18 November 2015
MIRLAND DEVELOPMENT CORPORATION PLC
("MirLand" or the "Company")
UNAUDITED INTERIM CONSOLIDATED REPORT FOR THE
NINE MONTHS ENDED 30 SEPTEMBER 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 nine months ended 30 September 2015.
Financial Highlights:
·
Total revenues up 24% to US$76.8 million (30 September
2014: US$61.8 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 of US$17.6 million (30 September 2014: US$ 31.3
million), mainly due to depreciation in the Russian Rouble against
the US Dollar and the negative movement in the Russian real estate
market;
·
Gross profit of US$18.6 million (30 September 2014: US$ 31.4
million);
·
EBITDA of US$10.5 million (30 September 2014: US$17.7
million);
·
Loss of US$83.7 million (30 September 2014: net income of US$25.9
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$70.2 million following a decrease in projected
NOI. In addition, the Company recorded a net foreign exchange loss
of US$49 million. There was also a positive fair value
adjustment of the Company's share of the investment portfolio of
US$48.7 million following depreciation of the Russian Rouble
against the US Dollar of approximately 18%, resulting in nominal
appreciation of commercial assets at the same rate;
·
Total assets amounted to US$649.6 million, of which 89% are
property and land assets (31 December 2014: US$756.6
million);
·
Total equity of US$51.2 million (31 December 2014: US$141.4
million);
· Net
leverage stands at 74.2% of total assets (31 December 2014:
57%);
On 17 November 2015, Mirland confirmed that a
proposed Settlement Plan and amended trust deeds to the Bonds
(Series A-F) were approved by the Company's Bondholders (Series
A-F) subject to various conditions.
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 40 sales in
the last quarter taking sales for the current financial year to
105. In total, 947 apartments out of 1,346 have been
pre-sold, totalling circa 72.5% of the scheme and representing
sales of approximately US$63 million;
·
Phase IV: Construction of 1,244 units began in Q3 2014, followed by
the commencement of sales in Q1 2015. 349 apartments were pre-sold
off plan within the initial nine months with sales totalling
approximately 30% of the scheme or US$24 million, up from 22% at
the half year with 112 further apartments sold.
Western Residence, Perkhushkovo, Moscow
·
Continued progress, with the sale of a further three houses at our
Western Residence development in Perkhushkovo, Moscow, taking sales
completed since 1 January 2015 to 12 and the total number of units
sold to 52 of the 77 houses within the scheme.
Retail:
·
Satisfactory performance achieved despite ongoing pressure on rents
and occupancy rates during the period, with nine months NOI of
US$10.4 million from the Vernissage Mall and Triumph Mall, compared
to US$17.5 million for the same period last year;
·
Occupancy levels remain high as an average of 95%;
· 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 completed during the third quarter. The store is
expected to be open and begin trading within the next six months
and the Board expects the introduction of the retailer to increase
the attractiveness of the Mall as a retail destination.
Offices:
·
Occupancy rates decreased by 1% at the MirLand Business Centre, and
stand at 82% - in line with the market average. NOI reduced to
US$7.1 million (Company share) over the first nine months of 2015,
from US$12 million at September 2014.
Nigel Wright, Chairman of Mirland, commented:
"Mirland continues to face significant challenges in
the months ahead. Despite an encouraging increase in revenues,
solid performance at our Triumph Park residential project and
stable occupancy rates in our key retail investments our results
and cash flows continue to be adversely affected by the weak Rouble
and the uncertain outlook for the Russian economy.
"Net leverage has increased significantly over the
past year due principally to a downward valuation of our property
portfolio and adverse currency movements. It is especially
unfortunate that our financial results have disappointed largely as
a result of external factors over which we have little or no
control. We continue, however, to work diligently on those areas we
can control through prudent cost and asset management. I am
especially grateful to our management team for their unrelenting
efforts in the face of considerable head winds.
"I am also encouraged that we have reached agreement,
subject to conditions, with our Bond Holders on the restructuring
of our Bond Debt and I am grateful for the efforts made on both
sides to reach a compromise of mutual benefit. However, the bank
financing market continues to be challenging and we remain highly
cautious about the availability of new finance in the short to
medium term which is highly dependent on the progress of the
economy as a whole.
"In summary, therefore, we do not underestimate the
challenges we face but are determined to remain focused on
maximising portfolio performance, doing our utmost to maintain and
improve cash flow and strengthening our core business for the
benefit of both creditors and shareholders."
For further information, please contact:
MirLand Development Corporation plc
Roman Rozental, CEO
roman@mirland-development.com
Yevgeny Steklov, CFO
yevgeny@mirland-development.com
|
+7 495 787 4962
+7 499 130 31 09
+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
|
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 of MirLand's assets revalued
down by approximately 36% during 2014 and an additional 18%
so far in 2015. This resulted in net leverage increasing further to
74.5% of total assets as at 30 September 2015 from 56.9% as at 31
December 2014. Total net borrowings amounted to US$459.6 million at
30 September 2015 (31 December 2014: US$430.1 million).
As reported at the time of the full year results in
March 2015, the Company has been 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. On 17 November 2015, Mirland announced that,
following preliminary meetings held in Israel on 11 November 2015,
a proposed Settlement Plan and amended trust deeds to the Bonds
(Series A-F) were approved by the Company's Bondholders (Series
A-F). The Company will now act to convene a meeting of creditors
pursuant to a ruling of the Cypriot Court on 14 July 2015.
The completion of the Settlement is subject to
various conditions precedent by deadlines set in the Settlement
documents, including, among other things, receiving approval of the
Settlement by the Cypriot court, receipt of approval of the Tel
Aviv Stock Exchange, and approval of the Company and its
shareholders.
There is no certainty that the conditions precedent
set out in the Settlement documents will be completed by the set
deadlines, nor that that the Settlement will be completed.
Until the Settlement is completed, 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.
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. This
follows the successful conclusion of Phase II with all flats sold
and handed over to buyers during the third quarter of 2015. Sales
have continued to be strong in Phase III of the scheme, resulting
in 975 (72% of the scheme) apartments now having been pre-sold. The
Company is continuing to achieve sale prices in Russian Rouble in
these latter 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 377
units were pre-sold during the first nine months of sales.
We have also seen continued sales momentum at The
Western Residence residential development in Perkhushkovo, Moscow,
with a further three houses sold in the quarter taking total sales
in the year to 12 houses. This takes the number of houses sold to
52 out of a 77 houses in total at the scheme.
Occupancy at our Vernissage Mall and Triumph Mall
assets remained high at approximately 95%, and footfall was also
resilient.
The Company announced in May 2015 the agreement to
sell land for the construction of a 15,000 sqm extension to the
Vernissage Mall to an international DIY retailer for a
consideration of approximately 400 million Roubles (approximately
US Dollar 6.1 million). During August 2015 the sale was completed
and part of the consideration was received. According to the
Company's obligation, 60% of the consideration was paid to the
financing bank as early repayment of the loan principal.
Occupancy at the MirLand Business Centre remains in
line with market averages at approximately 82% of the total
rentable area.
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 nine
months of 2015.
MARKET UPDATE
Russia's GDP contracted by 4.3% in the third quarter
of 2015 compared with the same quarter in 2014. GDP is projected to
fall by around 3.5% in 2015, and expected to grow by 0.3% in 2016,
according to the Ministry of Economic Development of the Russian
Federation. Meanwhile, the World Bank forecasts that Russia's GDP
will contract by 3.8% during 2015.
The Russian Consumer Price Index ("CPI") in October
2015 reached 15.5% on a year-on-year basis, a decrease of 0.2%
since September 2015. Since August 2015, the inflation outlook has
fallen to 10% for 2015 from 12%.
Exchange rates have fluctuated between 50-70 RUB/USD
so far in 2015 and were at 66.3 on 30 September 2015. As of the
date of publication of this announcement the rate did not change
materially.
Russia's Urals oil brand sold for an average of 56.99
USD/BBL between January and September 2015, down 47% from an
average of 107.28 USD/BBL during the same period last year
(according to the Ministry of Finance of Russia). Brent crude oil
decreased to 45 USD/BBL as of the date of this
announcement.
The Central Bank of Russia (CBR) interest rate
averaged 6.7% from 2003 to 2015, reaching a record high of 17% in
December 2014, and has declined gradually since to 11% on 31 July
2015 and currently remains at this rate.
Net capital outflow fell in the third quarter of 2015
to US$52.2bn, according to estimated balance of payments data
published by the CBR. In the second quarter of 2015 it was US$20bn.
The estimated figure for 2015 is currently US$85bn according to the
CBR and the Ministry of Finance of Russia, whilst the World Bank
expects the figure to reach US$113bn.
Foreign Direct Investments into Russia data by CBR
only covers the first quarter of 2015 with US$4bn. The third
quarter of 2015 is estimated to be US$2.6bn and the projection for
the fourth quarter of 2015 is US$4bn.
Russia's unemployment rate decreased to 5.2% in
September 2015 from 5.3% in August 2015. It is the lowest rate
since December 2014 and below market expectations.
Real Estate market
Prime yields in the third quarter of 2015 remained as
the same as the previous two quarters, with 11% for offices, 11%
for prime retail, and 13% for warehouses.
There are two key factors affecting commercial real
estate today: devaluation of the Rouble and the excessive supply of
real estate. While construction rates are still high, shrinking
demand creates a downward pressure on rents.
Investment volumes are still declining: in the first
nine months of 2015 they were 23% lower than the same period in
2014, totalling US$2bn (offices: US$913m; retail: US$482m;
warehouses: US$464m; hotels and residential: US$220). The overall
forecast for 2015 is US$2.5-3bn, and lower in 2016 at US$2bn.
During the first nine months of 2015 US$1.5bn and
US$848m were invested in Russian commercial real estate by domestic
and foreign companies respectively. The share of foreign companies'
investments increased slightly from 40% in the second quarter of
2015 to 42% in the third quarter of 2015. As has previously been
the case, Moscow attracted the majority of the investment with 84%.
Only 7% was invested in commercial real estate in St. Petersburg,
and 9% in the regions.
Offices
In the first nine months of 2015 the total volume of
investments in the office segment was US$859m, representing
approximately 57% of total investments. During the first nine
months of 2015 new construction volume was 464,000 sqm. Net
absorption is negative and signifies the lack of demand for new
offices.
The average vacancy rate increased to 19.1% during
the third quarter of 2015: 31.2% in Class A (2015F - 33%), and
14.4% in Class B (2015F - 16%). In the third quarter of 2015 the
average rental rates for Class A premises were US$690/sqm and
US$330/sqm for Class B (triple net). The forecast for the end of
2015 is US$600/sqm for Class A and US$280/sqm for Class B.
Retail
US$482m was invested in retail (23% of total real
estate investments) during the third quarter of 2015. 25 shopping
centres with a total GLA of circa 750,000 sqm (including five in
Moscow) opened in Russia during the first nine months of 2015. A
number of notable investment deals took place, including the
Mercedes-Benz Plaza BC and the Modny Sezon Retail Gallery. The 2015
forecast is for a total GLA of circa 1,300,000 sqm.
In the third quarter of 2015 the average vacancy rate
in prime Moscow shopping malls was 2.4% while the overall vacancy
rate in Moscow was 7.5%. During the first nine months of 2015
footfall at Moscow's shopping malls was at the lowest level since
2011. The average prime rental rate indicator for the third quarter
of 2015 was US$2,800/sqm.
Residential
The mortgage lending market in Russia is decreasing;
circa 662bn RUB of mortgages were granted from January to August
2015, which is 38% lower than the same period in 2014. The average
lending rate at the beginning of September 2015 was 13% (down from
13.5% in August 2015).
During the third quarter of 2015 delivery of new
residential projects to St. Petersburg's housing market totalled
circa 452,000 sqm, 45% less than the same period last year. 89% of
the delivery to the market was attributed to the mass-market
segment. As at the end of September 2015, there were 555 projects
offered in St. Petersburg (4.3% higher than the second quarter of
2015).
In the third quarter of 2015, for the first time,
mass market prices in Rouble decreased by 1.8% compared to the
second quarter of 2015 (while the economy class decreased by
2.8%).
Industrial
During the first nine months of 2015, total
investment volume in the industrial segment was US$464m. Take-up in
the third quarter of 2015 was 75% higher than the average for the
period in 2008-2014. In the third quarter of 2015 75,000 sqm of
quality warehouse space was delivered in Moscow and 122,000 sqm in
the regions. Demand is supported by food retail activity. New
construction so far in 2015 is half of the volume of that delivered
in 2014.
The third quarter 2015 vacancy rate was 9.5% in Class
A and 7% in Class B industrial real estate. All vacant space in
Moscow is offered for rent in Rouble. Rental rates in the third
quarter of 2015 reached 3,800-4,500 RUB/sqm in Moscow and
3,500-4,000 RUB/sqm in the regions (prices per year, excluding OPEX
and VAT).
Nigel
Wright
Roman Rozental
Chairman
Chief Executive
18 November
2015
18 November 2015
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
|
|
30 September
|
|
31 December
|
|
|
2015
|
|
2014
|
|
2014
|
|
|
Unaudited
|
|
Audited
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
11,567
|
|
79,449
|
|
40,646
|
Restricted bank deposits
|
|
11,159
|
|
-
|
|
-
|
Trade receivables
|
|
2,999
|
|
2,817
|
|
1,502
|
Account receivables
|
|
9,254
|
|
14,843
|
|
6,530
|
VAT receivable
|
|
3,721
|
|
5,717
|
|
4,438
|
Inventories of buildings for sale
|
|
163,856
|
|
202,954
|
|
169,297
|
|
|
|
|
|
|
|
|
|
202,556
|
|
305,780
|
|
222,413
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
Investment properties
|
|
312,700
|
|
531,500
|
|
383,800
|
Investment properties under
construction
|
|
25,545
|
|
54,300
|
|
30,800
|
Inventories of buildings for sale
|
|
75,749
|
|
104,891
|
|
88,917
|
VAT receivable
|
|
306
|
|
358
|
|
314
|
Fixed assets, net
|
|
1,044
|
|
1,744
|
|
1,231
|
Other long term receivables
|
|
18,334
|
|
12,328
|
|
18,558
|
Prepaid expenses
|
|
509
|
|
520
|
|
517
|
Deferred taxes
|
|
12,823
|
|
4,173
|
|
10,056
|
|
|
|
|
|
|
|
|
|
447,010
|
|
709,814
|
|
534,193
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
649,566
|
|
1,015,594
|
|
756,606
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
the interim condensed consolidated financial
statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
|
|
30 September
|
|
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
|
|
200,487
|
|
-
|
|
181,588
|
Current maturities of long-term loans from
banks
|
|
18,842
|
|
14,630
|
|
15,445
|
Current maturities of debentures
|
|
80,114
|
|
49,255
|
|
57,298
|
Credit from banks for financing of inventory of
buildings for sale
|
|
17,200
|
|
2,440
|
|
3,300
|
Government authorities
|
|
1,848
|
|
2,412
|
|
1,868
|
Long-term Debentures which classified for
short-term
|
|
165,689
|
|
-
|
|
178,316
|
Trade payables
|
|
11,787
|
|
15,234
|
|
8,262
|
Deposits from tenants
|
|
1,932
|
|
3,116
|
|
2,762
|
Advances from buyers
|
|
70,542
|
|
114,388
|
|
88,471
|
Other accounts payable
|
|
736
|
|
1,403
|
|
979
|
|
|
|
|
|
|
|
|
|
569,177
|
|
202,878
|
|
538,289
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES:
|
|
|
|
|
|
|
Loans from banks and others
|
|
-
|
|
220,224
|
|
34,847
|
Debentures
|
|
-
|
|
213,612
|
|
-
|
Other non-current liabilities
|
|
10,695
|
|
18,247
|
|
12,562
|
Deferred taxes
|
|
18,474
|
|
53,874
|
|
29,461
|
|
|
|
|
|
|
|
|
|
29,169
|
|
505,957
|
|
76,870
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
598,346
|
|
708,835
|
|
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
|
|
12,572
|
|
12,489
|
|
12,530
|
Capital reserve for transactions with
controlling shareholders
|
|
8,556
|
|
8,556
|
|
8,556
|
Foreign currency translation reserve
|
|
(177,958)
|
|
(107,121)
|
|
(174,197)
|
Accumulated deficit
|
|
(172,142)
|
|
1,673
|
|
(89,757)
|
|
|
|
|
|
|
|
TOTAL EQUITY CONTRIBUTABL TO EQUITY
PARENT
|
|
31,867
|
|
276,436
|
|
117,971
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
19,353
|
|
30,323
|
|
23,476
|
|
|
|
|
|
|
|
TOTAL EQUITY
|
|
51,220
|
|
306,759
|
|
141,447
|
|
|
|
|
|
|
|
TOTAL EQUITY AND LIABILITIES
|
|
649,566
|
|
1,015,594
|
|
756,606
|
The accompanying notes are an integral part of
the interim condensed consolidated financial
statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
INCOME
|
|
Nine months ended
30 September
|
|
Year ended
31 December
|
|
|
|
2015
|
|
2014
|
|
2014
|
|
|
|
Unaudited
|
|
Audited
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
Rental income from investment
properties
|
|
25,012
|
|
41,007
|
|
52,525
|
|
Revenues from sale of residential
units
|
|
49,567
|
|
17,752
|
|
29,796
|
|
Revenues from management fees
|
|
2,180
|
|
3,046
|
|
3,938
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
76,759
|
|
61,805
|
|
86,259
|
|
|
|
|
|
|
|
|
|
Cost of sales and maintenance of residential
units
|
|
44,740
|
|
17,383
|
|
28,974
|
|
Cost of maintenance and management
|
|
9,654
|
|
12,986
|
|
18,228
|
|
|
|
|
|
|
|
|
|
Gross profit before impairment
|
|
22,365
|
|
31,436
|
|
39,057
|
|
|
|
|
|
|
|
|
|
Impairment of inventory
|
|
3,791
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
18,574
|
|
31,436
|
|
39,057
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
8,010
|
|
9,973
|
|
13,043
|
|
Bond settlement expenses
|
|
1,673
|
|
-
|
|
-
|
|
Marketing expenses
|
|
3,913
|
|
2,844
|
|
4,053
|
|
|
|
|
|
|
|
|
|
Fair value adjustments of investment
properties and investment properties under
construction
|
|
(23,354)
|
|
82,936
|
|
84,802
|
|
Other expense, net
|
|
1,330
|
|
4,247
|
|
1,992
|
|
Group'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
|
|
(19,706)
|
|
101,317
|
|
108,780
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
1,594
|
|
1,095
|
|
1,521
|
|
Finance expenses
|
|
(26,970)
|
|
(26,932)
|
|
(36,942)
|
|
Net foreign exchange differences
|
|
(51,396)
|
|
(45,057)
|
|
(149,361)
|
|
|
|
|
|
|
|
|
|
Profit before taxes on income
|
|
(96,478)
|
|
30,423
|
|
(76,002)
|
|
Taxes on income (Tax benefit)
|
|
(12,801)
|
|
4,527
|
|
(13,125)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
(83,677)
|
|
25,896
|
|
(62,877)
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
(82,385)
|
|
20,117
|
|
(71,313)
|
|
Non-controlling interests
|
|
(1,292)
|
|
5,779
|
|
8,436
|
|
|
|
|
|
|
|
|
|
|
|
(83,677)
|
|
25,896
|
|
(62,877)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net earnings (loss) per
share (US Dollars) attributable to equity holders of
the parent
|
|
(0.80)
|
|
0.23
|
|
(0.69)
|
|
The accompanying notes are an integral part of
the interim condensed consolidated financial
statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
|
|
Nine months ended
30 September
|
|
Year ended
31 December
|
|
|
2015
|
|
2014
|
|
2014
|
|
|
Unaudited
|
|
Audited
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
Net income
|
|
(83,677)
|
|
25,896
|
|
(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
|
|
(6,592)
|
|
(54,273)
|
|
(130,853)
|
|
|
|
|
|
|
|
Group's share of net other comprehensive loss
of companies accounted for using the equity method
|
|
-
|
|
(3,298)
|
|
(3,298)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
(6,592)
|
|
(50,947)
|
|
(127,527)
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
(90,269)
|
|
(25,051)
|
|
(190,404)
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the parent
|
|
(86,146)
|
|
(25,481)
|
|
(183,987)
|
Non-controlling interests
|
|
(4,123)
|
|
430
|
|
(6,417)
|
|
|
|
|
|
|
|
|
|
(90,269)
|
|
(25,051)
|
|
(190,404)
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
the interim condensed consolidated financial
statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
Nine months ended
30 September
|
|
Year ended
31 December
|
|
|
2015
|
|
2014
|
|
2014
|
|
|
Unaudited
|
|
Audited
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
Net profit
|
|
(83,677)
|
|
25,896
|
|
(62,877)
|
|
|
|
|
|
|
|
Adjustments to reconcile net profit (loss) to
net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to the profit or loss
items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes, net
|
|
(13,140)
|
|
3,338
|
|
(14,824)
|
Depreciation and amortization
|
|
132
|
|
149
|
|
201
|
Finance expenses, net
|
|
76,772
|
|
70,894
|
|
184,782
|
Share-based payment
|
|
42
|
|
93
|
|
134
|
Fair value adjustment of investment properties
and investment properties under construction
|
|
23,354
|
|
(82,936)
|
|
(84,802)
|
Loss from obtaining control in company
accounted for equity method
|
|
-
|
|
(4,009)
|
|
(4,009)
|
|
|
|
|
|
|
|
|
|
87,160
|
|
13,425
|
|
81,482
|
Working capital adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in trade
receivables
|
|
(936)
|
|
(1,078)
|
|
1,879
|
Increase in VAT receivable and
others
|
|
(635)
|
|
(2,219)
|
|
(3,022)
|
Decrease (increase) in inventories of buildings
for sale
|
|
1,251
|
|
(57,775)
|
|
(78,763)
|
Increase (decrease) in trade
payables
|
|
537
|
|
2,054
|
|
6,957
|
Increase (decrease) in other accounts
payable
|
|
(5,815)
|
|
56,326
|
|
62,724
|
|
|
|
|
|
|
|
|
|
(5,598)
|
|
(2,692)
|
|
(10,225)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
(15,648)
|
|
(25,099)
|
|
(36,730)
|
Interest received
|
|
201
|
|
194
|
|
231
|
Taxes paid
|
|
(936)
|
|
(1,349)
|
|
(2,046)
|
|
|
|
|
|
|
|
|
|
(16,383)
|
|
(26,254)
|
|
(38,545)
|
|
|
|
|
|
|
|
Net cash used in operating
activities
|
|
(18,498)
|
|
(15,521)
|
|
(30,165)
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
the interim condensed consolidated financial
statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
Nine months ended
30 September
|
|
Year ended
31 December
|
|
|
2015
|
|
2014
|
|
2014
|
|
|
Unaudited
|
|
Audited
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to investment properties
|
|
-
|
|
(1,162)
|
|
(3,529)
|
Additions to investment properties under
construction
|
|
(2,511)
|
|
(1,723)
|
|
(3,418)
|
Proceeds from sale of investment property under
construction
|
|
3,170
|
|
|
|
|
Purchase of fixed assets
|
|
-
|
|
(760)
|
|
(625)
|
Loans granted to related parties
|
|
-
|
|
(10,424)
|
|
(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
|
|
659
|
|
(35,209)
|
|
(39,396)
|
|
|
|
|
|
|
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of debenture, net
|
|
-
|
|
39,152
|
|
39,152
|
Repayment of debentures
|
|
-
|
|
(18,033)
|
|
(32,211)
|
Receipt of loans from banks and others,
net from origination costs
|
|
25,233
|
|
134,115
|
|
155,630
|
Repayment of loans from banks and
others
|
|
(23,518)
|
|
(88,021)
|
|
(109,667)
|
|
|
|
|
|
|
|
Net cash flows generated from financing
activities
|
|
1,705
|
|
67,213
|
|
52,904
|
|
|
|
|
|
|
|
Exchange differences on balances of cash and
cash equivalents
|
|
(1,786)
|
|
(3,188)
|
|
(8,851)
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents
|
|
(17,920)
|
|
13,295
|
|
(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
|
|
22,726
|
|
79,449
|
|
40,646
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of
the interim condensed consolidated financial
statements.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
|
Nine months ended
30 September
|
|
Year ended
31 December
|
|
|
|
2015
|
|
2014
|
|
2014
|
|
|
|
Unaudited
|
|
Audited
|
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Cash generated from obtaining control in
companies accounted for using 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)
|
|
Fixed assets, net
|
|
-
|
|
(313)
|
|
(49)
|
|
Other receivables
|
|
-
|
|
(49)
|
|
(313)
|
|
Deferred taxes
|
|
-
|
|
16,107
|
|
16,107
|
|
Loans from banks
|
|
-
|
|
21,419
|
|
21,419
|
|
Other non-current liabilities
|
|
-
|
|
12,700
|
|
12,700
|
|
Indemnification assets
|
|
-
|
|
(5,737)
|
|
(5,737)
|
|
Foreign currency translation reserve
|
|
-
|
|
6,624
|
|
6,624
|
|
Loss from obtaining control in companies
accounted for using the equity method
|
|
-
|
|
702
|
|
702
|
|
Investment in associate
|
|
-
|
|
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 September 2015 and for the
nine-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 101% 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, there was no material
change in the Russian Ruble in relation to the U.S dollar. During
2015 the Central Bank of Russia lowered gradually the interbank
interest to 11%. After the balance sheet date and up to date there
was no change in the Russian Ruble against the US Dollar. However
continuance of the depreciation on the Russian Ruble against the US
Dollar 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 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 principals 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".
During
the first 2015, the trustee of the series A-B decided to defer the
maturity dates of the principal and interest payments to December
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.
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 the 6th of July, 2015 the Company
filed a motion with the Cypriot court to convene meetings in order
to approve the bond settlement between the Company and the bond
holders. On July, 14, 2015 the Cypriot court approved the Company
motion.
During
September, 2015 the trustees for the Bondholders (Series A),
(Series C), (Series D), (Series E) and (Series F) announced the
postponement of the payment periods of the principal and interest
until 31 October 2015.
On 30 March 2015, 22 June 2015 and on 6 July
2015 the Company published the principles of the settlement as
agreed upon with the bondholders trustees, including, among other
things, deferment of the payment of the principal, raising the
interest amount to all bond series, undertakings of the controlling
shareholder of the Company and the issuance of shares and options
to the bondholders.
On 6 July 2015, the Company submitted an
application to the Court in Cyprus for the convention of meetings
for the purpose of approving the settlement between the Company and
its bondholders. On 14 July 2015 the Court in Cyprus approved the
Company's motion.
On 2 July 2015, the TASE published notice of
the redemption of partial payment it had not received from the
Exchange's clearing house, such that the unpaid balance for Bond
Series B is to be recorded separately.
On 6 July 2015, the Company published the
principal amendments that were added to its settlement plan with
Company bondholders and an immediate report regarding the
submission of a motion to the Court in Cyprus for the convention of
a meeting with the purpose of approving the settlement between the
Company and its bondholders. On 14 July 2015 the Company announced
that the Court in Cyprus had authorized the Company's
petition.
On 21 September 2015, a presentation for the
Company's bondholders was published.
Following preliminary meetings held in Israel
on 11 November 2015 ("Preliminary Meetings"), a proposed Settlement
Plan and amended trust deeds to the Bonds (Series A-F) (the
"Settlement" or the "Settlement Plan") have been approved between
by the Company's Bondholders (Series A-F) (the
"Bondholders").
At the Preliminary Meetings, the below
resolutions were passed:
The Series C-F Bondholders approved the
Settlement with a majority greater than 75% of the par value of
each series.
The Series A-B Bondholders did not approve the
Settlement with the requisite majority, such that the Series A
Bondholders voted in favour of the Settlement with a majority of
56% of the participating voting parties and the Series B
Bondholders voted against the Settlement with a majority of 90% of
the participating voting parties.
As a result of the above and in accordance with
the direction motion provided by the Tel Aviv Court on 3 August
2015, the trustee of each Bond series shall vote in the meeting of
the creditors as follows:
The trustee of Series A Bonds shall split the
votes of the participants in proportion to the voting majority at
the Preliminary Meeting being 56% for and 44% against;
the trustee of Series B Bonds shall, since the
proportion of those opposed to the Settlement is greater than 75%
of the par value of the series, vote against the Settlement for the
entire value of the series; and the trustees of Series C-F Bonds,
since the proportion of those in favor of the Settlement is greater
than 75% of the par value of the series, vote in favor of the
Settlement for the entire value of the series.
In light of the above and with particular
consideration given to the Series A-B Bondholders who were opposed
to the Settlement and with regard to the simple majority of the
creditors needed to approve the Settlement in Cyprus, the Company
wishes to announce that the Bondholders (Series A-F) have approved
the Settlement with the Company.
The Company will now act to convene a meeting
of creditors pursuant to a ruling of the Cypriot Court on 14 July
2015.
The completion of the Settlement is subject to
various conditions precedent by deadlines set in the Settlement
documents, including, among other things, receiving approval of the
Settlement by the Cypriot court, receipt of approval of the Tel
Aviv Stock Exchange, and approval of the Company and its
shareholders.
There is no certainty that the conditions
precedent set out in the Settlement documents will be completed by
the set deadlines, nor that that the Settlement will be
completed.
The Company is evaluating the accounting
influence that rises from the bond settlement if and when it will
be approved.
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 September 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 September 30, 2015 loans from
banks, in which the Company breaches its covenants, in an amount of
$ 200.5 million as current liabilities.
4. The
Group has a working capital deficiency of approximately
$ 366.6 million as of September 30, 2015, a loss attributed to
the equity holders of the parent of approximately $ 82.4
million, total comprehensive loss attributed to the equity holders
of the parent of approximate $ 86.1 million for the nine
months then ended and negative cash flows from operating activities
of approximately $ 18.5 million for
the nine months then ended.
The Company continues to monitor the economic
developments in Russia which are external to the Group 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
Group'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
September 30, 2015:
|
|
Carrying amount
|
|
Fair
Value
|
|
|
U.S. dollars in thousands
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
Debentures (series A)
|
|
4,234
|
|
1,468
|
Debentures (series B)
|
|
18,287
|
|
6,478
|
Debentures (series C)
|
|
35,805
|
|
11,974
|
Debentures (series D)
|
|
43,735
|
|
13,459
|
Debentures (series E)
|
|
104,774
|
|
31,192
|
Debentures (series F)
|
|
38,968
|
|
12,496
|
|
|
|
|
|
|
|
245,803
|
|
77,067
|
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
|
Nine months ended 30 September
2015:
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
Segment revenues
|
|
27,192
|
|
49,567
|
|
76,759
|
|
|
|
|
|
|
|
Segment results
|
|
(8,390)
|
|
(4,724)
|
|
(13,114)
|
|
|
|
|
|
|
|
Unallocated expenses
|
|
|
|
|
|
(6,592)
|
|
|
|
|
|
|
|
Finance costs, net
|
|
|
|
|
|
(76,772)
|
|
|
|
|
|
|
|
Loss before taxes on income
|
|
|
|
|
|
(96,478)
|
|
|
Commercial
|
|
Residential
|
|
Total
|
Nine months ended 30 September
2014:
|
|
Unaudited
|
|
|
U.S. dollars in thousands
|
|
|
|
|
|
|
|
Segment revenues
|
|
44,053
|
|
17,752
|
|
61,805
|
|
|
|
|
|
|
|
Segment results
|
|
111,466
|
|
(3,694)
|
|
107,772
|
|
|
|
|
|
|
|
Unallocated expenses
|
|
|
|
|
|
(6,455)
|
|
|
|
|
|
|
|
Finance costs, net
|
|
|
|
|
|
(70,894)
|
|
|
|
|
|
|
|
Profit before taxes on income
|
|
|
|
|
|
30,423
|
|
|
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:- INVESTMENT PROPERTY
AND INVESTMENT PROPERTY UNDER CONSTRUCTION
Below are details of the impact
on the decline in the fair value of investment property and
investment property under construction in the first nine months
ended September 30, 2015
|
|
U.S. dollars in thousands
50,857
|
An increase in fair value is due to
depreciation of the Russian Ruble against the US
Dollar
|
(74,211)
|
A real decrease in the fair value
|
(23,354)
|
The total decrease in fair value of investment
property and investment property under construction, net
|
|
|
|
|
|
|
|
|
NOTE 6: - 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 meters 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 6.1 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 meters 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.
During July, 2015 the bank holding the pledge
on the ground, approved the sale and during August, 2015 the sale
was completed and the first payment was received, the second
payment is scheduled to be received in December, 2015 and the third
payment is scheduled to be received in March, 2016. According to
the Company obligation 60% of the consideration received was paid
to the financing bank.