Wrap Text
Update on Viceroy Report on NEPI Rockcastle
NEPI Rockcastle plc
Incorporated and registered in the Isle of Man
Registered number 014178V
JSE and Euronext share code: NRP
ISIN: IM00BDD7WV31
("NEPI Rockcastle" or "the Company")
UPDATE ON VICEROY REPORT ON NEPI ROCKCASTLE
The Company refers to its SENS announcement of 28 November 2018 regarding the issuance of a report by
Viceroy Research ("Viceroy") on NEPI Rockcastle (the "Report"), as well as to the follow-up statement
made by Viceroy on the same day (which the Company has considered to form part of the Report).
Upon thorough review of the Report, the Company informs stakeholders that:
(i) the Report (although publicly stated by Viceroy to have been prepared over a period of 6 months,
but without reaching out to the company for feedback) contains material errors, builds on incorrect
assumptions, make unsubstantiated claims, and is grossly misleading;
(ii) Viceroy has ignored or does not understand the reporting regulations that the Company is obliged
to observe locally and internationally (in particular, the differences between local accounting
standards and IFRS);
(iii) Viceroy's analysis of publicly available information ignores basic accounting principles;
(iv) Viceroy ignores that the merger of New Europe Property Investments plc ("NEPI") and Rockcastle
Global Real Estate Company Limited ("Rockcastle") to form NEPI Rockcastle (the "merger")
was an all-share merger of two listed companies, based on a share swap ratio which reflected the
fact that the market priced the shares of both companies at similar premiums to net asset value.
NEPI shareholders benefitted from an uplift in net asset value and earnings per share immediately
after the merger;
(v) Viceroy's comments regarding Mr. Pascariu's affairs ignore NEPI's public disclosure from 2008
regarding the recusal of Mr. Pascariu from any decision in respect of the referenced transactions,
all of which were appropriately disclosed by the Company; and
(vi) in respect of the letter received by NEPI Rockcastle from ten signatories dated 8 August 2018 (the
"August 2018 letter"), and following on from the Company's SENS announcements of 31 August
2018 , 1 October 2018 (referring to the Company's open conference call of 28 September 2018
during which no specific substantiated allegations were presented) and 12 November 2018, the
board sub-committee has engaged with the signatories, and considers that it has adequately
addressed the concerns raised. The Company has also thoroughly investigated comments made
about the Company's recent transactions in Bulgaria and has found no irregularities.
The Company's detailed responses to the Report are presented below.
While Viceroy states that the Report has been prepared for educational purposes only", and that the Report
and any statements made within it are "not statements of fact", it is clear that the issuance of the Report by
Viceroy seeks to materially impact NEPI Rockcastle and its stakeholders. NEPI Rockcastle stakeholders are
accordingly advised to consider the Company's response to the Report as contained in this announcement and
act prudently when reacting to the allegations set out in the Report. In addition, the Company echoes the
February 2018 request of South African National Treasury, made following Viceroy's report on Capitec Bank,
that the Financial Sector Conduct Authority urgently consider whether it should initiate a market abuse
investigation into the conduct of Viceroy, and to alert relevant overseas regulators to consider whether Viceroy
is regulated appropriately and operating in line with their market conduct and market abuse laws. In this
regard and to facilitate proper investigation, the Company considers it appropriate that Viceroy and its
associates declare any trading positions they may have in NEPI Rockcastle as at the date the report was issued.
Stakeholders are advised that the Company expressly reserved its rights against Viceroy and any related party
or contributor to the Report.
Investor Call
NEPI Rockcastle Management will hold an open investor call at 16:00 CET today, 29 November 2018, with
the below dial in details:
Participant PIN
57 682 076 #
Access Number Originating Country Type Language
+27213002861 South Africa Toll English
+31207095105 Netherlands Toll English
+48223072091 Poland Toll English
+40316300885 Romania Toll English
+442031940578 United Kingdom Toll English
To ensure the call is conducted in the most efficient manner possible, any stakeholders seeking to participate
on the call should please send details of their questions and/or desire to make any comment, to
OfficeIOM@nepirockcastle.com in advance.
For further information please contact:
NEPI Rockcastle plc
Alex Morar +40 21 232 1398
JSE sponsor
Java Capital +27 11 722 3050
Euronext Listing Agent
ING Bank +31 20 563 6799
29 November 2018
Responses to main allegations raised in the Report
1. AUGUST 2018 LETTER
As announced on 31 August 2018, the members of the special sub-committee of the board constituted to
consider the August 2018 letter (the "sub-committee") are the chair of the board (Robert Emslie), the chair
of the audit committee (Andre van der Veer), the chief executive officer (Alex Morar) and the chief financial
officer (Mirela Covasa).
NEPI Rockcastle has not rejected an independent investigation on any specific substantiated claims made
against the Company. It has taken reasonable measures to ensure that the concerns raised in the August 2018
letter have been properly addressed, but does not believe that it has been presented with sufficient information
regarding concerns over the activities of NEPI Rockcastle to form a basis for a clear scope of investigation at
this stage.
The Company is committed to transparency in addressing stakeholder concerns and in this regard stakeholders
are reminded that it has taken, inter alia, the following actions following receipt of the August 2018 letter:
(i) the sub-committee was immediately constituted;
(ii) a conference call with all signatories of the letter was held on 29 September 2018, with the unedited
contents of the call made publicly available on the Company's website;
existing whistleblowing facilities have been improved to provide stakeholders with a secure line
facilitated by an independent service provider to report and substantiate claims against the
Company; and
(iii) the chair of the board and chair of the audit committee met with representatives of each of the ten
signatories of the letter on an individual basis.
It is noted that following the above, no claims made in the August 2018 letter have been substantiated and the
Company has received no indication from any signatory of the letter (or any other stakeholder) of
dissatisfaction with the manner in which the letter has been addressed by NEPI Rockcastle.
2. OPERATIONS OF THE GROUP AND ITS SUBSIDIARIES
2.1 Differences between NEPI Rockcastle's financial reporting and major links to an established
financial fraud
Viceroy's claim that NEPI Rockcastle's earnings figures are overstated is blatantly incorrect. As shown below,
Viceroy compares consolidated IFRS accounts to mathematically-added (not consolidated) statutory
standalone financials, thereby ignoring both the differences between IFRS and Romanian accounting
principles (Romanian GAAP) as well as basic consolidation mechanics, such as the exclusion of intra-Group
transactions.
NEPI Rockcastle prepares its consolidated financial statements in accordance with IFRS, showing the position
and the transactions of the Group with non-related parties and excluding any intra-group balances and
transactions. The information from local filings in the Report appears to have been extracted from statutory
standalone financial statements submitted by the Group's Romanian property holding subsidiaries ("SPVs")
to local authorities, which were prepared based on Romanian GAAP, as required in terms of Romanian law.
The main differences between IFRS and Romanian GAAP applicable to NEPI Rockcastle and relevant for
this comparison are:
Accounting item Romanian GAAP standalone IFRS consolidated financial
financial statements, statements, prepared in reporting
prepared in local currency currency (EUR)
(RON)
Valuation of investment property Valuation gains are recorded Valuation gains and losses are
directly in the equity reserves. recorded exclusively in the Income
Statement.
Valuation losses are accounted Valuations are done semi-annually,
for as part of the equity up to for all income-producing properties
the cost of the property. Once and land.
fair value decreases below
cost, further impairment is
recognised in the Income
Statement. Any subsequent
recoveries of the loss are
recognised in the Income
Statement up to cost price,
with further surpluses
recorded directly in equity.
Valuations are not mandatory
unless there is significant
change in market value and
should be performed at least
every 3 years. However,
adhering to best practices, the
Group policy is to perform
more regular valuations of its
Romanian properties.
Depreciation of properties Investment property is The fair value model (IAS 40) is
depreciated over its useful life, used, which prohibits the
set in accordance with statutory depreciation of assets. There is no
rules. impact from depreciation on the
Income Statement.
Investment property capitalised Interest related to funding Interest related to funding
interest development costs is development costs is capitalised at the
capitalised at the rate that the average Group cost of debt.
relevant SPV obtains funding,
subject to compliance with
specific legal requirements.
Intra-Group transactions Intra-Group transactions are Intra-Group transactions are excluded
included in standalone on consolidation.
financial statements.
Foreign exchange differences All loans payable by the SPVs The functional and reporting currency
are denominated in EUR, of the group is EUR, therefore no
which can generate significant foreign exchange differences arise
unrealised foreign exchange from revaluation of EUR loans to
differences versus RON. local currencies.
These are recognised in the
Income Statement (as revenue
or an expense, depending on
the nature of the fluctuation in
exchange rates)
Business combinations Not applicable for standalone Newly acquired SPVs are accounted
reporting purposes, as from the for only starting from the date the
SPVs perspective there is no Group acquired the respective entity.
change in accounting if its Also, the SPVs' equity is netted off in
shareholders change. the consolidation process against the
participation held by the holding
entity, irrespective of the jurisdiction
where the parent is located.
Deferred tax Deferred tax expense is not Deferred tax must be recognised and
recognised. disclosed.
Accounting for joint ventures Statutory accounting takes into Joint ventures are accounted for using
consideration 100% of the the equity method, by cumulating the
balances and transactions of all percentage of the balances and
entities, irrespective of the transactions corresponding to the
percentage held by each of its percentage of the venture held by the
shareholders. Company in 'Investment in joint
ventures', 'Long-term loans granted
to joint ventures' and 'Profit from
joint ventures'.
Interest rate derivatives Premiums paid for cap Cap instruments are recognised at fair
(hedging) derivatives are amortised over value through Income Statement,
the period of the contract. without amortising the premium paid.
The reconciliation of profit before tax for the Group's Romanian portfolio, from the aggregated stand alone
financials to IFRS consolidated financial statements for the year ended 31 December 2017, is presented below:
EURmillion
Statutory loss before tax in Romanian subsidiaries, excluding joint ventures (56.1)
Add fair value gains from valuation of investment property (recognised in the
Statement of Comprehensive Income for IFRS; recognised as equity reserves in
Romanian GAAP) 133.0
Exclude effect of intra-Group transactions (mainly finance expenses) 119.8
Exclude effect of depreciation expense (only recognised in Romanian GAAP) 45.6
Exclude exchange rate differences (recognised for Romanian GAAP purposes;
irrelevant for IFRS as EUR is the functional currency) 38.3
Other accounting treatment differences 4.3
IFRS consolidated profit before tax 284.9
2.2 Allegation regarding taxes reported at the Group level versus local Romanian subsidiaries
The allegations set out in the Report regarding taxes reported at the Group level versus local Romanian
subsidiaries is misleading and disregards the presentation in the Group's 2017 IFRS consolidated financial
statements of two line items: Current Income Tax expense of €1.67 million and Deferred Income Tax of
€35 million. This information is further detailed and disclosed separately at the level of each jurisdiction,
including Romania, on page 168 of NEPI Rockcastle's 2017 Annual Report available at
https://nepirockcastle.com/wp-content/uploads/2018/03/NEPI-Rockcastle_Annual-Report_2017_online.pdf
(the "2017 Annual Report").
Romanian GAAP requires only the recognition of the current tax expense. Therefore, deferred tax is
recognised only in the Group's IFRS consolidated financial statements (according to IAS 12 "Income Taxes")
and it is computed as the net of:
- deferred tax assets, arising from fiscal losses carried forward; and
- deferred tax liabilities, resulting mostly from differences between the fiscal base (i.e. historical cost of
the properties diminished by tax depreciation) and the accounting base (IFRS fair value) of the
investment property.
Fiscal losses accumulate during the construction period of a development (including extensions and
refurbishments) and can be used for up to seven years after the property becomes income-producing. The taxes
reported and paid by the Group in Romania are correctly computed in accordance with the local tax legislation
and transfer pricing regulations.
2.3 Allegations on inconsistencies relating to analysed income-generating subsidiaries in Romania
Page 6 of the Report contains notably incomplete and erroneous statements, which do not correctly match the
schedule of properties and the SPVs owning each property.
- The Office Cluj Napoca should have been excluded from IFRS numbers, as joint ventures
are accounted for using the equity method.
- Shopping City Galati is presented twice, with two different sets of values. The Company
has reviewed this information and concluded that the revenues/expenses/profits stated for
the first appearance of Shopping City Galati correspond to Ploiesti Shopping City. Ploiesti
Shopping City is also a joint venture, accounted for using the equity method under IFRS
and therefore should not be included in this reconciliation.
- Shopping City Sibiu is presented twice, however the first set of data corresponds to Targu
Jiu Shopping City. The buildings and land that form Shopping City Sibiu are indeed owned
by two SPVs, only one of which is presented in the analysis on page 6 of the Report (Sibiu
Shopping City 2 SRL, former Bel Rom Trei SRL, is missing).
- The figures presented in the Report for Regional Strip Centres in fact correspond to the
revenues generated by Vulcan Value Centre. the SPVs which form the "Regional Strip
Centres" are not included in the analysis;
- City Business Centre, which is a five building office complex, is partially presented by
including only one SPV, Timisoara City Business Centre One, which owns only two of the
five buildings. The other two SPVs, Timisoara Office Building (which owns one building)
and Modatim Business Facility (which owns two buildings) are missing from the analysis.
- City Park Constanta is held via two SPVs, City Park Constanta and Constanta Shopping
City. Only one entity has been included in the Report.
2.4 Allegation on auditor spread
PricewaterhouseCoopers ("PwC") is the Group auditor and reports directly to the Company's Audit
Committee. As detailed in the audit opinion included in the 2017 Annual Report, PwC has confirmed their
independence, has continuous unrestricted access to communication within the Group, and has complied with
all International Standards of Auditing (ISAs), PwC internal controls and best practices in providing its
services.
The audit report on the Group's consolidated financial statements is issued by PwC Isle of Man, after having
reviewed the work of the PwC offices in the jurisdictions where the Group operates. This local audit work is
required on account of the various jurisdictions have differing accounting and tax rules, as well as being
subject to other regulations that impact their activity.
PwC performs over 15 000 hours of review and audit work annually on NEPI Rockcastle. The local PwC
offices audit the standalone IFRS financial statements of the SPVs, for the purpose of issuing an audit report
on the consolidated IFRS accounts. They also perform statutory audits for some SPVs where it is required by
local legislation, which criteria is usually based on size (assets, revenues and number of employees).
All 10 entities in Romania under full control of the Group (100% shareholding) for which statutory audit was
required in 2017 have been audited by PwC Romania. The joint ventures' auditors (PwC Romania and KPMG
Romania) have been selected together with the joint venture partners.
2.5 Allegation on 'ballooning' receivables balance
In its allegation of NEPI Rockcastle "ballooning" its receivables balance, Viceroy has again mixed concepts
of IFRS consolidation and statutory accounts aggregation. The Report highlights the outstanding receivables
days as over 81, which has been incorrectly determined by including:
- Romanian GAAP Revenues, which include intra-Group transactions and unrealised foreign exchange
gains which should be excluded for IFRS consolidation purposes (as further detailed in 2.1 above);
- Romanian GAAP receivable balances, which include intra-Group balances; and
- an incorrect assumption that fair value differences (which have been incorrectly estimated) should be
deducted from total Romanian GAAP revenues.
The 2017 Annual Report includes a comprehensive analysis of NEPI Rockcastle's third-party receivable
balances in note 6.1 to the financial statements (Credit Risk). The analysis clearly shows that a majority of
receivables were not due in 2017 (€26.6 million of the total tenant receivables of €34 million). Based on the
2017 financial statements, the Group collects its receivables in approximately 29 days. The computation of
the 99.9% collection rate is based on the amount of €103 000 which was considered unrecoverable in respect
of revenues for 2017 (€337 million).
It is not clear how Viceroy has determined the Ramnicu Valcea Shopping City's 1 800 receivable days. As at
31 December 2017, the mall had been open for 24 days, had receivable balances of €120 000 and revenues
for the period of €800 000.
The Group has strict collection procedures and this process is proactively managed. The Company's asset
management team closely monitors tenants and their effort rates, so as to prevent tenants' defaulting. All
provisions are assessed individually and are regularly followed up.
2.6 Other allegations included in the Report
There is numerous other erroneous information included in the Report, which relies on several assumptions
and principles with little regard to fact.
Page Allegation NEPI Rockcastle comment
7 Local balance sheets do not reconcile (assets do not equal the This is technically impossible, as
sum of liabilities and equity) the Romanian authorities require
filing to be done electronically
and the financial statements
would not have been validated
and accepted by the authorities if
unbalanced.
9, Assumed that fair valuation gains as per the consolidated IFRS Each asset is valued semi-
13 accounts is proportionate to the percentage of the assets in a annually, and valuations are
certain country based on property and market
factors, not on the percentage
represented by that asset in the
total portfolio.
9 Assumed that the Romanian accounting standards treatment of As explained above, Romanian
property revaluations should be IFRS compliant, and expected GAAP requires recognition of
that valuation differences are recognised as Other property valuation differences
Comprehensive Income mainly to equity reserves
3. THE ROCKCASTLE ACQUISITION
The Report includes a calculation that indicates that Rockcastle was acquired by NEPI at a 62% premium to
book value and a 78.2% premium after adjusting listed investments. Viceroy makes no mention of the fact
that NEPI's share price also traded at a significant premium to book value, which is unpacked further below.
The table below sets out the Company's calculated market price premium to net tangible asset value and
investment property for both NEPI and Rockcastle as at 12 May 2017, the day subsequent to the combined
NEPI and Rockcastle announcement of a revised swap ratio of one NEPI share for every 4.7 Rockcastle
shares. Based on ruling market prices, NEPI had a higher price percentage premium to net tangible asset
value ("NTAV") of 97.1% as opposed to Rockcastle's premium to NTAV of 56.0%. If the premium is
allocated to investment property only (excluding all other statement of financial position balances including
listed investments), the premia are very similar at 66.9% for NEPI and 67.8% for Rockcastle.
The acquisition was a merger of NEPI and Rockcastle using the respective company's shares as currency to
acquire shares in NEPI Rockcastle with reference to an agreed share swap ratio. Full details of the merger
transaction are set out in the circulars (and NEPI Rockcastle prospectus) issued to NEPI and Rockcastle
shareholders on 9 June 2017.
NEPI Rockcastle
Note Note
Investment property 1a EUR 000 2 546 772 1b USD 000 1 264 596
Net asset value (NAV) 2 EUR 000 1 814 552 2 USD 000 1 556 638
Intangible assets 3 EUR 000 58 390 3 USD 000 24 774
Net tangible asset value (NTAV) 4 EUR 000 1 756 162 4 USD 000 1 531 864
Shares in issue 5 321 479 5 945 502 019
204
NAV/share 6 EUR 5.64 6 USD 1.65
NTAV/share 7 EUR 5.46 7 USD 1.62
Investment property per share 8 EUR 7.92 8 USD 1.34
Price per share 9 EUR 10.76 9 USD 2.53
Price/book (NTAV/share) 10 1.97 10 1.56
Price premium to NTAV per share 11 EUR 5.30 11 USD 0.91
Price % premium to NTAV per 12 97.1% 12 56.0%
share
Price premium to investment 13 66.9% 13 67.8%
property per share
Notes:
1. Comprises:
a. investment property, extracted from NEPI's audited annual financial statements for the year
ended 31 December 2016
b. investment property, straight-lining of rental revenue adjustment and investment property
under development, extracted from Rockcastle's audited financial statements for the 18
months ended 31 December 2016
2. Comprises:
a. equity attributable to equity holders, extracted from NEPI's audited annual financial
statements for the year ended 31 December 2016
b. total equity attributable to equity holders, extracted from Rockcastle's audited financial
statements for the 18 months ended 31 December 2016
3. Comprises:
a. goodwill, extracted from NEPI's audited annual financial statements for the year ended 31
December 2016
b. intangible asset and goodwill, extracted from Rockcastle['s audited financial statements for
the 18 months ended 31 December 2016
4. Calculated as NAV less intangible assets
5. Comprises:
a. the number of shares for NAV per share purposes, extracted from NEPI's audited annual
financial statements for the year ended 31 December 2016
b. the number of shares for NAV per share purposes, extracted from Rockcastle's audited
financial statements for the 18 months ended 31 December 2016
6. Calculated as NAV divided by shares in issue multiplied by 1,000
7. Calculated as NTAV divided by shares in issue multiplied by 1,000
8. Calculated as investment property in EUR divided by shares in issue
9. Closing NEPI share price on the JSE in ZAR on 12 May 2017 translated at the applicable exchange
rate. A revised swap ratio of one NEPI share for every 4.7 Rockcastle shares was released on 11
May 2017
10. Calculated as NTAV per share divided by price per share
11. Calculated as price per share minus NTAV/share
12. Calculated as price premium to NTAV per share divided by NTAV per share
13. Calculated as price premium to NTAV per share divided by investment property per share
As mentioned above, all disclosures made in such documents were in line with all applicable regulatory
requirements, including details of shareholders with beneficial interest of 5% or more in each of NEPI,
Rockcastle and NEPI Rockcastle (assuming implementation of the merger), which included Fortress REIT
Limited, Resilient REIT Limited and the Public Investment Corporation. The prospectus also included
disclosure of directors' interests in NEPI Rockcastle shares.
The share swap ratio utilized in the merger was calculated based on factors including the market price of the
shares involved in the merger (NEPI and Rockcastle) and valuations undertaken by reputable advisors.
Moreover, the Company notes that the merger (including by implication the share swap ratio) was reviewed
and approved by (i) 87.47% of NEPI shareholders voting(representing 84.30% of the total number of NEPI
shares that could have been voted at the general meeting) (see https://nepirockcastle.com/wp-
content/uploads/2018/10/en-2017-07-06.pdf) and by 99.9% of Rockcastle shareholders voting (representing
85.2% of the total number of Rockcastle shares that could have been voted at the general meeting) (see
https://nepirockcastle.com/wp-content/uploads/2018/10/en-2017-07-03.pdf). -
From an IFRS 3 perspective, the merger between NEPI and Rockcastle was treated as an acquisition by NEPI
of Rockcastle, with the goodwill generated as the difference between the actual value of the Rockcastle group
(total equity at June 2017 – €1.44 billion) and the consideration paid to acquire the business, which was based
on NEPI's trading share price at the date of the merger (€2.32 billion). At the time of the merger, NEPI and
Rockcastle shares were trading on the JSE at a premium to net asset value, therefore generating a gap of €0.88
billion between the value of NEPI Rockcastle shares issued and Rockcastle's net asset value. The accounting
of this transaction would have increased the balance sheet by the generated goodwill of €0.88 billion, and the
NEPI Rockcastle Group would have had a significant difference between its net asset value and adjusted net
asset value. In accordance with IFRS 3 – Business Combinations, the acquirer (NEPI) has the ability to fair
value its acquisition and adjust the goodwill recorded for a period of one year from the date of combination.
This fair valuation took place at 31 December 2017.
The write-off of goodwill in NEPI Rockcastle's financial statements subsequent to the merger is consistent
with the accounting treatment adopted and disclosed in NEPI Rockcastle's prospectus issued on 9 June 2017.
The consolidated pro forma financial information is set out in Annexure 18 of the prospectus. Note 9 to the
pro forma consolidated statement of financial position states: "According to NEPI Rockcastle's accounting
policy, goodwill is measured at cost less any accumulated impairment losses and goodwill is tested annually
for impairment. Goodwill arising from the transaction is expected to be impaired and an impairment of
EUR739.38 million is recognised. The additional goodwill arising from the merger transaction of EUR739.38
million is assumed to represent the future potential increase in fair value of the acquired portfolio of properties
but is not expected to be recoverable through the sale of the assets and liabilities as the assets and liabilities
are measured at fair value in the financial statements of NEPI Rockcastle. NEPI Rockcastle expects,
subsequent to the goodwill impairment through profit and loss, to transfer the loss arising from the goodwill
impairment to share premium, off-setting the effect of the impairment charge within accumulated profit." The
Group notes that such an accounting treatment represents market practice, as it has also been applied in the
Unibail – Rodamco merger (€1.3 billion) as well as the Klepierre – Corio merger (€704.5 million).
Furthermore, we find the reference to the 36One report irrelevant, as NEPI Rockcastle does not have cross-
shareholdings with Resilient, Fortress or other shareholders.
As regards the allegations of enriching management, the current executive directors of NEPI Rockcastle had
less than 0.5% of NEPI before the merger, and less afterwards, as further detailed in the relevant disclosures
made in the merger documentation and thereafter in the 2017 Annual Report.
The Company also notes that NEPI and Rockcastle's respective boards were independent of each other and
that the companies negotiated and contracted the merger at arm's length.
4. ACCUSATIONS OF IMPLICATIONS WITH PEREGRINE FINANCIAL & CEEIF
The Report misleadingly alleges the existence of fraudulent behaviour by NEPI related to its acquisition of
assets from a party indirectly related to Mr. Dan Pascariu (the chairman of NEPI at the time, and former
chairman of NEPI Rockcastle). In this regard, shareholders are advised as follows:
- Mr. Dan Pascariu was appointed as a director of NEPI on 28 November 2007.
- The initial announcement on future acquisitions of General Investments and General
Building Management (Raiffeisen Office portfolio) was issued on 11 February 2008 (see
https://nepirockcastle.com/further-investment-2/ (the "Raiffeisen Announcement"),
- The rationale of the transaction was that it provided NEPI country-wide coverage with a
portfolio mainly occupied by an A-grade tenant with a long leases, ensuring an income
producing asset base for the Company.
- The Raiffeisen Announcement states the following: The vendor of the companies is Central
Eastern European Real Estate Shareholdings BV, part of the Avrig 35 Group ("Avrig").
Avrig is also a 20% shareholder in the Company's investment advisor and one of Avrig's
directors is also a director of the Company's investment advisor. Only the independent
directors of the Company's investment advisor advised the Company on the transaction.
Dan Pascariu, one of the Company's directors, is also a minority shareholder in Avrig
35. Mr Pascariu did not participate in the board discussions on the transaction and
abstained from voting on the transaction."
- Proper disclosure of the transaction was in place, as well as in respect of the following
related transactions:
- 2009 - https://nepirockcastle.com/wp-content/uploads/2017/08/nepi-annual-report-
2009.pdf;
- 2010 - http://nepirockcastle.com/wp-content/uploads/2017/08/nepi-annual-report-
2010.pdf;
- 2011 - https://nepirockcastle.com/wp-content/uploads/2017/08/nepi-annual-report-
2011.pdf;
- 2012 - https://nepirockcastle.com/wp-content/uploads/2017/08/nepi-annual-report-
2012.pdf
5. RESIGNATION OF MR. DAN PASCARIU
Mr. Dan Pascariu was the chairman of the board of NEPI and NEPI Rockcastle for a period of nine years. His
resignation from the board and as chairman of NEPI Rockcastle was a personal decision, during a year in
which the board had already undergone several changes.
6. STATEMENT THAT THE COMPANY IS "FUNDAMENTALLY OVERPRICED"
The Company or its board is not in the position to comment on the adequacy of the share price.
Nevertheless, the Company highlights that the section of the Report relating to the pricing of the Company's
shares incorrectly states that NEPI Rockcastle's most recent reported EPRA NAV was €6.8 per share, as
opposed to the correct €7.14 per share, as at 30 June 2018.
It appears that Viceroy has used EPRA (adjusted) NAV for most peers, except for NEPI Rockcastle, and that
the indicators used in the comparison are aimed at deception.
The Report's allegations relating to cash generation are also misleading, as operating cash flows (as
presented in the Group's consolidated cash flow statement) are correlated with the distributable earnings for
2017 and 2018. In addition, all distributions during 2018 have been fully paid out to shareholders in cash.
7. ALLEGATION IN THE FOLLOW-UP STATEMENT ISSUED BY VICEROY ON 28 NOVEMBER 2018
NEPI Rockcastle updates the valuation of its property portfolio twice a year, with fair value being determined
by external, independent professional valuers with appropriate and recognised qualifications, and experience
in the locations of properties being valued. All valuers are members of the Royal Institute of Chartered
Surveyors and apply global valuation standards required by the profession. These standards require, for
example, that all properties are physically inspected on an annual basis.
The 2016 report issued by Cushman & Wakefield and referred to by Viceroy in the Report does not include
any reservations or qualifications. The valuations were made under the assumption of best use of the
properties, in the context of the market. In this respect, the valuers used assumptions based on factors such as
market context, age of the asset and location. They may require a management assessment of specific
variables, but in most cases the valuers rely on self-assessments. The enquiries made by Cushman & Wakefield
were appropriate and sufficient given the purpose of the valuation. The individual valuation reports were also
reviewed by PwC, the Group's auditors.
Date: 29/11/2018 01:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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