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2013


Arco Vara's management board completes revaluation of the group's assets

In November 2012, Arco Vara’s management board undertook a revaluation of the group’s assets and liabilities, which entailed both a critical analysis of the valuation bases applied and consideration of the impacts of developments of 2012. Items whose value was reviewed included the group’s inventories, investment properties, significant receivables and provisions. The purpose of the revaluation was to obtain an objective as well as a highly conservative overview that could serve as a basis for making plans for continuing the group’s operations and, possibly, raising capital for new investments.

The revaluation process was undertaken in cooperation with the managers, specialists and legal counsels of the units involved in all countries where the group operates (Estonia, Latvia, Lithuania and Bulgaria) and the group’s auditor.
The revaluation was completed on 10 January 2013.

Outcome

As a result of the revaluation process, the management board will adjust the group’s assets and liabilities as at 31 December 2012 as follows: receivables will be written down by 3.46 million euros, inventories and investment properties will be written down by 14.25 million euros and provisions will be increased by 1.96 million euros. Altogether, the group’s net assets will decrease by 19.67 million euros, which will affect both the group’s financial performance for 2012 as well as its financial position as at 31 December 2012.

The group’s assets and liabilities as at 31 December 2012 will be fixed on the approval of the results for the financial year in line with the usual procedure. It is possible that the comparative data on 2011 may have to be restated.

Valuation methods applied

The management board considered it appropriate to apply the following valuation methods:

1) the values of projects under development, which are carried as inventories, were measured using the sales comparison method and the residual value method;
2) the values of projects generating cash flow were measured using the discounted cash flow method;
3) the values of plots and buildings carried as investment properties were measured using the sales comparison method, i.e. specialists estimated the price for which those assets could be realised within one year by reference to the market prices of similar assets.

The revaluation was impacted by both developments that took place in 2012 and changes in valuation bases. The principal differences in valuation bases are as follows:

(i) The main valuation basis for apartments and plots classified as inventories is their possible sales price during a roughly one-year realisation period.
(ii) Previously, the primary valuation bases for plots classified as investment properties included possible future income from the development of the plots into the end product. The current valuation is primarily based on the value of the plot on the assumption that it has to be realised within one year.

The group adjusts the valuation bases in light of the overall economic uncertainty in its target markets as well as the current maintenance and finance costs incurred in connection with passive assets (assets not used in the production process) and assets that have been completed but not yet realised. Estimating a very distant future value of inventories and investment properties would be based on too many variables, which are beyond the group’s control and could not be projected reliably.

The change in valuation bases accounts for up to 75% of the total write-down of inventories and investment properties.

Commentary on major write-downs
Revaluations were conducted in
(i) Bulgaria, where inventories and investment properties will be written down by a total of 9.78 million euros;
(ii) Latvia, where inventories and investment properties will be written down by a total of 3.16 million euros; and
(iii) Estonia, where receivables will be written down by 3.47 million euros, provisions will be increased by 1.96 million euros and inventories and investment properties will be written down by a total of 1.30 million euros.

BULGARIA
In Bulgaria, the write-downs are based on the results of market transactions and weaker than anticipated pace of realisation of the Madrid and Manastirski apartments, which has partly been influenced by the will of the bank that financed the projects. The revaluations are based on the assumption that the group will succeed in negotiating more favourable financing terms from the current main finance supplier, the Piraeus bank.  Relevant negotiations are currently in progress.

LATVIA
In Latvia, the decrease in the value of assets results largely from the write-down of investment properties, which was triggered by the expiry of certain rights relating to the Mazais Baltezers residential plots.

ESTONIA
In Estonia, the group will write down a receivable from its joint venture Tivoli Arendus OÜ. At the moment, the group’s receivable from Tivoli Arendus OÜ is secured with a mortgage of the second ranking created on the property belonging to Tivoli Arendus OÜ, while the co-investor’s receivables from the joint venture, which are secured with a mortgage of the first ranking, exceed 8 million euros (together with accrued interest). In such a situation, continuing investment in the Tivoli project is not reasonable and the probability of realising the business plan of the Tivoli project in a profitable manner, so that the joint venture would be able to settle its debts to Arco Vara, is extremely remote. Arco Vara is holding negotiations with the co-investor in order to restructure the Tivoli project. In addition, the group will increase its provisions in connection with surety bonds issued to secure the loan commitments of joint ventures Tivoli Arendus OÜ and Arco HCE OÜ because the probability of the realisation of the surety bonds has increased.

Further information
To provide investors with additional information about the extensive revaluation of its inventories, investment properties and receivables as well as its further action plan, Arco Vara is going to hold a webinar (a web-based seminar) in the last week of January or in the first week of February. Further information on the webinar will be communicated in a separate stock exchange announcement before 18 January.
A webinar is a virtual conference where the company’s representatives can present the company’s operations and plans. A webinar provides opportunities for interactive communication, including opportunities for asking questions and obtaining answers directly from the company’s representatives. Additional information on webinars can be found at: http://www.nasdaqomxbaltic.com/en/exchange-information/products-and-services/webinars/.

Tarmo Sild
Chief Executive Officer
Arco Vara AS
Tel: +372 614 4630
This email address is being protected from spambots. You need JavaScript enabled to view it.
http://www.arcorealestate.com


Arco Vara invites all interested parties to join investor webinar scheduled on January 31, 2013 at 16:30 (EET).

Webinar will be hosted by the chairman of the management board Mr. Tarmo Sild. The presentation will be held in English. During the webinar Mr. Tarmo Sild will provide investors with additional information about the revaluation of the concern’s inventories, investment properties and receivables as well as its further action plan.

Before and after the presentation participants will have the opportunity to ask questions. Please send the questions in advance to: This email address is being protected from spambots. You need JavaScript enabled to view it.. The preference will be given to the questions sent in before the webinar.

Please register for the event by filling in the on-line registration form: http://bit.ly/UzAdeV. Registration and opportunity to send in questions prior to webinar will be closed on January 30, 2013 at 14:00 (EET).

Due to technical reasons only the first 90 registered participants based on first-come-first-serve principle will have the opportunity to participate in the webinar. Registered participants will receive access to the webinar in the morning of January 31 via e-mail. The webinar will be recorded and available online for everyone at the website of the company on http://www.arcorealestate.com/webinar and on the web page of NASDAQ OMX Tallinn as well as the answers to all of the questions sent in earlier or asked during the webinar.

What is webinar?

A webinar is a virtual conference where the company’s representatives can present the company’s operations and plans. A webinar provides opportunities for interactive communication, including opportunities for asking questions and obtaining answers directly from the company’s representatives.

Additional information on the webinar
All you need to have is a computer with internet connection and headphones. No additional installations of special programs are necessary. You will be able to ask questions in written form during webinar.


Egert Paulberg
Financial controller
Arco Vara AS
Phone: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.


On January 31, 2013 at 16:30 (EET) Arco Vara will hold investor webinar, during which the participants will be presented with the presentation attached to this notification.
Arco Vara thanks all participants, who joined the webinar.

Attachments:
Arco Vara webinar 31 01 2013.pptx


On January 31, 2013 Arco Vara organized webinar for investors. During the webinar the CEO of Arco Vara Mr.Tarmo Sild informed investors about the current situation of the group, gave overview about the Arco Vara’s future plans and explained recent revaluations.
In his presentation and while answering the questions sent by the investors, Mr.Tarmo Sild explained in detail our current situation in Bulgaria and with the joint-venture projects. Also was mentioned that share issue is possible, but with purpose to finance production only.
The recorded webinar is available online: www.bit.ly/ArcoVaraRecord, and the presentation, demonstrated during the webinar, can be found in the previously published Arco Vara's announcement: https://newsclient.omxgroup.com/cdsPublic/viewDisclosure.action?disclosureId=539503&messageId=664468
Arco Vara thanks all participants, who joined the webinar.
 
Egert Paulberg
Financial controller
Arco Vara AS
Phone: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.


To recover a loan of over 12 million euros, Danske Bank A/S has initiated enforcement proceedings against Arco HCE OÜ, which is a 50% subsidiary of Arco Investeeringute AS that is a wholly-held subsidiary of Arco Vara AS. The object of the proceedings is to exercise a mortgage created for the benefit of Danske Bank on a property located at Ahtri 3 in Tallinn.

Arco Investeeringute AS has agreed to stand surety for the bank loan of Arco HCE to the extent of 1,917,349.46 euros. As at 31 December 2012 the entire amount of the surety was provided for. Accordingly, the enforcement proceedings will have no impact on the group’s financial position or financial performance.

The management board and shareholders of Arco HCE are of the opinion that the initiation of the enforcement proceedings was not legitimate.

Arco HCE is a project company established for the development of a property at Ahtri 3 in Tallinn. The company’s only asset is the property at Ahtri 3. From 2007 to 2012 the shareholders of Arco HCE invested over 20 million euros in the development of the property and the development operations are still in progress.

The shares in Arco HCE are held, in equal proportions, by Arco Investeeringute AS and U.S. Real Estate Management OÜ.

Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.


In the stock exchange release of 22 May 2012, Arco Vara announced that Tivoli Arendus OÜ, which is a 50% joint venture of Arco Vara’s wholly-held subsidiary Arco Investeeringute AS, and Nordecon AS had signed a contract on the design and build of apartment buildings and associated outdoor facilities on a plot with the former address Narva mnt 67, Tallinn. The value of the contract was approximately 13.0 million euros plus VAT.

On 1 February 2013, Tivoli Arendus OÜ cancelled the construction contract with Nordecon AS because the latter substantially breached its contractual obligations.

The shareholders of Tivoli Arendus OÜ are, in equal proportions, Arco Investeeringute AS and International Invest Project OÜ.
 
Egert Paulberg
Financial Controller
Arco Vara AS
Tel: +372 614 4503
This email address is being protected from spambots. You need JavaScript enabled to view it.