Euro Asia Reports on the First Half of 2011

  • Management puts emphasis on project development
  • Intention to change portfolio structure to accelerate returns and cash generation for acquisition of land bank and funding for project development
  • Move aimed at accelerating increase margins
  • Preparations for listing upgrade commenced

Weifang, People's Republic of China, 13 September 2011

Euro Asia Premier Real Estate Company Limited (JT9; ISIN: VGG3223A1057) today announced the unaudited financial results for the 6 months period ended June 30th, 2011.

Financial Highlights

  • Revenues for the 6 month period under review were RMB ¥ 11 million (approx. € 1.2 million*), as compared to RMB ¥ 9.5 million (€ 1 million) for the first six months of 2010.
  • RMB ¥ 6 million (€ 666,000) of rental income was recorded for the 6 month period, as compared to RMB ¥ 9.5 million (€ 1 million) for the first six months of 2010. The decline was caused by the disposal the rental generating property "German Hotel", as of December 31, 2010.
  • RMB ¥ 5 million (€ 550,000) of income was generated through the sale of a property that achieved a RMB ¥ 5 million (€ 550,000) profit before tax.
  • Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA), for the six months under review were RMB ¥ 9.5 million (€ 1 million) in line with expectations.
  • For the first six months of 2010 the company recorded a negative EBITDA of RMB ¥(500,000)(€(55,000)).

Patrick P.L. Chan, Vice Chairman for the Company, stated, "Despite some small delays in the development of certain projects, our results for the first half year fall fully within expectations. Even so, these past few months we have assessed our strategic approach and looked for a way in which our shareholders can share even more in the opportunities offered by the rising prices on the very dynamic Weifang property market. We have decided to focus on project developments, so that we are more clearly positioned vis-a-vis the capital markets. At the same time, by realizing the intrinsic value in our rental properties, we accelerate shareholder value creation, which at the same time allow us to make our present and future achievements more visible."

Portfolio Update

Euro Asia is in the process of selling a number of its rental assets, in order to invest in land banking and construction, and hence benefit from greater margins and faster cash returns by focusing on high end residential/commercial developments. The Company expects to generate in excess of RMB ¥ 240 million (€ 26.7 million) through the disposal of certain assets, the proceeds of which will be used to fund the expansion of the Company's Jiulongjiang Country Park project.

Patrick Chan stated, "On the one hand, we have a significant amount of locked up and unrealized profits in our current portfolio. On the other hand, we have identified that we can further accelerate our business plan, realize higher margins and increase cash generation by focusing even stronger than before on developments in general and the high end residential/commercial market in particular."

Upon realization of the disposals, Euro Asia's first step will be to increase land bank. The net effect between disposals and acquisitions will mean an increase from 463,436 m2 in 2010 to 561,770 m2 in 2011 and to 966,771 m2 in 2012. The Company plans to have invested RMB ¥ 500 million to RMB ¥ 1 billion on both land bank expansion and project development by the end of 2012; the funding of which will come through different options, including sales proceeds from the disposal of assets.

All proposed transactions described in this press release are expected to be closed as of September 30, 2011, subject to shareholder approval in an EGM to be held in October 2011.

Jiulongjiang Country Park Development

The first land parcel Euro Asia is to acquire consists of 166,500 m2 at the Jiulongjiang Country Park. The costs for this transaction and subsequent development are estimated at RMB ¥ 250 million. Euro Asia expects to fund the land premium from cash generated through the sale of assets.

As part of this transaction, Euro Asia will acquire from its exclusive JV partner SNI a new operating subsidiary, which holds the rights to first development and forestry on this parcel of land. In addition, SNI will fund the zoning premium on the first 200,000 m2 Euro Asia already owns to fulfill its obligation as described in the Company's IPO prospectus. Euro Asia agrees to acquire the above company, together with all its rights, by issuing a non-demand, nointerest bearing note to SNI for a period of five years.

The Company has recognized that the most profitable project will be the development of a premium retirement concept, and will appoint a general manager with specialized knowledge by Sept 30, 2011 to oversee both the operational and marketing aspects of the project.

The proposed development will take place in two phases. Phase I, which foresees the development of a total of 40,000 m2 GFA and anticipated gross sales receipts of RMB ¥ 320 million, has an estimated capital requirement of RMB ¥ 160 million. Phase II, consisting of a total of 60,000 m2 GFA and anticipated gross sales receipts of RMB ¥ 600 million, has an estimated capital requirement of RMB ¥ 270 million. Phase II will be financed through sales of units from Phase I, as well as the sales of units at the China Agricultural Machinery Marketing Centre. The Company anticipates residual land reserve for Phase III which depend on zoning and density permitted. Based on a density ratio of 1 to 1 there will be an additional 66,000 m2 GFA for further development.

Disposal of Assets

In order to generate the initial cash required for its planned project at Jiulongjiang as well as its forward strategy execution, the Company proposes the sale of the assets listed in the table below:

PropertyBook ValueAppraisal ValueAnticipated Sales Proceeds 2011
Euro Asia Apartment Building RMB ¥5M in addition to RMB ¥5M already received
Qing Zhou Apartments RMB ¥5M premium over land value
Cloud Lake Training and Exhibition Center NIL RMB ¥96M RMB ¥96M
Estate of Shengapuia RMB ¥33M RMB ¥33M Combined sale to SNI at appraisal value of RMB ¥120M
Yunhu Holiday Hotel RMB ¥61M RMB ¥61M
New Jianye Building RMB ¥35M RMB ¥35M
Total Proceeds RMB ¥240M

 

Cloud Lake Training and Exhibition Center

This proposed transaction will afford Euro Asia to record a pre-tax gain of RMB ¥ 96 million. Euro Asia will retain the right to an earn-in for this development in exchange for a cash payment by December 31, 2011, with a percentage based on the total estimated capital costs of the project RMB ¥ 216 million.

Euro Asia Apartment Buildings

By agreeing to sell its 50% interest in this project to its JV partner for a further RMB ¥ 5 million in cash, Euro Asia will be able to recognize a pre-tax profit of RMB ¥ 10 million in this current year.

Qing Zhou Apartments

Euro Asia was in the process of signing up a JV partner. The Company was not able to conclude negotiations for this project on terms in line with the business model. SNI has agreed to pay a RMB ¥ 5 million cash premium for the land and allow Euro Asia the right to participate through an earn in based on the estimated total project costs.

Estate of Shengapuia, Yunhu Hoiday Hotel and New Jianye Building

The above three properties had SNI as the lease guarantor, which provided an annual rental income of RMB ¥ 13 million. Furthermore, Euro Asia was to pay an annual management fee of RMB ¥ 3 million for office and staff costs.

As part and parcel of Euro Asia's intention to establish its own presence and capabilities in the Weifang/Shandong region, the Company is in the process of establishing a separate entity without undue reliance on SNI, Euro Asia's sister company, and that of Chairman Mr. Sun XiYi. The sale of the three properties to SNI fits in with this strategy.

Euro Asia is proposing the appointment of two new directors and recruitment of development staff and management personnel and expects this to be effected by October 2011.

Update on other projects

Cloud Lake Apartments

The preliminary planning process was completed on April 2011, and we have submitted a revised plan for approval to the relevant authorities. We have not received final zoning and development permit for this site. The gross proceeds from this venture are estimated to amount to RMB ¥ 424 million. The time of receipt of the zoning and development permits has an immediate impact on our plans with the remaining 80,000 m2 of bare land. We now anticipate receipt of approval in the last quarter of 2011, with construction to commence during the last quarter and completion by March 2014.

China Agricultural Machinery Marketing Centre

The pre-sale license has been received at the beginning of September, 2011, and the Company is now able to offer the units for sale formally. To date, a total of RMB ¥ 9.4 million in sales deposits has been received, up from the RMB ¥ 4.5 million announced on July 6, 2011. Management expects to sell an additional 9 units for approximately RMB 30 million. The targeted sales proceeds are approximately RMB ¥ 80 million by December 31, 2011, equivalent to a sales rate of 85% for Phase I.

Outlook

"Our position on the Weifang market is such that through our unrivalled access to land, as well as our ability to quickly move from conceptualization to realization. Furthermore, the property market in Weifang is demand-driven through demographic and economic developments, as opposed to speculation driven, which has translated in a strong and growing demand for high-end private residences and commercial projects. We have recognized that the margins we can achieve by gestating those projects are substantially higher than we would realize with our current, already strong, portfolio", Patrick Chan concluded.

* Euro €1 = RMB ¥ 9.0037

About Euro Asia

Euro Asia is a BVI registered company, active in real estate development in the Shandong area of the People's Republic of China. The Company operates locally through its subsidiaries, jointly owned with SNI, a leading local development company. Generating leasing revenues from a number of commercial properties, the Company has a number of other projects under development. By utilizing its strong local network to banks, political decision makers, land owners and other developers, the Company intends to grow its position in the region prior to moving into other prefecture-level cities.

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