30 November 2017

AFI DEVELOPMENT AGREES TO SELL TWO BUILDINGS AT AQUAMARINE III

AFI Development Plc announces that it has agreed to sell Building 2 and Building 4 at the completed Aquamarine III Business Centre in Moscow to one of the leading Russian banks (the Buyer) for total cash consideration of RUR7.89 billion (circa US$135 million), net of the applicable Russian VAT.

Subject of the transaction are office premises, underground parking and a share of commonly owned service areas at the Aquamarine (Ozerkovskaya) III Business Centre at 22-24, Ozerkovskaya embankment, Moscow, Russia. The transaction consists of two Russian law governed agreements: a sales-purchase agreement of 39,635.8 sq.m of gross buildable area (including 328 underground parking units) and a sale-purchase agreement of a circa 57% share in the title to the premises of 3,728.6 sq.m of gross buildable area (“the Transaction agreements”).

The Aquamarine (Ozerkovskaya) III Business Centre is an office complex forming part of the “Aquamarine” mixed-use development, located on the Ozerkovskaya embankment in the historical Zamoskvorechie district of Moscow. The project consists of four Class A buildings with common underground parking. In 2013, AFI Development disposed of Building 1 in the complex to ALROSA mining company. After the disposal of Building 1, the Business Centre has 61,579 sq.m of gross buildable area and 466 parking units. Building 3 of the complex is leased to various tenants, including Brown-Forman and Deutsche Bank.

The transaction consideration shall be satisfied in three tranches as follows: 50% of the consideration shall be paid upon execution of the Transaction agreements (“Tranche 1”), the other 50% shall be deposited under a covered irrevocable letter of credit: 40% of the consideration (“Tranche 2”) shall be released to the Company when the Buyer is registered as owner of the purchased premises and the remaining 10% of the consideration (“Tranche 3”) shall be released when the Buyer is registered as co-lessor under the property land lease agreement (the land plot under the Aquamarine III complex is co-leased by owners of the respective buildings, in accordance with the Russian law). Tranche 1 is expected to be paid in the coming days.

The value of the gross assets subject of the transaction in the consolidated IFRS accounts of the Company is circa US$135 million. 

As the disposed buildings were vacant, they did not contribute to the profits of AFI Development.

Although the transaction will be subject to Russian profit tax estimated at RUR440 million (circa US$7.5 million), as a result of the transaction on the consolidated IFRS accounts, the Company expects to incur a loss of about US$12.4 million. The Company does not expect a property tax effect from the transaction.

The Aquamarine III Business Centre is currently mortgaged in favour of VTB Bank PJSC (“the Bank”) under the Ozerkovskaya III loan agreement and the AFIMALL City loan agreement. The mortgages will be removed once Tranche 1 of the consideration has been transferred to the Bank as partial repayment of the Ozerkovskskaya III loan.

Most of the sale proceeds of the transaction will be transferred to the Bank as partial repayment of the Ozerkovskaya III loan. The Ozerkovskaya III loan expires in January 2018, the Company and the Bank had been negotiating its restructuring prior to the transaction. The Company assumes that, in case of successful completion of the transaction, it will be able to reduce the outstanding balance of the Ozerkovskaya III loan to approximately US$86 million. The Company’s interest expense under the loan will be significantly reduced. However, the exact effect on future interest expense will be clear once the restructuring terms have been agreed with the Bank.

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