Letter to shareholders – Communication

Dear Shareholder,

In this moment of tough international event it is intention of the Brickstone’s Board of Directors to keep a frequent contact with Fund’s shareholders in order to keep a high level of information about what’s going on regarding different issues.

In this letter we want to give you an update about the projects, talking about the recent Net Asset Value determination and even the use of the money we collect.

The first notice is, last month, the Grand Opening of our Hotel in Novosibirsk with the government of the city. The related links are: http://nsk.dominarussia.com/nsk/en/ and https://www.youtube.com/watch?v=z7akg-4F5PA

International and Domestic Situation

For sure we want to focus our attention on the international situation which became even worse than ever with a special focus on the “Brexit” issue, the extremely weak Financial sector in Europe, but even the Turkey crisis and the concern of FMI of the unresolved problem of the European banking system in particular Italian and Portuguese banks.

The Russian economy was more resilient to the second oil shock in January: in Q1, GDP decreased 1.2% annually, which was a softer fall than expected. A detailed breakdown of data by economic sectors showed that agriculture continued to expand in Q1 and growth in mining activity picked up over the previous quarter, while the manufacturing sector contracted, although the pace did slow. Even though domestic demand is expected to be sluggish in the coming quarters, green shoots in credit growth and industrial production suggest that the economy remains in recovery mode. The key factors behind the gradual recovery are the rebound in oil prices and the economy’s slow, yet painful adjustment to a weak ruble. On the political front, on 27 June, Turkish President Recep Tayyip Erdogan expressed his regret for the downing of a Russian warplane in November 2015, which had led to a deterioration in relations between Moscow and Ankara and the subsequent imposition of sanctions by Russia. The tone of the official Russian response suggests that the apology has been accepted and an improvement in bilateral ties appears likely (http://www.focus-economics.com/countries/russia).

The Brickstone Fund update.

Recently we were able to issue a new Net Asset Value after the period of suspension (due to the Ukrainian crisis) which was fixed at 26.43 € per share. It is a huge decrease from the last NAV and we doubt reflects the real value of the assets.

When we received the Independent Evaluations, we were surprised to read a value of Euro 19.600.000 for the finished hotel in Novosibirsk, but even the value of Euro 25.500.000 for the one in St Petersburg.

On the other hand we strongly doubt that the fixed value corresponds to a realistic value for the following reasons:

  • The Brickstone Fund spent around 50 million euro to build up the hotel, which is a stunning building in the city of Novosibirsk, where only a couple of hotels can compete with our one: despite the huge devaluation of the Rubles, (please find below an updated table), there are no reasons for such a big decrease;






Value Eur/Rub










  • The NAV issued was calculated as of the end of December 2015, likely the weakest point for the Rubles, which has been gaining a lot since that weakness but even taken the worst Ruble value there is no comparison between the loss of ruble devaluation and the decreased value of our hotel;
  • Another big issue linked with the evaluation method used, the Discount Cash Flow, is connected with the forecast for the future period taken into consideration to apply the method. It is clear, in a peculiar situation like the Russian one, where the inflation runs with a double digit as well as for the official interests, to predict the evolution of the Average Room Rate of the hotels, event already happened in 2015 and first half 2016, rather than the cost of salaries it is extremely a hard task;
  • Finally it is clear that the Evaluators job to quote a hotel value is easier in an environment where there are transactions to compare in the market, but it become extremely tough when there are not.

We, as Board of Directors of the Brickstone Funds, strongly believe that the Evaluators’ job is really hard at the time being and even changing the Evaluators Company we probably shouldn’t get a different result, everyone scared to issue an opinion which is not real. At the same time, we strongly believe, that a valuation of less than 90.000 € per room (cost/room is an indicator often used in the hospitality industry) it is something which doesn’t reflect the real situation, which is usually double.

A more farsighted view should have advised to keep the NAV suspended: but the Brickstone Finance situation didn’t permit us to take a different approach, either because we were building the hotel, which was later open, and because we already agreed with the bank to return from a part of the loan (indeed we returned 3 million USD to the bank in the recent last months).

Financial situation and future developments

With the 31.12.2015 NAV we were able to pursue the financial strategy of the SICAV, also thanks at the excellent relations with Sberbank, the bank which give us the mortgage agreement in Novosibirsk.

In our last letter we made an examination of all possible scenarios and then thankful to who is working for the projects, we were able to manage a tough situation: now it is our feeling the answer we got when we propose to collect more money to manage the bank requests, were positive and gave us the strength to go on with the future steps.

As usual, it is our will to do our best to manage the projects that has seen us struggle against everything and everyone, keeping you informed about the future developments.

Yours Sincerely,

Luigi Pesce