European Convergence Develop. CoPLC Shareholder Update (5720R)
29 10월 2013 - 1:21AM
UK Regulatory
TIDMECDC
RNS Number : 5720R
European Convergence Develop. CoPLC
28 October 2013
ECDC plc
Shareholder Update October 2013
European Convergence Development Company
PLC ("ECDC" or "The Company")
The Manager presents its latest Shareholder
Update report covering the three month
period 1(st) July 2013 to 30(th) September
2013. This report is intended to update
investors on progress over the last three
months and is not intended to deal with
the financial statements of the Company.
Economic ROMANIA
Overview GDP expanded in quarter 2 by 1.5% year
on year, down from the 2.2% recorded
in the first quarter of the year. The
Government recently increased its full
year GDP forecast to 1.9% with further
acceleration in 2014 to 2.2%. The main
driver for the improvement in the second
half is a strong performance by the agricultural
sector, excluding agriculture GDP flat
lined in quarter 2. However, underlying
GDP growth for 2013, excluding agriculture,
is forecast at 1.4% year on year expansion.
For the first time since 2008, Romania
recorded an external funding surplus
in foreign capital flows in the first
half of the year (January-July). The
surplus amounted to around 6.3% of GDP.
The main factors fuelling the external
funding surplus were very large portfolio
inflows, a contraction in current account
deficit and an increase in the use of
EU funds. The external funding surplus
enabled the country to cover loan repayments
to the IMF due by the central bank and
the Finance Ministry (2.5% of GDP) and
also resulted in an increase in official
reserves to 3.1% of GDP. Exports grew
12.1% in quarter 2 compared to 9.1% in
the first quarter and imports contracted
from -0.1% in quarter 1 to -1.7% in quarter
2.
In September annual inflation fell from
3.67% in August to 1.88% due to tax-driven
falls in bread prices and within the
1.5% - 3.5% central bank target range.
Bread prices were down approximately
12% on the month after the government
cut value-added tax for bakery products
to 9% from 24%. The central bank forecasts
monthly inflation to fall to 3.1% year-on-year
by the end of 2013. Data showed consumer
prices were down 0.6% on the month in
September. Food prices fell 1.8%, while
non-food prices were flat. Services edged
up 0.4%.
The NBR further eased the monetary policy
rate at the end of September by another
25bps, to a current level of 4%. This
was the fourth reduction and was followed
up by an unequivocal public communication
towards the commercial banks regarding
lowering the interest rate on RON denominated
loans.
On 12(th) September Romania borrowed
EUR 1.5bn in a 7Y Eurobond. Investors'
appetite for RON denominated government
securities improved also in the second
half of September. Fitch Ratings affirmed
the country rating at BBB- and its current
outlook.
BULGARIA
As reported in the half year financial
statements, the government continues
to work under the daily pressure of large
protests which started on 14(th) June.
The Government has amended the budget
for 2013 by increasing the deficit by
BGN 500 million to 2.0% of GDP and permitting
the Government to issue BGN 1 billion
of additional government debt. This has
been necessary because the full year
forecast GDP is reduced to 1%, lower
tax revenues (BGN 555 m) through weaker
domestic demand.
GDP expanded 0.2% in quarter 2 compared
to the same quarter in 2012 and decreased
0.1% compared to quarter 1, representing
virtual stagnation. Unemployment declined
by 0.9% to 12.9% in the second quarter
because of seasonal activities in agriculture,
tourism and trade. Industrial Production
decreased 2.4% in August compared to
the same month in 2012 and represented
the sixth straight month of declining
numbers.
Exports declined approximately BGN 70
m between July and August to BGN 3,909
million. In August imports declined BGN
760 million between July and August to
BGN 3,664 million.
Inflation in September was -1.6%, declining
further from the -0.7% recorded in August
driven largely by base effects in energy
and administered prices. This was the
lowest rate in the EU.
General government debt, including government
guaranteed debt, amounted to 17% of GDP.
Both the deficit and the government debt
compare favourably to other EU countries
and the Government has announced that
it will be placing an amended budget
before the Senate in an attempt to drive
growth.
Property Romania
Market Overview No notable transactions were reported
in the second quarter of 2013. NEPI was
again one of the most active investor
securing several sites and announcing
further development plans following additional
capital raising. Separately it is noted
that the successful float of the Global
Growth real estate fund launched by Ioanis
Papalekas on AIM with a total raised
amount of approximately EUR 53.6 m was
on the base of a Romanian investment
property portfolio.
Office
Only two medium sized office buildings
totalling 7,800 sqm completed in quarter
2 which took the office supply completed
in the first half of the year to approximately
80,000 sqm and the total modern office
stock in Bucharest to an estimated 2.04
million sqm, with class A stock accounting
for 51%. Several projects are expected
to complete during the second half of
the year with Floreasca Park (37,500
sqm) probably the most advanced.
The overall vacancy rate for Bucharest
is estimated to be 15.66%. This represents
a slight quarter-on-quarter decrease
of 22 basis points. The highest vacancy
rates were recorded in the northern locations
such as Baneasa and Pipera North, both
with vacancy rates exceeding 35%.
Prime headline rent remained unchanged
over the last 12 months at EUR18.00 to
EUR18.50 per sqm per month. Over the
last quarter, a generous increase of
the incentive packages, in both rent
free periods and fit out contributions,
was noticed. These are applicable to
lease requirements exceeding 2,000-3,000
sqm for existing buildings where previously
it would have been applicable to larger
pre-leases.
In quarter 2 the total gross take-up
reached 59,000 sqm in 45 contracts with
new demand generating 49% of the quarter
leasing activity and 35% represented
by lease renewals. By geography, Pipera
North attracted 32% of the gross takeup
activity, followed by Center North and
CBD locations with 27% each. By industry
IT&C, FMCG and automotive related companies
generated 37% of the total leasing activity.
The total leasing activity in the first
half of the year reached 123,000 sqm
which is similar to the total area leased
in the same period in 2012.
In the second half of the year project
pipeline has been revised down to 40,000-50,000
sqm. The pipeline for the next two years,
2014-2015, is estimated by Jones Lang
LaSalle at between 180,000 - 200,000
sqm with some projects expected to be
completed in 2014 but, due to the large
volume, delivery may easily slip into
2015. In addition, a couple of phased
business parks may start construction
works or their additional phases by the
year end, based on pre-leasing activity.
In this case, the current pipeline can
be extended by circa 30,000 sqm. Take-up
is forecast to remain at the level recorded
in the last couple of years.
Retail
No modern shopping centre was delivered
in Romania during quarter 2 and therefore
the modern shopping centre stock remains
unchanged at an estimated 850,000 sqm
in Bucharest and at 1.5 million sqm for
the rest of the country. In Bucharest,
the most notable addition will be in
October with the opening of the 35,000
sqm Calea Floreasca, which is currently
more than 80% pre-let.
As mentioned in the half year financial
statements for the Company, Kingfisher
acquired the 15 unit Bricostore business.
Kingfisher plans to increase the network
to 50 stores in the medium term, most
probably through another acquisition
on the local DIY market.
Retailers remain cautious in expanding
their networks and focus mainly on prime
projects. Mass market retailers who are
already present in most of the well performing
shopping centres in the country are starting
to assess the new retail projects, but
the conditions they are prepared to offer
make it difficult to justify new developments.
Rent for both prime shopping centres
and prime high street units remains at
EUR55-65/sqm/month. The highest rents
are achieved in Baneasa Shopping City
and AFI Palace Cotroceni which are considered
the two most dominant retail schemes
in Romania. Rental decreases were reported
in the old city centre, as the location
has lost some of its initial attraction
and became more of a mass market destination.
Residential
Two major developments are moving this
segment of the market. First the banks
have become more aggressive in their
liquidation process of both foreclosed
residential units in old communist apartment
buildings as well as the bulk sale of
distressed new developments in various
stages of completion. Secondly a significant
shift was recorded this summer with the
cancellation of the Prima Casa, the Government
backed mortgage lending scheme. The Government
in close cooperation with the Central
Bank has stopped the backing of EUR denominated
lending scheme and replaced it instead
with a new format where it supports a
RON denominated programme. This measure
together with the decision of the largest
commercial bank, BCR, (20% of the market
by assets) to only finance RON denominated
mortgages is putting significant pressure
on the current market prices.
Despite this, transaction volumes have
stabilized to fairly low levels suggesting
a reluctance of sellers who are not pressured
to dispose of their assets, to adjust
to further price decreases.
Bulgaria
Retail
The Strand Bourgas (30,500 sqm) opened
to the public in July. Its opening puts
Bourgas on top of Bulgaria's city rankings
for shopping space per capita with 468
sqm per 1,000 residents. Three other
projects in Sofia are currently under
construction and will provide an additional
120,000 sqm.
With the opening of all these malls the
average lettable area per 1,000 inhabitants
for Bulgaria will increase to approximately
120 sqm compared to 250 sqm for Europe
as a whole (Colliers International, Retail
Real Estate Marker Overview) and 200
sqm for CEE. Presently the gross leasable
area of all the operational shopping
malls is about 735,000 sqm and the GLA
per 1,000 residents is 101 sqm.
As developers try to lure consumers to
locations in Sofia's periphery, prospective
tenants recognise their bargaining position
and as a result prime rents for new leases
were down 11% from quarter 2 to EUR24
per sqm per month. Underperformance and
store closures are to be blamed for a
similar decline of rents outside Sofia.
In the country's second-tier markets
prime shops in the 100-150 sqm range
are expected to lease for between EUR16
and EUR18 per sqm. But lack of transactional
evidence and elevated vacancies in most
cities suggest even these rates may prove
unsustainable.
The investment market remained stagnant,
the only transaction in the retail sector
was an investor acquisition Panorama
Mall in Pleven with 17,000sqm lettable
area through a distressed public sale.
The deal was concluded at a value considerably
lower than the total development cost
and below the bank debt.
Development Cascade
Projects Currently the building is fully leased
Romania generating positive cash flow after meeting
all its financial obligations from an
operational and banking point of view.
All financial obligations are up to date
with no collection delays on the revenues
side.
With the completion of the leasing process
the JV partner has managed to position
the building as one of the prime office
products on the Bucharest real estate
market. There is continued interest in
the building by potential tenants, with
inquiries being addressed and managed
by the building's management team.
Oradea and Iasi Shopping Centres
Following the notice for repayment issued
by the Company with respect to the investments
in both Oradea and Iasi, the Manager
is currently in advanced negotiations
over a possible structuring of the repayment.
Further to the Cypriot crisis as reported
in the last shareholder update, the loan
situation with the banking loan syndicate
for both Iasi and Oradea is still pending
a resolution with regards to both the
main development loan in Iasi and additional
tenant fit out contributions pending
release in Oradea. It is expected that
the current situation will continue for
the foreseeable future until a solution
is found for the current loan book of
the Bank of Cyprus Romania.
Argo Real Estate Opportunities Fund (AREOF)
Proton Bank has served a termination
notice to AREOF for its EUR 28.5 million
loan. As a consequence AREOF's shares
have been suspended from trading pending
further clarification of the current
situation. The AREOF representatives
are in continuous negotiation with the
Bank to find a suitable resolution.
An additional threat had been presented
to AREOF by the announcement made by
NEPI of negotiations for the purchase
of part of the Volksbank's debt in another
shopping centre owned by the company
in Romania, Sibiu Shopping City. However,
this threat has since been diminished
as it is unlikely NEPI will be able to
acquire the whole debt. AREOF are in
advanced restructure talks with its banks
in Sibiu.
The Manager will continue to monitor
the restructuring process.
Oradea Shopping Centre
ERA Oradea continues to increase traffic
each month recording a 20% increase in
traffic for July year on year. Carrefour
reported a 2.5% increase in sales year
on year for July.
LEMS, a large furniture tenant, signed
a lease for 2,100 sqm of space and opened
in September. A lease for 3,000 sqm was
signed with Stockhouse, the sister company
of Leonardo. The intention is to open
a discount unit selling, clothes, food
and electronics based upon a similar
format of a German discount retailer
Kik. In addition, they will open a 470
sqm furniture store Studio Blue and will
change the current Leonardo outlet back
to a full Leonardo store. This is a significant
boost in the letting activity. Competition
for tenants remains fierce between the
three other shopping centres in the city,
resulting in very low rents. With Auchan
taking over Real's unit across the road,
there is likely be a decline in traffic
in quarter 4 but the issue has been somewhat
mitigated with the new tenants.
Iasi Shopping Centre
Monthly traffic remains consistently
lower year on year, down 16% for July,
due mainly to the retail competition
within the city. July traffic is slightly
higher than June due to returning migrant
workers. The major road improvement works
throughout the city increased journey
times and reduced the number of people
willing to drive to ERA. These works
are progressing slowly, but on completion
should improve the situation. The summers
marketing activities and promotions have
been successful with a third of tenants
reporting year on year sales improvements
in July. Marketing activities and expenditure
are very focused on offers, giveaways
and promotions and clearly are well received
by customers. This marketing activity
will have to be maintained over the next
12 months to ensure increased traffic
levels.
Sprider closed their store in May and
were replaced by a discount fashion tenant,
San Francisco. San Francisco opened in
early August and initial sales have been
very encouraging. Lettings to Tiffany
(tailors 98 sqm), Dry Cleaners (98 sqm),
Schneider (fashion 129 sqm), Divanissimi
(furniture 284 sqm) are open and trading.
Several negotiations are ongoing with
local retailers for small units.
Development Plovdiv
Projects In quarter 3, occupancy levels declined
Bulgaria by 10% to 64% of the GLA and finding
new tenants continues to be challenging,
requiring the injection of new funds
to pay fitting out contributions. At
the beginning of quarter 3 the interim
contract with the international leasing
consultant was extended by a further
two months but will not be renewed because
of lack of support by one of the partners
in the project. The shareholders provided
very limited temporary funding to support
the international consultant during July
and August.
In line with the strategy, the initial
negotiations with several international
tenants continued but did not materially
progress beyond what has previously been
reported. Conclusion and execution of
lease deals continue to be predicated
on the availability of funding for fitting-out
contributions.
The discussions with the bank to restructure
the banking facility were resumed in
quarter 3 and the management of the company
and shareholder representatives held
a couple of meetings with the Bank, at
which it was agreed that a new restructuring
proposal would be presented. The executive
director of the development company led
the negotiations with the bank and they
are ongoing, a satisfactory conclusion
has yet to be reached.
As reported at the end of the quarter
2 the centre manager left the project
and the shareholders appointed the technical
manager to temporarily carry out the
day to day activities. The Mall still
has operational deficit on a monthly
basis and has been unable to meet all
of its operational obligations from the
collected rental and service charge income.
This has led to increasing overdue payments
to service providers and the fiscal authorities.
Unless the restructuring is resolved
quickly and fresh cash made available
to cover operational needs, the company
faces serious liquidity problems which
threaten its operations.
Mega Mall Rousse
During quarter 3 occupancy dropped from
56% to 51% due to closing of two fashion
operators, the kids centre, and an insurance
office. As reported, the management team
immediately started initial talks with
prospect tenants in order to secure adequate
replacements. As at the end of quarter
3 2013 a lease agreement with a bank
was signed and the tenant opened in mid-August.
The management team is completing the
negotiations with a new kid's centre
operator and a café. Despite the
partial success in replacing tenants,
leasing is still proving to be extremely
difficult and as previously reported,
is highly dependent upon the provision
of fit-out contributions.
As previously reported the Bank has initiated
a series of aggressive actions and defaulted
the entire facility, payable with effect
from the end of April 2013. Further,
during quarter 3, the Bank transferred
the loan to its branch in London. The
Manager and partner have tried to hold
a number of meetings with the Bank to
discuss restructuring the loan facility
but no satisfactory results have been
achieved. The Project continues to face
liquidity problems and whilst our partner
has provided some short term liquidity,
if a restructuring plan is not achieved
soon it is highly likely that key service
providers may stop the supply.
Trade Centre Sliven
As previously announced, there has been
no change in the position regarding the
development itself and the Manager is
discussing with the partner how best
to take the development of the site forward.
All options are being considered including
an exit from the development and splitting
the assets between the shareholders.
Bourgas Retail Park
There has been no further progress made
with this site as it is very much linked
to the developments in Plovdiv.
Investor Relations
Tel: + 44 (0)20 7518 2100 Fax: + 44 (0)20
7518 2199
Email: marketing@charlemagnecapital.com
Website: www.charlemagnecapital.com
Issued by Charlemagne Capital (UK) Limited,
39 St James's Street, London SW1A 1JD
A company authorised and regulated by
the Financial Conduct Authority
This document does not constitute an
offer to sell or solicitation of an offer
to buy shares in the Company and subscriptions
for shares in the Company may only be
made on the terms and subject to the
conditions (and risk factors) contained
in the prospectus of the Company. Potential
investors should carefully read the prospectus
to be issued by the Company which contains
significant additional information needed
to evaluate an investment in the Company.
This document has not been approved by
a competent supervisory authority and
no supervisory authority has consented
to the issue of this document. The information
in this document/financial promotion
is confidential and it should not be
distributed or passed on, directly or
indirectly, by the recipient to any other
person without the prior written consent
of Charlemagne Capital (UK) Limited.
This document and shares in the Company
shall not be distributed, offered or
sold in any jurisdiction in which such
distribution, offer or sale would be
unlawful and until the requirements of
such jurisdiction have been satisfied.
This document is not intended for public
use or distribution. The purchase of
shares in the Company constitutes a high
risk investment and investors may lose
a substantial portion or even all of
the money they invest in the Company.
An investment in the Company is, therefore,
suitable only for financially sophisticated
investors who are capable of evaluating
the risks and merits of such investment
and who have sufficient resources to
bear any loss that might result from
such investment. If you are in any doubt
about the contents of this document you
should consult an independent financial
adviser. Investors in the Company should
note that: past performance should not
be seen as an indication of future performance;
investments denominated in foreign currencies
result in the risk of loss from currency
movements as well as movements in the
value, price or income derived from the
investments themselves; and there are
additional risks associated with investments
(made directly or through investment
vehicles which invest) in emerging or
developing markets. Charlemagne Capital
(UK) Limited does not guarantee the accuracy,
adequacy or completeness of any information
contained herein and is not responsible
for any omissions or for the results
obtained from such information. The information
is indicative only and is for background
purposes and is subject to material updating,
revision, amendment and verification.
All quoted returns are illustrative.
No representation or warranty, express
or implied, is made as to the matters
stated in this document and no liability
whatsoever is accepted by Charlemagne
Capital (UK) Limited or any other person
in relation thereto.
===================================================
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END
MSCPGGMGUUPWGQR
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