AFI Development, a leading real estate company focused on developing property in Russia, today announces its financial results for the six months ended 30 June 2019.

H1 2019 financial highlights

  • Revenue for 6 months of 2019 totalled US$182.0 million, including proceeds from the sale of trading properties:
    • Rental and hotel operating income was US$63.2 million
    • AFIMALL City contribution for the period was US$44.2 million 
    • Sale of residential properties contributed US$116.6 million to total revenue
  • Gross profit for the 6 months period was US$92.8 million
  • Net profit for H1 2019 amounted to US$37.6 million 
  • Total gross value of portfolio of properties stood at US$1.24 billion 
  • Cash, cash equivalents and marketable securities as of 30 June 2019 amounted to US$99.1 million

H1 2019 operational highlights

  • Following the delivery of Building 6 at Odinburg in May 2019, the transfer of apartments to customers continues to schedule. The construction and presale of apartments in Building 3 (Phase I) and Building 3 (Phase II) are also underway. As of 16 August 2019, the number of signed sale contracts stood at 766 (83% of total) in Building 3 (Phase I), 93 (7% of total) in Building 3 (Phase II) and 215 (96% of total) in Building 6 
  • At AFI Residence Paveletskaya, Phase II was delivered in May 2019 and the transfer of apartments to customers is ongoing. The construction and presale of apartments in Phase III continue. As of 16 August 2019, 588 contracts for the sales and pre-sales of apartments and “special units” had been signed (73% of Phase I, Phase II and Phase III combined)
  • At Bolshaya Pochtovaya, construction and marketing of the project are progressing to plan. As of 16 August 2019, 313 apartments (50% of Phases I, II and III combined) had been pre-sold to customers
  • The construction and pre-sale of properties at Botanic Garden are ongoing. As of 16 August 2019, 426 apartments (53% of Phase I) had been pre-sold to customers
  • In H1 2019, the Company commenced construction works at two grade A office developments in central Moscow: Tverskaya Plaza Ic and Tverskaya Plaza IV. Both properties are located near the Belorussky railway station in a busy and well developed office district
  • At AFIMALL City, the net operating income (‘NOI’) for H1 2019 was US$34.3 million

Commenting on today’s announcement, Eli Avrahampour, Chairman of AFI Development, said:

“I am pleased to report positive momentum in our financial and operational results for H1 2019, owing largely to the recognition of residential presales and the stable performance of the yielding portfolio.

During the period, we leveraged our improving profitability to reduce our external debt and to repay US$107.2 million to VTB Bank relating to a number of existing loans.

At the same time, we are concerned with pace of sales across our residential portfolio, which remains subject to volatile market conditions, and with general vulnerability of the Russian economy to external and internal challenges.”

Chairman’s statement

We are pleased to report year-on-year growth in both revenue and gross profit in the first six months of 2019. This is owing largely to residential presales recognition that was responsible for approximately 62% of our total revenue, which grew to almost US$182 million. Meanwhile, the Russian economy remains subject to international sanctions, including the most recent executive order of the U.S. President prohibiting U.S. banks from participating in the issuance of Russian sovereign debt (introduced in August 2019 for a period of 12 months).  

As reported in Q1 2019, near completion of several of our residential projects (Odinburg, AFI Residence Paveletskaya, Bolshaya Pochtovaya and Botanic Garden) has allowed us to recognise increased revenue and profit in the first six months of 2019. As a result, our gross profit for the period amounted to US$92.8 million.

Rental and hotel operating income was broadly unchanged compared to H1 2018 at US$63.2 million. 

During H1 2019, we significantly reduced our external debt to VTB Bank PJSC. In May 2019, we repaid US$38.9 million of the Plaza Spa Kislovodsk and Plaza Spa Zhelznovodsk loans, while in June 2019 we repaid US$68.4 million of the AFIMALL City loan. As of 30 June 2019, our total outstanding bank loans amounted to US$400.4 million.

During H1 2019 we also commenced construction works at two of our grade A office projects in the Tverskaya Zastava Area in Moscow: Tverskaya Plaza Ic and Tverskaya Plaza IV. The construction of both properties is being funded by equity.

While our current financial results reflect strong residential sales, volatile market conditions may affect our ability to reach our internal sales targets going forward, which, in turn, may influence our ability to secure necessary financing for our projects.

Projects update

AFIMALL City

Occupancy at the end of the second quarter remained unchanged compared to Q1 2019, at 90%. In June 2019, AFI Development partially repaid the euro-denominated part of the AFIMALL City project loan to VTB Bank PJSC, in the amount of EUR 60 million (US$68.4 million).

Odinburg


At the Odinburg residential development, Building 6 (Phase II) was state commissioned in May 2019 and the delivery of its presold apartments to customers has been ongoing. Construction works remain underway at Building 3 (Phase I) and Building 3 (Phase II). As of 16 August 2019, the number of signed sale contracts stood at 766 (83% of total) in Building 3 (Phase I), 93 (7% of total) in Building 3 (Phase II) and 215 (96% of total) in Building 6. 

Following changes in federal and municipal legislation regarding urban planning, the area of the Odinburg project has become subject to the new regime on complex sustainable territory development. The new legislative regime requires a new form of agreement between municipal authorities and a developer – a so called “complex sustainable territory development agreement” (“CSTDA”). To enter into a CSTDA, in January 2019 AFI Development applied for a termination of the original investment agreement to the Moscow Region authorities, which requested that the investment agreement be terminated by a court decision. In Q2 2019, the Arbitration Court of the Moscow region ruled that the current investment agreement does not meet the new legislative requirements and should be terminated. During the court hearing, the Moscow Region authorities supported the Company’s position and did not object to the court decision.

At the same time, AFI Development entered into negotiations with the Moscow region authorities regarding a CSTDA, which would meet the new legislative requirements. The gross sellable area of residential housing (461,000 sqm) and commercial areas (16,400 sqm) that can be constructed at Odinburg, as well other key business terms of the terminated investment agreement and its addenda, will not be adversely affected by the new agreement. The Company expects the CSTDA to be signed in Q1 2020 and believes that the risk of this agreement not being signed is low. In the event the CSTDA is not signed, according to the Company’s preliminary analysis, it may lose the right to build between circa 113,000 and  176,738 sqm of residential gross sellable area at the site of the project.

Currently, all construction works and marketing at Odinburg continue as planned.

AFI Residence Paveletskaya

Following the delivery of Phase II in May 2019, the transfer of apartments to customers has been ongoing. The focus in construction and presale of apartments is now on Phase III of the development. As of 16 August 2019, 588 contracts for sales and pre-sales of both apartments and “special units” had been signed (73% of Phases I, II and III combined).

 

Bolshaya Pochtovaya

The pre-sales and marketing are ongoing in all three phases of the project. As of 16 August 2019, 313 apartments (50% of Phases I, II and III) had been pre-sold to customers.

 

Botanic Garden

Construction and pre-sales are also progressing at Botanic Garden. As of 16 August 2019, 426 apartments (53% of Phase I) had been pre-sold to customers.

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