EPH Group expects a profit for the year ended 2019 and announces the issuance of subordinated notes in the amount of EUR 204.7 million to its major shareholders

23 March 2020, Road Town, Tortola, BVI

Profit for the year ended 2019
Eastern Property Holdings (“EPH” or the “Company”) would like to announce that the Company expects a net profit in the range of US$ 35-45 million for the year ended 31 December 2019, compared to a profit of US$ 30.2 million for the year ended 31 December 2018.

The main factors contributing to such a result are:

Performance of newly acquired properties
In February 2019, the Company acquired fully let office building QBC 4 in Vienna, Austria. The contribution of the property to the net rental income of the Group is expected at the level of US$ 3 million.

Sales of residential properties
The Company expects to achieve a profit on the sale of apartments and parking lots in Arbat properties (Russia, Moscow) in the amount of about US$ 3 million.

Fair value adjustments on Investment Properties
The Company expects a substantial gain from fair value adjustments of its investment properties in USD equivalent (2018: loss of US$ 36 million). It reflects the signs of economic stabilisation observed in Russia and in the industry by the end of 2019, as well as successful management efforts to improve operational efficiency and tenant portfolio of the properties in Russia and Western Europe. Also, RUB appreciation during the reporting period positively affects the USD value of the current rental stream denominated in RUB and a higher estimated rental value (ERV) applied by the appraiser after the expiration of the existing leases. It should be noted, however, that the valuation process is not finalised yet, therefore, further changes are still possible.

Currency effect
Strengthening of RUB by the end of 2019 (about 11%) negatively affected RUB values of Russian investment properties, resulting in recognition of foreign exchange loss. The negative effect was half offset by gain realised on revaluation of the net US$ financial liabilities by the entities with RUB functional currency and on revaluation of the net EUR financial liabilities caused by weakening of EUR/US$ rate.
The opposite change in RUB/US$ rate by the end of 2018 (about 21%) resulted in a significant net foreign exchange gain.

We expect, however, that the negative currency impact on the Company’s financial results will be for the most part eliminated by the positive change in Cumulative Translation Adjustment (CTA), so that the overall negative effect on the Company’s net assets will not be significant. The CTA reflects gains and losses from currency translation which have accumulated over the period of ownership of the subsidiaries. The strengthening of RUB against USD in 2019 has a positive effect on CTA.