TIDMMLD
RNS Number : 4245W
Mirland Development Corporation PLC
19 August 2015
19 August 2015
MIRLAND DEVELOPMENT CORPORATION PLC
("MirLand" or the "Company")
UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE
SIX MONTHS ENDED 30 June 2015
INCREASED REVENUES AND RESILIENT PERFORMANCE,
DEPSITE TOUGH MARKET CONDITIONS
MirLand, one of the leading international residential and
commercial property developers in Russia, announces its results for
the six months ended 30 June 2015.
Financial Highlights:
-- Total revenues up 43% to US$66.2 million (30 June 2014:
US$46.3 million) due to an increase in income from the sale of
residential units;
-- Net operating income ("NOI") from the Company's share of the
investment portfolio down to US$12.4 million (30 June 2014: US$19.9
million), mainly due to depreciation in the Russian Rouble against
the US Dollar and due to movement in the Russian real estate
market;
-- Gross profit of US$12.8 million (30 June 2014: US$21 million);
-- EBITDA of US$7.2 million (30 June 2014: US$12 million);
-- Loss of US$66.2 million (30 June 2014: net income of US$0.3
million) due to the on-going impact of adverse conditions in the
Russian economy, which resulted in the negative fair value
adjustment of the Company's share of the investment portfolio of
approximately US$50.4 million following a decrease in projected
NOI. In addition, the Company recorded a net foreign exchange loss
of US$2.9 million. There was also a negative fair value adjustment
of the Company's share of the investment portfolio of US$10.3
million following depreciation of the Russian Rouble against the US
Dollar of approximately 1.3%, resulting in nominal depreciation of
commercial assets at the same rate;
-- Total assets amounted to US$694.9 million, of which 89% are
property and land assets (31 December 2014: US$756.6 million);
-- Total equity of US$79.9 million (31 December 2014: US$141.4
million), equating to 11.7% of total assets;
-- Net leverage stands at 71.1% of total assets (31 December 2014: 57%);
-- The Company is continuing its discussions with the trustees
of the Series A-F bondholders to agree a restructuring of its debt
and will update the market in due course.
Operational Highlights
Residential:
Triumph Park, St. Petersburg
Sales rates continue to remain high with prices in Russian
Rouble of later phases increasing ahead of inflation:
-- Phase II: Handover of final apartments during the third quarter of 2015.
-- Phase III: Sales momentum continuing with an additional 78
sales since 1 January 2015. In total, 922 apartments out of 1,346
have been pre-sold, totalling circa 69% of the scheme and
representing sales of approximately US$69.9 million;
-- Phase IV: Construction of 1,244 units began in Q3 2014,
followed by the commencement of sales in Q1 2015. 267 apartments
were pre-sold off plan during the initial six months with sales
totalling approximately 22% of the scheme or US$19.8 million.
Western Residence, Perkhushkovo, Moscow
-- Further strong progress, with sales of a further nine houses
at our Western Residence development in Perkhushkovo, Moscow, have
completed since 1 January 2015, taking the total number of units
sold to 49 of the 77 houses in the scheme.
Retail:
-- Satisfactory performance achieved despite pressures on rents
and occupancy rates during the first six months, with half year NOI
of US$7.4 million from the Vernissage Mall and Triumph Mall,
compared to US$11.7 million last year;
-- Occupancy slightly decreased to approximately 90%;
-- An agreement to sell land for the construction of a 15,000
sqm extension of the Vernissage Mall, which will house an
international DIY retailer, was signed during the period. The store
is expected to be open and trading within a year and the Board
expects the introduction of the retailer to increase the
attractiveness of the Mall as a retail destination.
Offices:
-- Occupancy rates slightly decreased at the MirLand Business
Centre, and stand at 81% - in line with the market trend. NOI has
reduced to US$5 million (Company share) in the first half of
2015.
Nigel Wright, Chairman of Mirland, commented:
"In testing market conditions, we have been able to increase
revenues and maintain a respectable operational performance.
Mirland's resilience has been demonstrated by strong residential
sales at Triumph Park in St. Petersburg. The latter phases of the
development have achieved higher sales prices, exceeding inflation,
and delivered strong profits from the project.
"As I have stated previously, economic conditions in Russia are
beyond our control and there is no denying that our performance has
been severely impacted by the devaluation of the Russian Rouble and
a consequent devaluation of assets. We are working hard to maximize
value by all means within our control and continue to keep a close
eye on capital expenditure. We successfully reduced Maintenance and
Management Costs together with General and Administrative expenses
again during the period.
"Despite the current challenging conditions in the Russian
market, we remain confident that the quality of our portfolio will
be further demonstrated as the market improves in the
long-term."
For further information, please contact:
MirLand Development Corporation plc
Roman Rozental, CEO
roman@mirland-development.com +7 495 787 4962
Yevgeny Steklov, CFO +7 499 130 31 09
yevgeny@mirland-development.com +7 903 628 24 50
FTI Consulting
Dido Laurimore /Ellie Sweeney /Tom
Gough
dido.laurimore@fticonsulting.com
ellie.sweeney@fticonsulting.com
tom.gough@fticonsulting.com +44 20 3727 1000
Investec Bank plc
Jeremy Ellis / David Anderson +44 20 7597 4000
MirLand's progress during the first half year of 2015 reflects
our core strategy to:
-- Maximize returns from our existing assets;
-- Successfully complete projects currently under construction; and
-- Activate pipeline projects and selectively seek new projects
subject to availability of appropriate funding and market
demand.
FINANCIAL REVIEW
Balance Sheet
Our balance sheet remains resilient with total assets as at 30
June 2015 of US$694.9 million (31 December 2014: US$756.6 million).
Total equity was US$79.9 million as at 30 June 2015 (31 December
2014: US$141.5 million) and net cash was US$29 million.
MirLand's assets are externally valued half-yearly on 30 June
and 31 December by Cushman & Wakefield. Based on the 30 June
2015 valuation, investment properties and investment properties
under construction decreased in value to US$364.2 million as at 30
June 2015 (31 December 2014: US$414.6), mainly due to the
depreciation of the Russian Rouble (compared to 31 December, 2014)
against the US Dollar and the continuance of the challenging
economic environment in the country. In carrying out the
valuations, no change was made to the discount and capitalisation
rates by Cushman & Wakefield.
Inventories of buildings for sale slightly decreased from
US$258.2 million as at 31 December 2014 to US$252.3 million (30
June 2015) mainly due to delivery of apartments from the second
phase to the tenants during the first half of 2015.
Equity and Liabilities
Total equity as at 30 June 2015 was US$79.9 million, including
minority rights. This represents a decrease on the US$141.5 million
reported at 31 December 2014 and was mainly caused by devaluation
of the Russian Rouble against the US Dollar and the negative
revaluation of the Company's properties. Shareholders' equity
comprises 11.7% of total assets.
Net Financial liabilities as at 30 June 2015 were US$466.5
million in comparison to US$430.1 million at 31 December 2014. As
at 30 June 2015, net financial liabilities comprised 71.1% of
MirLand's total assets.
Income Statement
Total income (income from the sale of inventories, revenues from
rent and management fees) increased 43% to US$66.2 million (H1
2014: US$46.3 million) primarily due to an increase in income from
the sale of residential units.
In accordance with IAS 40, the Company has revaluated its
investment properties and investment properties under construction
for the financial period ending 30 June 2015 and has recognised the
resulting movement in valuation through its income statement as
fair value adjustments. The fair value negative adjustment during
the period amounted to US$60.7 million (H1 2014: US$8.8 million)
and was mainly attributed to a decrease in projected NOI, which
resulted in the negative fair value adjustment of investment
properties of approximately US$50.4. There was also a negative fair
value adjustment of investment properties of US$10.3 million
following depreciation of the Russian Rouble against the US Dollar
of approximately 1.3%, resulting in nominal depreciation of
commercial assets at the same rate.
The cost of maintenance and management of the Company's
investment portfolio decreased from US$8.4 million in H1 2014 to
US$6.9 million in H1 2015. This was due to the additional
efficiency measures implemented by the Company, mainly in the
office segment and the depreciation of the Russian Rouble against
the US Dollar.
The Company's gross profit for the period decreased to US$15.7
million compared to US$21million in the same period in 2014.
General and administrative expenses for the period decreased to
US$5.4 million in comparison to US$6.7 million in the same period
in 2014, mainly due to efficiency measures implemented by the
Company.
Net financing costs for the period amounted to US$16.7 million
in comparison to US$16.8 million in the same period of 2014.
Foreign exchange differences resulted in a loss of US$2.9 million
due to the appreciation of the NIS against the US$ of approximately
3.1%, compared to US$5.8 million in H1 2014.
Loss of US$66.8 million was recorded by the Company compared to
net profit of US$0.3 million in H1 2014.
Net Asset Value
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The Company's adjusted net asset value as at 30 June 2015
decreased 40.6% to US$98 million, compared to US$165 million as at
December 2014. As of 30 June 2015, the portfolio was valued at
US$532.6 million, of which MirLand's share is US$504.5 million
(December 2014: US$589.5 million).
The valuation of each asset in MirLand's real estate portfolio
as at 30 June 2015 is set out in the following table:
Ref. City Property Name Portfolio Percentage MirLand Total sqm of Projected
and Address Market Value Owned by Market Value Land Net Leasable
as of 30th MirLand as of 30th of / Saleable
of June 2015 June 2015 Area in sqm
(Rounded) (Rounded) upon
Completion
(excl.
Parking)
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
001 Moscow Hydromashservice $40,100,000 100% $40,100,000 12,237 16,696
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
002 Moscow MAG $49,000,000 100% $49,000,000 21,940 18,535
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
Western
Residence,
003 Moscow Region Perkhushkovo $25,100,000 100% $25,100,000 225,300 45,151
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
004 Saratov Triumph Mall $86,000,000 100% $86,000,000 22,000 27,241
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
Saint Triumph Park,
006 Petersburg Residential $143,300,000 100% $143,300,000 326,651 411,413
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
Saint Triumph Park,
007 Petersburg Trade Center $12,000,000 100% $12,000,000 81,663 N/A
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
008 Yaroslavl Vernissage Mall $59,500,000 100% $59,500,000 120,000 34,092
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
009 Yaroslavl Phase II $9,700,000 100% $9,700,000 180,000 57,000
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
010 Moscow Tamiz Building $31,700,000 100% $31,700,000 4,500 11,737
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
Century
011 Moscow Buildings $63,200,000 51%/61% $35,100,000 5,800 20,904
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
012 Kazan Triumph House $7,600,000 100% $7,600,000 22,000 16,783
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
Logistics
013 Saratov Complex $5,400,000 100% $5,400,000 260,000 N/A
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
Logistics
014 Novosibirsk Complex $0 100% $0 N/A N/A
----- -------------- ----------------- ------------- -------------- -------------- -------------- -------------
Total $532,600,000 $504,500,000
---------------------------------------- ------------- -------------- -------------- -------------- -------------
The full valuation report is published on the Company's website
(www.mirland-development.com).
We strongly believe in the quality of the assets owned by the
Company and that the portfolio will deliver an attractive yield to
our investors over the long term as the market continues to
improve.
Cash flow
FINANCING
The challenging economic environment has continued to have a
substantial impact on the valuation of the Company's real estate
portfolio. This saw the value marked down by approximately 36%
during 2014 and an additional 12% during the first half of 2015,
resulting in net leverage increasing further to 71.1% of total
assets as at 30 June 2015 from 56.9% as at 31 December 2014. Total
net borrowings amounted to US$466.5 million (31 December 2014:
US$430.1 million).
As reported at the time of the Full Year results in March 2015,
the Company is in negotiation with the trustees of the Series A-F
bondholders to agree a restructuring of its debt which addresses
the challenges posed by the current instability in the Russian
economy for the benefit of all the Company's creditors and
shareholders.
Discussions are continuing and, during this period, the Company
has agreed not to undertake certain transactions which would
involve incurring any material obligations without giving the
Trustees the agreed prior notice (the "Interim Period").
Furthermore, the Company's controlling shareholders, Jerusalem
Economy Ltd., Industrial Buildings Corporation Ltd. and Darban
Investments Ltd., as well as Dunchoille Holdings Ltd. (a subsidiary
wholly owned by the Company), have undertaken that, during the
Interim Period, no disposal will be made of any of the Company's
debentures held by them, unless they give the Trustees prior
written notice specifying the particulars of the transaction.
The Company will update the market further on this in due
course.
OPERATIONAL UPDATE
Good progress continues to be achieved in the pre-sale, build
and delivery of Triumph Park in St. Petersburg, the Company's
BREEAM certified sustainable residential project. Following the
successful conclusion of Phase II with all flats sold, and handed
over to the buyers during the third quarter of 2015. Sales have
continued to be strong in Phase III of the scheme, with 922 (69% of
the scheme) apartments now pre-sold. The Company is continuing to
achieve sale prices in Russian Rouble in these later phases ahead
of the rate of inflation, underpinning the strong levels of
profitability for the project.
The construction of Phase IV of the project, representing a
further 1,244 units, commenced in Q3 2014, and 267 units were
pre-sold during the first six months of sales.
The Western Residence residential development at Perkhushkovo,
Moscow, has also maintained momentum with nine further houses sold
since the beginning of 2015. This now takes the number sold to 49
of a total of 77 houses in the scheme.
Occupancy at our Vernissage Mall and Triumph Mall assets
slightly decreased to approximately 90%, although footfall remained
high at both.
In April, 2015, a sub-subsidiary of the Company (Global 1 LLC)
("Sub-subsidiary") which holds the rights of the Yaroslavl Project
(Vernissage Mall Project) contracted into a series of agreements
that obligate the Sub-subsidiary to sell an area of land of about
20,800 square metres to an International chain that is involved in
the "Do-It-Yourself industry" ("The Chain") for a consideration of
approximately 400 Million Roubles, including VAT (approximately US
Dollar 7.7 million). The chain has taken upon itself the
construction obligations of the shop (Big Box) on the land through
an undertaking to open the shop on a date no later than 30 June
2016. Additionally, the sub-subsidiary will lease to the chain
additional land of about 6,070 square metres for a period of 49
years and will allow the chain access to other areas of the land
for the purpose of building the shop. The sub-subsidiary will be
responsible for removing all encumbrances and liens on the land
before the rights are transferred to the chain, and similarly to
establish the necessary infrastructure for running the shop.
After the date of the balance sheet, in July 2015, an approval
for its sale was received from the funding bank, which has a pledge
on the real estate. The Sub-subsidiary agreed to designate 60% of
the total consideration for early repayment of the loan principal
received from the funding bank.
Occupancy at the MirLand Business Centre remains in line with
market conditions at approximately 81% of the total rentable area,
which is in line with the market average.
On account of the challenging economic environment, the Company
has been providing certain discounts and limitation agreements on
the exchange rate to its retail and office tenants, which led to a
substantial decrease in its NOI in the first half of 2015.
MARKET UPDATE
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August 19, 2015 02:00 ET (06:00 GMT)
Russia's economy contracted by 4.2% in 2Q15 compared with 2Q14,
the largest drop in six years, since the financial crisis in 2009.
The annual forecast is for a fall by around 2.8% in 2015, and to
grow less than 1% in 2016 (Russian Ministry of Economic
Development).
A spike in consumer price inflation, which has peaked at around
17%, resulted in a sharp fall in real wages, weighing on private
consumption. The June 2015 inflation rate was 15.3% on an annual
basis.
The currency fluctuated between 50-60 Russian Rouble to US
Dollar from the beginning of the year and was at 55.52 on 30 June
2015. As of the date of publication of the announcement the rate
increased to 65.5.
Russia's Urals oil brand sold for an average of US$56.99 per
barrel between January and June, down 47% from an average of
US$107.28 per barrel during the same period last year (Russian
Ministry of Finance).
The Central Bank interest rate in Russia averaged 6.66% from
2003 to 2015, reaching a record high of 17% in December 2014, and
has declined gradually since to 11% on 31 July 2015. It is the
fifth consecutive cut aimed at boosting growth and is despite a
slight increase in the inflation risks.
Net capital outflow fell in 2Q15 to US$20bn, according to
estimated balance of payments data published by the Central Bank of
Russia, while in 1Q15 it was at US$32.5bn, and the predicted amount
for 2015 is currently $90bn.
Foreign Direct Investments in 2Q15 were approximately US$3.5bn,
which is a small improvement from the negative figures in 4Q14
which reflected the conflict and the international sanctions on
Russia.
The unemployment rate decreased to 5.4% in June 2015 from 5.6%
in May 2015. It is the lowest figure since December 2014 and below
market expectations.
Real Estate market
Prime yields in 2Q 2015 were 11% for offices, 11% for prime
retail, and 13% for warehouses, which are unchanged from the
previous quarter.
In total, the volume of investment in 1H15 in commercial real
estate was US$1.3bn (US$658mn in offices, US$196 million in retail
and US$444 million in warehouses). The volatile global and domestic
economic environment means the forecast for 2015 remains US$2.5bn,
taking into consideration a pipeline of US$1bn. US$807 million and
US$529million were invested by domestic and foreign companies,
respectively. The share of foreign companies' investments decreased
from 55% in 1Q15 to 40%. As usual, Moscow attracted the majority of
investments - US$1.2bn (90%). Only US$110 million (8%) was invested
in commercial real estate in St. Petersburg.
Offices
The total volume of investments in the office segment was US$658
million approximately 50% of total investments).
The average rental rates showed minor growth in Q2, reflecting
technical consolidation of the rents. Class A rents are now US$645
per sq m and US$281 per sq m for Class B (triple net). In USD
equivalent both classes' average rents decreased in 1H15. In
Russian Rouble equivalent, the trends are different with growth in
Class A and a decline in Class B.
The average vacancy rate has increased to 17.9%: 31.4% in Class
A (2015F - 33%), and 14.7% Class B (2015F - 16%). The net
absorption is negative and signifies the lack of demand for new
offices.
Retail
The first half of 2015 was characterised by a record low volume
invested in retail - US$196 million (15% of total investments).
13 new shopping centres with a total GLA of 547,700 sq m were
opened in 1H15 (six in Q1 and seven in Q2 (GLA 199,000sqm)) five of
which were delivered in Moscow.
In prime Moscow shopping malls the average vacancy rate remained
low at 2.2% (1Q15 - 2%). The total Moscow quality retail stock
overall vacancy rate is at 8%.
The prime rental rate indicator in the first half of 2015 was
unchanged at US$3,200. At the end of 2014 and beginning of 2015 the
majority of retailers received the maximum possible temporary
discounts, so rental rate growth may start at the end of 2015, at
earliest.
In 2Q15 Moscow shopping mall footfall was the lowest since 2011
and 10% lower than the four-year quarterly average.
Residential
The mortgage lending market is decreasing, with approximately
379.1bn Russia Rouble (Approximately US$6.82bn) of mortgages
granted between January and May 2015, 40% lower than the same
period in 2014.The average lending rate at the beginning of June
2015 was 13.5% (lower than May at 14.06%).
2Q15 delivery of new residential projects to the market in St.
Petersburg totalled 373,000 sq m, which is 60% less than in 1Q15.
Most of the delivery to the market remains in the mass-market
segment (approximately 275,000 sq m). 2Q15 demand amounted to
800,000 sq m, which is similar to the previous quarter.
Industrial
Total investment volume in the segment was US$225 million in 2Q
2015 (US$444 in 1H15).
About 392,000 sq m of industrial space was completed in Moscow
at the end of 1H15.
An increase of 19% in demand was observed in 1H15 (compared to
1H14), after a significant decline in market activity at the end of
2014.
1H15 vacancy rate was at 9.7% in Class A, and of 7% in Class B.
90% of the vacant space marketed with Russian Rouble lease rates.
The average lease length is less than five years.
Nigel Wright Roman Rozental
Chairman Chief Executive
18 August 2015 18 August 2015
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
30 June 31 December
------------------
2015 2014 2014
------- --------- -----------
Unaudited Audited
------------------ -----------
U.S. dollars in thousands
-------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 17,883 83,150 40,646
Restricted cash 11,159 - -
Trade receivables 3,749 3,277 1,502
Accounts receivables 6,971 9,337 6,530
VAT receivable 4,742 5,263 4,438
Inventories of buildings for sale 167,538 205,585 169,297
------- --------- -----------
212,042 306,612 222,413
------- --------- -----------
Assets held for sale 5,655 - -
------- --------- -----------
217,697 - -
------- --------- -----------
NON-CURRENT ASSETS:
Investment properties 329,500 547,501 383,800
Investment properties under construction 29,045 57,500 30,800
Inventories of buildings for sale 84,750 102,969 88,917
VAT receivable 373 414 314
Fixed assets, net 1,239 1,908 1,231
Other long term receivables 18,874 8,181 18,558
Prepaid expenses 509 980 517
Deferred taxes 12,863 5,627 10,056
------- --------- -----------
477,153 725,080 534,193
------- --------- -----------
TOTAL ASSETS 694,850 1,031,692 756,606
======= ========= ===========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION
30 June 31 December
--------------------
2015 2014 2014
--------- --------- -----------
Unaudited Audited
-------------------- -----------
U.S. dollars in thousands
---------------------------------
EQUITY AND LIABILITIES
CURRENT LIABILITIES:
Long-term loans from banks which classified
for short-term 206,574 - 181,588
Current maturities of long-term credit
from banks 16,555 63,780 15,445
Current maturities of debentures 76,870 - 57,298
Credit from banks for financing of
inventory of buildings for sale 21,452 12,763 3,300
Long-term Debentures which classified
for short-term 174,064 - 178,316
Trade payables 10,416 10,069 8,262
Deposits from tenants 1,765 3,706 2,762
Advances from buyers 71,909 100,170 88,471
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August 19, 2015 02:00 ET (06:00 GMT)
Other accounts payable 2,471 5,017 2,847
--------- --------- -----------
582,076 195,505 538,289
--------- --------- -----------
NON-CURRENT LIABILITIES:
Loans from banks and others - 223,121 34,847
Debentures - 208,432 -
Other non-current liabilities 12,107 18,050 12,562
Deferred taxes 21,014 60,026 29,461
--------- --------- -----------
33,121 509,629 76,870
--------- --------- -----------
TOTAL LIABILITIES 615,197 705,134 615,159
--------- --------- -----------
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE PARENT:
Issued capital 1,036 1,036 1,036
Share premium 359,803 359,803 359,803
Capital reserve for share-based payment
transactions 12,559 12,458 12,530
Capital reserve for transactions with
controlling shareholders 8,556 8,556 8,556
Foreign currency translation reserve (170,433) (66,579) (174,197)
Accumulated deficit (152,855) (19,704) (89,757)
--------- --------- -----------
TOTAL EQUITY ATTRIBUTABLE TO EQUITY
HOLDERS OF THE PARENT 58,666 295,570 117,971
Non-controlling interest 20,987 30,988 23,476
--------- --------- -----------
Total equity 79,653 326,558 141,447
--------- --------- -----------
TOTAL EQUITY AND LIABILITIES 694,850 1,031,692 756,606
========= ========= ===========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Six months ended Year ended
30 June 31 December
------------------
2015 2014 2014
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
(except earnings (loss) per
share data)
--------------------------------
Rental income from investment properties 17,805 26,800 52,525
Revenues from sale of residential units 46,894 17,752 29,796
Revenues from management fees 1,499 1,747 3,938
-------- -------- ------------
Total revenues 66,198 46,299 86,259
-------- -------- ------------
Cost of sales and maintenance of residential
units 43,534 16,947 28,974
Cost of maintenance and management 6,917 8,372 18,228
-------- -------- ------------
Gross profit before provision for impairment 15,747 20,980 39,057
Impairment of inventory 2,986 - -
-------- -------- ------------
Gross profit 12,761 20,980 39,057
-------- -------- ------------
General and administrative expenses 5,412 6,723 13,043
Bond settlement expenses 1,444 - -
Marketing expenses 2,954 2,137 4,053
Fair value adjustments of investment
properties and investment properties
under construction (60,698) 8,776 84,802
Other expense (earnings), net 70 850 1,992
Company's share in earnings of companies
accounted for using the equity method
and gain from obtaining control in
company previously accounted for using
the equity method - 4,009 4,009
-------- -------- ------------
Operating income (loss) (57,817) 24,055 108,780
Finance income 1,101 531 1,521
Finance expenses (17,777) (17,365) (36,942)
Net foreign exchange differences (2,943) (5,803) (149,361)
-------- -------- ------------
Profit (loss) before taxes on income (77,436) 1,418 (76,002)
Taxes on income (tax benefit) (11,239) 1,094 (13,125)
-------- -------- ------------
Net income (loss) (66,197) 324 (62,877)
======== ======== ============
Attributable to:
Equity holders of the parent (63,098) (1,260) (71,313)
Non-controlling interests (3,099) 1,584 8,436
-------- -------- ------------
(66,197) 324 (62,877)
======== ======== ============
Basic and diluted net earnings (loss)
per share (US Dollars) attributable
to equity holders of the parent (0.60) (0.01) (0.69)
======== ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
Six months ended Year ended
30 June 31 December
------------------
2015 2014 2014
--------- ------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
Net Income (loss) (66,197) 324 (62,877)
--------- ------- ------------
Other comprehensive income (loss) (net
of tax effect):
Other comprehensive income to be reclassified
to profit or loss in subsequent periods:
Transfer of currency translation reserve
to income statement for obtaining control
in companies previously accounted for
using the equity method - 6,624 6,624
Exchange differences on translation
of foreign operations 4,374 (8,871) (130,853)
Company's share of net other comprehensive
loss of companies accounted for the
equity method - (3,298) (3,298)
Total other comprehensive income (loss) 4,374 (5,545) (127,527)
--------- ------- ------------
Total comprehensive income (loss) (61,823) (5,221) (190,404)
========= ======= ============
Attributable to:
Equity holders of the parent (59,334) (6,316) (183,987)
Non-controlling interest (2,489) 1,095 (6,417)
--------- ------- ------------
61,823 (5,221) (190,404)
========= ======= ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
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INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
Capital Total
reserve equity
for
Capital transactions Foreign attributable
reserve to equity Non-
for with currency
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
U.S. dollars in thousands
At 1 January
2015 1,036 359,803 12,530 8,556 (174,197) (89,757) 117,971 23,476 141,447
Net profit
(loss) for the
year - - - - - (63,098) (63,098) (3,099) (66,197)
Other
comprehensive
loss - - - - 3,764 - 3,764 610 4,374
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- --------
Total
comprehensive
income
(loss) - - - - 3,764 (63,098) (59,334) (2,489) (61,823)
Share-based
payments (Note
19) - - 29 - - - 29 - 29
------------ ----------- --------
At 30 June 2015
(unaudited) 1,036 359,803 12,559 8,556 (170,433) (152,855) 58,666 20,987 79,653
======= ======= =========== ============ =========== =========== ============ =========== ========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
Capital Total
reserve equity
for
Capital transactions Foreign attributable
reserve to equity Non-
for with currency
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- -------
U.S. dollars in thousands
At 1 January
2014 1,036 359,803 12,396 8,556 (61,523) (18,444) 301,824 29,893 331,717
Net profit
(loss) for the
year - - - - - (1,260) (1,260) 1,584 324
Other
comprehensive
loss - - - - (5,056) - (5,056) (489) (5,545)
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- -------
Total
comprehensive
income
(loss) - - - - (5,056) (1,260) (6,316) 1,095 (5,221)
Share-based
payments - - 62 - - - 62 - 62
------------ ----------- -------
At 30 June 2014
(unaudited) 1,036 359,803 12,458 8,556 (66,579) (19,704) 295,570 30,998 326,558
======= ======= =========== ============ =========== =========== ============ =========== =======
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
EQUITY
Capital Total
reserve equity
for
Capital transactions Foreign attributable
reserve to equity Non-
for with currency
Issued Share share-based controlling translation Accumulated holders of controlling Total
capital premium payments shareholders reserve deficit the parent interest equity
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- ---------
U.S. dollars in thousands
At 1 January
2014 1,036 359,803 12,396 8,556 (61,523) (18,444) 301,824 29,893 331,717
Net profit
(loss) for the
year - - - - - (71,313) (71,313) 8,436 (62,877)
Other
comprehensive
loss - - - - (112,674) - (112,674) (14,853) (127,527)
------- ------- ----------- ------------ ----------- ----------- ------------ ----------- ---------
Total
comprehensive
income
(loss) - - - - (112,674) (71,313) (183,987) (6,417) (190,404)
Share-based
payments - - 134 - - - 134 - 134
------------ ----------- ---------
At 31 December
2014 1,036 359,803 12,530 8,556 (174,197) (89,757) 117,971 23,476 141,447
======= ======= =========== ============ =========== =========== ============ =========== =========
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Year ended
30 June 31 December
------------------
2015 2014 2014
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
Cash flows from operating activities:
Net profit (66,197) 324 (62,877)
-------- -------- ------------
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Adjustments to the profit or loss items:
Deferred taxes, net (11,851) (208) (14,824)
Depreciation and amortization 82 91 201
Finance expenses, net 19,619 22,637 184,782
Share-based payment 29 62 134
Fair value adjustment of investment
properties and investment properties
under construction 60,698 (8,776) (84,802)
Company's share in earnings of companies
accounted for using the equity method
and gain from obtaining control in
company previously accounted for using
the equity method - (4,009) (4,009)
68,577 9,797 81,482
-------- -------- ------------
Working Capital adjustments:
Decrease (increase) in trade receivables (2,088) (1,842) 1,879
Increase in VAT receivable and others (1,200) (1,440) (3,022)
Increase (decrease) in inventories
of buildings for sale 13,296 (29,877) (78,763)
Increase (decrease) in trade payables (147) 331 6,957
Increase (decrease) in other accounts
payable (18,035) 23,537 62,724
-------- -------- ------------
(8,174) (9,291) (10,225)
-------- -------- ------------
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Interest paid (10,273) (17,504) (36,730)
Interest received 173 123 231
Taxes paid (935) (372) (2,046)
(11,035) (17,753) (38,545)
-------- -------- ------------
Net cash flows generated from (used
in) operating activities (16,829) (16,923) (30,165)
-------- -------- ------------
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Year ended
30 June 31 December
------------------
2015 2014 2014
-------- -------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
Cash flows from investing activities:
Additions to investment properties - - (3,529)
Additions to investment properties
under construction (1,642) (1,546) (3,418)
Purchase of fixed assets - (760) (625)
Loans granted to related parties - (726) (10,684)
Cash from obtaining control in companies
previously accounted for using the
equity method (a) - (21,140) (21,140)
Net cash flows used in investing activities (1,642) (24,172) (39,396)
-------- -------- ------------
Cash flows from financing activities:
Issuance of debenture, net - - 39,152
Repayment of debentures - - (32,211)
Receipt of loans from banks and others,
net from origination costs 21,430 120,962 155,630
Repayment of loans from banks and others (14,175) (61,557) (109,667)
-------- -------- ------------
Net cash flows generated from financing
activities 7,255 59,405 52,904
-------- -------- ------------
Exchange differences on balances of
cash and cash equivalents (388) (1,314) (8,851)
-------- -------- ------------
Increase (Decrease) in cash and cash
equivalents (11,604) 16,996 (25,508)
Cash and cash equivalents at the beginning
of the period 40,646 66,154 66,154
-------- -------- ------------
Cash and cash equivalents at the end
of the period 29,042 83,150 40,646
======== ======== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended Year ended
30 June 31 December
------------------
2015 2014 2014
----- ----------- ------------
Unaudited Audited
------------------ ------------
U.S. dollars in thousands
--------------------------------
(a) Cash generated from obtaining control
in companies accounted for the equity
method:
The subsidiaries' assets and liabilities
at date of sale:
Working capital (excluding cash
and cash equivalents) - 136 136
Investment properties - (109,800) (109,800)
Other receivables - (49) (49)
Fixed assets, net - (313) (313)
Deferred taxes - 16,107 16,107
Loans from banks - 21,419 21,419
Other non-current liabilities - 12,700 12,700
Indemnification asset - (5,737) (5,737)
Foreign currency translation reserve - 6,624 6,624
Profit (loss) from obtaining control
in companies previously accounted
for using the equity method - 702 702
Investment in associates - 33,727 33,727
Loans granted to associates - 3,344 3,344
- (21,140) (21,140)
===== =========== ============
The accompanying notes are an integral part of the interim
condensed consolidated financial statements.
NOTE 1:- GENERAL
a. These interim consolidated financial statements have been
prepared in a condensed format as of 30 June 2015 and for the
six-month period then ended ("interim condensed consolidated
financial statements"). These financial statements should be read
in connection with the Company's annual financial statements and
accompanying notes as of 31 December 2014 and for the year then
ended ("annual financial statements").
b. 1. During 2014, mainly in the second half of the year, the
Russian economy was subject to sanctions imposed on it by the west
and in the last quarter of 2014, the Russian economy experienced a
serious deterioration which resulted, inter alia, in the weakening
of Russian Ruble in relation to the U.S. dollar by about 79% up to
date. In the second half of 2014 and principally in December of
that year, due to the decline in oil prices, the aggravation of the
sanctions imposed by the West due to Geopolitical instability in
the East Ukraine and the devaluation of the Russian Ruble, the
Central Bank of Russia raised the interbank interest rate from 5.5%
in January 2014 to 17% as of January 2015. International rating
agencies (S&P Moody's and Fitch Ratings) gradually lowered
Russia's credit rating to BB+/Baa3 with a negative outlook. After
the balance sheet date through the date of signing the financial
statements, the Ruble dropped another 9% in its value in relation
to the U.S dollar. Up to the signing date of this report the
Central Bank of Russia lowered gradually the interbank interest to
11%. After the balance sheet date and up to date the Russia Ruble
depreciated by approximately 15% against the US Dollar. The
continuance of the depreciation could have additional negative
affect on the Company equity.
2. On December 18, 2014, the trustees of the holders of the
Company's debentures (series A-F) called for a meeting for
obtaining reports from the Company's representatives regarding the
developments in the Company's business affairs and for discussing
and deciding on actions to be taken to protect the rights of the
creditors.
On the same date and following the announcement of the trustees
of the holders of the Company's debentures, the Company announced
that in view of the fluctuations in the Russian markets, the
scheduled meeting of the holders of debentures and their appeals to
the Company, the Company's Board decided to defer the principal and
interest payments to the holders of debentures (series A-B) which
were due on December 31, 2014.
In addition on the same date, the rating agencies (S&P
Maalot and Midroog) announced the lowering of the Company's rating
to ilCC and B1 with negative outlooks, respectively, this among
others, following the Company's announcement of deferring the
debenture payments of December 2014.
In the meeting of holders of debentures held on December 22,
2014, the Company announced that it requires time until the general
situation in Russia and the Company's specific business affairs
become clear. In early January 2015, the Company announced the
results of the voting of the holders of debentures (series A-F)
which resolved to temporarily defer the maturity dates of the
principal and interest payments to the holders of debentures
(series A-B) to February 1, 2015 (as well as authorizing the
trustee to extend this date by an overall 60-day period) subject to
depositing $ 11 million in an escrow account in favor of the
Company (reflecting the payment that was due in December 2014) and
provided that the Company initiate an immediate, consecutive and
intensive dialog with the trustees of the debentures (who have been
authorized to negotiate with the Company for reaching an
arrangement) and the Company will sign a Stand Still letter and
subject to the signing of the stand still letter by controlling
shareholders of the Company, Jerusalem Economic Corporation Ltd.,
and Industrial Buildings Ltd., as
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long as the amount of the deposit is held in trust account, they
will not sell the bonds (series A and B) held Biden to a third
party.
On January 22, 2015, the Company signed a "standstill
commitment" towards the trustees and the holders of the debentures
in which it undertook, among others, to the following principles
according to the specified in the "standstill commitment": not to
make any material payments to its financial creditors in respect of
any debt, whether in or outside of Israel beyond the amortization
schedule settled with them, but due notice trustees, not to make
any payments to the controlling shareholders in the Company, not to
dispose of any material assets, not to distribute any dividends
only with a prior notice to the trustees and also other commitments
as detailed in the "standstill commitment".
On February 10, 2015, the Company's Board decided to announce
the deferral of payments to holders of all the series of debentures
until negotiations with them are concluded.
On March 30, 2015 the Company published the arrangement
principles which were agreed with the trustees and include, inter
alia, increase of interest to all the series,
certain liabilities of the parent Companies and issuance of
shares and options to the holders of debentures.
During 2015, the trustee of the series A, E and F decided to
defer the maturity dates of the principal and interest payments to
August 31, 2015.
On February 2, 2015, S&P announced another lowering of the
Company's rating to D- with a negative outlook since the Company
failed to meet its liabilities to the holders of debentures (series
A and B) in the 30-day period following the original maturity date
and given its intention to refinance the debt on the all the
debenture series.
At the Bondholders' (Series B) meeting held on June 17, 2015, it
was decided not authorize the Trustees to postpone the deadlines of
the payments dates.
On July 2, 2015 the Tel Aviv Stock Exchange published a notice
on the partial redemption of a loan whose payment was not received
by the Exchange's clearance system, such that the unpaid balance of
debenture (series B) will be listed separately.
During 2015, the trustee of the debentures (series C-D) decided
to defer the maturity dates of the interest payments to September
30, 2015.
On July 6, 2015, the Company published the main amendments to be
added to the arrangement plan with the holders of debentures in the
Company and an immediate report with respect to the filing of a
motion with the court of Cyprus, pursuant to the assembling of
meetings toward approval of the arrangement between the Company and
its debenture holders. On July 14, 2015, the Company notified that
the Cypriot court approved the motion of the Company.
The Company continues negotiations with the trustees of the
holders of the debentures in order to achieve a comprehensive
arrangement.
As a result, the Company classified the outstanding debentures
in an amount of $ 174.1 million as current liabilities in its
financial statements as of June 30, 2015.
3. In the context of financing agreements with lending banks in
Russia, certain financial covenants were determined with which the
Company is not in compliance as of June 30, 2015 which include,
among others, a certain LTV ratio, minimum occupancy rates and debt
coverage and interest ratios. As a result, the Company classified
in its financial statements as of June 30, 2015 loans from banks,
in which the Company breaches its covenants, in an amount of $
206.6 million as current liabilities.
4. The Company has a working capital deficiency of approximately
$ 369.9 million as of June 30, 2015, a loss of approximately $ 66.2
million, total comprehensive loss of approximate $ 61.8 million for
the six months then ended and negative cash flows from operating
activities of approximately $ 16.8 million for the six months then
ended.
The Company continues to monitor the economic developments in
Russia which are external to the Company and beyond its control and
is continuing taking steps to minimize its exposure to the
situation. In view of all of the aforementioned, there is a
material uncertainty which may cast significant doubt as to the
Company's ability to continue to operate as a going concern. The
financial statements do not include any adjustments to the carrying
amounts of assets and liabilities and their classification which
might be required if the Company is unable to continue to operate
as a going concern.
NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES
a. Basis of preparation of the interim financial statements:
The interim condensed consolidated financial statements have
been prepared in accordance with the International Financial
Reporting Standard IAS 34 ("Interim Financial Reporting").
b. New standards, interpretations and amendments adopted by the Company:
The significant accounting policies and methods of computation
followed in the preparation of the interim condensed consolidated
financial statements are identical to those followed in the
preparation of the latest annual financial statements.
NOTE 3:- FINANCIAL INSTRUMENTS
Set out below is a comparison of the carrying amounts and fair
values of financial instruments as of June 30, 2015:
Carrying Fair
amount Value
--------------- ----------
U.S. dollars in thousands
---------------------------
Financial liabilities:
Debentures (series A) 4,359 1,945
Debentures (series B) 18,129 7,521
Debentures (series C) 36,694 13,412
Debentures (series D) 44,920 16,637
Debentures (series E) 106,952 39,488
Debentures (series F) 39,880 14,749
The fair value of the bonds is measured based on quoted market
prices, according to Level 1 of the fair value hierarchy.
There is no material change in the fair value of bank loans in
compare to the value presented in the annual financial
statements.
NOTE 4:- SEGMENTS
Commercial Residential Total
---------- ----------- --------
Unaudited
---------------------------------
Six months ended 30 June
2015: U.S. dollars in thousands
---------------------------------
Segment revenues 19,304 46,894 66,198
========== =========== ========
Segment results (48,709) (4,379) (53,088)
========== ===========
Unallocated income (4,729)
Finance costs, net (19,619)
Loss before taxes on income (77,436
========
Commercial Residential Total
---------- ----------- --------
Unaudited
---------------------------------
Six months ended 30 June
2014: U.S. dollars in thousands
---------------------------------
Segment revenues 28,547 17,752 46,299
========== =========== ========
Segment results 30,309 (2,145) 28,164
========== ===========
Unallocated expenses (4,109)
Finance costs, net (22,637)
Profit before taxes on
income 1,418
========
Commercial Residential Total
---------- ----------- ---------
U.S. dollars in thousands
----------------------------------
Year ended 31 December
2014:
Segment revenues 56,463 29,796 86,259
========== =========== =========
Segment results 121,905 (4,944) 116,961
========== =========== ---------
Unallocated expenses (8,181)
Finance expenses, net (184,782)
Loss before taxes on income (76,002)
=========
NOTE 5: - MATERIAL EVENTS DURING THE PERIOD
In April, 2015, a sub-subsidiary of the Company (Global 1 LLC)
("Sub-subsidiary") which holds the rights of the Yaroslavl Project
(Vernissage Mall Project) contracted into a series of agreements
that obligate the Sub-subsidiary to sell an area of land of about
20,800 square metres to an International chain that is involved in
the "Do-It-Yourself industry" ("The Chain") for consideration of
approximately 400 Million Rubles, including VAT (approximately US
Dollar 7.7 million). The chain has taken upon itself the
construction obligations of the shop (Big Box) on the land through
an undertaking to open the shop on a date no later than 30 June
2016. Additionally, the sub-subsidiary will lease to the chain
additional land of about 6,070 square metres for a period of 49
years and will allow the chain access to other areas of the land
for the purpose of building the shop. The sub-subsidiary will be
responsible for removing all encumbrances and liens on the land
before the rights are transferred to the chain, and similarly to
establish the necessary
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