(FPO) First Property Group

First Property Group plc

Interim Results for the six months to 30 September 2011

First Property Group plc (AIM: FPO), the commercial property fund management group, today announces its interim results forthe six months to 30 September 2011.

Financial Highlights:

Operational Highlights:

·      The value of assets under management increased by 19% to £374 million (2010: £315 million).

·      The UK fund established in February 2010, UK PPP LP, is now close to being fully invested, having made property purchases of £91.6 million, representing 87% of its £106 million of committed capital. The fund is earning an annualised un-geared rate of return on equity of 6.4%.

·      Fprop Opportunities plc, the Polish focused fund established in October 2010, has acquired €26.4 million (£22.7 million) of property and earned an annualised rate of return on equity of 13.4% during the period. Progress is being made in raising new capital for this fund.

·      Fund raising has begun for a new UK fund, designed to mimic UK PPP LP and to deliver an un-geared and defensive annual dividend return of over 6%.

Commenting on the results, Ben Habib, Chief Executive of First Property, said:

"The steps we took last year in establishing two new funds, one focused on the UK, the other on Poland, together with restructuring the cost base of the Blue Tower office block in Warsaw, which we own directly, have resulted in an excellent first half for the Group.

"The unfolding sovereign debt crisis in Europe naturally causes us concern but the Polish economy, where 71% of our assets under management are located, has continued to perform well, as have our properties there. Poland remains a bright spot on the European landscape but we are closely monitoring the crisis in Europe and any consequences it may have for the Group.

"First Property Group has remained profitable throughout the credit crunch. This fact and, in particular these excellent interim results, exemplify the strength of our business model and staff. Notwithstanding the storms blowing through Europe at the moment I expect our good performance to continue."

A briefing for analysts will be held at 09:30hrs today at the offices of First Property Group plc at 35, Old Queen Street, London SW1H 9JA. A conference call facility will also be available on +44 208 817 9301, a recorded copy of which will subsequently be posted on the Company website, www.fprop.com.

For further information please contact:

Notes to investors and editors:

·      First Property Group plc is a commercial property fund manager with operations in the United Kingdom and Central Europe. The performance of its funds under management ranked No.1 versus the Investment Property Databank (IPD) Central & Eastern Europe (CEE) Benchmark over the three, four and five years to 31 December 2008, 2009 and 2010 and also No.1 versus the IPD Polish Benchmark for the four and five years to 31 December 2009 and 2010.

·      The business model of First Property Group is to:

o  Raise third party funds to invest in income producing commercial property;

o  Co-invest in these funds;

o  Earn fees for the management of these funds. Fees earned are a function of the value of assets under management as well as the performance of the funds;

o  Earn a return on its own capital invested in these funds.

·      Further information about the Company can be found at: www.fprop.com.

CHIEF EXECUTIVE'S STATEMENT

Financial Results

I am pleased to report interim results for the six months to 30 September 2011.

Revenue during the period amounted to £4,587,000 (2010: £2,960,000), yielding a 79% increase in profit on ordinary activities before taxation of £2,539,000 (2010: £1,419,000).

Diluted earnings per ordinary share increased by 64% to 1.61 pence (2010: 0.98 pence).

The Group ended the period with net assets of £16.79 million (2010: £15.70 million) including a cash balance of £8.96m (2010: £10.18m).

Dividend

The Board has recommended an increased interim dividend of 0.33 pence per share (2010: 0.32 pence per share) which will be paid on 29 December 2011 to shareholders on the register at 9 December 2011.

Review of operations

Property fund management (First Property Asset Management Limited or FPAM)

At 30 September 2011 assets under management stood at £374 million (2010: £315 million). Of these, 71% were located in Poland (2010: 77%), 26% were located in the UK (2010: 19%) and 3% in Romania (2010: 4%). There were five purchases with a total value of some £16.5 million during the period and no property sales.

Revenue earned by this division amounted to £2,112,000 (2010: £1,930,000), generating a profit before tax of £1,624,000 (2010: £1,474,000) prior to the deduction of unallocated central overhead costs. This represents 54% (2010: 78%) of the Group's profit before tax prior to the deduction of unallocated central overhead costs. Our fund management fee income is currently running at circa £4.35 million per annum on an annualised basis.

The continued growth in assets under management in the UK is principally attributable to the on-going investment of our most recent UK fund, UK PPP LP. At 30 September 2011, UK PPP LP had completed the purchase of £91.6 million worth of properties at an average net initial yield of 7.3% and with a weighted average unexpired lease term in excess of 12 years. The fund, which is not geared, is currently making distributions at a rate of some 6.4% per annum. The fund has a capacity of £106 million and we expect it to be fully invested in the near future.

In anticipation of UK PPP LP becoming fully invested we have begun to solicit investors for a new UK fund designed to mimic UK PPP LP in its investment strategy. The new fund will target well located properties, let at low rents to creditworthy tenants on long leases. It will target a minimum annualised dividend yield of 6%. We expect interest rates to remain low for some years and we believe that this relatively high dividend yield should prove to be attractive to investors, particularly pension funds.

We have not raised any additional third party investments into Fprop Opportunities plc (FOP) this year. We have had encouraging discussions with several institutional investors during the period and are hopeful that these discussions will be positively concluded. In order to expedite our fund raising efforts we are also considering issuing an unsecured bond to retail investors. Such bonds offer a potentially cost effective way to raise funds. We plan to carry out a feasibility study before launching such a bond. In the meantime FOP generated an annualised rate of return on equity during the six month period of 13.4%.

Our other funds under management have all continued to perform well generating an annualised rate of return on equity in excess of 20% per annum.

Group Properties

Group Properties comprises two properties owned directly by the Group (both located in Warsaw) and shareholdings in four of the six funds managed by FPAM.

Revenue from these investments has grown considerably to £2,475,000 (2010: £1,002,000), resulting in an increase of profit before tax of £1,371,000 for the period (2010: £383,000) prior to the deduction of unallocated central overhead costs. This represents 46% (2010: 20%) of Group profit before tax prior to the deduction of unallocated central overhead costs. The bulk of this growth in earnings was attributable to our investment in FOP, in which the Group is, for the time being at least, the majority shareholder and is thus required to consolidate FOP's results. FOP earned income of £1,306,000 (2010: nil) which generated a profit before tax of £724,000 during the period (2010: nil), of which £609,000 was attributable to the Group.

The two properties owned by the Group continue to trade well. The Blue Tower office block located in central Warsaw, and the smaller office block in the Mokotow district of Warsaw, contributed £397,000 (2010: £143,000) and £132,000 (2010: £122,000) respectively to the Group's profit before tax prior to the deduction of unallocated central overhead costs. These profits equate to annualised rates of return on equity of 46.1% and 12.5% respectively. The latter of the two properties is not geared.

Commercial property markets outlook

Poland

Poland's GDP continues to grow at one of the fastest rates in Europe, by some 4.3% on an annualised basis in the first six months of 2011. Looking ahead, its economy is forecast to continue to grow, but at a slower rate, as the effects of fiscal tightening and a slowdown in the Global economy begin to bite.

Poland's commercial investment property market had a very good first nine months of the year with some €1.8 billion of property changing hands. Occupancy levels remain high and indeed rents have risen in certain areas. We expect the market to slow in the fourth quarter as the effects of the sovereign debt crisis in Europe instil a higher degree of caution amongst investors.

Our most immediate concern is a withdrawal of capital from Poland and a weakening of the PLN. Tenants in our Polish portfolio of properties typically pay their rents in Euros. A weakening of the PLN effectively equates to an increase in rents. The PLN is now some 10% weaker against the Euro (at circa PLN 4.4/ Eur) compared to the level it was trading at prior to the eruption of troubles in Europe over the summer (at circa PLN 4.0/ Eur). We do not see the current exchange rate level as threatening to the properties owned or managed by the Group in view of the fact that these properties were not stressed by the weakening of the PLN in 2009, after the collapse of Lehman Brothers, when the PLN dropped to a low of close to PLN 5/ Eur.

Our other concern is a weakening of the Euro and a consequent reduction in the Sterling value of the investments we own and manage. It seems certain to us that the European Central Bank (ECB) is going to have to significantly loosen monetary policy. This would be likely to result in the Euro weakening. However, the UK itself is vulnerable to the financial consequences of the European crisis and is involved in its own programme of quantitative easing. So the Euro may not weaken as much as one might otherwise expect. In addition, if European leaders eventually take decisive action along with the ejection of some of the weaker members of the Euro-zone, this may result in the Euro strengthening. Predicting foreign exchange movements with any degree of certainty is difficult.

Our investment strategy is income orientated. We expect income levels in Poland to be sustained and rents to rise over time. The European situation does not undermine the case for investing in Poland but we are obviously treading very carefully, as we always have done.

United Kingdom

The UK economy remains weak and vulnerable. We expect this to continue for a number of years. In addition, even though the UK is not a member of the Euro-zone, the financial effects of the European sovereign debt crisis are being felt in the UK, as would any fallout from a collapse in the Euro or its restructuring.

The commercial investment property market, as a whole, is holding broadly steady at the moment. Values of prime properties, particularly in central London, have recovered sharply since 2009. It is our view that certain parts of the prime market are now in bubble territory. On the other hand, secondary properties have not recovered to the same extent. The gap between the yields available on prime properties versus those available from secondary properties is as wide as ever. This creates opportunities for buyers, such as us, who are prepared to step away from prime markets.

Banks are now taking more action to force the sale of properties which are in breach of loan terms, including income producing properties. It is difficult to assess if the supply of these properties into the market might suppress values. There is no evidence of this at this stage, though the tone of the market is certainly weaker than it was a year ago.

Current trading and prospects

The steps we took last year in establishing and co-investing in two new funds, together with  restructuring the cost base of the Blue Tower office block in Warsaw which we own directly, have resulted in an excellent first half for the Group.

The unfolding sovereign debt crisis in Europe naturally causes us concern but the Polish economy, where 71% of our properties under management are based, has continued to perform well, as have our properties there. Poland remains a bright spot on the European landscape but we are closely monitoring the crisis in Europe and any consequences it may have for the Group.

First Property Group has remained profitable throughout the credit crunch. This fact and, in particular, these excellent interim results, exemplify the strength of our business model and staff. Notwithstanding the storms blowing through Europe at the moment, I expect our good performance to continue.

Ben Habib

Chief Executive

29 November 2011

CONDENSED CONSOLIDATED INCOME STATEMENT

for the six months to 30 September 2011

CONDENSED CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

for the six months to 30 September 2011

CONDENSED CONSOLIDATED BALANCE SHEET

as at 30 September 2011

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the six months to 30 September 2011

CONDENSED CONSOLIDATED CASH FLOW STATEMENT

for the six months to 30 September 2011

NOTES TO THE CONDENSED CONSOLIDATED RESULTS

for the six months ended 30 September 2011

1.     Basis of preparation

·    These interim condensed consolidated financial statements for the six months ended 30 September 2011 have not been audited or reviewed and do not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006. They have been prepared in accordance with the Group's accounting policies as set out in the Group's latest annual financial statements for the year ended 31 March 2011 and are in compliance with IAS 34 "Interim Financial Reporting". These accounting policies are drawn up in accordance with International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board and as adopted by the European Union (EU).

·    The following IFRS's which are effective for the first time have been applied in these financial statements. Where adoption is material their effect is detailed below:

IFRIC 19: Extinguishing financial liabilities with equity instruments, had no effect on these financial statements,

Improvements to IFRS 2010: Amendments were made to IFRS 1, 3 and 7; IAS 1,27 and 34, and IFRIC 13 none of which had any effect on these financial statements,

IAS 24 (Revised) Related party disclosures had no effect on these financial statements,

And Amendment to IFRIC 14: prepayments of a minimum funding requirement, had no effect on these financial statements.

·    The comparative figures for the financial year ended 31 March 2011 are not the statutory accounts for the financial year but are abridged from those accounts prepared under IFRS which have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include references to any matter to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

·    These interim financial statements were approved by the Board of Directors on 28 November 2011.

2.     Segmental Analysis 

Segment Reporting six months to 30 September 2011

Segment Reporting six months to 30 September 2010

Reconciliation of segmental profit before tax as previously reported for 2010:

Segment Reporting 12 months to 31 March 2011

Revenue for the six months to 30 September 2011 from continuing operations consists of revenue arising in the United Kingdom 9% (2010: 6%) and Central and Eastern Europe 91% (2010: 94%) and all relates solely to the Group's principal activities.

Head office costs and overheads that are common to all segments are shown separately under unallocated central costs. Assets, liabilities and costs that relate to Group central activities (including all cash) have not been allocated to business segments.

3.     Discontinued operations

The Group sold its 60% interest in First Property Services Ltd ("FPS"), for £170,000 on 17 March 2011 resulting in a profit on sale of £16,000. The carried value of the Group's shareholding in FPS at the date of the sale was £154,000 (March 2010: £213,000). The consideration of £170,000 was partly settled by a cash payment of £20,000 on the date of sale, with the remaining £150,000 payable in cash within twenty four months.

Year ended 31 March 2011

The pre-tax loss during the year up to the date of the disposal in March 2011 of discontinued operations amounted to £136,000 and for the first six months to 30 September 2010 the pre-tax loss was £96,000.

4.     Tax expense

The tax charge is based on a combination of actual current tax charged and an effective rate that is expected to apply to the profits for the full year. 

5.     Earnings per ordinary 1p share

The basic earnings per ordinary share is calculated on the profit on ordinary activities after taxation and after non-controlling interests on the weighted average number of ordinary shares in issue, during the period.

Figures in the table below have been used in the calculations.

6.     Interest in associates and other financial assets

7.     Trade and other receivables