The Black Sea Property Fund Limited

For immediate release
30 June 2007

Completion of land purchase at Borovets
and valuation update as at 30 June 2007

The Black Sea Property Fund Limited has completed the purchase of c.124,000 square metres of land at Borovets (the Bulgarian ski resort closest to Sofia) for a total of €10.5 million (€85 per square metre).Preliminary contracts for the purchase were signed on 9 May 2007 and have now been completed.

Borovets purchase

The Black Sea Property Fund Limited has completed the purchase of c.124,000 square metres of land at Borovets (the Bulgarian ski resort closest to Sofia) for a total of €10.5 million (€85 per square metre). Preliminary contracts for the purchase were signed on 9 May 2007 and have now been completed.

Background

The resort of Borovets is the oldest of Bulgaria’s winter destinations. The town of Borovets is located 72 kilometres from Sofia, 1,390m above sea level. Borovets has over 45 kilometres of pistes, divided between three main ski areas. The highest piste reaches 2,600m and the ski runs provide over 1,000m of vertical drop. The resort hosts various winter sports competitions and has in the past hosted world cup ski events. The town of Samokov is 12 kilometres from Borovets and the two are linked by a national road. The Fund’s site is located next to the Borovets – Samokov road, a short drive from the current ski lifts.

Super Borovets project

The Borovets region is about to undergo significant redevelopment, most notably due to the Super Borovets project. The consortium behind the Super Borovets project includes the Samokov municipality and Glavbolgarstroy, one of Bulgaria’s leading construction companies. Equest Investments Balkans Ltd, which recently acquired 33.5% of the project company for €25.9 million, is the third consortium member. The project, which has an estimated total development cost of €566 million, includes plans to increase the number of ski lifts and gondolas servicing the pistes, and increasing the number of ski runs from 18 to 37.

The Super Borovets project is expected to significantly enhance the value of the Fund’s site, which is located adjacent to a new gondola planned as part of phase 1 of the project, and increase the gross development value of the project as real estate prices in the region increase. Zoned land in the same area has recently sold for around €115 per square metre.

Project

The Fund’s intention is to develop a year round mountain resort on the site, including a hotel and conference centre and various residential and holiday units. The Manager’s local team is now concentrating on obtaining zoning for the site and continuing the master planning process. Wimberly Allison Tong & Goo, the international design consultants and architects, have been retained to conduct the master planning. The Manager is working with WATG to select the most appropriate concept for the development before the detailed designs are produced.

The Fund has a preliminary contract to acquire a further 40,976 square metres of land adjacent to the larger site described above. Completion of this purchase will occur once the zoning of that land is confirmed.

Portfolio update

The Fund is currently committed to financing four developments by third party developers and has acquired or invested in land for development in three further locations. The portfolio is well diversified, consisting of developments in two ski regions (Borovets and Pamporovo), on the Black Sea coast and in the capital Sofia. Approximately 45% of the Fund’s assets are invested in the coast, 45% in the mountains and 10% in Sofia.

The Fund’s property portfolio and financing arrangements have been independently revalued as at 30 June 2007 (the Fund’s half year) by Colliers International:

Sales at the Fund’s project in Obzor on the Black Sea coast are progressing. A total of 80 sales and reservations have been secured, representing 31% of the Fund’s units. 39 of these units have exchanged contracts and profits on these sales will total €1.0m (0.3p per share). If the 41 remaining reservations were to complete at the agreed prices, profits on these 80 units would total €2.2m (0.6p per share).

Updates on the other projects are given below.

Project updates

The YooBulgaria project at Obzor consists of 257 luxury apartments located 65km south of Varna on the Black Sea coast. The Fund is financing all 257 apartments, equal to 27,050 square metres of developed area. Construction is on schedule and completion of the development is expected in the third quarter of 2008. Sales remain steady, with 80 apartments (31% of the Fund’s units) reserved or sold out of the total of 257 as at 3 August 2007, of which 39 have now exchanged contracts.

Kavarna is situated on the northern part of Bulgaria’s Black Sea coast. This development, which is being designed and constructed by the same team as the Obzor site, will consist of around 25,000 square metres of developed area. Work on this site expected to start once a sufficient number of sales have been secured at Obzor. The Manager has been approached by the developer to discuss the possible restructuring of the Fund’s investment in this project. These discussions are at an early stage.

The Malinova Dolina development in Sofia is progressing well. This development will consist of 27 houses and 72 apartments (subject to final design changes). The architectural master plan is completed and the construction permit, which requires detailed technical designs, is expected in Q4 2007. Marketing of the apartments to UK investor clubs has commenced, with some early promising indications of interest. January 2007 figures from the Global Property Guide indicated rental yields of up to 10% in Sofia, which should encourage the overseas investor market. A formal sales campaign will be launched in the fourth quarter of the year.

Nikea Park is located near Golden Sands, the largest resort on the Black Sea coast. The Fund has financed 119 apartments in this complex, of which 7 have been sold or reserved as at 3 August. The lead agent for this development has made good progress in putting in place an extensive network of sub-agents, focussing on key jurisdictions, including the UK, Russia and Poland.

Magnolia is a development of 420 luxury apartments, together with spa facilities, in Pamporovo, in the Rhodopi mountains. The Fund is financing 348 of these apartments. Following extensive discussions, disappointingly the possible bulk sale of the Magnolia development previously reported has failed to materialise. A number of sales agents have been approached and terms agreed with a view to deciding on the new pricing and sales strategy for the coming ski season.

Valuations

Third party developments

The Fund is currently financing three developments by third party developers. Under these financings, the Fund has agreed to finance the construction of the apartments based on a price which is at a discount of between 44% and 50% to the Colliers International valuation as at 30 June 2007 of completed units.

Development Build Area
(m2)
Number of Units Cash investment
Prospective profit at Colliers International valuations*
Obzor (Black Sea coast) 27,050 257 5,274,750 4,700,000
Magnolia (Pamporovo ski region) 24,319 348 5,612,825 5,100,000
Nikea Park (Black Sea coast) 8,013 118 4,006,604 300,000
Total       10,100,000

* The figures in the table are based on all of the units financed by the Fund being sold at Colliers International’s valuations as at 30 June 2007.  The prospective profits shown above would equate to an increase in the NAV equivalent to 2.7 pence per share (at an exchange rate of €1.48523 to £1). This should not, however, be regarded as a profit forecast as it assumes the sale of all units at the Colliers valuation, which may not occur.  Potential profit figures assume likely sales costs and 15% tax.

The Fund is also committed to a €4,649,625 financing of a further development at Kavarna on the Black Sea coast. Figures for this development are not included above as the financing has not been drawn.

Land investment/purchases

Land investment/purchases Area of land m2 Estimated build area m2* Purchase price/investment value € Current land valuation € Increase in value %
Byala (Black Sea coast) 161,820 50,000 9,709,200 12,136,500 25
Malinova Dolina (Sofia) 24,599 17,200 4,000,000 4,512,792 12.8
Borovets ski region 164,937 104,000 13,925,016 14,845,363 6.6
Total     27,634,216 31,494,655 13.9

* Based on current zoning requirements and the Manager’s expectations.

Net asset value figures as at 30 June 2007 will be announced in September once the interim accounts are finalised.

Contacts

Development Capital Management     020 7355 7600
Roger Hornett
Andrew Mitchell

Buchanan Communications     020 7466 5000
Charles Ryland
Isabel Podda

Numis Securities     020 7260 1000
Bruce Garrow
James Keane