1. Introduction
In 2006 the fast growth of the Baltic real estate market continued, although
the signs of stabilisation in demand and prices occurred in the second half of
the year. Speedy increase in labour and building material prices that caused
the construction prices increase in general was specific in whole region.
Though lengthening of sales period, derived from the clients desire to see the
completed product before interest to buy, was mainly observed in Estonia and in
more expensive market segment. In other words- alongside the increase in
offering, the quality of development, location and other factors have become
more important. The same factors had no importance in past years' exploding
growth stage.
According to Q Vara OÜ's (hereinafter ”Q Vara”) management, Q Vara and its
subsidiaries (hereinafter ”Q Vara Group” or ”the Group”) have adapted the new
market situation well. As a response to fast changes in market situation, the
sales process of Kirsiaia and Silukalni projects were decided to postpone to
final project stage. This step has helped to avoid the situation where low
sales prices fixed by precontracts and increasing construction prices have had
a decreasing influence to the profit margin. Q Vara Group has focused on
long-term profit and no margin decreasing firesale is or will be performed in
order to reach short-term goals and forecasts.
Q Vara is mainly focused on large scale development projects which derives Q
Vara to realize smaller properties with good profit. I.e. at the end of 2006
the terms of the sales of Pärnu Road property in Tallinn were concluded, by
which the profit receivable is sourced as own financing into Taevasmaa
residential project and to Terminal 11 industrial park. Another example is
also the Kirsiaia residential land plot project, where earlier plans foresaw
the development of rowhouses that would have locked far larger amount of
capital for a longer period.
The key points of Q Vara Group investment policy are clear focus on
segmentation and the best risk-profit ratio. The principle of segmenting states
that the project portfolio must include at least three projects from different
segments in each market. I.e. in our Estonian portfolio we have Taevasmaa
residential development (houses, medium segment), Terminal 11 industrial park
(business segment), Kirsiaed (houses, highest segment), Maakri block (downtown,
high segment) and in addition some smaller projects. Following the same logic,
the plan is into invest into diversifying the portfolio also in other markets.
For example in Latvia after finishing the Silukalni project (houses, medium
segment) and Jurmala apartment house (365) project (high segment), there is a
need to invest in a new residential project and a new commercial space project
in addition to the existing large Jonathan (Maskavas) apartment building
development.
Before investing, a complete research about the current market situation is
made, in other words- the investment risk-profit ratio compared to different
alternatives is investigated. In the current market situation in Estonia, Q
Vara is planning to keep the portfolio size on the present level and not to
invest into further growth of the land portfolio. Since Lithuanian market has
higher profitability level, most of the investments are focused there. In
longer perspective the markets beyond the Baltic's are also targeted.
2. Management and personnel
During 2006 the team in Q Vara Group grew by 40 people. The process of building
up the team is at its final stage in Estonia. In Latvia it is still in progress
(especially in construction company) but in Lithuania and Bulgaria the staffing
is in a relatively early stage.
Throughout 2006 there were significant changes and additions in each team.
Since July 2006, the new Chairman of the Management Board is Meelis Šokman, who
previously was a director of the corporate financing division in AS Hansapank.
At the same time Marge Laanemaa joined Q Vara team as chief accountant. Marge
Laanemaa was previously the chief accountant in AS Lõhmus, Haavel & Viisemann.
In August Andre Poopuu was employed as a new sales department manager and was
also named as a member of the Management Board. Also Tõnis Vare, the manager of
Q Vara's development department, was named as a member of the Management Board.
Andre Poopuu's previous experience includes working in AS Hansapank as the head
of the youth banking department. Tõnis Vare has worked for Estonian larges
construction company AS Merko Ehitus as a project manager. Ivo Lillepea and
Tanel Peeters were recalled from the Management Board by the Supervisory
Council and they continue managing the whole Group in Q Vara's parent company
OÜ SLProductions. As of the end of 2006 the members of the Q Vara OÜ's Board
are Meelis Šokman (Chairman of the Board), Andre Poopuu and Tõnis Vare.
In 2006 Meelis Šokman, Sarmite Sazoncika (manager of Q Estate sales department)
and Ervins Koncevics (manager of developing department) became the new members
of the Board of SIA Q Estate (hereinafter ”Q Estate”). Sarmite Sazoncika has
previously worked in AS Hansabanka as client executive. Ervin Koncevics has
previously worked as project manager in real estate development company named
SIA Re&Re. Peeter Põldaru and Alo Lillepea were recalled from the Management
Board; Alo Lillepea continues managing the Group in Q Vara's parent company OÜ
SLProductions as Chairman of the Board. By the year end the members of Q
Estate's Board are Meelis Šokman (Chairman of the Board), Sarmite Sazoncika and
Ervins Koncevics.
At the end of 2006, Peeter Põldaru decided to leave Q Estate and to sell his
15% share in Q Estate to Q Vara OÜ, by which Q Vara becomes the sole
shareholder of Q Estate. The share purchase agreement was signed between Q Vara
and Peeter Põldaru in February 2007.
In Lithuania Q Vara's subsidiary UAB Q Vara started operations after Lina
Verbliugeviciute was named as executive director in August 2006. Lina
Verbliugeviciute has previously worked in a real estate development company UAB
Progresyvios Investicijos as a development manager and developed several
apartment buildings in Vilnius. In the fourth quarter 2006 a project manager
Ingrida Talzuniene and development manager Andre Nutautiene joined UAB Q Vara's
team. Ingrida Talzuniene has been working as a project manager in a real
estate development company UAB Progresyvios Investicijos and Andre Nutautiene
was working as a development manager in AS Merko Ehitus's subsidiary in
Lithuania - UAB Merko Statyba.
Alo Lillepea and Ivo Lillepea who were named as UAB Q Vara's Board Members at
the company establishment were recalled by the Supervisory council. Lina
Verbliugeviciute, Jürgen Järvik and Meelis Šokman (Chairman of the Board)
became the new members of the Management Board.
Alo Lillepea was also withdrawn from the Management Board of Q Ehitus, and
replaced by Meelis Šokman. By the year end the members of Q Ehitus Management
Board were Urmas Altin and Meelis Šokman. The members of Management Board of
the Latvian subsidiary of Q Ehitus, SIA Q Būve founded in 2006, are Urmas Altin
and Alo Lillepea.
In fourth quarter Q Vara's management decided to enter the Bulgarian market and
to acquire a 60% share in Bulgarian company OOD Delta Retail. The transaction
was not formally documented by the end of 2006, still the negotiations were
held so as of 31.12.2006 the investment made was recorded as a loan granted.
Already in January 2007 the team was completed and the development of the
investment property was started.
In addition to the personnel changes mentioned above, many more top specialists
were recruited to Q Vara Group's team, who handle reporting, development,
construction, marketing and sales.
The average number of employees in Q Vara Group was 73 in 2006 (2005: 33).
Total remunerations paid to the Q Vara Group employees in 2006 was 12 021, in
euros 768 Th (2005: 6 825 Th EEK, 436 Th euros. Total remunerations in 2006
paid to the members of Management Board amounted to 1 638 Th EEK, 105 Th euros
(2005: 499 Th EEK, 32 Th euros).
No remunerations were paid to the members of Q Vara Group's Supervisory Council
in 2006 (2005: 0).
3. Group structure
Several changes took place also in Q Vara Group's structure in 2006. In
February Q Vara's Lithuanian subsidiary UAB Q Vara was founded. The actual
operations started in August and the first investment into property was made in
November. Q Vara owns 100% of UAB Q Vara's shares.
To assure the flexibility in construction and high construction quality, Q
Ehitus founded a subsidiary in Latvia in autumn 2006. By today the subsidiary Q
Būve has taken over the construction of the whole Silukalni project that is
developed by Q Estate.
In the final quarter the decision was made to merge OÜ Merona Group and OÜ
Multi Metall Kinnisvara with Q Vara. The purpose was to simplify and increase
the transparency of the Group structure. Kesk-Kaare properties in Viimsi parish
(Kirsiaia plots), owned by OÜ Merona Group and properties in Rae parish
(Terminal 11) owned by OÜ Multi Metall and all the liabilities were taken over
by Q Vara. The merger was enacted in Commercial Register in the first quarter
2007.
According to Q Vara's shareholders' decision from March 6, 2007, Q Vara is
going to be transformed from private limited company (OÜ) into a public limited
company (AS). The portions of shareholders' share remain the same. Also no
changes with legal relationships with employees, with Management Board members
and with Supervisory Council members shall take place. The transformation shall
be finished during the second quarter of 2007.
4. Financial accounting
During 2006, Q Vara's financial accounting quality has increased considerably.
As the Group is growing rapidly, the restructuring of our accounting became
essential in the fields of accounting personnel, accounting software and
reporting quality.
A new ERP software Microsoft Dynamics NAV was implemented in whole Q Vara
Group.
Since the terms and conditions of Q Vara's bonds (issued in January 2006)
require disclosing Q Vara Group's consolidated and audited annual report by the
end of first quarter, the interim audit was performed as of 30.09.2006 with the
aim speed up the reporting process,. This early audit made it possible to
finish the whole year audit by the end of February and to compose the final
annual report by the end of the first quarter of 2007.
5. Bonds
In January 2006 Q Vara issued bonds, that mature in 3 years at par value of 5
000 000 euros. The bonds were sold both to Estonian and foreign investors. In
total 500 bonds were issued with nominal value of 10 000 euros per bond. The
bonds' yield per annum is 11%. The bonds are listed on OMX Tallinn Stock
Exchange since September 19, 2006. Therefore Q Vara is obligated to disclose
all significant corporate information trough stock exchange's information
system (http://www.baltic.omxgroup.com/). Q Vara is also supervised by Estonian
Financial Board and OMX Tallinn Stock Exchange.
Substantial change took place also in the bonds' collateral structure. The
initial collateral (mortgages of properties and pledges of subsidiary's shares)
was replaces with Q Vara's parent company's OÜ SLProductions' guarantee. The
reasons for the change were the following: a need to start the development of
Taevasmaa residential project and to secure the loans taken for construction,
the aim to simplify the Group structure by merging two subsidiaries (OÜ Merona
Group and OÜ Multi Metall Kinnisvara, merged by today) with Q Vara; and the
sales of property located at Pärnu Road, Tallinn. This transaction does not
harm the interests of investors, but plays a significant role in Group
development and strengthening.
6. Dividend policy
The fast growth of the Group has a significant influence on dividend policy.
Because of the growth large amount of profit is reinvested to the company. The
annual dividend amount depends on the current financial results and no more
than 10% of consolidated net profit is paid out as dividends.
7. Risk management
7.1. Liquidity risk
If in past years Q Vara's development projects were mostly finished at the year
end but now the realisation of projects is spreaded over the year. This has
decreased Q Vara's liquidity risk in the first half of the year. This results
from several large projects being in development at the same time.
In managing liquidity risk debt financing plays a significant role. Q Vara
Group has good relations with financers and employs an experienced financing
team that both help to decrease liquidity risk. This keeps several financing
alternatives open for the Group and makes it possible to secure the liquidity
trough debt financing.
As of the end of 2006, the current ratio of Q Vara Group's short-term
liabilities was 1,12. Compared to the same period in 2005 the figure has
decreased (2005: 1,53) because at the end of 2005 the volume of unfinished
projects was significantly lower than in 2006.
7.2. Currency risk
Most of Q Vara Group's business is focused to the Baltic countries, which
currencies are pegged to the Euro. So no substantial currency risk exists in
the short term. In longer perspective the currency risk lies in the chance that
the currencies might be devaluated. Currently Q Vara's management considers
this kind of situation rather unlikely to happen.
7.3. Interest risk
Most of Q Vara's loan interests are floating and based on EURIBOR, so interest
expense is dependent on the changes in European financial markets. During 2006
EURIBOR demonstrated slight increased and therefore also Q Vara Group's
financial expenses went up.
To manage interest risk, Q Vara Group's management compares the additional
expenses from interest rate fluctuation with potential expense of interest rate
risk hedging instruments. Until now no such instruments have been used because
their cost exceeds the additional expense from interest rate fluctuation. Also
since the majority of construction loans are short-term (less than a year),
then no significant interest rate's increase has so far realized.
7.4. Financing risk
When it comes to Q Vara, the financing risk means, that there is a slight
probability that the Group is not able to finance the purchase of new
properties and the development of existing projects because there is not enough
free capital and also external financing resources an unavailable. Since Q
Vara's investments are rather large, the financing risk has a relevant
influence on the Group's sustainable development.
To minimize the financing risk, Q Vara has worked out several financing
alternatives for each financing case and works constantly on strengthening
investor-relations. Q Vara Group has also kept the investor relations as
transparent as possible that make the Group more attractive and less risky for
investors.
8. Financial results
Q Vara's consolidated operating income in 2006 was 227 643 Th EEK (2005: 256
848). Sales revenue from real estate for the same period was 63 231 Th EEK
(2005: 126 614). The consolidated net profit was 99 358 Th EEK (2005: 137 045).
Compared to turnover budgeted in the beginning of 2006, the actual results
ended up lower. Still the development of Q Vara Group meets the expectations.
Since the finishing and sales of projects planned into 2006 (see ”Projects
overview”) was delayed, the major part of 2006 turnover is postponed into the
first half of 2007. The slower sales pace has helped the Group to avoid the
profitability decrease that is usually the result of a sudden increase in
construction prices and prefixed sales prices. To analyse the Q Vara Group's
profitability, it is essential to understand also the Group's cost accounting
principles that are stated in ”Principles of financial accounting”.
At the year end Q Vara Group is still strongly capitalized: equity forms 39,9%
of total assets. In the end of 2006 the total asset amount was 765 237Th EEK
and total equity amount was 304 968 Th EEK.
9. Overview of the projects
9.1. Soosepa residential area
- Location: Viimsi parish, Estonia
- Segment: Residential, medium
- Development: Gallery- and double-houses
- Period: 2003-2006
- Net space: 10 211 m2
Introduction: Soosepa residential area is the first large-scale residential
development project, started by Q Vara in summer 2004. The project's main
strength is the complete living environment - houses, greenery, playgrounds,
kindergarten and public transportation. Soosepa project gained publicity and
attention also in “Naabrist Parem”, a reality show by channel TV3, which was
the first TV-show of a kind. The distinctive architectural features of Soosepa
gallery houses and their blending with environment were recognized also in
national TV culture program OP!.
In 2006 the last 10 gallery houses were finished and handed over to clients.
The planned kindergarten for 90 children is Soosepa was in the phase of detail
planning and the negotiations with Viimsi parish were started. Completion of
kindergarten is planned in summer 2008. In order to improve more the complete
environment of the village, Q Vara is also planning to make improvements to
children's playground and to the entire greenery.
Since the beginning of the project altogether 22 gallery houses were completed
- 15 houses with six apartments, 7 houses with four apartments - and 9 double
houses. In total the turnover of the 136 dwellings exceeded 150 million EEK
(9,5 million euros).
9.2. Tammerpargi apartment houses
- Location: Rae parish, Estonia
- Segment: Residential, medium
- Development: Apartment houses
- Period: 2005-2006
- Sellable space: 3 042 m2
Introduction: In 2005 and 2006 Q Vara developed three apartment houses in Jüri
village with 48 apartments. The existing infrastructure (shops, kindergarten
and public transit) is adding a substantial value to the living environment.
Tammepargi apartment house project was the first project which was built by Q
Ehitus.
Altogether, the project was very successful and was sold-out in relatively
short period. Last apartments were realized in the first quarter of 2006. In
spring the greening was finished, (it was impossible to do it in winter due to
the weather conditions) and the works were finished by the end of 2006.
9.3. Kirsiaed triple houses
- Location: Viimsi parish, Estonia
- Segment: Residential, high
- Development: Rowhouses
- Period: 2006-2007
- Sellable space: 3 305 m2
Introduction: Kirsiaed (“Cherry tree”) is a residential development project, in
which a family friendly and enjoyable living environment is created through
combination of architecture, landscape and greenery. Position towards the sun
and privacy of the residents were considered as the main starting points inform
the very beginning. The main features of the units are brightness, practical
and considered interior planning and a magnificent view on the silhouette of
Tallinn. One may choose a unit with high quality finishing's in place or a unit
where one can make the designs by oneself.
By the end of February 2007 15 boxes with final inner decoration are finished,
the rest 15 are still being inner decorated. In springtime the greenery concept
is started to be put into practise.
By the end of February 2007 15 units with final interior decoration were
finished and the other 15 units remain with “grey” finishing and wait for the
client's choice. In spring the greenery concept is realized to finish the
project.
Development: Q Ehitus started the construction of Kirsiaia houses in the first
quarter of 2006 with foundation and earth-works and after gaining a
construction permit on the houses continued with the general construction. The
sample-unit was finished in November and is since then open for visitors. By
the end of 2006 all houses were under the roof and interior works were engaged.
Sales: The sales of Kirsiaed project started in the third quarter of 2006, but
more active sales activity started after the sample unit was finished. The
reason for the late launch of sales is the fact that most buyers of higher
segment products would like to see the finished unit before making the
decision.
The sale so far has been successful: of the thirty units, in the price range of
3,3-3,8 million EEK, 1 unit was sold and 6 units were booked by the end of
2006. Until the end of March 2007, 4 additional units were sold, the notary
transactions were agreed with 3 additional clients and in there re 3 clients
who are seriously interested in making a transaction. A complete realization of
the project is planned into the first half of 2007.
9.4. Kirsiaed plots
- Location: Viimsi parish, Estonia
- Segment: Residential, high
- Development: Residential land plots
- Period: 2006-2007
- Sellable space: 23 219 m2
Introduction: Kirsiaia residential land plot project is one of the few plot
developments in Viimsi that has all utility, connections, asphalt road and
street-lighting. Partial greenery has been planted to the plots already today -
fir-trees, thornbush hedges, rowantrees and low cherry trees. The plots are
situated on a hilly terrain, from with a nice view on the Tallinn-panorama.
Development: Until the second quarter of 2006 Q Vara had planned to build row
houses on Kesk-Kaare street plots. But due to increase in construction prices
and due to a fact that Q Vara already had a higher segment product (Kirsiaed
triple houses) the decision was made in the third quarter of 2006 to sell the
plots as land plots only. Financially the change results in a similar gross
profit figure, but leaves development resources free for other larger projects.
Relatively warm fourth quarter allowed Q Vara to complete greenery, to build
paved entrance paths and to cover Kesk-Kaare street with asphalt, after which
the plots were completely ready for sale.
Sales: The presales was started in September 2006, but more intensive marketing
was activated some months later, after paving the roads with asphalt, finishing
the construction of utility lines and finishing the greenery. As of the year
end 1 plot was sold, but by the beginning of March 2007 there were 2 more
clients, whose the purchase agreement was under preparation. Most of the plots
are planned to be realized in the first half of 2007.
9.5. Taevasmaa
- Location: Harku parish, Estonia
- Segment: Residential, medium
- Development: Gallery- and rowhouses
- Period: 2007-2009
- Sellable space: 32 137 m2
Introduction: The name Taevasmaa (Skyland) name comes from two architecturally
very different parts of the project (rowhouses - sky (Taevas in Estonian) and
gallery houses - land (maa in Estonian), which as joined together compile an
interesting and aesthetically pleasing living environment. The residential area
is situated nearby Tabasalu and has already today the value in the surrounding
nature and privacy. Q Vara is developing there apartment houses and row houses
with low acquisition costs and low monthly expenses. In creating the living
areas, the attention is paid on HEALTH and on INTEGRATION, which means houses
with few apartments, surrounding sporting facilities, playgrounds, greeneries',
play parks and kindergarten.
Ergonomics and practicality are considered also as very important details
throughout the development (entrance-room closets, kitchen furniture etc).
Development: The land detail plan was approved by Harku parish's local
government in May 2006. After that the development department of Q Vara started
to develop a unique and complete living environment. Firstly a thorough initial
assignment was documented that became the basis of further actions and
decisions. According to the initial assignment Taevasmaa project will be
divided into 3-4 stages, first stage's construction will begin in 2007.
The competition to find the best architectural solution for the first stage
houses was launched in the third quarter of 2006. Four architectural companies
took part and from all the works, Q Vara selected Põldme Arhitektuur OÜ designs
for gallery houses and Meelis Press' designs for rowhouses. With these two
concepts the designing of the first stage took off.
In the second half of the year the negotiations with AS Eesti Energia and AS
WaterSer were started to connect the residential area into power and water
networks. By the beginning of March 2007 the contracts were signed. The
construction permit for utility lines was issued in March. The building of
utility lines is financed by AS DnB Nord Pank.
Sales: Presales of the project is started in the first half of 2007. The
marketing agencies Brilliant and Loovvool were already selected in the second
half of 2006 to support with the marketing concept. Based on works of the
marketing agencies, the visual solution of the project is created.
9.6. Terminal 11
- Location: Rae parish, Estonia
- Segment: Commercial, medium
- Development: Warehouses
- Period: 2007-2009
- Sellable space: 42 000 m2
Introduction: Project's name - Terminal 11 - comes from its positioning beside
the Tallinn traffic circle (11th highway). The warehouses are aimed for small
and medium-sized companies, to whom the optimal storage size, common location
of storage and office space, very comfortable working conditions to the
employees and efficient storage managing are crucial. The project's focus is
also on minimizing clients' monthly loan repayments and administration costs.
Development: In 2006 the active development of the project was initiated after
Jaak Puistama started as the project's manager in the third quarter. The first
tasks included the development of a thorough initial assignment and the
negotiations with the utility companies. The initial assignment document
included a thorough concept description and technical details that were the
basis for the designing and planning that started in the fourth quarter. First
architectural sketches were completed by the end of 2006. Similarly the terms
of utility line agreements were agreed with the utility companies (AS Eesti
Energia and AS WaterSer).
Building licence to start the construction of the utility lines was issued in
the beginning of 2007 and simultaneously the preliminary plans of the houses
were completed. At the end of February 2007 the construction of utility lines
was started and in the second quarter the general building of the warehouses
will begin. Q Vara plans to hand over the first warehouses to customers in the
end of 2007. Altogether 70-80% of the construction will be financed with bank
loans. At the moment the financing agreement that covers the construction of
the utility lines is signed with AS Sampo Pank. Negotiations about the terms of
financing general construction are in progress.
Sales: At the end of 2006 the sales concept was developed and final marketing
directions were set. Also the marketing partners were selected: Velvet and
Loovvool.
Presale of the project starts at the end of the first quarter of 2007. First
interested buyers appeared already before official start of the project.
9.7. Pärnu mnt 113 / Rapla 1
- Location: Tallinn, Estonia
- Segment: Residential/commercial
- Development: -
- Period: -
- Capacity: -
Introduction: The project includes a property at Pärnu mnt, near downtown of
Tallinn. According to Tallinn City's general plan an apartment-house / office
building may developed on the property.
In third quarter of 2006 Q Vara's Board decided to sell the 650 m2 property,
because the realization enables to earn profit more than 400%.
Also one of the reasons for the sale is that instead of splitting the resources
between many small projects they can be drawn together into larger projects
(Taevasmaa and Terminal 11). Negotiations with potential buyers started in
September. In December the agreement with a buyer was achieved and notarial
sales agreement was signed in the first days of 2007.
9.8. Maakri
- Location: Tallinn, Estonia
- Segment: Residential / commercial, high
- Development: high-rise buildings
- Period: -
- Capacity: -
Introduction: Through an associate (Stansfield OÜ) Q Vara has two properties in
the centre of Tallinn. According to Tallinn City's general plans the area is
going to be a district with high-rise buildings that accommodate residential as
well as commercial space.
Development: An architectural competition which was organized by Tallinn City
and The Union of Estonian Architects, in which Estonian top architects
presented their vision of the architectural concept for the area. The excellent
location of OÜ Stansfield's properties enables the company to develop various
large volume high-rise buildings.
Because the 11 000 m2 sized block has various owners, the area can be developed
only in cooperation with other owners. In the second quarter of 2006 Q Vara
started the negotiations with other property holders. As a result Q Vara, Mark
Invest OÜ (subsidiary of SRV Kinnisvara AS) and Maakri KVF signed an agreement
to establish a joint venture called AS Maakri City. The shareholders' agreement
negotiations and preparations for development continued right after that.
9.9. Silukalni
- Location: Pinki village, Latvia
- Segment: Residential, medium
- Development: Double and rowhouses
- Period: 2005-2007
- Sellable space: 8 525 m2
Introduction: Silukalni residential area is located next to a pine forest which
together with its suburban location makes a perfect home for a family. Double-
and rowhouses includes 72 units.
Development: Preparations for the project's development (projection, applying
for license of constructions) were started already in second quarter of 2005 by
Q Estate and were finished by the end of the first quarter in 2006. In the
second quarter of 2006 building permissions were obtained from the local
government and construction works were started. In the middle of the second
quarter the main contractor became insolvent. Q Estate and the same main
contractor reorganized the construction company and the project was restarted.
As the object was behind the initial schedule, all the efforts were focused on
the buildings that were already sold. However in the third quarter the decision
was made that the faltering contractor with lacking resources will be replaced
with Q Ehitus' subsidiary in Latvia - SIA Q Būve.
SIA Q Būve was assigned to finish project's second and third phase that was
unsold. SIA The initially selected construction company's inability to meet the
deadlines and assure construction quality lead to the decision to end the
co-operation and deliver all the construction (included finishing the first
part construction) to Q Būve in the beginning of 2007. Handing over of the
first units to the clients begins in the first quarter of 2007.
Sales: Half of the apartments (the whole first stage) were already sold in the
beginning of 2006. The sales of second and third stage was intentionally
started in December 2006 because the sales prices were increasing, resulting in
twice the price compared to the prices in first stage and the construction
prices were not yet finally in place. The interest against the apartments is
significant - already 27 buyers have registered themselves on the waiting list
as of the end of 2006. No sales contracts were signed by the year end. By March
2007 four contracts were signed. More intense marketing activity begins in
March 2007 and the majority of turnover will probably fall into the first half
of 2007.
9.10. 365
- Location: Jurmala, Latvia
- Segment: Residential, high
- Development: Apartment building
- Period: 2006-2008
- Sellable space: 2 730 m2
Introduction: 365 apartment building is situated in a prestigious Jurmala beach
town. It is a stylish apartment building designed by Latvian top architectural
company SIA Sīlis, Zābers & Klava. The building includes thirty exclusive
apartments, which net space ranges from 60 to160 m2.
Development: In third quarter of 2006 SIA BMGS was chosen to perform the
foundation and earth works. BMGS is Latvian largest company in this field. The
works were started in November and by March 2007 the works were finished. Ars
Domina was chosen as the main contractor of general construction (incl.
interior works). The completion date is planned to fall into the first quarter
of 2008. The construction is financed by AS DnB Nord Banka.
Sales: At the same time with preparations for construction also the sales
preparations were dealt with. The sales price in the project is 3 000 - 3 800
euros per square metre.
Although no active sale has been launched, there was already one sales contract
signed by the end of 2006. Also several preliminary booking agreements were
agreed. The active marketing of the project will be launched in spring 2007.
9.11. Jonathan
- Location: Riga, Latvia
- Segment: Residential, medium
- Development: Apartment building
- Period: 2007-2010
- Sellable space: 30 575 m2
Introduction: Jonathan is an apartment building that is situated in Riga,
ashore of Daugava river, 15 minutes drive from Riga city centre. The project's
main attraction is a pond in the courtyard which means that the building is
partly in the water and the pond has a direct connecting canal with the river.
Nothing is impossible...
Development: Throughout the year the land detail plans and the design of the
building were being prepared. At the beginning of the fourth quarter the
process of land detail planning was finished and the City of Riga issued its
approval. The land detail plan allows for a subsidiary of Q Estate, the SIA
Quality Nami to build an apartment building with more than 30 000 square metres
on the shore of Daugava river.
10. New Investments
10.1. Trophy
- Location: Vilnius, Lithuania
- Segment: Residential, high
- Development: Apartment building
- Period: 2007-2008
- Sellable space: 2 340 m2
Introduction: The project is developed on UAB Q Vara's property that was
acquired in the end of 2006 - 1 800 m2 property, addressed in Vilnius, Elniu
20. The price of the property was 3,64 million LVL and 75% was financed by bank
loan. The financer was AB SEB Vilniaus Banka.
The plan is to develop a 2-3 floor apartment building, with total volume of 2
300 m2. The property is located in a prestigious green area in Vilnius called
Zverynas, right next to the downtown of Vilnius. The apartments with high
quality finishing targeted at upper-middle-class customers are priced from 2
300 to 2 900 euros per square meter and the size of the apartments ranges from
55 to 120 m2.
Development: Right after the purchase of the property, the land detail planning
was started. The detail planning is expected to end in the second quarter of
2007 and the construction permit will expectedly be issued by the fourth
quarter of 2007.
Sales: The sales and active marketing activities of the project are scheduled
to start in October 2007.
10.2. Sofia
- Location: Sofia, Bulgaria
- Segment: Residential / Business, medium / high
- Development: -
- Period: -
- Sellable space -
Introduction: In 2006 Q Vara entered Bulgarian real estate market and acquired
60% of a company named OOD Delta Retail. The minority shareholder of the
company is a local real estate company OOD Delta Imoti Capital. The acquired
company owns an 11 000 m2 property in the centre of Sofia. Since the
acquisition was not formally documented by the end of 2006, with the
negotiations over the shareholders agreement still pending, the investment was
recorded as a loan granted in the end of 2006.
The purpose of the property allows to develop there high rise buildings with
apartments and office spaces in it. In total Q Vara invested 2,98 million euros
into the project acquisition.
Development: In the fourth quarter of 2006 general planning of the area was
continued by Sofia City. At the same time Q Vara started sketching the
development and compiling the team.
11. Q Vara's consolidated profit and loss statement 2006
-------------------------------------------------------------
01.01.2006- 01.01.2005-
31.12.2006 31.12.2005
Audited Audited
thousand EEK thousand EEK
-------------------------------------------------------------
Operating revenues
Sales revenues 63 231 126 614
Change in RE investments' value 161 545 130 038
Other operating revenues 2 867
Total operating revenues 227 643 256 848
Operating expenses
Cost of construction 63 789 -106 227
Direct development costs -8 950 -5 478
Development overhead costs -23 326 -7 849
Marketing costs -9 459 -3 818
Maintenance expenses -1 940 0
Other operating expenses -6 929 -295
Total operating expenses 114 393 -123 667
Operating profit 113 250 133 181
Financial income and expenses -3 046 20 244
Pre-tax profit 110 204 153 425
Deferred income tax -10 787 -16 355
Real estate tax -59 -25
Net profit (loss) 99 358 137 045
Mother company's shareholders' share 79 831 107 884
Minority share 19 527 29 161
-------------------------------------------------------------
-------------------------------------------------------------
01.01.2006- 01.01.2005-
31.12.2006 31.12.2005
Audited Audited
thousand EUR thousand EUR
-------------------------------------------------------------
Operating revenues
Sales revenues 4 041 8 092
Change in RE investments' value 10 325 8 311
Other operating revenues 183 13
Total operating revenues 14 549 16 416
Operating expenses
Cost of construction -4 077 -6 789
Direct development costs -572 -350
Development overhead costs -1 491 -502
Marketing costs -605 -244
Maintenance expenses -124 0
Other operating expenses -443 -19
Total operating expenses -7 311 -7 904
Operating profit 7 238 8 512
Operating profit -195 1 294
Pre-tax profit 7 043 9 806
Deferred income tax -689 -1 045
Real estate tax -4 -2
Net profit (loss) 6 350 8 759
Mother company's shareholders' share 5 102 6 895
Minority share 1 248 1 864
-------------------------------------------------------------
12. Q Vara's consolidated balance sheet 2006
-------------------------------------------------------------
31.12.2006 31.12.2005
Audited Audited
thousand EEK thousand EEK
-------------------------------------------------------------
Current assets
Cash and cash equivalents 1 116 2 883
Accounts receivable 4 174 3 853
Short-term loans 74 334 40 659
Other short-term receivables 48 645 893
Interest receivables 6 677 16
Prepayments 25 908 7 395
Real estate for sale 216 043 79 173
Total current assets 376 897 134 872
Non-current assets
Long-term loans 5 760 117
Other long-term receivables 0 91
Associated companies 32 618 24 488
Real estate investments 338 250 206 058
Tangible and intangible assets 8 826 3 777
Goodwill 2 886 2 886
Total non-current assets 388 340 237 417
Total assets 765 237 372 289
-------------------------------------------------------------
Liabilities and equity
Current liabilities
Short-term loans 290 169 64 551
Capital lease liabilities 1 149 430
Customer prepayments 5 577 6 292
Accounts payable 22 163 9 880
Personnel related liabilities 2 650 1 983
Interest liabilities 14 164 2 317
Tax liabilities 0 2 548
Total current liabilities 335 872 88 001
Non-current liabilities
Long-term loans 14 936 60 888
Other long-term payables 90 0
Issued bonds 76 863 0
Capital lease liabilities 5 468 1 427
Deferred income tax 27 040 16 205
Total non-current liabilities 124 397 78 520
Total liabilities 460 269 166 521
Equity
Mother company's shareholders' equity
Share capital 73 511 73 511
Reserves 7 361 10
Unrealized exchange rate differences 177 335
Retained earnings 175 231 102 751
Mother company's shareholders' equity 256 280 176 607
Minority share 48 688 29 161
Total equity 304 968 205 768
Total liabilities and equity 765 237 372 289
-------------------------------------------------------------
-------------------------------------------------------------
31.12.2006 31.12.2005
Audited Audited
thousand EUR thousand EUR
-------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents 71 184
Accounts receivable 267 246
Short-term loans 4 751 2 599
Other current receivables 3 109 57
Interest receivables 427 1
Prepayments 1 657 473
Real estate for sale 13 808 5 060
Total current assets 24 090 8 620
Non-current assets
Long-term loans 368 7
Other non-current receivables 0 6
Associated companies 2 085 1 565
Real estate investments 21 618 13 170
Tangible and intangible assets 564 240
Godwill 184 184
Total non-current assets 24 819 15 173
Total assets 48 909 23 793
Liabilities and equity
Current liabilities
Short-term loans 18 545 4 126
Capital lease liabilities 74 27
Customer prepayments 357 402
Accounts payable 1 416 631
Personnel related liabilities 169 127
Interest liabilities 905 148
Tax liabilities 0 163
Total current liabilities 21 467 5 624
Non-current liabilities
Long-term loans 955 3 891
Other long-term liabilities 6 0
Issued bonds 4 912 0
Capital lease liabilities 349 90
Deferred income tax liabilities 1 728 1 036
Total non-current liabilities 7 950 5 017
Total liabilities 29 417 10 642
Equity
Mother company's shareholders' equity
Share capital 4 698 4 698
Reserves 470 1
Unrealized exchage rate differences 13 21
Retained earnings 11 197 6 567
Mother company's shareholders' equity 16 378 11 287
Minority share 3 114 1 864
Total equity 19 492 13 151
Total liabilities and equity 49 909 23 793
-------------------------------------------------------------
Additional information:
Meelis Šokman
Chairman of the management board
Q Vara OÜ
Phone: 668 1600
Q Vara OÜ's consolidated annual report 2006
| Source: Q Vara
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