ECDC Eur.Conv.Dev

 

TIDMECDC 
 
RNS Number : 8274L 
European Convergence Develop. CoPLC 
13 May 2010 
 

13 May 2010 
 
                  EuroPean convergence development company plc 
                            ("ECDC" OR "THE COMPANY") 
 
              Shareholder Update: January, 2010 to 30th April, 2010 
 
The purpose of this document is to update shareholders with new developments 
since the Company's last shareholder update report in January 2010. This latest 
update covers the developments during the first four months of 2010 and should 
be read in conjunction with all prior reports which provide commentary on the 
historical evolution of the Company's business.  It is not intended to deal with 
the financial accounts of the Company. 
 
ROMANIA 
 
Political & Economic Update 
 
Following the elections at the end of 2009, the IMF and the European Commission 
released the previously blocked EUR3.4bn tranche from the EUR20bn agreement signed 
by Romania last year. The amount drawn to date is now EUR11.8bn. 
 
The 2009 year-on-year GDP decline reached 6.5% which indicates a better than 
expected second half after the first half decline of 8.7%.  All major 
year-on-year economic indicators were negative; household consumption was down 
10.8%; export volumes were down 13.9%; fixed investment was 25.3% down and 
unemployment increased to 7.8% for 2009.  The consensus view is that there will 
be little or no pick-up in economic activity and growth until 2011, although 
marginal signs of positive growth are expected to be reported during Q2 and Q3 
2010. 
Real Estate Market 
 
Residential Property 
 
Conditions stabilised between Q4 2009 and Q1 2010 as developers halted 
development activity resulting in a decline in the expected amount of available 
housing stock.  However the continued pressure being exerted by purchasers on 
prices has not resulted in a significant pick-up in transaction volumes. 
 
The Government-launched stimulus packages have had the beneficial affect of 
injecting liquidity back into the market but, because the levels of support are 
set to encourage first time buyers, the majority of this liquidity has flowed 
towards older style apartments rather than the wider market. The stimulus takes 
the form of government guarantees to banks in exchange for cheaper financing for 
first time buyers. 
 
The first part of the program was a relative success with over EUR600m in 
guarantees, out of an initial EUR1bn, issued to the banks. The allocation for this 
year is currently at EUR700 million. These guarantees effectively underpin the 
market and generate liquidity which should start to be seen in the upper and 
newer segment of the market. 
 
In comparison with other CEE capital cities the overall level of housing 
construction remains very low though sales are being held up by weak demand and 
the lack of availability of competitive mortgages.  Developers have reduced the 
price per sq metre in an attempt to find the bottom of the market and it is 
currently estimated that prices have decreased to an average of EUR1,260 psqm.  In 
the meantime potential buyers remain very cautious, many fearing a double dip 
recession with the consequential affect on purchaser sentiment. 
 
Significant improvement in housing demand is not expected to be seen until the 
first half of 2011. 
 
 Office Market 
 
The first quarter of 2010 continued to build on the trend started at the end of 
2009.  The take-up of offices in Q1 2010 was 70,000 sqm, 3 times greater than 
the same period in 2009 and 70% of the total 2009 take up. 
 
At the end of Q1 2010 the total modern office supply in Bucharest had reached 
1.255 million sqm, of which 18,000 sqm was delivered in Q1.  This compares with 
over 125,000 sqm delivered in Q4 2009. 
 
The other major change in the market was the amount of space pre-let.  In Q1 
2010, 25% of the total take up was pre-leased, whereas in 2009 there were no 
pre-leases signed. 
 
Prime rents have stabilised at around EUR21 sqm/month for the CBD area though 
tenants are requiring additional incentives in the form of rent-free periods and 
fit-out contributions which reduce the effective rent to EUR17-EUR18 sqm/month 
 
Bucharest's vacancy stands at approximately 18.5%, with approximately 5% of 
grade A office space available in the CBD areas.  Vacancy rates as high as 22% 
can be seen in the decentralized sub-markets of the city i.e. Pipera North and 
Floreasca. 
 
In addition to the letting mentioned in the last report, there have been two 
further major transactions in Q1 2010, the letting of 15,000 sqm to UniCredit 
Tirac Bank in Expozitiei and 11,753 sqm to Sanador at Castrum.  However, apart 
from the above transactions, the average leased area has decreased by 50%. 
 
ROMANIAN ASSETS 
 
Asmita Gardens 
 
Asmita Gardens is a residential development of 758 apartments, being delivered 
in seven tower blocks in two phases. As at 30th April 2010 the following 
position was reported:- 
 
·     Phase 1: 324 apartments. Certified: 'TOC'-'Take-over Certificate' - right 
to occupy - issued on 7 October 2009, and; 
·     Phase 2: 434 apartments. Certified: TOC issued on 11 March 2010 
 
During the period under review the focus of the development team has been to 
convert pre-sales into completed sales and encourage buyers to move into their 
apartments.  At the end of April the following had been achieved: 
 
·     Of the 247 sales (76%) agreed in Phase 1, 201 have legally completed, and 
in Phase 2, 1 unit has completed of the 114 agreed sales (26%) 
 
The Manager has worked with the sales team of Asmita Gardens Srl (the project 
"Developer"), in which ECDC holds a 50% joint venture interest, to introduce a 
number of initiatives which appear to have been well received by the market.  By 
the end of April a total of 7 units had been sold in the year, 6 of which were 
in April.  Sale prices have been at levels above the market average reported 
above. 
 
The building contractor, Strabag Srl, ("Strabag") has achieved substantial 
completion of both Phases although the Take Over Certificate for Phase II was 
issued without tests and commissioning having taken place. 
 
There is currently a dispute ongoing between Strabag and the Developer 
concerning the resolution of Strabag's final account and the Developer's 
counterclaims. Such disputes are not unusual in this kind of development and the 
Developer is attempting to resolve the situation by all means possible, 
including through the Courts. 
 
The Manager and the Developer are in negotiations with the lending bank over the 
provision of working capital facilities within the existing facility to enable 
the sales process to continue to the end of the calendar year. 
 
The Directors may consider it prudent to make a partial provision for impairment 
against the value of the Company's investment in Asmita Gardens Srl in the 
Company's audited financial statements for the year ended 31 December 2009 
though no decision has currently been taken. 
 
Cascade 
 
On 1st March 2010 the Fire Brigade certified the building fit for occupancy 
enabling tenants to commence fitting out of their respective leased space. 
 
During the first four months of the year, Cascade has signed new leases for 
1,735 square metres of office space, which amounts to approximately 11% of the 
building's lettable area, at rental levels of approximately EUR18 per square metre 
per month. The larger of the two leases, amounting to 1,100 square metres, is 
with a major international cosmetics company. 
 
The previously agreed leases to Banca Romaneasca and its two subsidiaries are 
currently being renegotiated which, if concluded, should result in the Cascade 
building being 65% let. 
 
 
Baneasa 
 
There have been no significant developments in this project since the last 
shareholders report. 
 
The Manager and the Partner are continuing discussions with the Bank to identify 
potential ways of taking the project forward on a profitable basis. As stated in 
the last report the improvements to the local road infrastructure and plans for 
the subway system to run adjacent to the site definitely improve accessibility 
to the site. 
 
 
 
BULGARIA 
 
Political & Economic Update 
 
There are some early signs that the steep decline in the economy may be coming 
to an end.  It is too early to say that a recovery is underway, but some 
macroeconomic indicators have marginally improved in Q1 2010. 
 
After steadily increasing unemployment from 6.27% to 10.30% (Dec/2008-Feb/2010), 
initial data indicates that unemployment in March 2010 decreased for the first 
time in the last 15 months to 10.14%. Low levels of inflation returned to the 
market in Q1 whereas 2009 was close to 0% and exports have increased marginally 
over for the last two months. 
 
Bank lending rates have been declining slightly in Q1 and the government's 
finances, though experiencing budget deficits which were not typical in past 
years, are in reasonable shape especially when compared to many other European 
countries. Government debt stood at 15.6% of GDP in February and foreign 
currency reserves were over 38% of GDP. 
Real Estate Market 
 
Retail Property 
 
Market conditions in Bulgaria have remained very challenging throughout the 
first quarter of 2010, and in line with many CEE markets, have suffered from 
poor investor sentiment, and a very restricted availability of bank debt 
finance. Rents and capital values are not expected to recover in the near 
term with little real recovery expected until Q4 2011. 
 
BULGARIAN ASSETS 
 
Galleria Plovdiv 
 
The Mall opened to the public on April 15th 2010.  Despite the fact that it was 
a soft opening with Carrefour and some 15 other tenants, the first days proved 
to be a considerable success with an average of over 35,000 people visiting the 
Mall during the first five trading days.  Most of the signed tenants are 
expected to be opening shops during the next three months which will lead to an 
intended Grand Opening of the Mall on 6th September 2010 coinciding with an 
important local holiday. 
 
The high public interest and footfall after the soft opening boosted retailer 
interest in the development and resulted in the signing of heads of terms with 2 
international brands for 2,000 sqm and encouraging negotiations with 18 other 
retailers for 3,500 sqm. 
 
At present the Mall is approximately 62% let.  Advance negotiations continue 
with numerous tenants such that the Manager believes that by the Grand Opening 
in September over 75% of the Mall will be let. 
 
Mega Mall Rousse 
 
As stated in the last report the opening of the Mall has been deferred to 
September 2010 and as such construction has been deliberately slowed down.  The 
development can be completed inside 2 months upon clarity of the road building 
scheme and leasing achieving certain agreed levels. 
 
There is evidence of a general improvement in market sentiment towards the 
project though current levels of signed leases have not increased during the 
period.  However, lease negotiations total approximately 5,640 sqm (32%) and 
offers have been under discussion on 8,000 sqm (45%).  The Manager's expectation 
is that on opening the Mall will be over 75% leased. 
 
Bourgas Retail Park 
 
There has been no further progress made on this development since there has been 
no marked improvement in either the Banking or Retail market conditions. 
 
Trade Centre Sliven 
 
There has been no further progress made on this development since there has been 
no marked improvement in either the Banking or Retail market conditions. 
 
 
Enquiries: 
 
+--------------------------------------------+--------------+ 
| European Convergence Development Company   | +44 (0)1624  | 
| plc                                        | 640200       | 
+--------------------------------------------+--------------+ 
| Anderson Whamond                           |              | 
+--------------------------------------------+--------------+ 
|                                            |              | 
+--------------------------------------------+--------------+ 
| Charlemagne Capital                        | +44 (0)207   | 
|                                            | 518 2100     | 
+--------------------------------------------+--------------+ 
| Varda Lotan / Christopher Fitzwilliam Lay  |              | 
+--------------------------------------------+--------------+ 
|                                            |              | 
+--------------------------------------------+--------------+ 
| Galileo Fund Services Limited              | +44 (0)1624  | 
|                                            | 692600       | 
+--------------------------------------------+--------------+ 
| Ian Dungate, Company Secretary             |              | 
+--------------------------------------------+--------------+ 
|                                            |              | 
+--------------------------------------------+--------------+ 
| Panmure Gordon (UK) Limited                | 44 (0)20     | 
|                                            | 7459 3600    | 
+--------------------------------------------+--------------+ 
| Hugh Morgan                                |              | 
+--------------------------------------------+--------------+ 
| Stuart Gledhill                            |              | 
+--------------------------------------------+--------------+ 
|                                            |              | 
+--------------------------------------------+--------------+ 
| Smithfield Consultants                     | +44 (0)20    | 
|                                            | 7360 4900    | 
+--------------------------------------------+--------------+ 
| John Kiely                                 |              | 
+--------------------------------------------+--------------+ 
| Gemma Froggatt                             |              | 
+--------------------------------------------+--------------+ 
 
Website: www.europeanconvergencedevelopment.com 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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