1 June 2006
Equest Balkan Properties plc ("EBP" / "Company")
EQUEST BALKAN PROPERTIES ACQUIRES RETAIL WAREHOUSES IN SERBIA AND THE JULES MICHELET OFFICE BUILDING in BUCHAREST
Equest Balkan Properties plc, the property investment company focused on commercial, retail and industrial property in South Eastern Europe and primarily Bulgaria and Romania, is pleased to announce two new investments in Romania and Serbia to complement its current investments in the Balkan Region. In addition it is pleased to provide an update to the market on two of its recent acquisitions.
Following the acquisitions in Romania and Serbia announced today, EBP has committed EUR 172 million, representing 88%, of the net proceeds of its IPO in December 2005.
Investment in Retail Warehouses in Serbia
Equest Balkan Properties plc has acquired a 70% equity interest in Aurora Property Ventures BV ("Aurora"), a newly formed property company specialising in site acquisition, development finance, ownership and management of retail assets in the Republic of Serbia. EBP's investment is up to EUR 19.8 million (GBP 13.6 million) in cash, payable over 18 months, with an initial payment of EUR 6 million.
EBP's partner in the company is Bulgaria's largest electronics retail group, K&K and its owners. K&K operates Bulgaria's leading retail chain Technomarket (www.technomarket.bg) with some 20 large format retail outlets across Bulgaria and is an overall leader in the electronics retail sector with a market share in excess of 40%.
The investment in Aurora marks the launch of Technomarket's large format stores in the nascent Serbian electronics retail market where the company is already operating select smaller format stores. The retail developments acquired by Aurora are pre-leased to Technomarket as an integral part of this growth strategy.
Aurora has acquired five "big box" retail development sites to accommodate the development of a total of some 42,000 sq m in retail warehouse space on some 71,000 sq m of land. Three of the retail development sites are located in the capital Belgrade and its surroundings and two in Serbia's next largest cities, Novi Sad and Cacak.
The completion of the first development in Novi Belgrade, an upmarket district of Belgrade, is planned for the second quarter of 2007 with the full completion of the developments expected by the end of 2008. The development of the sites is outsourced to third parties and supervised by Aurora and Technomarket.
EBP anticipates receiving a net yield of circa 10% on its drawn down investment during the development phase, an un-leveraged net rental yield of 11% on completion and, following rental step-ups, an annual yield of up to 15% by the end of the fourth year after the completion of the individual retail warehouse unit. Rental agreement and rents payable are denominated in Euros and the tenure of the rental agreements is 10 years.
Acquisition of the Jules Michelet Office Building in Bucharest
Equest Balkan Properties plc has acquired the Jules Michelet Office Building ("Jules Michelet") in central Bucharest for a debt free consideration of some EUR 7 million (GBP 4.8 million) from the UK based Hackmey family and its property investment companies.
The Jules Michelet building is located adjacent to the Romana Square in the heart of Bucharest on Jules Michelet Street and comprises circa 4,128 sq m of B+ class office space in two separate buildings and 35 parking spaces. As part of the consideration, EBP has also acquired 310 sq m of additional land for potential development. The building, which was completed in 2003 is currently the Headquarters of the European Commission in Romania.
The rental agreement with the European Commission is due for review in January 2008 at which point EBP will seek to extend the lease and simultaneously seek to convert the lease terms into Euros in order to eliminate any currency risks for the rental income. The current lease is denominated in US$ and set at a corresponding EUR 11.70 of rent per sq m.
EBP's current unleveraged net yield on the acquisition after costs is 8.82% and the company expects the yield to increase in tandem with new leases for the property in January 2008.
Update on the City Center Sofia Mall and Moldova Mall City Center Sofia Mall
City Center Sofia Mall, the first ever mall to open in Bulgaria, was acquired by EBP in March 2006 and was opened to the public on the 12 May 2006. Since opening the mall has attracted significant footfall with an estimated 25,000 visitors per day.
Currently some 85% of the units have been let to both local and international retailers. The mall's management team is in the process of letting the remaining units and expects to reach full occupancy by December 2006.
New lettings include Marks & Spencer, First Investment Bank, Polo Jeans, Trussardi and Springfield, complementing the current anchors Technomarket (electronics retail), Piccadilly (food retail) and Sunny Films (multiplex cinema).
The mall's centre management is also currently in the process of developing a plan for generating additional revenue streams through marketing opportunities and advertising space as well as the development of additional car parking space in order to build the mall's full income potential and thereby achieve EBP's target unleveraged yield of approximately 9% by the end of 2007.
Moldova Mall
Moldova Mall, also acquired in March 2006, is located in Romania's second city, Iasi. The Mall, which is only in its second month of operation, is fully let to local and international tenants. The launch of the mall was successful and followed by strong footfall.
The management of Moldova Mall's management team has entered into detailed discussion with the municipality of Iasi for a concession to develop an underground car park as well as an additional 1,000 sq m food retail adjacent to the mall. It is hoped that these negotiations will be completed in the coming weeks. Furthermore, the focus of the management has been on developing the other services of the mall, including advertising and events, as well as improving the design of the food court of the mall.
EBP continues to evaluate a number of new investment and development projects both in Romania and Bulgaria as well as in other target markets. The Company expects to be in a position to announce further property acquisitions soon.
Commenting, Petri Karjalainen, Managing Partner of Equest Partners Limited, EBP's Investment Adviser, said: "We are pleased to announce our latest investments in Romania and Serbia with a combined investment value of some GBP 18.4 million (EUR 26.8 million).
"The Aurora Property Ventures investment is EBP's first investment in Serbia. We are extremely pleased to have created this partnership with Technomarket and its management for this investment." "The Jules Michelet Office Building acquisition complements our earlier acquisition of the Domenii Office Building in Bucharest and provides a good return for an office building in this prime location of Bucharest.
"Equest Balkan Properties plc continues to execute on its acquisition strategy in the region and has to date invested almost all of its initial equity capital of GBP 140 million or EUR 195 million principally in income yielding assets in Bulgaria and Romania. Whilst EBP's current deal flow is strong, we have also increased our focus on evaluating development projects in order to reach and maintain higher property yields on behalf of EBP's shareholders as the property yields in Romania and Bulgaria have begun to converge with yields in the European Union.
"EBP is in the process of introducing debt to its investments in order to reach the initial plan of 60/40 debt to equity ratio and we are delighted that we have been approached by a large number of leading European banks that are offering to debt finance properties and projects held by EBP."
For further information please contact:
Equest Partners Limited + 44 20 7240 7600
Petri Karjalainen
Naomi Kora
Financial Dynamics + 44 20 7831 3113
Stephanie Highett
Ed Gascoigne-Pees
Dido Laurimore
Notes to Editors:
Equest Balkan Properties plc is a commercial property investment company focused on South Eastern Europe and primarily Bulgaria and Romania. Its investment objectives are to invest, principally, in a range of income-producing commercial, retail and industrial property opportunities in or around the major cities of Bulgaria, Romania, Albania, Bosnia & Herzegovina, Croatia, FYR Macedonia, Serbia & Montenegro and Turkey, where it sees such investment as having the potential for capital appreciation. The Company may also invest in select development projects where it expects high rental yields. It may also invest selectively in land acquisitions.
Equest Partners Limited, the Company's Investment Adviser, is an independent investment management and advisory firm regulated by the FSA. Headquartered in London and with offices in Sofia and Bucharest, Equest Partners comprises more than 20 professionals with valuable experience of investing in emerging markets and particularly Central and Eastern Europe. Equest Partners is currently one of the largest dedicated investment and advisory companies for the Balkan region.
This information is provided by RNS The company news service from the London Stock Exchange
