CEE hotels developer Warimpex sees asset value revival ... PFE... · plied for insolvency protection last week in British courts. ... Hansteen, exploiting the clear inadequacy of

weekly investor newsletter Volume 5 | Issue 145 | 30 November 2009

INSIDE ❱❱〉

Sweden to amend covered bond legislation

Germany’s Aareal: €2.4bn new business in first 9mths

Pfandbrief issuers to modify funding strategy

Retail occupier market unlikely to recover yet

Tepid European office market to continue

Swiss Züblin 1H09 earnings fall on asset sales

Spain rapid readjust-ment in retail pipeline

Dutch market stabili-sation to encourage retail investors

Sparkassen Immo depreciations bring net 9mth loss

Listed Czech devel-oper ECM nine-month net loss widens

OUT NEXT MONDAY146 Property

Investor Europe

CEE hotels developer Warimpex sees asset valuerevival under way, turns round 2008 9mth lossListed Austrian CEE hotels developer and investor Warimpex returned to the black in the third quar-ter, mainly due to a revival in asset values. Chairman Franz Jurkowitsch said the market showed im-pairment reversals, especially noticeable in the cyclical hotel business. New appraisals showed values significantly higher than carrying amounts. (See inside pages for full story)

Germany’s IVG weighs larger capital increase – CFOGermany’s largest listed property company by assets, the Bonn-based IVG, is considering a larger capital increase to follow its recent rights issue that brought in €72m, aimed at providing capital to resume a policy of asset acquisition. The move is not imminent and will in any case wait until IVG has fully placed two new funds, CFO Wolfgang Schäfers said. (See inside pages for full story)

UK’s Hansteen takes stake in insolventKenmore, weighs full offer for companyUK-based Hansteen Holdings has issued 4.1m new shares at 10p each as part of an investment of 12% in the Edinburgh-based Kenmore European Industrial Fund, whose parent group applied for insolvency protection last week in British courts. KEIF, which invests in industrial property in central Europe and Scandinavia, had net asset value of £105m at end-June, but £66m when taking into ac-count potential tax liabilities. (See inside pages for full story)

US Cornerstone, UK Protego to manage $30bn AUMMassachusetts Mutual Life Insurance Company is entering European direct property by acquiring Protego Real Estate Investors, based in London. The acquisition will be made by the US group’s wholly-owned property manager Cornerstone Real Estate Advisers LLC, and is designed to channel cross-border property capital both ways across the Atlantic. (See inside pages for full story)

French REIT Icade in €2bn block housing salePursuing its policy of exiting from housing activities, French REIT/SIIC Icade, majority controlled by the state bank Caisse des Dépôts, in mid-November agreed a €2bn block sale of 29,452 housing units to a consortium of 25 social housing investors. Icade said the sale will generate €600m in capital gains. (See inside pages for full story)

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PROPERTY FInAnCE EUROPE Volume 5 l Issue 145 l 30 November 2009 l www.pfeurope.eu 2

Germany’s IVG weighs larger capital increase – CFOGermany’s largest listed property company by assets, the Bonn-based IVG, is considering a larger capital increase to follow its recent rights issue that brought in €72m, aimed at providing capital to resume a policy of asset acquisition.

IVG Chief Financial Officer and board member Wolfgang Schäfers gave no further specifics of timing or targeted amount of any new capital raising in an interview with the Frankfurter Allegemeine Zeitung newspaper. But he said a small rights issue in October has “proven our capital market capability.” The move would in any case wait until IVG has fully placed two new funds – a Green Building Fund and a UK Recovery Fund. The group retains 20% of equity in each of these, and is targeting €150m equity in the first, which IVG hopes to close already in early 2010, and €200m in the latter.

“IVG has survived the crisis; we are slowing moving up again,” Schäfers told the newspaper. At the operating level, it is already in profit, even if it will not quite reach break even on net earn-ings this year due to depreciations on the portfolio, distressed asset sales in the past, and a rise in costs at its massive Airrail-Center project at Frankfurt Airport. In the latter, IVG was forced, at a cost of some €90m, to dismantled installed steel gird-ers imported from China when welding was found to be inade-quate to meet German building standards. Despite this, IVG posted a small third quarter net loss of €2.2m, sharply narrowing the second quarter shortfall of €54.5m. Schäfers said a strict cost reduction program over the next three years will cut costs by 40% compared with 2008. pfe

PFE COMMENT: It would be surprising if IVG were not weigh-ing a capital increase in the reasonably near future since almost all of the listed property sector in mainland Europe is considering emu-lating several UK counterparts and raising new equity cash. The calculation CEOs have to confront right now is whether to wait until their share prices have recovered further toward NAV – most are still 40%-50% under water – or to risk missing out on some direct assets at still fairly rock-bottom prices, and from lenders will-ing and able to take a little write down in return for winning li-quidity, particularly, for year-end books.

UK’s Hansteen takes Kenmore stake, may make full offer UK-based Hansteen Holdings has issued 4.1m new shares at 10p each as part of an investment of 12% in the Edinburgh-based Kenmore European Industrial Fund, whose parent group ap-plied for insolvency protection last week in British courts. KEIF, which invests in industrial property in central Europe and Scan-dinavia, had net asset value of £105m at end-June, but £66m when taking into account potential tax liabilities.

The stake in KEIF, listed on the London Stock Exchange in 2006 after raising £140m of equity, was acquired this week from Knowe Properties, for a total £3.36m in cash and the Hansteen stock, equivalent to 20p in cash and 0.2469 new Hansteen shares for each KEIF share. Based on the Hansteen share price of 83.25p on 24 November, the aggregate consideration is £6.81m, or about 40.6p per KEIF share. Following admission, the issued share capital and voting rights in Hansteen will be 454m. Hans-teen confirmed that an approach has been made to KEIF in rela-tion to a potential full offer on the same terms which would value KEIF at £57m.

Hansteen said it believes, “this potential acquisition is an ex-cellent opportunity to buy high yielding assets which would complement and extend its existing European portfolio. It would also further capitalise on the asset management expertise already developed by Hansteen in Europe.” Discussions with the board of KEIF are at a very preliminary stage, and any offer would be subject to due diligence so that there can be no certainty that any offer will be made. KEIF, which focuses mainly on industrial, office, retail and mixed-use property, has been very active in re-cent months selling assets across Europe in an attempt to raise capital and liquidity, with the most recent being Paris and Bel-gian assets that it said were sold at above acquition cost. pfe

PFE COMMENT: This looks to be a very good move indeed for Hansteen, exploiting the clear inadequacy of cash-flow that has caused problems for Kenmore. A good deal indeed, if one makes the assumption, as we do, that commercial property prices across Europe have passed the bottom and should recover toward long-term fair value in the next 12-24 months. It is of course not quite as simple as buying £105m for a price of £57m since tax liabilities are outstand-

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ing, NAV has to be examined and cost of administration, manage-ment and funding taken into account – not a particularly straight-forward calculation, given still tight credit conditions.

US Cornerstone, UK Protego to manage $30bn AUMMassachusetts Mutual Life Insurance Company is entering Eu-ropean direct property by acquiring Protego Real Estate Inves-tors, based in London. The acquisition will be made by the US group’s wholly-owned property manager Cornerstone Real Es-tate Advisers LLC, and is designed to channel cross-border prop-erty capital both ways across the Atlantic.

Cornerstone will also integrate MassMutual commercial mort-gage lending unit Real Estate Finance Group of Babson Capital Management, effective 1Q10. The combined group will thus be-come a unit of Babson Capital Management, and will manage some $30bn of real estate assets - ranking it as one of the largest global property managers globally.

Established in April 2004 by Iain Reid, Charles Weeks and Hugo Llewelyn, Protego manages and services some $2.5bn of assets in the UK, Sweden, Finland and Germany, and will retain its own brand within the Cornerstone group. It has 30 staff in UK and continental Europe, and in March 2006 and September 2007 opened offices in the Netherlands and Sweden respectively.

Reid, Protego CEO, told PIE that MassMutual already has an office in Amsterdam, covering Europe for its global securities (REITs) investment management team, which is headquartered in Stamford. “The timing of this transaction is ideal from all par-ties’ perspective as we plan a conduit for two-way transatlantic capital flows between the US and Europe,” he said. Protego and Cornerstone are complementary in their investment philosophy, business structure and strategy as well as cultural ethos. pfe (See PIE 146, published on 7 December for full story)

French REIT Icade in €2bn block housing salePursuing its policy of exiting from housing activities, French REIT/SIIC Icade, majority controlled by the state bank Caisse

des Dépôts, in mid-November agreed a €2bn block sale of 29,452 housing units to a consortium of 25 social housing investors.

Icade said the sale will generate €600m in capital gains, 50% of which can be distributed in the SIIC regime to shareholders. The consortium has pledged to retain staff attached to the assets, and administrative personnel to manage them. On completion, Icade will continue as planned to gradually sell housing units held under joint-ownership, amounging to another 1,553 for an appraisal value of some €160m.

Icade, chaired by Serge Grzybowski, is active along the value chain of investment, development and services in housing, of-fices, business parks, shops and shopping centres and public-health amenities. In 2008, it recorded consolidated turnover of €1.6bn and net current cash flow of €206m. Its liquidation net asset value rose to nearly €5bn, or €101.6 per share. pfe

Sweden to amend its covered bond legislationSweden is to introduce an amendment to the law on covered bond issuance to deal with potential insolvency of issuing banks, de-signed to provide a bankrupty administrator with an express man-date to take out loans or enter into agreements to maintain match-ing of cover pools, issued securities, and any derivatives contract.

In an article for the latest European Mortgage Federation news-letter, Fanny Borgström and Tomas Tetzell of the Association of Swedish Covered Bonds, said the Swedish finance ministry will present a bill for approval by parliament next year to alter the legislation, after receiving a clear majority approval from the mar-ket in a consultation earlier this year. Borgström is head of treas-ury for Nordea bank, while Tetzell heads the ASCB secretariat.

The two said the Swedish covered bond market is one of the best-functioning in the world, and has remained open through-out the financial crisis. Out of total outstanding volume of €128bn (excluding Pfandbrief ), about 80% has been issued in Sweden. “This figure should be considered against the fact that it was not until 2006 that the first Swedish covered bond was is-sued under the Swedish Covered Bond Issuance Act,” the two said. The key Swedish distinction is the tap issuance format via contracted market-makers which allows issuers on a frequent ba-sis, to tap the market in small to medium sizes, even on a daily basis if needed. pfe


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Germany’s Aareal does €2.4bn new business in first 9mthsThe Wiesbaden-based Aareal Bank said it has done new property lending of €2.4bn in the first nine months of 2009, concentrat-ing on its existing client base and particularly on loan extensions. This, plus good structured finance and other results, brought in operating profit in the third quarter at €25m, unchanged from 2Q09, and down slightly from the €31m in 3Q08.

“We have been holding our course during the current financial year,” said Aareal Chairman Wolf Schumacher. “The fact that we posted another set of satisfactory results - in a challenging mar-ket environment - once again emphasises the coherence, sustain-ability, and crisis-proof performance of our business model… Profitability remains high enough not only to absorb various dif-ficulties thrown up by the financial markets crisis and the conse-quences of the weak economy.” It is also adequate to bear addi-tional costs incurred by the agreement with the German government’s financial support fund SoFFin.

Net interest income, which accounts for the most significant share of segment income, amounted to €98m, virtually unal-tered from 3Q08, and only slightly below the €101m in 2Q09. “Higher margins in the lending business continued to have a positive effect,” Schumacher said. “Given the volatile market en-vironment, the bank has maintained a very comfortable level of liquidity reserves: this had a slightly negative effect on net inter-est income owing to extremely low short-term interest rates.”

Credit losses remained at a manageable level of €36m in 3Q09, down from prior quarters and within projections. They are ex-pected at €150m for the full year, at the upper end of forecast corridor. In the third quarter, Aareal, “once again proved that the commercial property finance business is profitable, even in the most severe economic crisis experienced for decades - provided that it is conducted in a sustainable and prudent manner… This also applies to our tried and tested three-continent strategy to ensure regional diversification of our business: in particular, we have no plans to cut back our international branch network,” Schumacher added. Aareal confirmed projections for key finan-cial indicators. Consolidated net interest income is expected to be around €455m for the year. pfe

Pfandbrief issuers to modify funding strategyCovered bonds are likely to play an important role in many banks’ funding plans for next year given that the state-guaran-teed new issue market is no longer present in many countries, and asset-backed securities have not yet returned to speed.

In its latest research report, Commerzbank cited data from the European Securitisation Forum showing around 99% of all new securitisations in second quarter 2009 were still being retained and not publicly placed. It therefore expects the high issuance momentum in the Jumbo Pfandbrief market to continue in 2010. Nevertheless, it the spread advantage that an issuer can achieve with a Pfandbrief covered bond compared with unsecured debt has diminished considerably during the market’s recovery. In principle, this would suggest a dwindling proportion of new en-

trants, as it will become more difficult to recoup start-up costs incurred upon the launch of a new Pfandbrief issuance program.

The diminishing spread of unsecured debt relative to covered bonds makes new entry to the latter segment in principle less attractive. This could result in next year’s newcomers increas-ingly consisting of weaker credits or smaller institutions, for which the relative advantage of Pfandbrief funding is still higher. However, such names should find it more difficult to achieve the same spreads or volumes common among the tier-one issuers of the market. This is because investors are expected to become in-creasingly selective going into the next year. The time when in-vestors’ money flowed indiscriminately into the Jumbo market in anticipation of an ECB-induced, virtually guaranteed spread performance seems to be over for the time being. Instead, slight spread corrections cannot be ruled out even in supposedly stronger jurisdictions. The potential for a further homogenisa-tion of covered bond spreads therefore looks limited, and relative value considerations are moving to the forefront again. pfe (See PIE 146, published on 7 December for full story)

Retail occupier market unlikely to recover yet – King SturgeAmid early signs of activity in European retail investment mar-kets, occupiers face at least two more years of hardship and the segment is seriously out of sync with any investment recovery, says realtor King Sturge in its latest research.

The report European Retail Property 2010 says that, given the well-documented decline in capital values in the last two years, the focus has invariably shifted to income streams. But these have fared little better, with average underlying rents across Eu-rope’s retail markets set to fall further, and many unlikely to re-turn to positive rental growth until 2012. As the investment and occupier markets are inextricably linked, improvement in the former may be derailed by occupational weakness, cautions the report. “Some investment markets are running before they have got their occupier ‘legs’,” comments Stephen Springham, retail research partner at King Sturge and the report’s author. “Invest-ment volumes are starting to come back and yields on properties let on secure income streams, typically for 10 years or more, have experienced dramatic yield compression since the spring. Rents, however, are generally at best stagnant or more commonly going backwards, in some cases significantly. Whether the rally has continued momentum is therefore extremely questionable. Va-cancy rates in a minority of markets are now past their nadir, having peaked in most European markets in the first half of 2009. Whilst the pace of retailer fallout has slowed as the year has unfolded, a considerable number still have uncertain futures, and the next six months will be telling.”

In many European countries, where retail leases are pegged to an-nual indexation (such as the consumer price index) during the lease term, the prospects for future revenue streams are brighter, particu-larly longer term. Most will see a return to positive CPI indexation by 2010 with the notable exception of Lithuania and Latvia, which are forecast to experience the sharp correction that Estonia has seen this year. Between 2013 and 2020, all the European countries mon-itored by Oxford Economic Forecasting will witness average annual rises in CPI of between 1.5% (Switzerland) and 3.1% (Slovakia and


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Funds in Frankfurt - responsible for Germany, NL, CEE and Russia – and in Mi-lan. Prior posts included European Real Estate Head for CSFB in London, prin-cipal with Hanford Healy, San Francisco, and Federal Savings and Loan Insur-ance Corp, later RTC, in Washington D.C. He began his career in Atlanta, Ga.

CHARLES FOLLOWSSenior director, iNG real Estate, Global research and Strategy, london ING REIM is an integrated real estate group that invests in, finances and develops quality global real estate with a total portfolio of over €100bn. It manages co-mingled funds, and separate accounts. With over 30 years in real estate, Mr. Fol-

lows joined ING in 2006 and works with global clients and fund managers preparing investment strategies. He is responsible for coordinating sustaina-ble initiatives for ING around the world, and until end-2008 was leading the UK business on all ‘green’ property issues.

MAX BEEKMANNhead of European Sustainability Committee, pramerica real Estate investors, munich Investing in Europe since 1990, Pramerica manages funds across the risk-return spectrum in western Europe, CEE and Middle East. Today it has over 150 associates in eight offices in the region, with gross AUM of $8.6bn and NAV of $4.5bn.

Mr. Beekmann joined in 2001 and is European Chief Underwriter, a Global Sustainability Committee member, and leads the European Sustainability Committee. He holds an MBA from Vienna University / Minnesota U. and is Diploma Engineer of Urban Planning from the University of Dortmund.

PAUL JAYSONreal Estate partner, Green real Estate team, dla piper, london With 3,500 lawyers in 29 countries and 67 offices through-out Asia, Europe, Middle East and the US, DLA Piper is one of the largest providers of legal services in the world. Mr. Jayson has experience in all aspects of commercial real es-

tate, with particular emphasis on development and investment. His special interest in sustainability in the built environment places him at the forefront of DLA Piper’s ‘green’ real estate team developing best practice for Green Leases, and advising on sustainability strategies.

CHARLOTTE EDDINGTONGroup head, Energy & Sustainability Corporate advisory, CB richard Ellis, londonBased in Los Angeles, CBRE is the world’s largest commer-cial real estate firm by revenues, with 30,000 employees in over 300 offices worldwide. Ms. Eddington, a director in

Global Corporate Services, specialises in energy project investment and cor-porate environmental strategies. She chairs sustainability working groups and holds committee positions with the CBI, British Property Federation, UK Green Building Council and Managing Partners Forum. She recently won the Women in the City award, Property Sector.

SIMON COXVice president, project management – prologis developments, SolihullProLogis is the world’s largest owner, developer and man-ager of distribution facilities, with over 44m sq.m. of space. Mr. Cox specialises in sustainability and advises on environ-mental stewardship. He joined ProLogis in 2006 and

project-managed two flagship sustainable developments: a 624,000 sq.ft. distribution facility for Sainsburys supermarkets and a recent 200,000 sq.ft. centre for Royal Mail. He has 14 years’ experience as project manager on de-velopments including mixed-use, retail and hotels.

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Bulgaria). “In simple terms, rapid increases in rents on the back of a bull market may be a thing of the past, but income from indexed retail rents will ultimately return,” says Springham. pfe (See PIE 146, published on 7 December for full story)

Tepid European office market to continue – Moody’sThe European office occupational markets that support com-mercial mortgage-backed securities stabilised at a low level in 1H09 due to some improvements. However on a 12-month ba-sis, a weakening of the overall market is still significant and chal-lenges remain due to a continuing imbalance between demand and supply, says rating agency Moody’s.

In its semi-annual update of its Red-Yellow-Green analysis which assesses the strength of the European office occupational markets for the sector, Moody’s says that between mid-year 2008 and mid-year 2009, the weighted-average for the European of-fice markets weakened. These dropped to 42 from 56, indicating an overall medium-to-weak market, said Jeroen Heijdeman, Moody’s analyst and co-author. He explained that the downward trend was mainly caused by 11 of the 24 markets analysed be-coming weaker. In addition, the number of very weak markets increased to 11 from six over the 12-month period.

The analysis covers 24 major European office markets, including London, Paris, Barcelona and Munich. Depending on the degree of stress on rental markets in the short-term, markets are scored on a scale of zero (weak) to 100 (strong). Scores of 0-33 are identified as red, 34-66 as yellow, and 67-100 as green. Moody’s notes 11 markets are very weak, two very strong, and 11 markets in the middle territory between the two. Only four showed positive changes in their overall scores, while in 19 the situation deterio-rated. The results show a significant weakening overall, said Oliver Moldenhauer, another co-author. However, the markets improved slightly over the past six months, starting year-end 2008.

The decline of the overall score on a 12-month basis was main-ly the result of continued imbalances of demand and supply leading to increasing vacancies over the past six months. Al-though demand was decreasing when viewed over a 12-month basis, it actually picked up over the past six months. On the sup-ply side, expected completions have been adjusted further down-ward to 5.1m sq.m. (2.3% of inventory) to be released onto the market before mid-year 2010. Moody’s remains cautious for Eu-ropean office markets as a reduction of future demand could re-sult in a further increase of vacancy levels. pfe

Züblin half-year earnings fall due to asset salesSwiss listed property group Züblin Immobilien Holding an-nounced rental income for the six months ending 30 September of CHF53m compared with CHF67m in the previous year, a 20% decrease mainly due to significant amount of asset sales in the prior 12 months.

Contractual annual rental income as of 30 September stood at CHF108m. The company also reported EBITDA of CHF41m,

and net income of CHF15m. The result was supported by a 20% reduction in operating costs year-on-year, as well as a positive net property value adjustment of CHF4m, or 0.2%. The company’s vacancy rate stood at 9.7%, practically unchanged from 31 March, 2009 (9.6%).

Züblin says it will focus on reducing vacancy rates, selling non-strategic assets, increasing the energy efficiency of its portfo-lio, and reducing costs further. pfe

Spain sees rapid readjustment in retail development pipelineSpanish retail property developers have reacted quickly to the global downturn, cutting project volume in 2009 from the orig-inal forecast of 1.1m sq.m. to an end figure of 360,000 sq.m. As a result, rents should rise when the market begins to recover, says realtor Savills.

Of new retail development in 2009, which followed a record delivery of 1.08m sq.m. new retail space in 2008, the highest proportion at 33% comprised small shopping centres followed by retail warehouse space at 29%. A further dip in the develop-ment pipeline is anticipated in 2010 as many Spanish developers are delaying projects as they expect a recovery in retail demand and financing facilities in 2011. Development activity is expect-ed from 2011 onwards with many developers picking up on pre-viously postponed schemes.

Luis Espadas, director of Savills retail investment in Spain, commented: “The economic crisis has impacted heavily on Spain, with consumer sentiment at a low level and spending sig-nificantly down. As with other countries there is now stronger pressure on rents and some larger retailers are using this as lever-age to renegotiate current rents. A decline in development will help to control vacancy levels but once the market goes into re-covery it should result in upward rental movement as demand puts pressure on a lack of new supply.”

Spain ranks number five in Europe, according to gross lettable area of retail per 1,000 inhabitants. Savills research puts Norway in lead position followed by Sweden, Netherlands and Austria respectively, with the UK at number six. pfe

Dutch market stabilisation to encourage retail investorsThe Dutch economy has hit bottom and appears to be stabilis-ing, and this will spark renewed interest from retail real estate investors wishing to take advantage of price readjustments be-fore a full recovery has been achieved, says international realtor Savills.

Major high street property yields moved out by up to 125bp through 2008 to 5.5% but have stabilised throughout 2009. In secondary locations yields are at 7%-7.5% and in shopping cen-tres prime yields stand at 6.5%. Retail warehouse yields are at 8%. This pricing readjustment means now is the time for inves-tors with capital to buy before an increase in sales in 2011, fol-lowed by a significant boost in take-up in 2012, which will spark larger investment volumes.


Jan Peter Hebly, Savills’ Netherlands Retail MD, said: “The retail market is facing challenging times with low sales and short-term forecasts not being positive. These are the times where the good retailers will prove themselves. The same goes for the prop-erty market: transactions are low and interest is mainly focused on prime locations. For investors with capital this market does offer interesting possibilities.”

Current vacancy rates are at approximately 8% and mainly on secondary sites with prime locations showing no vacancy al-though there is less retailer demand even at these sites. The im-pact on rents in primary sites has been a stabilisation of pricing, compared to increases of 3%-4% per annum prior to 2008, and in some areas there have been rental decreases particularly sec-ondary sites, which have seen 5%-10% falls. The highest rents were found in Kalverstraat in Amsterdam with prime rents at €2,500 per sq.m. pfe

Sparkassen Immo deprecia-tions bring net 9mth loss Austrian listed developer and investor Sparkassen Immobilien, mainly active in CEE and its home market, reported steady op-erating profits for the first nine months of 2009, but a net con-solidated loss of €71.6m, compared with a profit of €11.7m for the same 2008 period.

EBITDA for the first nine months was virtually unchanged at €49.4m, while EBIT dropped to a loss of €54.1m. The losses were caused by changes in portfolio valuations, dealt a blow by the global financial crisis. Revenues for the first three quarters came to €86m, up from €81.5m for the same period last year. Of this, rental income rose 4% to €66.62m.

Board member Holger Schmidtmayr commented: “The con-tinuing disappointing performance of our markets - in particular the higher yields expected by investors from property invest-ments in eastern Europe and the consequent decline in property valuations - had no effect on cash flows but meant that valua-tions had to be revised downwards, resulting in an accounting loss.” Sparkassen Immo will continue to pursue a strategy that includes a balanced portfolio, reliable business partners and sta-ble core shareholders. It expects completion of the development projects in future years to lead to significant increases in rental income and a doubling of cash flows. pfe

RUSSIA/CIS-CEE

CEE hotels developer War-impex sees asset value revivalListed Austrian CEE hotels developer and investor Warimpex returned to the black in the third quarter with a small profit of €400,000 from a year-earlier loss of €1m, helped by a revival in some asset values across the portfolio. Despite this, EBITDA slid 33% to €4.3m..

Chairman Franz Jurkowitsch said that thanks to current mar-ket improvements - “especially noticeable in the hotel business because of its early-cyclical nature” - the figures reflect significant impairment reversals for some of the portfolio after new apprais-als showed values significantly higher than the carrying amounts. “While a clear sign of recovery, we still have much to do before we return to the levels we enjoyed during the boom years before the financial crisis.” Warimpex is now aiming to complete cur-rent development projects on schedule, increase cash-flow through active asset management and implement new projects.

As prices for properties at good locations in CEE have come back down to attractive levels, Warimpex plans to acquire new land for development of budget hotels and the four-star angelo franchise. Proceeds of €8.1m from its October share issue will be used to finance new projects and selective purchase of distressed CEE assets, and will optimize the current financing structure and strengthen the company’s equity base.

Results in 3Q09 benefited from gradual stabilisation of the hotel market and reversal of some of the impairments recognised in 1H09, lifting EBIT by 73% at €5.9m. End-September ap-praisal updates for Hotel Liner, angelo hotel in Ekaterinburg and andel’s hotel in Lodz showed significant value increases. Third-quarter group sales were down 8% at €24.4m, caused by condi-tions in Prague where four and five-star revenues dropped, by as much as 40% in the five-star segment, but gradual stabilisation emerged during the period. Nine-month results were depressed by first-half writedowns, with a loss of €98m, but EPS was posi-tive at €2.63.

Development projects under construction, including Kato-wice angelo hotel due to open 1Q10 and Crowne Plaza Hotel at Airport City in St. Petersburg to open end-2010, are on schedule and Warimpex said the property transactions market is also showing “definite signs of recovery.” Warimpex sold andel’s hotel


in Krakow at good terms and the lease structure will generate net earnings as lease payments should be lower than the hotel’s rev-enue. The October share capital increase of nearly 10% was sig-nificantly oversubscribed, and puts the company in a better posi-tion to react quickly to rapidly changing market conditions. Warimpex, listed in Vienna and Warsaw, owns or joint-owns 20 business and luxury hotels and five commercial and office build-ings and aims to become hotel property market leader in New Europe. pfe

Listed Czech developer ECM widens 9mth lossListed Czech developer and investor ECM Real Estate saw its nine-month net loss widen to €28.1m from €22.2m, slightly higher than analysts’ forecasts of around €26m.

The net operating loss also rose to €5.7m from €4.3m a year earlier, but swung into a profit of €2.4m in 3Q09. Nine-month net rental and related income grew 41% to €11.7m, mainly on increased occupancy of its City Tower office building, the Czech Republic’s tallest building. City Tower is part of ECM’s City multifunctional office and residential project in Pankrác, Prague 4. ECM also sold 65% of stage 1 of its Unhost Terraces residen-tial development near Prague, completed construction of two Chinese projects and progressed its €100m-plus Russian shop-ping mall in Ryazan, 180 km from Moscow.

Total equity shrank by 29.4% from end-2008 to €67.3m. Total assets were down 22.7% at €524.3m, reflecting the change from full to equity consolidation of its Chinese projects ECMall and office building Metropolis Tower - scheduled to open in 1Q10 - after it sold a 23% stake to its local JV partner early this year, cutting its own stake to 37%. ECM didn’t revalue its investment portfolio, but it reported a valuation loss of €1.7m on exchange rate fluctuations. Administrative costs were cut by 25%, with some effects from cost-cutting measures yet to work through. pfe (See PIE 146, published on 7 December for full story)

Polish mall market seen usher-ing in market rebound Shopping centre density in Poland is currently at 185 sq.m. per 1,000 inhabitants compared with a European average of 207 sq.m., indicating strong potential for development, says consult-ant Savills. Cushmans &Wakefield also sees a market rebound in the next couple of years.

Savills still expects a focus on secondary and tertiary cities over the next 36 months, with activity in larger cities targeting retail parks and smaller convenience centres. Development of modern department stores and high street retailing will probably not ac-celerate until 2012, when 120 projects are due for completion to add 3m sq.m. of modern retail floor space. The majority of these projects are planned for secondary and tertiary cities.

Demand for modern retail floor space has shrunk over the past 12 months, but “there are retailers, in particular low and mid-range sectors, who are still expanding their chains and get-ting benefits from lower rental levels and larger incentives of-

fered by landlords. Over 65% of current supply is focused around the eight largest agglomerations and so the secondary and tertiary areas hold opportunities when the economy im-proves, says Savills Poland research and development consultant Michal Stepien.

Savills research notes a slight increase in average vacancy rates in Poland over the last 12 months, but overall vacancy rates in major regional cities still remain below 5%. A slowdown in the economy and the depreciation of the Polish zloty has been evi-dent but nevertheless rents remain stable, with declines mostly in secondary locations and older projects. Prime rents in Warsaw are at €60-85/sq.m./month, and in regional cities, at €40-60/sq.m./month.

C&W predicts 2009 will end with750,000 sq.m. of new leas-able retail space, as development decisions on retail facilities cur-rently being delivered were made 2-3 years ago at the market peak. But this year’s difficulties in obtaining financing have put a number of projects on hold, meaning a drop in supply in 2010-2012 - limiting availability of modern retail space. It believes small and medium-sized cities will be most affected, as the main focus in recent years and now considered more risky.

Falling retail turnovers and scattered bankruptcies have marked 2009, and zloty weakness negatively impacted retail chains in the early part of the year, though the currency stabilised in the sec-ond half, C&W notes. But at the same time, retail companies have also started recovery programmes and debt renegotiations, sought strategic investors, optimised expansion strategies and modified retail concepts, largely with positive results. Several re-tail chains have used the crisis period to push forward expansion plans and strengthen their market position. TK MAXX chain made a spectacular entry into the market, with plans to open a further 100 stores in Poland.

The increase in total leasing costs has caused rental rates rene-gotiations and more incentive packages and widened the gap between transactional and effective rent. But after 2010, limited availability of space for leasing will push rents back up and re-verse the current market trend. For the retail investment market, 2009 has been a wait-and-see period for both sellers and buyers, but 2010 is expected to usher in a recovery. However, to mini-mize risk, investors will focus increasingly on prime properties or make sale & leaseback deals, C&W predicts. pfe

Shopping centre rents highest in Russia and UKRussia and the UK command the highest prime shopping centre rents in Europe at €2,000 per sq.m. per annum, according to recent research by Jones Lang LaSalle.

JLL presented a map, produced in co-operation with many of the largest shopping centre owners and managers in Europe, pro-viding an overview of prime shopping centre rental levels to-gether with short term growth prospects for 17 European coun-tries. JLL’s Nicola Birkett commented: “Due to the limited availability of prime retail space in many shopping centres across Europe, the outlook over the next six months for prime rents in most markets is stable despite the inevitable slowing of demand from occupiers. However, downward pressure remains on rents in .. markets including Hungary, Romania and Spain.” pfe


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INSIDE ❱❱〉

European housing supply-demand gap widening

Luxembourg office to offer 2010 oppor-tunities

Lonestar’s Coreal-credit places €500m Pfandbrief

CBRE-GFI launch property inflation risk service

UK’s PCP selling 400m German retail malls

ULI adds more cities to Urban Investment Network

Sweden’s Castellum in profit, turns round loss

Spain’s Banesto to sell 1,200 homes at steep discount

Portugal’s Sonae still suffering from depreciations


Finance Europe

German office prices show first rise in twoyears – Jones Lang LaSalle’s VICTOR indexAverage values in prime office real estate in Germany’s Big Five cities rose in the third quarter by 0.3%, improving for the first time since 3Q07, according to the latest VICTOR index from realtor Jones Lang LaSalle. The rise will be welcome news to most market participants in the prime office in Germany, commented Andrew Groom, Director of Valuation Advisory at JLL Germany. (See inside pages for full story)

Norwegian Property posts positive 3Q09 Re-structuring Oslo-based listed hotels and commercial real estate investor Norwegian Property posted profit before tax of NOK251m (€30m) for third quarter, turning round a loss of NOK1.37bn (€163n) in 3Q08. Portfolio value adjustments were almost flat. “We are pleased to present a result representing a considerable improvement,” said acting CEO Mari Thjømøe. (See inside pages for full story)

RE investment jump shows confidence returningSigns of recovery are appearing in the European property market, with investment volumes jumping 53% in 3Q09, yields stabilising and even the occupational market managing to show more encour-aging signs of approaching stability, says realtor Cushman & Wakefield. “It’s clear we’ve turned an important corner,” said Cushman & Wakefield’s James Chapman. (See inside pages for full story)

Invesco in €155m Hamburg buy for hotel fundInvesco Real Estate, the property arm of US Prudential insurance, has acquired Radisson Blu Hotel in Hamburg, for €155m for its European hotel fund, the biggest acquisition to date. Seller is the Luxembourg-based private equity group Azure. (See inside pages for full story)

German property sentiment surging – King SturgeGerman real estate investment market sentiment surged in October, according to realtor King Sturge. Though its Real Estate Economy Index continued its upward trend at a steady, if slackening pace its Real Estate Economic Situation index rose 2.9% on the month. “The real estate investment market is clearly surging,” said King Surge MD Sascha Hettrich. (See inside pages for full story)

Retail is DetailMulti shopping centres host 10,599 retailers and 764,151,342 customers

www.multi.eu


INSIDE ❱❱〉

YIT, BPT to cooperate in Russian real estate

RREEF European Core Recovery Fund targets €250m

Avingstone aims at €500m for European luxury hotels

alstria FFO lower but tracks 2009 guidance

IVG narrows loss; operations, liquidity stabilise

Sparkassen Immo €110m sale is Prague’s largest

New investment mgr. Aurea created in Madrid

Frankfurt’s DIC Asset raises 2009 guidance

GTC posts 3Q09 net loss of €34m on depreciations


Finance Europe

Spanish REIT/SOCIMI law takes effect; aimed to support nation’s real estate market amid crisisPublication in Spain’s Official Gazette of a new Act to legalise REITs brings the nation into the European group offering the tax-favoured pass-through listed property investment vehicles. Spain follows Netherlands, Belgium, France, Germany, UK, Italy, and Bulgaria into the club. Finland has legalised residential REITs only. (See inside pages for full story)

German coalition leaves room for residential REITsThe new German government coalition contract, binding over its four-year mandate, contains very vague references to Real Estate Investment Trusts but indicates that it will allow residential property as allowable assets - even if the topic is not high priority for Berlin. (See inside pages for full story)

French FdR sees near-4% rise in rental incomeFrench REIT/SIIC Foncière des Régions reported strong rental income for the first nine 2009 months, a rise of 3.8% like-for-like against the 2008 period, to €773m. “The good indicators we are getting from asset management confirm the soundness of our overall business model,” said CEO Christophe Kullman. (See inside pages for full story)

SPS to delist Jelmoli; offer hits 98% acceptanceListed Zurich-based property group Swiss Prime Site, after settlement of its takeover offer has won more than 98% of the voting rights of stock in Swiss department stores group Jelmoli Hold-ing, fulfilling legal conditions for cancelling remaining publicly-held Jelmoli shares. (See inside pages for full story)

France, Germany said little affected by KenmoreFrench and German managers of units of the Kenmore Property Group said assets in their coun-tries have been little affected so far by the administration procedures launched on 11 November by the Edinburgh-based Kenmore Property Group. Kenmore manages more than £1bn of property in UK, France, Holland, Germany, Belgium, Sweden, Norway, Finland and Dubai. (See inside pages for full story)

Retail is DetailMulti shopping centres host 10,599 retailers and 764,151,342 customers

www.multi.eu


INSIDE ❱❱〉

Austria’s Immoeast opens giant new mall in Moscow

PSP Swiss Property on course for record year

WestImmo places 2nd €500m mortgage Pfandbrief

Euro banks’ office take-up falls, except in UK

Spain’s Neinver also outlet leader in Poland, Germany

Redevco eyes Asia after Turkey mall ambitions

European retail invest-ment up 18% in 3Q09

Struggling Orco widens loss; posts 3Q operating profit

CEE’s Atlas Estates 9mth loss widens

Trigranit opens first stage of €500m Krakow mall

Prague hotels seen least profitable in Europe


Finance Europe

German open end fund community deeply unsettled by new Aberdeen, Axa closures In a move renewing concerns about the structure of German open-end property funds, Aber-deen Property Investors’ Aberdeen Immobilien has, once again, suspended redemption of cer-tificates in its DEGI International fund, while Axa Investment Managers, controlled by the French insurance group, was obliged to make the same move for its Axa Immoselect fund. (See inside pages for full story)

Troubled French REIT Gecina appoints new CEOTroubled French REIT Gecina has appointed a new CEO, Christophe Clamageran, to take over operations under Joaquin Rivero, the controversial chairman and major shareholder of the second largest REIT/SIIC by assets. (See inside pages for full story)

Opportunities in European distressed RE debt The banking crisis has opened up interesting opportunities for investors to buy distressed debt, says Paul Severs, finance partner at London law firm Berwin Leighton Paisner. He told a panel at the European Real Estate Opportunity Private Fund Investing Forum in London last week however that investors need to be cautious and consider wider issues. (See inside pages for full story)

French retail real estate development revivesThe French retail real estate market has seen a marked increase of 25% in development projects below 1,000 sq.m., driven by demand from hard discounters such as Lidl and Leader Price, accord-ing to international realtor Savills. (See inside pages for full story)

Eurocommercial rights issue finances new mallsFollowing its decision to start a shopping centre at Växjö in Sweden at a cost of €40m, listed Dutch retail mall developer Eurocommercial Properties agreed to acquire two existing malls - in Emilia Romagna, Italy, and in the greater Paris region in France – for a price of €100m and combined net initial yield of about 6.5%. (See inside pages for full story)

Israeli BIG pushes into Serbian mall developmentIsraeli backed joint venture Big CEE is starting construction of its first shopping mall in Novi Sad, Serbia, and laying plans to roll out its concept over the next couple of years in at least 10 others planned across the nation - Nis, Subotica, Serbia, Jagodina, Sabac, Kragujevac, Zrenjanin, Kruse-vac and Cacak. Individual investments will range at €20m-€50m. (See inside pages for full story)

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CEE hotels developer Warimpex sees asset value revival ... PFE... · plied for insolvency protection last week in British courts. ... Hansteen, exploiting the clear inadequacy of