EEREIF

1/6
EEREIF
Eastern Europe Real Estate Investment Fund
I half of 2009
In the first half of 2009 the return of EEREIF fund unit was negative
for the second time since inception of the fund in May 2005. It lost
22.17%
% of its value compared to net asset value of EEREIF fund
unit in the end of December 2008. New net asset value of EEREIF
fund unit is EUR 10.14.. The size of EEREIF assets is more than EUR
47 million and average leverage on assets is 50%.
Bi-annual return:
Net asset value of fund unit:
Total Net Asset Value (NAV):
Fund size (total assets):
Compounded annual return:
Average bi-annual return:
Profitable percentage:
Leverage:
Number of investments:
3 largest investments:
Cash,
loans &
other
Poland assets 7%
6%
Market Overview
During 2008 and the first half of 2009, the global economic
econom
slowdown and rapid deterioration in international financial and
property markets has had
d an adverse impact on the environment in
which EEREIF operates. The situation on the financial markets has
continued to be difficult in the first half of 2009. The different state
support measures throughout the world have
ha not resulted in a
major recovery of the economy yet.
-22.17%
EUR 10.1351
EUR 23,384,199
EUR 47,315,338
5.68%
3.04%
77.78%
50%
16
21%; 12%; 8%
Estonia
63%
Bulgaria
12%
Lithuania
11%
Latvia 1%
Eastern European economies were the focus of particular attention
in the period under review. The fact that the banks and investors
invest
have become much more cautious has resulted in a reduced inflow
of capital to these countries, leading to serious problems with
financing current account. The Baltic countries remain exposed to
global credit tightening and economic downturn.
Cash,
loans &
other
assets 7%
Development
projects 26%
The financial crisis has produced a continuous shortage of liquidity
in the commercial real estate financing sector in the first half of
2009. The situation has also deteriorated due to the decline in the
valuations of collaterals. Most funds and investors face capital
shortages and refinancing problems. Lower demand also for
commercial real estate (both by investors and tenants) is currently
evident in all real estate markets, putting continuous pressure on
rents, vacancies and yields. Investors with investment capacity are
on stand-by and anticipating even lower property prices. There are
virtually no commercial real estate transactions.
Cash flow
projects
67%
Growth of Investment Value
200%
0.00%*
15.52%
2007
6.95%
5.94%
2006
5.30%
*
**
-9.4%
160%
2.59%
0.00%*
00%*
16.1%
140%
3.77%
14.50%
4.25%
25%
29.7%
120%
1.68%
4.01%
5.79%
79%
11.7%
100%
In Q4 2007 and Q1 2008 the value of the fund unit was set on the secondary market.
The initial issue of EEREIT (AS Eastern Europe Real Estate Investment Trust) notes took
place in May 2005. The fund was restructured into a regulated real estate fund EEREIF
(Eastern Europe Real Estate Investment Fund) in March 2008. Starting from March
2008 reporting to investors is done bi-annually.
Q1 2005
Q2 2005
2005
-21.
21.66%
**
Contacts
General Information
Eastern Europe Real Estate Investment Fund
Management company: AS GILD Property Asset Management
Tartu mnt 2
Ph: +372 6 802 630
10145 Tallinn
Fax: +372 6 802 361
Estonia
[email protected]
om
Security:
Management fee:
Incentive fee:
Registrar:
Reporting:
Q2 2008
Q4 2008
Q2 2009
2008
180%
Q4 2007
-22.17%
Year
Q2 2007
**
Q4
Q2 2006
2009
Q3
Q2 2006
Q2
Q4 2005
Q1
Fund unit
2%
20% (preferred return to investors 6%)
Estonian Central Securities Depositary
Bi-annually, on 15 Jan
an aand 15 July or the following business day
2/6
Despite a favourable interest rate climate, where margins have gone up, but base rates continue to decrease resulting in a
lower absolute rate than almost a year ago, many projects do not have the needed creditworthiness that lenders are looking
for.
EEREIF’s operating environment has been even more challenging in early 2009 than it was in 2008 as real estate activity has
basically been in a standstill throughout the first half of the year.
Changes in the management of EEREIF
In the light of the changed operating environment the fund management company has decided to further improve the
management of EEREIF and appoint Gren Noormets as the second EEREIF Fund Manager next to Urmas Laur. Current situation
demands more focus with negotiations and cooperation with banks. Gren Noormets has long term experience in banking with a
focus on real estate financing that will strengthen the team. Financial Supervision Authority has been notified about the
planned change.
Portfolio Overview
EEREIF’s team closely monitors fund`s needs for capital and plans future cash flows with due care. Availability of funds is
adequate to meet the capital expenditure plans and other financial commitments of the fund for the foreseeable future. Whilst
there is uncertainty over future market-driven valuation movements which may affect our ability to remain within our bank
covenants, the fund manager considers that EEREIF has sufficient financial flexibility for the foreseeable future and the debt
servicing capabilities of fund’s portfolio companies have not in general been endangered. However, the capability of the fund to
sustain required financial flexibility depends on the direction banks decide to take.
Our real estate assets have continued to develop moderately in spite of the difficult environment. The most challenging
investments are in those sectors which experience the greatest pressure on rents and vacancies, such as multi-tenant office and
retail properties. In most projects the net operating income during the first 6 months of 2009 has increased compared to second
half of 2008. Decrease in asset value mostly comes through increased discount rates reflecting uncertainties around rather than
real underperformance of assets. We have disclosed more financial information about our assets later in the report.
Cash flow projects
Sale and leaseback portfolio
Sale and leaseback portfolio is still relatively stable in these circumstances due to long-term lease agreements and most tenants
are performing relatively well. As the financial health of the tenants is still the most important factor, the fund management
team is monitoring the tenants’ financials on a quarterly basis. Today one of the fund’s sale and leaseback tenants is
experiencing the negative influence of the tougher market conditions. In case these problems continue the fund management
will seek further solutions.
Cinema House Sõprus (Estonia). The tenant is continuing the investments according to the investment program agreed in the
end of last year. In cooperation with the tenant the city of Tallinn has built a fountain in front of the building.
Contacts
General Information
Eastern Europe Real Estate Investment Fund
Management company: AS GILD Property Asset Management
Tartu mnt 2
Ph: +372 6 802 630
10145 Tallinn
Fax: +372 6 802 361
Estonia
[email protected]
Security:
Management fee:
Incentive fee:
Registrar:
Reporting:
Fund unit
2%
20% (preferred return to investors 6%)
Estonian Central Securities Depositary
Bi-annually, on 15 Jan and 15 July or the following business day
3/6
Pharmadule production facility (Estonia). The fund management team continues with altering the detailed planning in order to
merge the 6 land plots under the property. The tenant is in good financial health and is still considering expanding the
production area. EEREIF did not use the option to purchase 4 neighbouring plots as the market value of the plots shifted away.
Bauhof portfolio (Estonia). Fund’s forward sale and leaseback transaction with Bauhof has been closed according to the
construction and investment schedule. Due to contraction of the construction market and the fierce competition among DIY
chains in Estonia, Bauhof has decided to postpone the opening of the fourth store. The other three stores have been open and
are operating.
BE Steel warehouse (Estonia). The process of changing the detailed planning that was initiated by the fund management
company received initial approval from the local municipality. Currently the fund is working on getting the approvals from the
utility companies.
BE Steel warehouse (Lithuania). Property is operating according to the budget.
ARX printing house (Lithuania). In the first half of the year the printing house faced difficulties in paying rent due to the downfall
of printing market. Today the tenant is working on decreasing the costs by reducing the number of employees, salary costs and
leasing costs. So far the tenant has kept to the payment schedule in repaying the standing debt.
BE Steel warehouse (Poland). Property is operating according to the budget.
Multi-tenant property portfolio
2009 started with a rapid decline in retail and especially in office rents as a substantial amount of new supply came to the
market with vacancies of 50% or higher at the time of the completion, and at the same time an opposing trend followed in the
wake of the economic downturn as most of the financial and service companies reviewed their headcount and froze their
expansion plans, decreased or closed their operations.
Järveotsa Centre (Estonia). Due to the competitive advantages the property has quite well stood up against the worsened
market conditions. Although tenant mix and lease conditions demand attention from the management, no significant changes in
cash flows are expected.
Swiss House (Estonia). Management of tenant mix and lease conditions demands significant attention. The tenants are
pressuring the fund to reduce the rent and rental space. Most of the new office supply in the recent years is still fighting with
20-40% vacancies and the tenants are enjoying their strong negotiation position to decrease their rents. In May 2009 a lease
agreement with one anchor tenant ended and the fund management company is looking for new tenants in cooperation with
commercial leasing agents. The fund management team is just about to finish the planned infrastructure investments which
were needed to improve the overall quality and appearance of the property to make it more appealing for new tenants.
Contacts
General Information
Eastern Europe Real Estate Investment Fund
Management company: AS GILD Property Asset Management
Tartu mnt 2
Ph: +372 6 802 630
10145 Tallinn
Fax: +372 6 802 361
Estonia
[email protected]
Security:
Management fee:
Incentive fee:
Registrar:
Reporting:
Fund unit
2%
20% (preferred return to investors 6%)
Estonian Central Securities Depositary
Bi-annually, on 15 Jan and 15 July or the following business day
4/6
Land and development projects
As the markets have not improved over the last 6 months, the fund management company has adopted a wait-and-see
approach for the time being with the exception of one investment, that being Telliskivi City. Fund’s investment programs have
been cut down as long as there is no clear demand visible on the market and meanwhile the focus is on protecting the value of
investments.
Telliskivi City (Estonia). The fund management team has significantly changed the concept of Telliskivi City. Today the efforts are
directed towards renting out the already existing premises. Today the efforts are directed towards renting out the premises in
their current situation. The new and evolving concept should create a favourable environment for enterprises, educational and
cultural institutions, art and entertainment events. Telliskivi City's guidepost is cooperation between its tenants and building a
multifunctional creative center with minimum resources. EEREIF is also making some investments into the existing premises by
renewing parts of the electrical systems, windows, water supply and also by some common area repairs. The new concept has
been met with substantial interest from the creative industry.
Balti Kett (Estonia). According to third party real estate appraisals this investment has lost 36% of its last reported value in
December 2008 due to weak demand.
Eirospektrs (Latvia). A general meeting of shareholders was held on 29th of June 2009. The management proposed to approve
the audited annual report and made a presentation on the development of the real estate project. The company is in need of
additional capital and further decisions are to be taken during the summer to secure the sustainability of the project.
Pajurio IG (Lithuania). Demand from potential tenants is still very weak. As long as there is no substantial tenant interest, the
fund management company keeps this project on hold. The fund management company would be willing to sell the project in
case it generates market interest. EEREIF is currently renegotiating the loan structure.
Vladaja bonds and Delta Marina (Bulgaria). The fund management company continues to work on the change of land status of
fund investments in Bulgaria. Fund will be in a better position to attract potential buyers at a better price level once the land
status is changed and the market starts to recover from the current crisis. Currently the fund management company cannot give
any predictions of when the final approval will be granted, due to upcoming elections of the National Parliament in the country
and subsequent political developments closely linked with the changes in the administration dealing with the change of the land
status.
Contacts
General Information
Eastern Europe Real Estate Investment Fund
Management company: AS GILD Property Asset Management
Tartu mnt 2
Ph: +372 6 802 630
10145 Tallinn
Fax: +372 6 802 361
Estonia
[email protected]
Security:
Management fee:
Incentive fee:
Registrar:
Reporting:
Fund unit
2%
20% (preferred return to investors 6%)
Estonian Central Securities Depositary
Bi-annually, on 15 Jan and 15 July or the following business day
5/6
Additional Statistical Information about EEREIF Portfolio
No
Property name
Value,
II half of
2008, EUR
Cash
flow, II
half of
2008,
EUR
Value,
I half of
2009, EUR
Cash flow,
I half of
2009, EUR
Valuator
Valuation method
Kinnisvaraekspert
Kinnisvaraekspert
Kinnisvaraekspert
Kinnisvaraekspert
Kinnisvaraekspert
discounted cash
flow
discounted cash
flow
discounted cash
flow
discounted cash
flow
discounted cash
flow
Value
change,
EUR
Change
%
-170 000
-7%
-70 000
-2%
-580 000
-9%
-140 000
-4%
-2 130 000
-18%
Comments
Cash flow projects
1
Estero Project
2 360 000
111 452
2 190 000
113 084
2
Järveotsa Centre
3 280 000
145 924
3 210 000
131 361
3
Madara House
6 110 000
257 676
5 530 000
268 351
4
Cinema House
Sõprus
3 540 000
128 121
3 400 000
134 543
5
Swiss House
11 710 000
392 081
9 580 000
335 301
6
Milo Investments
2 500 000
105 957
2 546 000
114 230
ReSolution/
Jacek
Falkowski
capitalisation
46 000
2%
100% ownership
7
Mindaugo Namai
425 741
19 056
376 506
21 923
ReSolution
capitalisation
-49 235
-12%
100% ownership
1 778 267
73 440
1 488 647
87 603
ReSolution
capitalisation
-289 620
-16%
141 000*
5 634*
126 000*
7 559*
-11%
8 109*
149 000*
8 109*
-11 000
-7%
331 000*
16 949*
308 000*
16 949*
-23 000
-7%
204 000*
-
270 000*
14 155*
discounted cash
flow
discounted cash
flow
discounted cash
flow
discounted cash
flow
-15 000
160 000*
Kinnisvaraekspert
Kinnisvaraekspert
Kinnisvaraekspert
Kinnisvaraekspert
66 000
32%
Kinnisvaraekspert
Kinnisvaraekspert
Arco Real
Estate
Yavlena
Impact
discounted cash
flow
-720 000
-16%
100% ownership
sales comparison
-430 000
-36%
100% ownership
discounted cash
flow
-186 480
-74%
18% ownership
sales comparison
-664 300
-15%
100% ownership
8
9
10
11
12
Nemuno
Panorama
Bauhof - Valga
shop
Bauhof Haapsalu shop
Bauhof Kuressaare shop
Bauhof - Võru
shop
100% ownership
100% ownership
100% ownership
100% ownership
100% ownership
100% ownership
10% ownership
10% ownership
10% ownership
10% ownership
Land development and investments
13
Telliskivi City
4 390 000
26 903
3 670 000
23 853
14
Balti Kett
1 180 000
-
750 000
-
15
Eirospektrs
252 360
-
65 880
-
16
Delta Marina
4 541 700
-
3 877 400
-
17
Pajurio IG
4 436 979
-
3 342 215
-
ReSolution
possible
development
method
-1 094 764
-25%
100% ownership
18
Vladaja bonds
1 973 195
-
1 563 664
-
Yavlena
Impact
sales comparison
-409 531
-21%
bond**
2 315 606
-
2 454 879
-
-
historical cost
139 273
6%
bond
19
GILD Arbitrage
* 10% from the actual figure due to our share in the project
** Investment is structured like a bond, but it bears all equity like risks.
Contacts
General Information
Eastern Europe Real Estate Investment Fund
Management company: AS GILD Property Asset Management
Tartu mnt 2
Ph: +372 6 802 630
10145 Tallinn
Fax: +372 6 802 361
Estonia
[email protected]
Security:
Management fee:
Incentive fee:
Registrar:
Reporting:
Fund unit
2%
20% (preferred return to investors 6%)
Estonian Central Securities Depositary
Bi-annually, on 15 Jan and 15 July or the following business day
6/6
Risks not included in Net Asset Value. Potential value adjustments.
The fundamental assumption underlying the adjusted Net Asset Value (NAV) is that it should reflect the economic value of the
investment as it would be realized by the investor in a theoretical sale as of the balance sheet date, assuming an arm’s length
transaction, a willing buyer/seller, adequate time to market, no duress, etc. The NAV per unit of a fund is normally determined on the
basis of the net assets as presented in the funds reports, in accordance with relevant accounting conventions, and divided by the
number of units issued. One of the purposes of fund reporting is to present to the investors the value and the performance of their
investment. NAV derived from Generally Accepted Accounting Principles (GAAP) does not necessarily fulfill this objective due to
specific accounting treatment of tax effects, different financial instruments etc. Fund manager has to compensate that when reporting
to investors in order to reflect only relevant risks. We have always followed this practice. According to INREV recommendation these
risks/adjustments should be reported separately in its maximum value leaving reader to make a judgment about probability. Please see
them in table below.
Fund (EUR)
Per fund
unit (EUR)
Net asset value according to Estonian GAAP
Potential income tax exiting investment
Selling costs included in property valuations
Deferred tax assets
Contractual fees
Adjusted net asset value
Disclosures to NAV according to Estonian GAAP.
-2 029 905
450 117
47 389
-467 684
21 384 116
-0,8798 NAV is calculated according to Estonian GAAP.
0,1951 Minority shareholdings below consolidation threshold are included.
0,0205
-0,2027 Management fee deducted
9,2682
The information presented in EEREIF (Eastern Europe Real Estate Investment Fund) bi-annual overview is intended only for the investors of EEREIF and
any publication or dissemination of this information to any third party (including media) may substantially harm the interest of the Fund and the
investors and is therefore only allowed under a written permission of the Management Company.
This bi-annual overview is for informational purposes only and it is not a binding offer of EEREIF Fund Units. It is not a recommendation to an investor to
buy, sell or hold EEREIF Fund Units. EEREIF investments are subject to risks not associated with domestic investments, such as currency fluctuation,
political and economic changes and market risks. This information is subject to change without prior notice at any time, based on economic, market and
other conditions, and should not be construed as a recommendation for any further action.
AS GILD Property Asset Management does not guarantee that the presented information here is accurate or complete. When making any investment
decisions investor should acquaint oneself with EEREIF rules and prospectus. All capitalized terms herein have the same meanings as set in the rules and
prospectus. It should be taken into account that historical return does not guarantee future return. The potential investor is responsible for all tax
related questions.
The information contained in this document does not constitute an offer of subscription or sale of fund units in the United States, Canada, Australia,
Japan or in any other country and jurisdiction in which the said offer is prohibited or subject to any limitation under the applicable law provisions.
Contacts
General Information
Eastern Europe Real Estate Investment Fund
Management company: AS GILD Property Asset Management
Tartu mnt 2
Ph: +372 6 802 630
10145 Tallinn
Fax: +372 6 802 361
Estonia
[email protected]
Security:
Management fee:
Incentive fee:
Registrar:
Reporting:
Fund unit
2%
20% (preferred return to investors 6%)
Estonian Central Securities Depositary
Bi-annually, on 15 Jan and 15 July or the following business day