time it is reclassified and subsequently accounted for as investment property. At the date of transfer, the difference between fair value and cost is recorded as income in the consolidated income statement. All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures for the development qualifying as acquisition costs, are capitalised. Property, plant and equipment Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Depreciation is charged on a straight-line basis so as to write off the cost of property, plant and equipment to their residual value over the expected useful lives. Depreciation is recognised in 'other operating expenses' The estimated useful lives are as follows: Furniture and office equipment 5 - 15 years The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its costs can be measured reliably. The costs of day-to-day servicing of property, plant and equipment are recognised in the income statement as incurred. Property, plant and equipment has not been disaggregated into classes as per IAS 1 'Presentation of Financial Statements' as disaggregation is not deemed significant. Cash and cash equivalents Cash and cash equivalents comprises cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Foreign exchange (i) Functional and presentation currency The Group operates in Romania, whose economy is considered to have exited the hyperinflation period starting 2004. Management have assessed that the functional currency of the Group is the Euro due to the fact that sources of finance are denominated in Euro, revenue is denominated in Euro, investing costs are denominated in Euro and management uses Euro-based reports to monitor the Group's financial performance. Therefore the management have elected to prepare the Group's financial statements in Euro. (ii) Transactions and balances Transactions undertaken in foreign currencies are translated to the functional currency of the Group at the exchange rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated to Euros at the rate ruling on the balance sheet date. Non-monetary assets denominated in foreign currencies are translated to Euros at the rate ruling on the date of acquisition. Profits and losses on exchange are taken directly to equity. (iii) Overseas operations On consolidation, the results of overseas operations are translated into Euros at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations are translated at the rate ruling at the balance sheet date. Exchange differences recognised in the income statement of Group entities' separate financial statements on the translation of long-term monetary items forming part of the Group's net investment in the overseas operation concerned are reclassified to the foreign exchange reserve if the item is denominated in the functional currency of the Group or the overseas operation concerned. Financial assets The Group classifies its financial assets into one of the following categories, depending on the purpose for which the asset was acquired. Financial assets are recognised when the Group becomes party to the contractual obligations of the instrument. The Group's accounting policy for each category is as follows: (i) Loans receivable Loans receivable are recorded initially at fair value and subsequently accounted for at amortised cost using the effective interest rate method which ensures that any income over the period to repayment is recognised at a constant rate on the balance of the loan receivable carried in the balance sheet. (ii) Trade and other receivables Trade and other receivables are recognised at fair value on initial recognition. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. (iii) Equity instruments Equity instruments comprise ordinary share capital. Equity instruments issued by the Group are recorded at the proceeds received. Those costs directly attributable to the issuing of equity instruments are taken to the share premium account. Financial liabilities (i) Bank borrowings These liabilities are initially recognised at the amount advanced net of any transaction costs attributable to the issue of the instrument. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest method, which ensures that any interest expense over the period to repayment is recognised at a constant rate on the balance of the liability carried in the balance sheet. Operating income and expenditure All operating income and expenditure is accounted for on an accruals basis. Rental income Revenue includes gross rental income, service charge and management charges earned from investment property. The Group rental contracts expire between five and ten years and are structured as operating leases. The majority of contracts require fixed minimum lease payments and are dominated in Euros. Rental income from investment property leased out under operating leases is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives are recognised as an integral part of the total rental income. Service and management charges are recognised on a gross basis in the accounting period in which the services are rendered. When the Group is acting as an agent, the commission rather than gross income is recorded as revenue. Segmental reporting Additional disclosures with regard to segmental reporting is not provided as all Group activity is conducted in Romania in relation to investment property. Further disclosure by geographical and business segment is therefore not required 4. Operational revenues 01.01.06 to 20.04.05 to 31.12.06 31.12.05 â‚¬ â‚¬ Rental income 1,564,327 - Service charge expenses (533,327) - Revenue from service charges 419,910 - 1,450,910 - 5. Other operating expenses 01.01.06 to 20.04.05 to 31.12.06 31.12.05 â‚¬ â‚¬ Property costs - 12,085 Administrative costs 113,065 39,061 Auditors' fees 77,120 5,086 Accountancy fees 22,220 - Directors' fees 23,012 - Bank charges 3,298 - Exempt company fee 882 - Other operating expenses 179,043 43,680 418,640 99,912 6. Investment property Group as at 31 Company as at 31 Group as at 31 Company as at Dec 06 Dec 06 Dec 05 31 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ Brought forward 12,490,756 - - - Additions due to business combinations 12,100,000 - 12,490,756 - Revaluation (fair value adjustment) 3,600,000 - - - Cost to completion 209,244 - - - 28,400,000 - 12,490,756 - At 31 December 2006 the fair value of the investment properties is based on a valuation performed by an independent valuer, DTZ Echinoix. The valuation method applied is the capitalisation of rental income based on the rents payable under the existing lease agreements and average market rental values. 7. Loans receivable Group as at 31 Company as at 31 Group as at 31 Company as at Dec 06 Dec 06 Dec 05 31 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ Moulen Beleggingen BV 30,748,887 11,972,167 13,822,167 13,822,167 Cardeka Holdings Limited - 211,160 - 200,000 AIG/Lincoln Lakeview S.a.r.L 5,353,500 5,353,500 - - 36,102,387 17,536,827 13,822,167 14,022,167 Loans receivable at 31 December 2006 includes two loans of equal amounts of â‚¬4,800,000 which were granted by Cascade Consulting Romania S.R.L. and Cascade Imobiliare Consult S.R.L. to Moulen Beleggingen BV. The agreements were concluded on 1 July 2006. Loans receivable at 31 December 2006 also include a loan of â‚¬9,450,000 of which â‚¬9,176,720 has been granted by Romulex Technology S.R.L. to Moulen Beleggingen BV following an agreement concluded in March 2006. Loans receivable at 31 December 2006 further includes a facility of â‚¬29,600,000 of which â‚¬11,972,167 has been granted by the Company to Moulen Beleggingen BV. The loans described above bear an interest rate of 5.75% per annum (6.75% until 1 July 2006) and are repayable in one instalment not earlier than 31 December 2009. 8. Investment in Group companies The subsidiaries of Fabian Romania Property Fund Limited, all of which have been included in these financial statements, are as follows: Name Country of Proportion of Activity incorporation ownership Cardeka Holdings Limited Cyprus 100% Holding Company Fabian One S.R.L. Romania 100% Holding Company Fabian Two S.R.L. Romania 100% Holding Company Fabian Three S.R.L. Romania 100% Holding Company Fabian Four S.R.L. Romania 100% Holding Company Cascade Consulting Romania S.R.L. Romania 100% Leasing of owned or rented properties Cascade Imobiliare Consult S.R.L. Romania 100% Leasing of owned or rented properties Romulex Technology Construct S.R.L. Romania 100% Leasing of owned or rented properties Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ Cardeka Holdings Limited - 1,715 - 1,715 Cascade Imobiliare Consult S.R.L. - 37,360 - - Fabian One S.R.L. - 6 - 6 Fabian Two S.R.L. - 6 - 6 Fabian Three S.R.L. - 6 - 6 Fabian Four S.R.L. - 1 - - - 39,094 - 1,733 The Company owns 100% of the issued share capital and voting rights of Cardeka Holdings Limited, an investment holding Company incorporated in Cyprus and stated at cost. In the opinion of the directors, the value of the investment is not less than cost. The Company owns 1% of the issued share capital of Fabian One S.R.L., an investment holding Company incorporated in Romania and stated at cost. In the opinion of the directors, the value of the investment is not less than cost. The Company owns 1% of the issued share capital of Fabian Two S.R.L., an investment holding Company incorporated in Romania and stated at cost. In the opinion of the directors, the value of the investment is not less than cost. The Company owns 1% of the issued share capital of Fabian Three S.R.L., an investment holding Company incorporated in Romania and stated at cost. In the opinion of the directors, the value of the investment is not less than cost. The Company owns 1% of the issued share capital of Fabian Four S.R.L., an investment holding Company incorporated in Romania and stated at cost. In the opinion of the directors, the value of the investment is not less than cost. The Company owns 0.9% of the issued share capital of Cascade Imobiliare Consult S.R.L., a property leasing Company incorporated in Romania and stated at cost. In the opinion of the directors, the value of the investment is not less than cost. 9. Investments in joint ventures The Group has the following investments in joint ventures: Ownership Country of incorporation Group as at 31 Company as at 31 Dec 05 Dec 05 â‚¬ â‚¬ AIG/Lincoln Lakeview S.a.r.L Luxembourg 50% - Phoenix Park S.R.L. Romania 50% - The Group has a 50% interest in joint ventures AIG/Lincoln Lakeview S.a.r.L and Phoenix Park S.R.L., whose principal activities are investment in property. Summary financial information for equity accounted investees, not adjusted for the percentage ownership held by the Group is presented below: Non-Current Non-Current Current Assets Current Liabilities Assets Liabilities Total Assets Revenue Expenses â‚¬ â‚¬ â‚¬ â‚¬ â‚¬ â‚¬ â‚¬ Phoenix Park 413,140 12,885,258 13,298,398 2,716,064 - - 2,366 S.R.L. AIG/Lincoln Lakeview S.a.r.L 431,802 10,600,000 11,031,802 1,249,173 10,694,766 48,609 973,246 844,942 23,485,258 24,330,200 3,965,237 10,694,766 48,609 975,612 10. Loan interest receivable Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ Moulen Beleggingen BV 1,553,304 943,073 46,759 - AIG/Lincoln Lakeview S.a.r.L 216,588 216,588 - - 1,769,892 1,159,661 46,759 - 11. Share capital Group as at 31 Company as at Group as at Company as at 31 Dec 06 31 Dec 06 31 Dec 05 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ Authorised 20 management shares of â‚¬1.00 each - - 20 20 80 voting shares of â‚¬1.00 each - - 80 80 1,000,000,000 investment shares of â‚¬0.00001 10,000 10,000 10,000 10,000 each 10,000 10,000 10,100 10,100 Group as at 31 Company as at Group as at Company as at 31 Dec 06 31 Dec 06 31 Dec 05 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ Issued and not paid up 20 management shares of â‚¬1.00 each - - 20 20 80 voting shares of â‚¬1.00 each - - 80 80 - - 100 100 Issued and fully paid up 212,015 investment shares of â‚¬0.001 each - - 212 212 50,831,130 investment shares of â‚¬0.00001 each 508 508 - - Total issued 508 508 312 312 The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. On 15 December 2006 the Group became listed on the Alternative Investment Market. The Group raised â‚¬40,000,000 (before expenses) through the issue of 29,629,630 new ordinary shares at â‚¬1.35 per share. Prior to AIM listing, a resolution was passed on the 1 November 2006, for all management and voting shares to be transferred to the Company for their par value and dissolved. It was also decided that every existing investment share be sub-divided into 100 ordinary shares with a par value of â‚¬0.00001 each. A reconciliation is provided below: Reconciliation of number of shares outstanding at the beginning and end of the year: Voting Management Investment Ordinary Shares Total Shares Shares Shares Shares Number of shares brought forward as at 1 Jan 2006 80 20 212,015 - 212,115 Redemption of voting and management shares (80) (20) - - (100) Conversion of investment shares to ordinary shares - - (212,015) 21,201,500 20,989,485 Issue of ordinary shares - - - 29,629,630 29,629,630 Number of shares carried forward as at 31 December 2006 - - - 50,831,130 50,831,130 12. Share premium Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ 212,015 investment shares issued at a premium of â‚¬99.999 each 21,201,288 21,201,288 21,201,288 21,201,288 29,629,630 placement shares of â‚¬1.34999 39,999,705 39,999,705 - - each Cost of placement (1,464,154) (1,464,154) - - Total Share Premium 59,736,839 59,736,839 21,201,288 21,201,288 The share premium account is a disclosure account only and does not have any rights attached. 13. Long-term borrowings Group as at 31 Company as at 31 Group as at 31 Company as at 31 Dec 06 Dec 06 Dec 05 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ Loan from Moulen Beleggingen BV 30,749,066 - 13,822,671 - Loan from Investkredit Bank AG 18,010,179 - - - Interest on loan from Moulen Beleggingen 1,601,698 - - - BV 50,360,943 - 13,822,671 - 14. Taxation The Company is an 'exempt company' for Jersey tax purposes so that its liability to Jersey taxation is limited to a flat fee, currently levied at Â£600 sterling per annum. Tax on profits of the Group arising in Romania are computed using the tax rate of 16% (2005: 16%), both for current and deferred tax. 15. Other liabilities and payables Group as at 31 Company as at 31 Group as at Company as at 31 Dec 06 Dec 06 31 Dec 05 Dec 05 â‚¬ â‚¬ â‚¬ â‚¬ Investment in Fabian Four S.R.L. - 1 - - Accounts payable and accrued expenses 788,142 758,512 100,485 - Short term borrowing 458,295 - 40,773 - Deferred revenues 56,919 - - - Other liabilities and payables - - 20,085 20,086 Amounts payable in respect of AIG Lincoln - - Lakeview S.a.r.L 200,588 6,250 Trade payables 91,709 - - - 1,595,653 764,763 161,343 20,086 16. Net cash flow from operating activities Reconciliation of operating profit/(loss) from continuing operations to net cash flow from operating activities: 01.01.06 to 20.04.05 to 31.12.06 31.12.05 â‚¬ â‚¬ Operating profit/(loss) for the year/period 1,848,408 (820,162) Adjustments for: Amortisation 126,648 22,350 Revaluation gains on properties (3,600,000) - Goodwill impairment 1,006,563 517,124 Corporate income tax paid (213,017) - Other non-cash items 71,240 (3,530) Depreciation 1,469 - Changes in working capital: Other payables 756,807 (368,645) Other receivables 428,114 (589,305) Net cash flow from operating activities 426,232 (1,242,168) 17. Related party transactions For the purposes of these financial statements, a related party is an entity or entities who are able to exercise significant influence directly or indirectly on the Group's operations. Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note, however they are presented in the notes to the accounts which present Company only balances as well as those of the Group. There is an investment management agreement between the ultimate parent of the Group and Fabian Capital Limited for the day to day management of the Group. Mark Holdsworth is a director of both the Fabian Romania Property Fund Limited and Fabian Capital Limited. The principal related party transactions which were carried out during the period are: An investment management fee is payable to the investment manager, Fabian Capital Limited. Prior to AIM admission on 15 December 2006 the fee was calculated upon the basis of 2.5% p.a. of the Net Asset Value of the Fund. Since admission to AIM the fee is calculated as 2% of Net Asset Value. Investment management fees are payable quarterly in advance. The fee for the period 1 January 2006 to 31 December 2006 amounted to â‚¬588,038 (period 20 April 2005 to 31 Dec 2005: â‚¬152,219). Fees paid to JTC Fund Services Limited, the Group's administrators, amounted to â‚¬103,505 for the period from 1 January 2006 to 31 December 2006 (period 20 April 2005 to 31 Dec 2005: â‚¬30,411) and have been charged to the income statement. Stephen Burnett and Nigel Le Quesne are directors of both the Company and Jersey Trust Company. Directors' fees for the year were â‚¬22,220 (2005: â‚¬ Nil). Joint Venture Agreements During the year the Group acquired a 50% investment in Phoenix Park S.R.L, a Company domiciled in Romania. This investee was established for the purpose of developing and selling real estate residential projects. The purchase price as per the Share Transfer Agreement amounted to â‚¬5,750,000, which was financed entirely by means of a loan from Moulen Beleggingen BV, a Dutch company. The share transfer was effective on 28 July 2006. During the year the Group acquired a 50% investment in AIG/Lincoln Lakeview S.a.r.L, a Company domiciled in Luxembourg. This investee was established for the purpose of developing and selling real estate residential projects. The shares were subscribed at a cost of â‚¬12,500 to each of the joint ventures. On 7 September 2006 the Group lent â‚¬5,125,000 to the Joint Ventures. Subsequent advances have been made and a repayment of the loan was made to the Group on 19 March 2007. Amounts outstanding to the Group at the time of issuing the financial statements were â‚¬516,300. 18. Acquisition of subsidiaries Year ended 31 December 2006 On 31 March 2006, Fabian One S.R.L acquired 100% of the issued share capital of Cascade Consulting Romania S.R.L. and 99.1% of Cascade Imobiliare Consult S.R.L. for cash consideration of â‚¬7,514,723. This transaction has been accounted for using the purchase method of accounting. Book Value Fair value Fair Value adjustment â‚¬ â‚¬ â‚¬ Net assets acquired Property, plant and equipment 6,637,431 5,462,569 12,100,000 Deferred tax asset 4,553 - 4,553 Trade and other receivables 17,668 - 17,668 Cash and cash equivalents 95,023 - 95,023 Trade and other payables (81,092) - (81,092) Bank loans (4,625,990) - (4,625,990) Deferred tax liabilities - (874,011) (874,011) Total net assets 2,047,593 4,588,558 6,636,151 Net assets attributable to minority interests (32,969) Net assets acquired by Fabian One S.R.L. 6,603,182 Goodwill 1,006,563 Total consideration 7,609,745 Satisfied by cash 7,609,745 Net cash flow arising on acquisition Cash consideration 7,609,745 Cash and cash equivalent acquired (95,023) 7,514,722 Minority interest of 0.9% in Cascade Imobiliare Consult S.R.L. was acquired by Fabian Romania Property Fund Limited on 31 March 2006. As a result these financial statements do not include a minority interest because 100% of the share capital is owned by the Group. The acquisition of 0.9% of Cascade Imobiliare Consult S.R.L. was accounted for by Fabian Romania Property Fund Limited as an investment, which was eliminated against the minority interest shown in Fabian One S.R.L.. Year ended 31 December 2005 On 13 December 2005, Fabian Two S.R.L. acquired 100% of the issued share capital of Romulex Technology Construct S.R.L. for cash consideration of â‚¬11,713,930. This transaction has been accounted for using the purchase method of accounting. Book Value Fair value adjustment Fair Value â‚¬ â‚¬ â‚¬ Net assets acquired Investment property 4,721,036 7,769,720 12,490,756 Equipment 3,014 - 3,014 Trade and other receivables 196,473 - 196,473 Cash and cash equivalents 415,753 - 415,753 Trade payables (488,660) - (488,660) Tax liabilities (177,364) - (177,364) Deferred tax liabilities - (1,243,166) (1,243,166) Total net assets 4,670,252 6,526,554 11,196,806 Goodwill 517,124 Total consideration 11,713,930 Satisfied by cash 11,713,930 Net cash flow arising on acquisition Cash consideration 11,713,930 Cash and cash equivalents acquired (415,753) 11,298,177 On 22 December 2006 the Group purchased the entire share capital of Fabian Four S.R.L. for â‚¬60. The net assets of Fabian Four S.R.L. on this date amounted to â‚¬60. 19. Ultimate controlling party In the directors' opinion, there is no controlling party. 20. Earnings per share The calculation of basic and diluted earnings per share at 31 December 2006 was based on the profit attributable to ordinary shareholders of â‚¬1,384,752 (2005: â‚¬705,261 loss) and a weighted average number of shares of 22,581,510 (2005: 212,115) calculated as follows: Note Group Group 2006 2005 Brought forward at 1 January 212,115 - Effect of shares issued April 2005 - 212,115 Effect on calculation of converting investment shares to 14 20,989,385 - ordinary shares and dissolving management and investment shares Effect on shares issued December 2006 14 1,380,010 - Balance as at 31 December 22,581,510 212,115 21 Subsequent events As at 10 March 2007, Romulex Technology Construct S.R.L. merged with Fabian Two S.R.L.. On 15 January 2007 the Group acquired 100% of the ordinary share capital of Fabian Five S.R.L..The net assets of Fabian Five S.R.L. on this date amounted to â‚¬60. On 15 January 2007 the Group acquired 100% of the ordinary share capital of Fabian Six S.R.L.. The net assets of Fabian Six S.R.L. on this date amounted to â‚¬60. On 27 April 2006 Fabian Five S.R.L. entered into a commitment to purchase the Cubic Centre Development S.R.L. on completion of the Cubic office development. A secured loan of â‚¬5 million was made by Fabian Five S.R.L. to the target. A further â‚¬7.255 million is expected to be committed before the end of 2007, subject to certain conditions. On 30 May 2007, Fabian Six S.R.L. entered into a binding commitment to purchase C.H.F. Investitii S.R.L. for â‚¬4,900,000 on completion of the Evocenter One office development in Pipera. Completion is expected during the second half of 2007. On 8 June 2007, Cardeka Holdings Limited entered into an agreement to purchase Marcomto Holdings Limited ('Marcomto') subject to certain conditions for â‚¬4.6 million and a subsidiary of Marcomto entered into a â‚¬3.0 million construction contract to deliver an office building. On 13 June 2007, Fabian Four S.R.L. entered into an agreement to purchase Baneasa Center S.R.L. for a â‚¬11.7 million together with a new â‚¬19.68 million debt facility to allow refinancing at completion. On 16 May 2007, Fabian Romania Property Fund Limited purchased Topares Investments BV ('Topares') for â‚¬24,000. The name of Topares was subsequently changed to Fabian Finance BV. On 15 June 2007, a loan assignment agreement was entered into between a number of the Fabian Group companies and Moulen Bellingengen BV ('Moulen') transferring the relevant Moulen assets and liabilities to Fabian Finance BV. On 20 June 2007, Cardeka Holdings Limited concluded a share transfer agreement to acquire 50 per cent. of Coltex Invest Construct SRL and a shareholder loan of â‚¬1 million. This information is provided by RNS The company news service from the London Stock Exchange

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