Shareholder Update
August 06 2010 - 8:49AM
UK Regulatory
TIDMECPC
RNS Number : 6901Q
European Convergence Property CoPLC
06 August 2010
Shareholder Update from 1st April 2010 to 30th June 2010
06 August 2010
European Convergence Property Company plc (The "Company" Or "ECPC")
The purpose of this document is to update shareholders with new developments
since the Company's last report dated 13 May 2010. This update should be read
in conjunction with all prior reports, which provides commentary on the
historical evolution of the Company's business, and the associated detailed
background information.
This Shareholder Update only deals with Bulgaria as it remains the only country
to which the Company has operating asset exposure.
Market Overview
The economy remained in a difficult state with mixed macroeconomic signals. On
the negative side preliminary data indicate that GDP has contracted 3.6% in
Q1/2010 and FDI continued to decline during the first four months of the year
representing only 0.7% of GDP (3.9% of GDP 2009). On the positive side,
unemployment continued its downward trend and registered a third consecutive
month of decline falling from a peak of 10.3% in February to 9.5% in May.
Exports have gradually increased totalling EUR 4.18 billion in Apr 2010 against EUR
3.5 billion for the same period in 2009.
The government's finances compare favourably to other European countries. In
the first five months of the year Bulgaria generated a budget deficit of 2% of
GDP. Government debt stood at c. 16% of GDP in May and foreign currency
reserves were over 38% of GDP.
Meanwhile, preliminary figures from the Bulgarian National Statistical Institute
(NSI) indicated that retail sales continue to slow. For the first five months
of the year wholesale and retail sales were 12.4% down year on year. Whilst
food sales were basically static, sales of consumer electronics, furniture and
cars were considerably lower.
Bulgaria - Retail Property
Against ? backdrop of difficult market conditions, four large mall schemes with
total Gross Lettable Area (GLA) of over 200,000 sqm have opened during the first
half of the year: Serdika Center (50,000 sqm) and The Mall (66,000 sqm) both in
Sofia, Galleria Plovdiv (50,000 sqm) in Plovdiv, and Grand Mall Varna (50,000
sqm) in Varna. A further 6 to 7 shopping centres are expected to open by the end
of the year. Consequently, 2010 is set to be a record year in terms of shopping
centre development.
Large and established international brands like P&C from Germany and the Inditex
brands from Spain have entered the market by opening their first stores in the
new developments in Sofia. However, these brands tend to be extremely cautious
preferring to wait and see how they perform before choosing their next expansion
move.
Occupier demand is mainly driven by these international brands which are seeking
significant discounts on rents. This coupled with the increased supply of
retail space and the existence of further space in progress has lead to further
downward pressure on rents, shortening of lease contract length, rent
concessions like step rents, longer rent-free periods, and turnover rents, as
well as landlord fit-out contributions. In Q1 2010 prime shopping centre rents
were down around 12.5% on the quarter and regional centres declines were
greater.
The retail investment market has come to a virtual stand still with no
significant retail transactions recorded in the first six months of the year.
Distressed vendors continue to lower their prices but there is a general
reluctance to buy. Shopping Centre yields saw a 100 basis point reduction in Q1
2010 to stand at 9.5%.
Rents and capital values are not expected to recover in the near term with
little real recovery expected until H2 2011.
Mall Veliko Turnovo
Asset Overview
The Company's one remaining property asset is a wholly owned interest in a
single shopping centre, Mall Veliko Turnovo ('MVT') in central Bulgaria.
The extremely difficult retail-trading environment and the lack of credible
tenants has necessitated further rental concessions in order to maintain
acceptable levels of occupancy. These renegotiations decreased the rental
income during the first six months of the year. Further temporary short term
additional tenants' allowances are also anticipated.
The Manager is employing international consultants to undertake a full review of
the shopping centre paying specific attention to the client experience, branding
and tenant mix with a view to make recommendations which will lead to an
increase in both rental and secondary income generation.
At the end of June 2010 net commercialised space recorded a slight decline of
160 sqm taking total occupancy to 14,515 sqm or 90.2% of total leasable space.
General Fund Matters
During the three months under review the Fund paid a distribution amounting to 3
Euro cents per share. This capital repayment took the total amount repaid to
shareholders to 97 Euro cents.
The Disclaimer
Issued by Charlemagne Capital (UK) Limited
A company authorized and regulated by the Financial Services Authority.
39 St James's Street, London SW1A 1JD. Tel: +44 (0)20 7518 2100 Fax: +44 (0)20
7518 2198/9
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 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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