Eastern European Property Fund : Final Results

During the year ended 31 December 2015, all of EEP's properties were marketed and made available for sale. This resulted in further sales at Nil Passage in Istanbul and, following sales in early 2016, this property has been fully realised. The other property in Turkey, the Markiz Passage on Istiklal Street is EEP's largest asset and this has been the subject of numerous enquiries and offers during the year.

However, it has proved disappointingly elusive to conclude a transaction for the Markiz Passage. The major factor that has played its part in the sales process has been the reduction in tourist numbers in Istanbul. Virtually all of the enquiries and all of the offers have been based on a hotel development and this sector of the market has become increasingly adversely affected in the downturn in visitors to Turkey and Istanbul.

In Bucharest and Sofia the markets for selling investments and letting space have remained tough, although there are increasing signs that in Bucharest the commercial property market is improving. However, a nightclub fire last year has had a direct impact on costs in relation to some of the city's real estate.

In Sofia, there has been very little interest from the investment market and in Bucharest there are signs of interest, but this remains at a low level.

Due to potential concerns over the difficulty of selling the Markiz, additional emphasis has been placed on the valuation analysis of this property. However, the value has remained broadly the same, which does align with the fact that offer levels for the property have mostly been in excess of the valuation.

The properties held at 31 December 2015 were as follows:

Markiz Passage, Istiklal Street, Beyoglu, Istanbul

The property, located in a prime position on Istiklal Street, has been widely marketed for sale and it continues to attract interest and offers. It has not proved an easy property to sell in the economic conditions that have persisted during the last year, including the back drop of the Syrian crisis which, in turn, has affected tourism in Istanbul and Turkey as a whole.

Yemek Kulubi (Food Club) remains in occupation of the front of the building and its lease comes to an end in 2017.

While there remains an emphasis on selling the building, alternative schemes are being considered to rent the building in the future in order to protect EEP's overall income stream in the event that delays in the sale continue. Temporary short-term lettings have already been undertaken and will be considered in the future on the basis that they do not compromise the sales process and help maintain the profile of the property in the market.

Nil Passage, Gonul Sokak, Beyoglu, Istanbul

At the year end, two units remained; being a shop and an office suite on the third floor. Since the year end, the office suite was sold for US$500,000 (including VAT), the shop was sold for US$372,000 (including VAT) and the fifth floor office units were sold for US$85,000 (including VAT). The disposals were in line with the 31 December 2015 valuation.

The Atrium, 24 George Washington Street, Sofia

While the property is on the market for sale, limited interest was registered during 2015 from potential investors.

The United Bulgaria Bank remains in occupation and is the largest tenant in the building. The majority of the remainder of the property has been and continues to be occupied by small tenants on short-term agreements. This provides some turnover in the building and the amount of void space varies over the period as tenants come and go.

Gara Progresului, Business & Logistics Centre, Bucharest

This property remains for sale and has attracted some interest during 2015 and 2016. However, no offers have been received that have merit or that could be taken forward. It continues to attract tenants on a regular basis although these are on short-term agreements, which gives rise to a constant turnover of occupiers. Nevertheless, the property has proved itself to be resilient over time in terms of income generation.

The fire in the centre of Bucharest in October 2015 resulted in a large number of deaths, several arrests and resignations of public officials, and ultimately led to a technocrat government replacing the existing government. Since then, other regulatory matters have also been pursued with greater vigour than before. This has resulted in additional capital assessments being made for potential works in order to comply with more onerous regulations. This has had an impact on the valuation of the property.