Eastern European Property Fund : Half Yearly Report

EASTERN EUROPEAN PROPERTY FUND LIMITED

Unaudited half-yearly results for the six month period ended 30 June 2015

HIGHLIGHTS

· A number of individual units within one of the Turkish properties were sold during the period, generating aggregate proceeds of £0.9 million.

· Property held at 30 June 2015 valued at £16.6 million (30 June 2014: £16.3 million on a like-for-like basis; 31 December 2014: £17.4 million on a like-for-like basis).

· Net asset value at 30 June 2015 of £15.5 million, equivalent to 99.56p per Ordinary Share (30 June 2014: £15.8 million, 101.66p per Ordinary Share; 31 December 2014 of £16.4 million, 105.36p per Ordinary Share).

· Loss for the six months ended 30 June 2015 of £1.3 million (six months ended 30 June 2014: loss of £1.0 million; year ended 31 December 2014, loss of £0.5 million), equivalent to a loss per share of 8.30p (30 June 2014: loss of 6.32p; 31 December 2014: loss of 3.06p) per Ordinary Share.

For further information please visitwww.eepfl.comor contact:

Tom Fyson

Liberum Capital Limited

Tel: +44 203 100 2000

Bob Locker

CNC Property Fund Management Limited

Tel: +44 1784 424 740

Keiran Gallagher

Pera Pera

Tel: +90 (212) 252 6048

Oliver Cadogan

Walnut Investments OOD

Tel: +40 21 451 0823

CHAIRMAN'S STATEMENT

EEP has four properties remaining in the portfolio; two in Turkey, including the remaining units in the Nil Passage property in Istanbul, and one in each of Bulgaria and Romania. In 2015, EEP commenced the disposal of individual units within the Nil Passage property in Beyoglu.

Results

EEP reported a net loss after tax for the period ended 30 June 2015 of £1.3 million (30 June 2014: loss of £1.0 million) , representing a loss per Ordinary Share of 8.30p (30 June 2014: loss of 6.32p). Rental income in the period increased compared to the first six months of 2014 as a result of the receipt of backdated rent increases. The revaluation (including foreign exchange movements) of the property portfolio contributed significantly to the loss in the six month period.

During the period ended 30 June 2015, operating expenses decreased by 5.6% (before accounting for accrued performance fees) and 22.7% (including performance fees), compared to the same period in 2014, as management fees continued to reduce accompanied by a reduction in the running costs of maintaining the properties. Cost control is a key focus of the Board and expenses are expected to continue to reduce further as EEP continues its orderly realisation of investment properties.

EEP's consolidated net asset value ("NAV") at 30 June 2015 was £15.5 million, representing 99.56p per Ordinary Share (31 December 2014: £16.4 million, 105.36p per Ordinary Share).

The Company's share price decreased by 8.875p during the period from 65.125p at 31 December 2014 to 56.25p at 30 June 2015, with the discount to NAV widening from 38.2% at 31 December 2014 to 43.5% at 30 June 2015 . The Board intends to continue to buy back Ordinary Shares, subject to funds being available and any such acquisitions being accretive to the Company's NAV.

Property Portfolio

EEP disposed of a number of units within the Nil Passage property during the period under review. Of the 56 individual titles that made up the property, 38 individual titles were sold in the period. The units sold generated aggregate proceeds of £0.9 million, representing a gain of £0.3 million based on historic cost.

EEP's four remaining properties continue to be marketed for sale, and will be disposed of as and when appropriate offers are received. The two adjacent Istanbul properties, including the flagship Markiz building, continue to elicit interest from Turkish buyers. The remaining units in the Nil Passage property are expected to be sold in the coming months. Although the Property Manager and Investment Adviser in respect of the Turkish property portfolio have worked hard to complete the sale of either the Markiz building or the Turkish subsidiary that holds it, to date, no fully funded offers have been received.

It is particularly disappointing that, despite pursuing active sales processes in Sofia and Bucharest over the past five years, EEP has not yet received any deliverable bona fide offers for either property.

Further information on the sales processes and the local property markets are provided in the Property Manager and Investment Advisers' Report.

Property Valuations

The aggregate value of the remaining properties decreased during the period and resulted in a net unrealised loss on revaluation of £0.9million; £0.4 million of this loss was due to movements in foreign exchange rates (30 June 2014: loss of £0.6 million which was entirely due to movements in foreign exchange rates). Note 11 provides a reconciliation of the investment property valuation movement.

Distributions

The Board's intention remains to distribute to Shareholders substantially all net proceeds of property sales, subject to meeting solvency and local distribution requirements. The Board will continue to effect distributions by means of market repurchases of Ordinary Shares at a discount to NAV where the amount of net cash available for distribution is relatively small. However, disposal of EEP's principal asset, the Markiz Passage property, will trigger a more formal return of capital.

It is likely that corporate income tax will arise to the extent any capital gains crystallise on the disposal of the remaining Turkish properties. This liability has been provided for in these consolidated results as deferred tax and calculated on the assumption that the properties are realised at their current carrying values. However, additional taxes, such as a 15% withholding tax, may arise on the repatriation to Guernsey of non-capital reserves from Turkey. At this time, the Board expects that future income (including realised gains on the sale of properties) will exceed expenses (including withholding tax, other sales taxes and sales commission) and, therefore, no provision for estimated operating losses to liquidation have been made in these consolidated results.

If the remaining Turkish properties are sold in the second half of 2015, it is expected that profits will be paid as a dividend to the Company in 2016, with the remaining funds being transferred on the liquidation of the Turkish subsidiary later in 2016. If the Turkish properties are not sold in 2015, this process will be put back by at least a further year, with the subsequent distributions to Shareholders of the Company also being delayed. The Board will endeavour to ensure that cash is distributed to Shareholders as quickly as possible. Disposal of the Turkish subsidiary containing the Turkish properties should result in a more timely return of proceeds.

At the AGM held on 10 September 2015, Shareholders resolved to renew the approval of the Company to repurchase up to 2,331,132 Ordinary Shares (equating to a maximum of 14.99% of the Ordinary Shares in issue at the date the authority was sought).

Outlook

The Board, the Manager, the Property Manager and the Investment Advisers remain focussed on selling all of EEP's remaining properties at appropriate prices. The Board cannot predict when the remaining properties will be sold, but continues to encourage the Manager and Property Manager to identify unusual, as well as more conventional, potential buyers and to be creative in their approach to, and structure of, potential sales transactions. While sales are being pursued, the Board remains vigilant to minimise operating costs and cash burn. In support of the objective to dispose of properties at prices reflective of their intrinsic value, the Manager has deferred the collection of the administration fees, with effect from 1 January 2015, and management fees (excluding the portion due to the Investment Advisers), with effect from 1 April 2015, until the earlier of the sale of the Markiz Passage or the end of 2015.

The Board appreciates your continued patience and support.

Martin M. Adams

Chairman

10 September 2015

PROPERTY MANAGER AND INVESTMENT ADVISERS' REPORT

For the half year ending 30 June 2015, EEP's Property Manager and Investment Advisers continued to manage the property portfolio with a view to maintaining income and asset value as effectively as possible without compromising the sales programme.

The overall position for each of the three countries has not significantly changed since the year end. However, sales of units in the Nil Passage were achieved, despite some uncertainty in the property market in Istanbul, and market sentiment in Bucharest continued to diverge from Sofia as confidence in the Romanian property market begins a slow and fragile recovery despite political issues, as opposed to Bulgaria, which is struggling politically. A shortage of property financing and an overhang of commercial property non-performing loan portfolios are acting as a drag on market valuations and transactions in both countries. In addition, the few investment firms buying in the markets are focussed on larger lot sizes and distressed assets.

In Istanbul, various elements of Nil Passage were sold as follows:

· All offices on the fourth floor for a combined sale price of $775,000 (including VAT);

· Two offices on the third floor for a combined sale price of $300,000 (including VAT); and

· One of the ground floor shops and ancillary areas for a price of $600,000 (including VAT).

The remaining properties held on the portfolio as at 30 June 2015 were as follows:

Markiz Passage, Istiklal Street, Beyoglu, Istanbul

This property remains for sale and enquiries continue to be made by both local occupational buyers and those looking to develop the property. In each case, a number of parties have spent considerable time and effort without being able to successfully deliver on their bids. The process continues with the same sustained high level of interest that has been maintained over recent years.

Despite the high level of enquiries, potential purchasers have been affected by the reduction in US Dollar loan availability and the relative fall of the Turkish Lira. The combination of these factors and the overall 'lot' size has given rise to a higher equity requirement than some of the buyers would recognise in the first instance. In addition, ongoing political uncertainty both locally and internationally has not helped, although this is perceived to be a background issue. Negotiations with prospective buyers are in progress with at least one party at all times.

The tenant Yemek Kulubu (Food Club) remains in occupation of the ground floor café and the 1st floor.

Nil Passage, Istiklal Street, Beyoglu, Istanbul

Various separate units have been sold, as highlighted above. The remaining units include the ground floor restaurant and parts of the 1st and 2nd floor.

All these units remain for sale and are likely to be sold separately from the Markiz property.

The Atrium, 24 George Washington Street, Sofia

This property remains available for purchase. Although it is a well presented property and the United Bulgarian Bank have once again renewed their lease on a short term basis and recently taken on additional space, the overall market conditions for commercial property and potential sales remains uncertain.

However, the underlying income stream has been maintained and the general local environment has been the subject of incremental improvements. This, together with the direct metro link to the airport, should mean the property is well placed to take advantage of any improvement in the market once this happens.

Gara Progresului, Business & Logistics Centre, Bucharest

Although the sales market has been weak, with few enquiries being received, further progress has been made with letting space in the first half of the year. Incentives for tenants taking space are reducing and the potential to build the income is stronger than has been the case for some time.

The market for commercial property sales remains at a very low level with the only exception being corporate portfolio transactions. The local markets have been affected by the very limited property loan availability although there are recent signs that this might be improving. The perception locally is that business activity is growing and that investors will return, should economic and political progress continue.

REGIONAL OVERVIEW

Turkey

The economy grew by 2.3% year on year, in the first three months of 2015, and the consensus forecast is for growth of 2.9% year on year for 2015.

The ongoing domestic and regional political uncertainty is holding back consumption and investment in Turkey which is reflected in both businesses and households adopting a wait to see approach to spending.

The local currency has dropped about 20% this year against the US Dollar and is trading at approximately 3 Turkish Lira to the US Dollar. The stock market fell by 4.0% in the first half of the year, and has fallen by 16.8% in the local currency year to date.

The Central Bank has acted cautiously, due (in part) to the possible inflationary impact of a weak currency, and inflation has eased to 6.8% year on year at July 2015 (from 8.1% in May).

The current account deficit continues to narrow, decreasing to 4.6% year on year of GDP in the twelve months to May 2015.

Following the June elections, where no overall majority was achieved by the AK Party (the previous governing party), the various parties have resisted forming a coalition. New elections have been called for 1 November 2015.

The ruling AK Party is hoping to increase its share of votes and take a majority in a new Parliament. If there is still a hung Parliament, local reports suggest that the AK Party may form a coalition with the Nationalist Party.

According to the latest Cushman Wakefield report, commercial property yields for retail and offices have remained stable in the first half of 2015. However, the commercial property sales market has been very quiet over the summer months, although this may not be considered that unusual.

Romania

The clampdown on high-level corruption continues and has also resulted in the Prime Minister being questioned and indicted. Whilst this and a parallel anti-tax evasion campaign may have some short-term negative consequences on investment, the anti-corruption activity in particular is widely supported and is providing evidence that the country is reforming.

While GDP growth was 3.7% in H1 2015 (driven by exports to Germany in particular and increasing domestic consumption), this appears to be slowing due to political uncertainty and upcoming parliamentary elections in 2016. The President, National Bank of Romania Governor and the IMF expressed strong concerns that plans to reduce headline VAT and increase public sector salaries and spending would have a negative effect on Romania's public finances.

The Romanian Leu has mostly remained within a narrow band of +/- 2% of the Euro during the period and in recent years. Historically low interest and inflation rates have not yet had a major impact on property or other lending growth rates due to reticent consumers and businesses.

Bulgaria

Bulgaria has also had some good economic news, with its GDP rising by 2.2% in Q2 of 2015 compared to Q2 in 2014, driven mostly by FDI inflows.

In addition, the unemployment rate fell by 1.5%, compared to the second quarter of 2014, to a rate of 9.9%.

The economic crisis in neighbouring Greece appears to have benefitted Bulgaria somewhat, with Greek companies increasingly relocating to its more stable neighbour.

It has been relatively quiet on the political front, with the centre-right GERB minority government continuing in power. On 25 October 2015, both local elections and a referendum on remote electronic voting will take place.

Investment Advisory Agreement

With effect from 12 March 2015, Pera Pera Yönetim ve Danişmanlik Hizmetleri ve Tic Limited ("Pera Pera") and Walnut Investments OOD ("Walnut") are the Investment Advisers. Pera Pera is Investment Adviser in respect of the Turkish portfolio and Walnut is Investment Adviser in respect of the Bulgarian and Romanian properties. Prior to 12 March 2015, Pera Pera also acted as the Investment Adviser in respect of the Bulgarian and Romanian properties. The change to Walnut as Investment Adviser for Bulgaria and Romania has not resulted in a change to the individuals working in an investment advisory capacity to EEP. The fees of the Investment Advisers are borne by the Manager.

Prospects

Following the sales of part of Nil Passage during the first half of the year, the Manager and Investment Adviser for Turkey are confident that the remainder of this property can be sold in the near future.

The position is less certain for the Markiz Passage, in which there has been a high level of interest over a considerable period of time. However, it has proved difficult to conclude a transaction, due at least in part to the political and economic uncertainty, which has affected confidence in the Turkish property market and has made lenders more cautious. However, well-let investment products may now be more marketable than development/owner occupier stock and easier to sell in markets under pressure and this will be taken into consideration for the Markiz Passage looking forward.

In Romania and Bulgaria, income streams are already established, albeit on short lease terms. It remains the lack of confidence and inability to get any form of sensible funding that is holding back these markets. Until this changes, sales may be difficult to achieve.

It is difficult to ascertain at the present time what the impact has been or will be from the volatility in global finance markets triggered by the slowdown in Chinese growth and weak commodity prices on the local markets that EEP invests in, but the immediate view is that this will be limited as other factors have a more direct impact.

Bob Locker

CNC Property Fund Management Limited

Keiran Gallagher

Pera Pera

Oliver Cadogan

Walnut Investments OOD

10 September 2015

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the six month period ended 30 June 2015 (unaudited)

1 January 2015

to 30 June 2015

1 January 2014

to 30 June 2014

1 January 2014

to 31 December 2014

Note

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Income

Rental income

336

269

554

Other income

32

22

48

------------

------------

------------

Total income

368

291

602

------------

------------

------------

Expenses

Performance fees

5

97

7

(62)

Property maintenance, property management and utilities

(122)

(148)

(280)

Management fees

5

(90)

(105)

(197)

Administration fees

5

(50)

(50)

(100)

Directors' remuneration

(43)

(43)

(85)

Other operating expenses

(200)

(189)

(428)

-----------

------------

------------

Total expenses

(408)

(528)

(1,152)

------------

------------

------------

Investment gains and losses

(Loss)/gain on revaluation of investment properties

10

(886)

(626)

565

Gain on disposal of investment properties

10

95

-

-

------------

------------

------------

Total investment (losses)/gains

(791)

(626)

565

------------

------------

------------

Net (loss)/profit from operating activities before gains and losses on foreign currency translation

(831)

(863)

15

Loss on foreign currency translation

(98)

(3)

(34)

------------

------------

------------

Net loss from operating activities

(929)

(866)

(19)

Taxation

(361)

(141)

(462)

------------

------------

------------

Loss for the period/year

(1,290)

(1,007)

(481)

Other comprehensive income that may be reclassified to profit or loss in subsequent periods

Exchange differences arising from translation of foreign operations

388

54

104

------------

------------

------------

Total other comprehensive income

7

388

54

104

------------

------------

------------

Total comprehensive loss for the period/year attributable to the Owners of the Group

(902)

(953)

(377)

------------

------------

------------

Loss per share - basic and diluted

8

(8.30)p

(6.32)p

(3.06)p

------------

------------

------------

These results are unaudited and are not the Group's statutory financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

ATTRIBUTABLE TO THE OWNERS OF THE COMPANY

for the six month period ended 30 June 2015 (unaudited)

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2015

155

16,753

(523)

16,385

Total comprehensive income/(loss) for the year

Loss for the six month period

-

(1,290)

-

(1,290)

Other comprehensive income

-

-

388

388

----------

----------

----------

----------

Net assets at 30 June 2015

155

15,463

(135)

15,483

----------

----------

----------

----------

for the six month period ended 30 June 2014 (unaudited)

Note

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2014

165

17,825

(627)

17,363

Total comprehensive income/(loss) for the year

Loss for the six month period

-

(1,007)

-

(1,007)

Other comprehensive income

-

-

54

54

Contributions by and distributions to owners

Buy back and cancellation of own shares

12

(10)

(591)

-

(601)

----------

----------

----------

----------

Net assets at 30 June 2014

155

16,227

(573)

15,809

----------

----------

----------

----------

for the year ended 31 December 2014 (audited)

Note

Share capital

Distributable reserve

Foreign currency translation reserve

Total

£'000

£'000

£'000

£'000

Net assets at 1 January 2014

165

17,825

(627)

17,363

Total comprehensive income/(loss) for the year

Loss for the year

-

(481)

-

(481)

Other comprehensive income

-

-

104

104

Contributions by and distributions to owners

Buy back and cancellation of own shares

12

(10)

(591)

-

(601)

----------

----------

----------

----------

Net assets at 31 December 2014

155

16,753

(523)

16,385

----------

----------

----------

----------

These results are unaudited and are not the Group's statutory financial statements.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

as at 30 June 2015 (unaudited)

30 June 2015

30 June 2014

31 December 2014

Note

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Current assets

Freehold investment property

10

16,587

17,093

18,294

Intangible assets

4

6

5

Property, plant and equipment

3

7

5

Trade and other receivables

11

616

123

131

Cash and cash equivalents

825

740

511

----------

----------

----------

Total assets

18,035

17,969

18,946

----------

----------

----------

Current liabilities

Deferred tax liabilities

(2,018)

(1,787)

(2,076)

Trade and other payables

(276)

(280)

(380)

Overseas corporate tax

(189)

(12)

(7)

Rents received in advance

(69)

(81)

(98)

----------

----------

----------

Total liabilities

(2,552)

(2,160)

(2,561)

----------

----------

----------

Net assets

15,483

15,809

16,385

----------

----------

----------

Capital and reserves

Called-up share capital

12

155

155

155

Distributable reserve

15,463

16,227

16,753

Foreign currency translation reserve

(135)

(573)

(523)

----------

----------

----------

Total equity attributable to owners of the Company

15,483

15,809

16,385

----------

----------

----------

NAV per Ordinary Share - basic and diluted

13

99.56p

101.66p

105.36p

----------

----------

----------

These results are unaudited and are not the Group's statutory financial statements.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

for the six month period ended 30 June 2015 (unaudited)

Note

1 January 2015

to 30 June 2015

1 January 2014

to 30 June 2014

1 January 2014

to 31 December 2014

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Net loss from operating activities

(929)

(866)

(19)

Adjustments for:

Bank interest receivable

-

(1)

(1)

Loss/(gain) on revaluation of investment properties

10

886

626

(565)

Gain on disposal of investment properties

10

(95)

-

-

Loss on foreign currency exchange

98

3

34

Amortisation and depreciation

2

2

2

----------

----------

----------

Net cash outflow from operating activities before working capital changes

(38)

(236)

(549)

(Increase)/decrease in trade and other receivables

(6)

154

145

Increase/(decrease) in trade and other payables and other current liabilities

81

(128)

(34)

----------

----------

----------

Net cash inflow/(outflow) from operating activities after working capital changes

37

(210)

(438)

Interest received in the period/year

-

1

1

Tax paid in the period/year

(99)

(307)

(315)

----------

----------

----------

Net cash outflow from operating activities

(62)

(516)

(752)

Investing activities

Sale of investment property

444

904

906

Acquisition and development of investment property

-

(2)

(14)

----------

----------

----------

Net cash inflow from investing activities

444

902

892

Financing activities

Purchase of own shares

12

-

(601)

(601)

----------

----------

----------

Net cash outflow from financing activities

-

(601)

(601)

----------

----------

----------

Increase/(decrease) in cash and cash equivalents

382

(215)

(461)

----------

----------

----------

Cash and cash equivalents at the beginning of the period/year

511

957

957

Increase/(decrease) in cash and cash equivalents

382

(215)

(461)

Foreign exchange movement

(68)

(2)

15

----------

----------

----------

Cash and cash equivalents at the end of the period/year

825

740

511

----------

----------

----------

These results are unaudited and are not the Group's statutory financial statements.

NOTES TO THE HALF-YEARLY RESULTS

for the six months ended 30 June 2015

1. General information

The Company is registered in Guernsey as an authorised closed-ended investment company and its Ordinary Shares are traded on AIM, a securities market operated by the London Stock Exchange.

The Company's investment objective and policy is to carry out an orderly realisation of the Company's portfolio of assets, distribution of the net proceeds to Shareholders and then undertake a voluntary winding-up of the Company. Disposals may be by individual sales or as transactions incorporating a group of properties.

2. Basis of preparation

These unaudited condensed consolidated half-yearly results, which have not been audited by an independent auditor, have been prepared in accordance with IAS 34: Interim financial reporting . They do not include all of the information required for full annual financial statements and should be read in conjunction with the Group's audited consolidated financial statements for the year ended 31 December 2014.

Going concern

The condensed consolidated half-yearly results have been prepared on the same basis as the audited consolidated financial statements for the year ended 31 December 2014, being a non-going concern basis, to reflect the Company's investment objective and policy to carry out an orderly realisation of the Company's portfolio of assets. This has had no significant impact on the condensed consolidated half-yearly results as the properties have been measured at fair value and are expected to be realised in an orderly manner.

It is likely that corporate income tax will arise on capital gains on the disposal of the remaining Turkish properties. This liability has been provided for in these condensed consolidated half-yearly results as deferred tax and calculated on the assumption that the properties are realised at their current carrying values. However, additional taxes, such as a 15% withholding tax, may arise on the repatriation to Guernsey of non-capital reserves from Turkey. At this time, the Board expects that future income (including realised gains on the sale of properties) will outweigh expenses (including withholding tax, other sales taxes and sales commission) and, therefore, no losses to liquidation have been provided for in these condensed consolidated half-yearly results, which have been prepared on a non-going concern basis.

These condensed consolidated half-yearly results were approved by the Board of Directors on 10 September 2015.

3. Significant accounting policies

Except for the adoption of the new, relevant, accounting standards noted below, these unaudited condensed consolidated half-yearly results have adopted the same accounting policies as the last audited financial statements, which were prepared in accordance with International Financial Reporting Standards ("IFRSs") (with the exception of IFRS 8, as explained in note 6, and IFRS 13, as explained in note 10), issued by the International Accounting Standards Board ("IASB"), interpretations issued by the IFRS Interpretations Committee and applicable legal and regulatory requirements of Guernsey Law, which have been adopted and applied consistently.

Effective date

IFRS 13

Fair Value Measurement - scope of the portfolio exception

1 July 2014

IAS 16

Property, Plant and Equipment - various amendments

1 July 2014

IAS 38

Intangible Assets - amendments for clarification of acceptable methods of depreciation and amortisation

1 July 2014

IAS 40

Investment Property - clarification of interrelationship of IFRS 3 and IAS 40

1 July 2014

During the period, the Group did not adopt any standards or interpretations that had an impact on the financial position or performance of the Group.

The IASB has issued/revised a number of relevant standards and interpretations with an effective date after the date of these unau dited condensed consolidated half-yearly results. The Directors have chosen not to early adopt any standards, interpretations or amendments that have been issued but are not yet effective and they do not anticipate that they, with the exception of IFRS 9: Financial Instruments, would have a material impact on the Group's financial statements in the period of initial application. A full assessment of the impact of IFRS 9 has not yet been performed.

4. Use of estimates and judgements

The significant judgements made by the Directors in applying the accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for year ended 31 December 2014 (see note 10).

5. Management, administration and performance fees

Elysium Fund Management Limited ("Elysium") is Manager, Administrator and Company Secretary to the Company, CNC Property Fund Management Limited ("CNC") is Property Manager and Pera Pera Yönetim ve Danişmanlik Hizmetleri ve Tic Limited ("Pera Pera") and Walnut Investments OOD ("Walnut") (with effect from 12 March 2015) are the Investment Advisers. Pera Pera is Investment Adviser in respect of the Turkish portfolio and Walnut is Investment Adviser in respect of the Bulgarian and Romanian properties. Prior to 12 March 2015, Pera Pera also acted as the Investment Adviser in respect of the Bulgarian and Romanian properties. The change to Walnut as Investment Adviser for Bulgaria and Romania has not resulted in a change to the individuals working in an investment advisory capacity to EEP.

In support of the objective to dispose of properties at prices reflective of their true value, with effect from 1 January 2015, the Manager has deferred the collection of the administration fees, with effect from 1 January 2015, and management fees (excluding the portion due to the Investment Advisers), with effect from 1 April 2015, until the earlier of the sale of the Markiz Passage or the end of 2015.

Administration fees

The Company pays Elysium, by way of remuneration for its administration and secretarial services, an administration fee of 0.1% of the Gross Asset Value of the Group per annum calculated at the close of business at each quarter end, subject to a minimum of £100,000 per annum.

The total administration fees due to Elysium relating to the period ended 30 June 2015 amounted to £50,000 (30 June 2014: £50,000, 31 December 2014: £100,000).

At 30 June 2015, £50,000 (30 June 2014: £25,000; 31 December 2014: £25,000) was payable to Elysium in respect of administration fees.

Management fees

Elysium is entitled to receive a management fee of 1.25% of the Total Assets of the Group per annum. Total Assets is defined as the ongoing NAV of the Group plus an amount equal to long-term borrowings invested by the Group. The management fee is payable quarterly in advance. The total management fee due to Elysium for the period ended 30 June 2015 was £90,000 (30 June 2014: £105,000; 31 December 2014: £197,000).

At 30 June 2015 £24,000 (30 June 2014 and 31 December 2014: £nil) was payable to Elysium in respect of management fees.

The Manager is responsible for the payment of the fees of the Investment Advisers and Property Manager. For details on the payment of commissions to the Investment Advisers for the sale of properties, please refer to note 14.

Performance fees

Elysium shall be entitled to receive a performance fee only in the event of a realisation event, which shall be paid no later than the date falling three months after the realisation event. The value of the performance fee shall be calculated by reference to the total distribution to Shareholders, as follows:

Total distribution

Performance fee

Less than 110 pence per Ordinary Share

None.

Greater than 110 pence per Ordinary Share but less than 130 pence per Ordinary Share

10% of the total distribution in excess of 110 pence per Ordinary Share multiplied by the number of shares in issue on the date of the Realisation Event.

Greater than 130 pence per Ordinary Share but less than 150 pence per Ordinary Share

a) 10% of the amount by which the total distribution to Shareholders is in excess of 110 pence per Ordinary Share but less than 130 pence per Ordinary Share; and

b) 20% of the amount by which the total distribution to Shareholders is in excess of 130 pence per Ordinary Share but less than 150 pence per Ordinary Share,

in each case multiplied by the number of Ordinary Shares in issue on the realisation date.

Greater than 150 pence per Ordinary Share

a) 10% of the amount by which the total distribution to Shareholders is in excess of 110 pence per Ordinary Share but less than 130 pence per Ordinary Share; and

b) 20% of the amount by which the total distribution to Shareholders is in excess of 130 pence per Ordinary Share but less than 150 pence per Ordinary Share; and

c) 30% of the amount by which the total distribution to Shareholders is in excess of 150 pence per Ordinary Share,

in each case multiplied by the number of Ordinary Shares in issue on the realisation date.

During the period ended 30 June 2015, the performance fee provision decreased by £97,000 to £85,000 (30 June 2014: decrease in provision for performance fee by £ 7 ,000 to £113,000; 31 December 2014: increase in provision for performance fee by £62,000 to £182,000).

6. Segmental analysis

In accordance with IFRS 8: Operating segments , the Group is required to present and disclose segmental information based on the internal reports that are regularly reviewed by the Board in order to assess each segment's performance and to allocate resources to them. However, the Board has opted not to comply with IFRS 8 due to reasons of commercial sensitivity and the possible negative impact such information may have on the disposal of individual properties .

7. Tax effects of other comprehensive income

There are no tax effects arising from the other comprehensive income disclosed in the condensed consolidated statement of comprehensive income (30 June 2014 and 31 December 2014: £nil).

8. Loss per share - basic and diluted

The loss per Ordinary Share, is based on a loss of £1,290,000 (30 June 2014: loss of £1,007,000; 31 December 2014: loss of £481,000) and on a weighted average number of 15,551,250 (30 June 2014: 15,923,211; 31 December 2014: 15,735,702) Ordinary Shares in issue. There is no difference between the basic and diluted loss per share.

9. Dividends

The Board does not propose an interim dividend for the six months ended 30 June 2015 (2014: nil).

10. Freehold investment property

Six months ended 30 June 2015

Six months ended 30 June 2014

Year ended

31 December 2014

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Brought forward

18,294

18,621

18,621

Additions

-

2

14

Disposals

(916)

(904)

(906)

Realised gain on disposal of investment property

95

-

-

(Loss)/gain on revaluation of investment properties

(886)

(626)

565

----------

----------

----------

Carried forward

16,587

17,093

18,294

----------

----------

----------

All investment properties were valued by DTZ Debenham Tie Leung, international property advisers, at fair value at 30 June 2015, 30 June 2014 and 31 December 2014 in accordance with the methodology and guidelines set out in the latest edition of the Royal Institution of Chartered Surveyors ("RICS") Appraisal and Valuation Manual. In the opinion of the Directors, the Property Manager and the Investment Advisers, the fair value of the properties held at the period end is equal to the values attributed to them in the independent valuation report prepared by DTZ Debenham Tie Leung.

Property assets in Turkey, Bulgaria and Romania are inherently difficult to value as there is no liquid market or transparent pricing mechanism. As a result, valuations are subject to substantial uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur shortly after the date of the valuation.

The appraisers determine the fair value by applying the methodology and guidelines as set out in the appropriate sections of both the current Practice Statements and United Kingdom Practice Statements contained within the RICS Valuation - Professional Standards 2014 Edition.

For certain properties, the valuation approach is based on discounting the future net income receivable from properties to arrive at the net present value of the future income stream. Future net income comprises the rent secured under existing leases, less any known or expected non-recoverable costs and the current market rent attributable to future vacancy rates. The consideration basis for this calculation excludes the effects of any taxes. The discount factors used to fair value are consistent with those used to value similar properties, with comparable leases in each of the respective markets. For other properties, values are determined on the basis of near vacant possession, whereby capital values are assessed per square metre and cross checked on a rent and yield approach, with adjustments made for void space and expected refurbishment costs prior to letting. This calculation also excludes the effects of any taxes.

All investment properties are classified as Level 3 in accordance with the fair value hierarchy levels set in IFRS 13: Fair value measurement . Apart from the disposal of various units within the Nil Passage property in May and June 2015, there were no transfers into or out of Level 3 during the period.

In accordance with IFRS 13: Fair value measurement , it is a requirement for the Group to present and disclose the sensitivity of certain inputs in the valuation of the properties. However, the Board has opted not to fully comply with IFRS 13 due to reasons of commercial sensitivity and the possible negative impact such information may have on the disposal of individual properties.

The Group invests primarily in US Dollars, Euros or local currencies in Turkey, Bulgaria and Romania . Although US Dollars, Euros and the local currencies of those countries are freely convertible into other currencies, exchange rate fluctuations could have a material effect on the market value of the Group's property investments, which although expressed in Sterling, are valued by the independent valuer in either US Dollars or Euros .

11. Trade and other receivables

30 June 2015

30 June 2014

31 December 2014

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Due from sale of investment property

478

-

-

Trade and other receivables

138

123

131

----------

----------

----------

616

123

131

----------

----------

----------

12. Share capital and reserves

30 June 2015

30 June 2014

31 December 2014

(unaudited)

(unaudited)

(audited)

£'000

£'000

£'000

Authorised:

200,000,000 Ordinary Shares of 1 pence each

2,000

2,000

2,000

------------

------------

------------

Issued and fully paid:

15,551,250 (30 June 2014 and 31 December 2014: 15,551,250) Ordinary Shares of 1 pence each

155

155

155

------------

------------

------------

No Ordinary Shares were purchased or cancelled during the period. In 2014, the Company purchased and cancelled 955,000 Ordinary Shares in the Company at a total cost of £0.6 million.

The Company has one class of Ordinary Shares, which carry no right to fixed income. Ordinary Shares carry the right to vote at general meetings and the entitlement to receive any dividends and surplus assets of the Company on a winding-up.

Any Ordinary Shares held in treasury do not have the right to vote at general meetings nor do they have an entitlement to receive any dividends or surplus assets of the Company on a winding-up.

Foreign currency translation reserve

The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations.

Reserve for own shares

The Company has authority to utilise its distributable reserve to buy back for cancellation up to 14.99% of the Ordinary Shares (2,331,132 Ordinary Shares) in issue at the time the notice of the AGM, held on 10 September 2015, was circulated. In addition, the Company has the authority to purchase up to 10% of the Ordinary Shares in issue and hold them as Treasury Shares until a time when they are either re-issued or cancelled.

During the period ended 30 June 2015, no shares were purchased to be held as Treasury Shares (30 June 2014 and 31 December 2014: nil).

13. NAV per Ordinary Share

The NAV, in pence per Ordinary Share, is based on the net assets attributable to equity Shareholders of £15,483,000 and on 15,551,250 Ordinary Shares in issue at the end of the period (30 June 2014: £15,809,000 based on 15,551,250 Ordinary Shares; 31 December 2014: £16,385,000 based on 15,551,250 Ordinary Shares).

14. Related parties

The relationships and transactions between the Group, Elysium, CNC, Pera Pera and Walnut are disclosed in note 5. In addition, with effect from 8 May 2012, Andrew Duquemin was appointed as an alternate Director for Carol Goodwin. Mr Duquemin is executive chairman of Elysium.

The Group has agreed to pay Walnut commission of 2% of the sales proceeds of property in Bulgaria and Romania, if a third party agent is involved, split in the proportion of 1.5% to the agent and 0.5% to Walnut. If a property sale is executed solely by Walnut, the rate would be 1.5%. The Group has agreed to pay Pera Pera commission on any property sales in Turkey on the same terms as those agreed with Walnut.

The disposal of various units within the Nil Passage property during the period incurred total sales commission of £12,000, which was payable to Pera Pera.

The Directors are not aware of any ultimate controlling party.

15. Subsequent events

There were no material events after the financial reporting date that required disclosure as at 10 September 2015.

16. Capital management policy and procedures

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements for the year ended 31 December 2014.

The Group's capital management objectives are:

· to ensure that it will be able to continue to operate in order to return funds in an orderly manner to Shareholders ; and

· to maximise its total return primarily through the capital appreciation of its investments.

The Board, with the assistance of the Manager, Property Manager and Investment Advisers, monitors and reviews the structure of the Group's capital on an ad hoc basis. This review includes:

· the current and future levels of gearing;

· cash flow projections for the Group;

· the working capital requirements of the Group;

· the need to buy back Ordinary Shares for cancellation or to be held in treasury, which takes account of the difference between the NAV per Ordinary Share and the Ordinary Share price;

· the current and future dividend policy; and

· the return of funds to Shareholders.

The Group's objectives, policies and processes for managing capital are as disclosed in the Group's consolidated financial statements for the year ended 31 December 2014.