ECPC European Conv.

 

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 
 
 STRBDGDIUSGBGGL 
 

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