Management Reports • Mar 31, 2010
Management Reports
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| Orco Property Group | |
|---|---|
| Société Anonyme | |
| Parc d'Activités, 40 | |
| L-8308 Capellen | |
| RCS Luxembourg B 44996 | |
| 2009 Annual Unaudited Management Report 31st March 2010 |
|
| 1. Introduction | 4 |
| 1.1 Activities | 4 |
| 1.2. Group structure | 4 |
| 2. Market environment | 5 |
| 2.1 Office markets: lower investment and take take-up coupled with remaining catch up catch-up potential |
|
| 5 | |
| 2.2 Residential markets: resiliency and importance of c capital cities |
7 |
| 2.3 Impact of market conditions on Orco Property Group Impact Group |
8 |
| 3. The Group restructuring: 2009 achievements achievements |
8 |
| 3.1. Difficulties in the first quart the quarter led Orco to enter into 'sauvegarde' |
8 |
| 3.1.1. Difficulties in the first quarter quarter |
8 |
| 3.1.2. OPG in 'sauvegarde procedure' procedure' |
8 |
| 3.2. A strategic and organizational refocus of the Group implemented in 2009 refocus 2009 |
9 |
| 3. 2.1 Focus on commercial investment property property |
10 |
| 3.2.2 Focus on residential and commercial property development fuelled by the Group's fuelled |
|
| existing landholdings | 10 |
| 3.2.3 Narrower geographical focus focus |
11 |
| 3.2.4 Reorganization of the Group by busin business line |
11 |
| 3.2.5 Integrate more closely Orco Germany SA ("OG") into OPG Orco |
11 |
| 3. 3 In-depth financial restructuring in 2009 depth 2009 |
12 |
| 3.3.1 Organization geared toward towards the centralization of cash flow |
12 |
| 3.3.2 Rigorous selection of investment plans plans |
12 |
| 3.3.3 Drastic cost-cutting plan cutting plan |
12 |
| 3.3.4 Renegotiation of bank debt at t the subsidiaries level |
12 |
| 3.4. Improvement in Corporate Governance Governance |
13 |
| 4. Ten years outlook | 13 |
| 4.1 Objectives | 13 |
| 4.2 Business plan assumptions assumptions |
14 |
| 4.3 Implementation | 15 |
| Phase 1: 2010- 2013: | 15 |
| Phase 2: 2014- 2016: | 15 |
| Phase 3: 2017-20: | 16 |
| 5. The debt rescheduling plan plan |
16 |
1
| 5.1 Debt to bondholders | 16 |
|---|---|
| 5.2 Debt to other creditors creditors |
18 |
| 5.3 Summary of debt restructuring proposals presented to creditors throughout the saveguard presented saveguard |
|
| period | 18 |
| 5.4 Debt rescheduling as part of the Company's business plan | 19 |
| 5.4.1 Principle | 19 |
| It is important to stress that, at the date of the judgment materialising the Plan, the average the |
|
| weighted maturity of the Group's bond issues as a whole amounted to three years. years. |
19 |
| 5.4.2 Repayment of the Bond debt in line with th the Plan de Sauvegarde |
19 |
| Special cases | 22 |
| Intercompany liabilities | 23 |
| 5.4.3 Approval and materialization of the Plan Plan |
23 |
| 6. Key events | 23 |
| 6.1 Safeguard filing | 23 |
| 6.2 Successful renegotiations of bank loans loans |
23 |
| 6.3 Signed agreement to increase OPG stake in Orco Germany Signed in |
23 |
| 6.4 Other agreements aimed at restructuring loans to partnerships | 24 |
| 6.5 Asset disposals | 24 |
| 6.7 Negotiations for capital increases increases |
25 |
| 6.8 Orco's top- class hotels received prestigious awards prestigious awards |
25 |
| 6.9 Main events occurred in Q1 2010 2010 |
26 |
| 7. Real estate portfolio and NAV NAV |
27 |
| 7.1 The 'Development' business line pment' line |
31 |
| 7.2.1 Commercial developments developments |
31 |
| 7.2.2 Residential development development |
32 |
| 7.2.3 Landbank | 34 |
| 7.3 Commercial investment properties properties |
35 |
| 7.3.1 The rental portfolio | 36 |
| 7.3.2 Hospitality portfolio portfolio |
38 |
| 7.4 Liabilities/ financial profile profile |
41 |
| 7.5 Net Asset Value | 42 |
| 8. 2009 financial results | 44 |
| 8.1 Income statement | 44 |
| 8.2 Annual Statutory financial status status |
50 |
| 9. Human resources | 50 |
| 10. Corporate governance | 51 |
| 10.1 Board of Directors | 51 |
| Committees of the Board of Directors Directors |
52 |
| 10.2 Management of the Company (Executive Committee) Committee) |
53 |
| 11. Shareholding | 54 |
| 11.1 Amount of share capital capital |
54 |
2
| 11.2 Shareholding structure structure |
54 |
|---|---|
| 11.3 Stock subscription rights Stock rights |
57 |
| 11.4 Authorised capital not issued issued |
58 |
| 11.5 Transactions on treasury shares in 2009 2009 |
58 |
| 11.6 Dividend policy | 58 |
| 12. Stock market performance performance |
59 |
| 12.1 Shares of Orco Property Group S.A. S.A. |
59 |
| 12.2. Other financial instruments of Orco Property Group Group |
60 |
| 13. Corporate Responsibility Responsibility |
60 |
| 14. Other reporting requirements requirements |
60 |
| 15. Appendices | 61 |
| Appendix 1 - Market environment environment |
61 |
| Appendix 2 – Commercial developments completed in 2009 | 65 |
| Appendix 3 – Residential projects completed in 2009 2009 |
67 |
| Appendix 4 – Ongoing Commercial developments developments |
68 |
| Appendix 5 – EPRA Valuation Data Data |
68 |
ORCO Property Group is a real estate investor and developer established in Central and Eastern Europe since 1991, currently owning and managing assets of presence in its main markets, na Moscow and Hvar (Croatia). Throughout its 19 year delivered 178 development projects, sold over 5000 flats, built & purchased partnerships with 33 banks and raised EUR 1 of approximately EUR1.8 Billion. The Group has a strong local namely Prague, Berlin, Warsaw and Budapest, as well as offices in Bratislava, years of existence, ORCO invested close to EUR 2.5 178 over 128 properties, established with Billion on the capital markets. . has mely well in Billion, established
The Group's main business is holding and asset managing commercial investment properties properties. ORCO's vocation is:
The Group's strategy assumes a certain rotation of its portfolio with mature assets sold in order to reinvest the proceeds in other assets with economic potential. o management o office and commercial buildings for resale to third parties or to the Commercial potential Group help assumes its to to the property Poland. The
Property development includes:
ORCO is among market leader strong team presence of ORCO assets. leaders for residential property development in the Czech Republic and in Poland. ORCO' in the Central European capitals and local reputation are among reputation among the Group's major
Over the last ten years, the Group has built 5,000 flats and completed 178 projects. It has the benefit of significant landholdings to fuel its operations over the coming years Over flats fuel years.
ORCO Property Group SA ('OPG' and is the listed entity of the Group (or 'ORCO') in Paris, Prague, Budapest and Warsaw. OPG also registered branch in France. ('OPG' or 'the Company') is the Luxembourg based holding company company of the Group Group (or has a
OPG manages 187 operating and property companies comp composing the Group. OPG holds: sing Group.
• Fully owned subsidiaries that are fully integrated in terms of management; subsidiaries in Central European countries (Czech Republic, Poland, Hungary, Slovakia etc.)
OPG has also invested in five residential property development projects (Zlota 44, Jozefoslaw, Szczecin, Pragu Benice) in partnership with Endurance Fund.
OPG's mission is essentially to perform strategic management of the overall property portfolio and provide finance via the allocation of equity and loans to its subsidiaries holding property assets. Its recurring revenues are thus the management fees, dividends and interest by subsidiaries' operating profits which are in turn component) the income from sale investments. , ajor projects interests received from its subsidiaries. The dividends and interest resulting from their property rental income and (a major sales of developed property assets. OPG also receives income from the sale of its and interests are financed major s sale of to financing
The Group's development projects are financed in part by OPG and in part by recourse to bank financ underpinned by fifteen years of relationships of trust develo provides the banks with guarantees for developed by OPG's Directors some of its subsidiaries' financial commitments. Directors with local banks. OPG commitments.
In order to provide its own share of finance for its subsidiaries' operations, OPG has raised funds by means of bond issues. share its OPG has
During the first half of 2009, investment in Central Europe was strongly affected by a slump in both prices and volume of transactions due to:
Over the second half of 2009, property markets improved in the U.K and stabilized in France and Germany fuelled by the greater availability of financing, which was made possible by the ("Pfandbriefe"). Central and Eastern an overall EUR 2 Billion were invested in 90 transactions in the CEE region stopped the outward movement in yields where changes were minima France greater revival of the market for property bonds astern European (CEE) markets followed this trend: according to CB Richard Ellis, region. As a consequence, this recovery were minimal in almost all CEE markets and segments. markets the market for a recovery l in
As a consequence of global economic slowdown, market fundamentals were affected as well absorption and rents: market s the greatest (-50%),. Budapest recorded a 6.8% decrease economic by a decline in both
Source: Jones Lang LaSalle Office Weather Forecast
Over the long run, Central European cities benefit from an important catch capita in comparison with their European peers. Prague (2.2 sqm per capita), Warsaw (1.8 sqm per capita) and Budapest (1.2 sqm per capita) like Paris (4.4 sqm per capita), Central London (3 sqm per capita) or Vienna (5.9 sqm per capita). peers. are still in need of more modern office space when compared with Western cities (4.4
| from 28 in 2008), while | of | 35 companies named Moscow (down from 44 in 2008). 44 |
largest companies, reveals that 36 of them have chosen Warsaw as the city they intend to expand to (up city |
|---|---|---|---|
| - place (down from 19th). |
19th). | Prague is still regarded as the leading business city in the CEE region. The Czech capital lies in 21st | |
| The tables below illustrate the evolution of prime yields in the main CEE | capital cities during the first semester: cities |
||
| Office prime yields Source: JLL |
Prime yield Q2 2009 | Prime yield Q4 2008 | Variation during period (in %) |
| Prague | 7.25% | 7.00% | 4% |
| Warsaw | 7.25% | 7.00% | 4% |
| Budapest | 7.75 75% |
7.25% | 10% |
| Berlin | 5.50% | 5.50% | 0% |
| Retail prime yields Source: JLL |
Prime yield Q2 2009 | Prime yield Q4 2008 | Variation over pe period (in%) |
| Prague | 7% | 6.50% | 8% |
| Warsaw | 7% | 6.50% | 8% |
| Budapest | 7% | 6.50% | 8% |
The tables below illustrate the evolution of prime yields in the main CEE capital capital cities during the second semester:
| Source: JLL | Prime yield Q4 2009 | Prime yield Q2 2009 | Variation over period (in%) |
|---|---|---|---|
| Prague | 7.25% | 7.25% | 0% |
| Warsaw | 7.25% | 7.25% | 0% |
| Budapest | 7.75% | 8% | -3% 3% |
| Berlin | 5.50% | 5.50% | 0% |
| Retail prime yields Source: JLL |
Prime yield Q4 2009 | Prime yield Q2 2009 | Variation over period (in%) |
| Prague | 7% | 7% | 0% |
| Warsaw | 7% | 7% | 0% |
| Budapest | 7% | 7% | 0% |
| Retail prime yields Source: JLL |
Prime yield Q4 2009 | Prime yield Q2 2009 | Variation over period (in%) |
|---|---|---|---|
| Prague | 7% | 7% | 0% |
| Warsaw | 7% | 7% | 0% |
| Budapest | 7% | 7% | 0% |
Residential markets in 2009 have been economic downturn as demand decreased due to economic uncertainty and tight triggered a decrease in prices and forced developers to adapt their pipelines resilient compared to commercial markets. They were tightening of mortgage lending. This pipelines; ening
ORCO Property Group was impacted in several ways by the above described market conditions:
The difficult market conditions in early 2009 had a strong negative impact on reduction of the Group's cash inflows, compromising its scheduled debt repayment and financing for the initially planned investment, and a fall of re ORCO , real estate values. ORCO's operations, causing a
Besides, ORCO's standing during the crisis has been weakened due to its significant landholdings, generating no immediate revenue, and which development has been delayed by the economic crisis. the Group's major projects (Bu to four years. As the landholdings have been largely financed by bond issues 2013-2014, the rescheduling of been a priority of the Group's restructuring plan. (Bubny, Leipziger, Zlota, Vaci etc.) development time has been doubled, adding three have issues, subject to maturities falling due in that debt in order to adapt it to the requirements of the new development cycle has Management estimates that y, maturities of with the
The Group's financing model, in particular its bond component, has thus been placed under strain with appearance of a provisional gap between its liabilities production of revenue has been delayed. It is for the purposes of remedying this gap that the Group requested in March 2009 the institution of sauvegarde proceedings in order to dispose of the time required to adapt its balance sheet structure to the new market conditions that had arisen. liabilities –made of fixed maturities – – and assets – from which the gap in required its Board of Directors has decided in
Having reviewed all options, strategic and f March 2009 to apply for the Company to benefit from a "Procédure de Sauvegarde", a French legal provision that enables a company, whose Centers of Decisions and Main Interests are located in while protecting its business f complete its restructuring plan both financially and operationall financial, ORCO Property Group's Board ompany to are from creditors' claims for a limited period of time, operationally. located in France, to pursue operations to allow the Management to
The Commercial Court of Paris, in a judgment o of March 25th 2009, opened the "Procédure de
sauvegarde", a safeguard procedure. "sauvegarde" is 18 months. At the Company's for another six months (until 25th March 2010) and it was renewed to allow the circularisation of the Company's proposals to creditors. The maximum period during which a Company can operate under Company's request in September 2009, the safeguard procedure was extended ther six on 10th March 2010 f Company extended until 25th June 2010 so as
Vinohrady SARL, a French subsidiary of OPG also obtained the extension of the which provides Management services for the Company in France 'sauvegarde' procedure, initiated at the same time as the OPG one France initiated at as one.
During the "Sauvegarde period means that, interests on debts and bonds continue to be accrued based on contractual arrangements but the Company is exempted from repay Sauvegarde period", all liabilities existing prior to the judgment pronouncement are frozen. This s repaying any liabilities until the end of the "Sauvegarde period". are he
During the second "Sauvegarde period Me Laurent Le Guernevé, have upturn, modalities for operational restructuring, and debt restructuring proposals. auvegarde period", the Management, together with its Receiver ("Administrateur ve been preparing a safeguard plan draft which includes an outlook for the Company , ("Administrateur Judiciaire"), Company he 2010 the "Court de
The plan will be circulated among creditors by t Commerce de Paris" by the end of June the 'plan de sauvegarde' (the Sa de Paris who will appoint a "commissaire à l'exécution" to that end. restructuring the end of March 2010 and will be presented to the June 2010. Once the CourtCourt will have approved the Project, Safeguard plan") which will be executed under the contr it will become ard control of the Court de Commerce
Prior to the financial restructuri already committed the Group to a process of deep strategic, organizational progress made throughout 2009 is summarized below. restructuring of OPG described in chapter 5 hereafter, the Company's executive team had and financial restructuring. Company's had financial restructuring. The
In the first phase of its restructuring, the the basis of strict criteria and a profitability appraisal, as a response to its cash requirements. The sauvegarde proceedings have shielded the Group from forced sales at discounted prices in significant value losses. Management has selected and classified the assets it wished to retain on which would otherwise have resulted
ORCO's non-strategic businesses have been identified as follows: residential property investment (and the associated property rental business) strategic iated business) of whose majority of assets have now been sold: identified Management. All these
The Group has also decided not to develop its "Endurance" platform for third party asset businesses, as well as support fu , functions such as IT Management, may be disposed of in the years to come.
The Group's strategy involves focusing on its core businesses and geographical zones and has implied reorganisation based on business lines. , years implied well-known
ORCO has developed a major business investing in office and commercial property leased to well multinationals such as Exxon Mobil, KPMG, McKinsey, Lovells, Estée property Lauder, Honeywell, RFE/RL.
The business strategy is one of dynamic investment in GSG portfolio. The Group targets u restructured (change of positioning or renovation) and managed on a new basis (in particular as regards the associated commercial strategy). Once assets have reached maturity (i.e. largely achieved their potential for value creation) the Company plans to assets with strong value creation potential such as the Berlin underperforming and undervalued assets with potential which are on regards the sell them off to institutional investors. then
More than half of the Group's assets as at December 2009 comprised such property generating recurring rental income, thereby providing the Group with stability as well as a certain degree of flows. degree potential generating certainty as to its future cash
In 2009 the pursuit of this policy of dynamic asset positive trend in the Company's revenues on a like for like basis. Management enabled the Group's the Management to maintain the
The Company has retained the status quo as regards its "MaMaison" Central European hotel portfolio (through owning 88% of vehicle owning 50% of the venture), that it created and then partially sold, and a 55% stake in Suncani Hvar in Croatia. In the mediu sell those assets no longer equating with the Group's strategy. quo its hotel investment business comprising a 44% stake in the European Hvar In investment owning in medium term, the intention is to
In Central and Eastern Europe, constructing or renovating buildings before resale, ORCO has the benefit, , of significant experience and numerous presence, 178 projects completed, 5,000 flats sold over the past ten years, 250 building permits obtained and almost EUR 2.5 Billion of investment in the sector since 1991. Europe, property development, involving acquiring sites and enhancing their value by has been a Group core business and the basis of its success. achievements reflecting 18 projects sold very strong in Central Europe given the volving the 18 years of market obtained ery the
The opportunity for both residential and office property remains v inadequacy of the existing stock market. As a result, there remains high potential for value creation that (only 15.3% renewed since 1990 in Poland, for example) . ORCO is in a position to exploit. example) with the applicable
Within the residential segment the level of activity has been maintained overall during the crisis sales substantially slowed down 300 in 2009 in Czech Republic of an important project in Warsaw of 284 units) ORCO's products. residential level crisis down, there was no increase in unsold finished units (700 unsold units in 2008 Republic, 165 unsold units in 2008 versus 332 units in Poland due to the impending delivery an thus underlining both the core markets resilience and the quality of overall crisis. While forward 2008 versus , delivery ment thus flow it can generate.
Within the commercial and office seg reaching occupancy necessary to sell properties "fully let", thus lengthening the product cycle. segment on the other hand, the lack of rental demand prevented the Group from
Property development remains an important business for However it requires regular financing, which means that OPG has to reinvest part of the value created by the business in new projects that in turn generate cash after three to five years, thereby constantly renewing the potential for value creation. sell ORCO given the strong cash
In conclusion, the Management has identified activity: e three major competitive advantages advantages of ORCO's development
During the course of 2009, ORCO the closure of a dozen branches in Central Europe and Germany, particularly in secondary towns where not have critical size, and the scaling down of a number of ORCO's Management has considerably reduced the Group's geographical spread with Europe secondary , other branches such as Bratislava or Budapest. geographical spread ORCO did
Property investment is now concentrated on Prague and Berlin where the Company has already proved its ability to create value. Budapest and Warsaw will be retained as secondary centers. In the case of Moscow planned a progressive withdrawal over three years. such Moscow, the Group has
The Group's Management has also focused the residential property development business on markets: Prague and Warsaw. The underlying demand remains strong in both these cities several players should reduce both supply and competition. concentrated Company centered on the markets of Prague, Warsaw and Budapest. ORCO's key these and the departure of
Commercial and office property development will be
The strategic decision to concentrate operations on a limited number of businesses and cities has led the Group's Management to initiate a profound reorganization of operations by business line rather than by country. business lines are Development (including comm and Commercial Investment Properties (including rental portfolio and hospitality portfolio). Management functions are fulfilled from Paris office, while Luxembourg office, where seat, keeps its administrative functions. cision profound lines commercial and residential projects, as well as landbank Management) hospitality portfolio). d The two ercial as The corporate where the Company has its legal
This reorganization of the Company's structure specialization, but equally to achieve significant cost savings by elimin country and centralizing them within a single operating headquarter for each business line. is intended to improve each business profitability as a result of eliminating the duplication of functions in each ating in single business
The result of the restructuring described above has been t property investment and more particularly on Berlin given the scale of the GSG portfolio commercial portfolio. OPG's strategic medium OPG. The first stage of the process thereby setting OPG's stake in OG 2010. The second stage has been t increasing the efficiency of the ORCO's asset management team. to concentrate the Group's activity on commercial Berlin given GSG portfoliomedium-term priority has thus become to integrate OG mo has involved capitalizing OPG's current account balance receivable from OG, to rise from 58.1% to 65% once a prospectus will have been approved in April the launch at the end of 2009 of an internal restructuring program aimed at Group, and particularly integrating more closely OG's and GSG management with o portfolio and its weight in ORCO's term priority OG more closely within in aimed G's with
Over the medium term, OPG may also envisage to initiate negotiating restructuring of OG's bond issue or its conversion into OPG equity, thereby reducing the Group's overall indebtedness. 's erm, issue to issue or ization, the plan presented
Along with the Group's business reorgan Court for approval before June 25, 2010, includes a financial restructuring component. The progress made in 2009 is summarized in the section below. reorganization, the 'sauvegarde' plan to be presented to the Paris Commercial June 25,
A financial reorganization has been implemented in Paris, under the stewardship of Nicolas Tommasini. It strengthens OPG's control of the Group's cash flow emphasis is placed on OPG's cash requirements and subsidiaries or joint ventures, as well as on the reco flows which managed on a "top-down", centralized basis. The upwardfeedback of financial information from wholly owned , recovery of principal and interest of current loans receivables down", feedback f receivables.
From now on, maintaining value will, be the subsidiaries and joint ventures aintaining controlled by OPGanalyses and prioritizes ventures. analyses prioritizes the funding requirements of
The implementation of this process has helped the "Administrateur Judiciaire" (Receiver) to monitor the financial flows throughout the sauvegarde procedure.
Group Management has drastically reduced the cash earmarked for investment together with stricter selection of real estate projects to be financed. investments by grading cash appropriations,
This move has resulted in a drop in invested amounts initially budgeted 2009. The more advanced development program as they quickly generate positive cash flows. projects at EUR 630 Million to e programs, notably pre-leased or pre-sold, have been pursued as a priorit to EUR 144 Million in sold, priorities
It has been possible to resume or finalize Aleja, Sky Office) or by increased number of projects are ready for launch with the backing of the banking partners, subject to pre ve finalize programs financed either by banks' exclusive contribution (Klonowa own contribution (Vaci 1, Paris Department Store). Furthermore, a certain e (Klonowa the partners, subject to pre-lease conditions.
In addition to the office closures previously mentioned, OPG management has committed itself to a systematic cost-cutting plan which has already generated cost savings amounting to EUR 7.1 the committed ich Million management Million per annum.
At the end of December 2009, out of the Group's business and logistics) cut their workforce from 778 as at Dec continue reducing it to 300 by the end of 2010. 1,996 employees, the Group's core activities (excluding the hotel cs) December 2007 to 420 ember 420 employees and are likely to
Running general expenses (excluding restructuring costs, the hotel business and logistics) dropped from EUR 104 Million in 2008 to EUR 87 Million costs, from Million in 2009, the target being set at EUR 60 Million by the end of 2010.
The entire Group's bank debt is borne by OPG's subsidiaries or sub sub-subsidiaries in order to finance their projects.
As at 31 December 2009, the Group's total bank debt, contracted with 33 banks, was around EUR broken down as follows: contracted Million) for the property development/land reserve assets, subsidiaries in order to their EUR 1.109 Billion,
During the observation period, OPG management has successfully entered into major renegotiation of the Group's bank debt in order to adapt to the new conditions resulting from the crisis. of a normal the
Firstly, OPG has been able to maintain a normal course of business under particular, draw-downs on credit lines technically in maintained, which enabled development projects to follow or resume their course (e.g. Vaci 1 or Paris Depar Store in Budapest). downs breach (due to the drop in the valuation of assets Departhe debt has been renegotiated in early 2009 by the Group "sauvegarde" proceedings; in due assets) have been Department
Over 35% of the Group's bank debt extensions of maturity but also by increasing the amount of current lines lines. Group Management, usually via
Certain projects made difficult by the crisis conditions as disposals were carried out in partnership with the banks, such as City and Vysocany Gate in Prague. Quite exceptionally as regards the financial conte assets or subsidiaries, no mortgage guarantees or pledging of equities ha were sold or are in the process of being sold under acceptable out context and fragile situation of certain guarantees have been exercised. City Gate and Stein in Bratislava xt ve and the projects
The banking partners thus displayed their confidence in the Group's fundamentals and their backing of the project undertaken by Management. This plan". project . support is expected to be reinforced after the Court judgment judgment on the "sauvegarde
Improvement Corporate Governance has been a top priority of the sauveguard plan. The Management reports significant progress made in 2009 in this area. since 1991, asset portfolio assessed b implement for the year 2010 the best ("EPRA"). OPG has been a member since 2009, and priority Management In addition to the measures already implemented (accounts audited portfolio by DTZ, an independent expert), we should note that for practices recommended by the European Public Real Estate Association followed by major quoted real estat The y that ORCO decided to Real Estate estate companies in Europe.
OPG has also significantly reorganized its managerial structure committees and the Management team chapter in this document. also structure, including the Board of Directors, various control team. For more details on these changes, please refer to Corporate Governance , of refer strategy involve medium-
The main guiding principle of OPG's strategy over the coming years involve generating the short and medium term investment capacity required to create and realize the long long-term value required for settlement of its term its liabilities.
The Company's chief objectives business plan are:
• In the short term, to complete its profitable projects in order to generate rapid cash; order in order
Assuming the successful implementation of this business plan, the Company shall have:
OPG, the Group's holding company, does not directly own any real estate a dedicated subsidiaries. However, all the level, which also distributes it forecasts of wholly owned subsidiaries. F subsidiaries or partnerships which are recorded are, for cash outflows, inflows, distributions (repayment of int assets, which are the cash derived from the subsidiaries' transactions among its subsidiaries. This is why this business plan incorporates all cash Financial flows between the Company and its not wholly owned outflows, the funding requirements interest , dividends and disposals flow). is centralized at OPG all flow lows requirements, or for cash
The business plan assumes:
The Company's business plan thus assumes continuing to the deferral that alone can ensure by: he generating investment capacity the settlement of its liabilities. The required investment capaci capacity whose equity flows, subject capacity can be fuelled
The above investment capacity may eventually be reinforced by equity contributions (not included in the present business plan):
Raising additional capital would be likely to enable investment properties with upside than those forecasted in the business plan. upside, paving the way for greater prospects of growth for the development business of land reserves or new , prospects the development with value-added
The business plan is based on two main pillars:
The business plan will be implemented in three successiv commercial successive phases between 2010 and 2020.
• Commercial and Investment Properties: reduction of the investment intensity to a lower long in order to concentrate on asset management of assets acquired over the course of the previous phase. First sale opportunities (up to 10% of the portfo of previous portfolio) for assets acquired in 2010-2013. a lower long-term average assets the 2013.
The debt rescheduling plan is a key component of the Group's overall restructuring plan. Under the sauvegarde proceedings, the Commercial Court has of liabilities up to 10 years. the ability to decide at its sole discretion whether to approve a rescheduling previous 2020 retail and sauvegarde a - so as to enable
The financial restructuring plan the Group to generate the inves to repay its creditors in full. plan involves rescheduling OPG's liabilities – essentially OPG bonds investment capacity required to pursue – cycle by cycle – the value creation needed for it
The company's debt structure sections below set forth the i timeline. has two major components: debt to bondholders and debt to other creditors. Th intended repayment approach for both categories, including the conditions and debt The
Between 2005 and 2007, OPG issued several bonds listed on various markets (referred to as "Bonds"). The holders of these bonds ("bondholders") r and on ("bondholders") represent the most important creditors of OPG. , plan, led to calculate the
During the preparation of the debt rescheduling proposal plan, the Company has been led maximum amount that could be due to bondholders, including all reimbursements premium, 10 years of intere rescheduling that premium, premium, interests,
no equitization or payment through the BSAR. This maximum bond liability that would be due over 10 years would amount to EUR 614.278.348,02
| no equitization or payment through the BSAR. This maximum bond liability that would be due over 10 years would amount to EUR 614.278.348,02 |
be due |
|---|---|
| Type of bond | Aggregate principal amount Aggregate |
| Bond issue 18 November 2005 | 50 272 605,30 EUR |
| Bond issue 3 February 2006 | 300 000 000 000,00 CZK |
| (10 991 991 024,00 EUR) |
|
| Bond issue 30 June 2005 | 24 169 193,39 EUR |
| Bond issue 17 May 2006 | 149 999 999 928,00 EUR |
| Bond issue 22 March 2007 | 175 000 000 461,60 EUR |
NB. OG BSAR issue, issued by Orco Germany SA, is not part of the Sauvegarde restructuring limited to liabilities of OPG SA only.
The bonds are divided into two categories: Bonds with access to OPG capital. equity and bonds without access to OPG OPG
Bond issue: 6 January 2006 (" Floating Rate Bonds Issue date: 3 February 2006 Aggregate principal amount: CZK 300.000.000,00 (EUR applicable as of March 25, 2009) Total recognized liability: EUR 16.451.846,62 Maturity date: 3 February 2011 Listed in bearer form on the secondary market of "Prague Stock Exchange" (ISIN: CZ0000000195) Representative : Ceska Sporitelna Applicable jurisdiction : Czech 2011 Bonds") amount: 10.991.024,00 according to the EUR/CZK exchange rate bearer "Prague
Bond issue: 30 June 2005 ("Bonds 2012")
Convertible bonds into Suncani Hvar shares Issue date: 30 June 2005 Aggregate principal amount: EUR 24.169.193,39 Total recognized liability: EUR 38.796.339,62 Maturity date: 30 juin 2012 Listed in bearer form on Euro MTF, Luxembourg (ISIN : XS0223 Representative : Maître Benoît E. Diouf Applicable jurisdiction: Luxembourg into 38.796.339,62 bearer XS0223586420)
Bond issue : 14 November 2005 (" Bonds with warrants attached. Issue date: 18 November 2005 Aggregate principal amount: EUR 50.272.605,30 Total recognized liability: EUR 83.538.551,43 Maturity date: 18 novembre 2010 Listed in nominative form on Eurolist market of Euronext Paris SA (ISIN: FR0010249599) November Bonds 2010") nominative
Representative : Mr Luc Leroi, replacing Mrs. Bertrand Applicable jurisdiction: Luxembourg Bertrand-Leroi
Bond issue : 17 May 2006 ("Bonds 2013 Convertible bonds into OPG shares Issue date: 1 June 2006 Aggregate principal amount: EUR 149.999.928,00 Total recognized liability: EUR 222.919.184,32 Maturity date: 31 mai 2013 Each bond was issued with 10 warrants attached; each warrant allowed conversion in exchange of one OPG share (BSA 2012. These warrants are listed on Euronext Paris Representative : Mr Luc Leroi, Applicable jurisdiction: Luxembourg ") into Each warrants allowed of one Paris (ISIN: FR 0010333302) replacing Mrs. Bertrand-Leroi
Bond issue : 22 March 2007 ( " le March Bonds 2014")
Bonds providing access to OPG capital based on attached warrants Issue date : 28 March 2007 Aggregate principal amount: EUR 175.000.461,60 Total recognized liability: EUR 252.571.926, Maturity date: 28 mars 2014 Listed in nominative form on Euronext Bruxelles (ISIN : XS0291838992) Warrants : each bond was issued with 15 warrants attached, each of them allowing conversion in exchange of one OPG share ("BSA 2014"). These warrants are listed on Euronext Bruxelles and Euronext Paris (ISIN: XS0290764728 Instrument comprising one bond and five warrants are listed under ISIN XS0291840626. Representative : Mr Luc Leroi, Applicable jurisdiction: Luxembourg OPG 252.571.926,03 nominative : 15 ng replacing Mrs. Bertrand-Leroi : OPG of them XS0290764728 and XSO291838992). five their creditor representative appointed by the
The Company's non-bond creditors have submitted their claims to the creditor repre Paris Commercial Court (subject to verification comprising contingent liabilities in respect of certain commitments of subsidiaries guaranteed by OPG and (residually) contingent liabilities in respect of the share subscription options maturing in 2014, as well as intercompany liabilities. bond verification and validation) for a total debt of EUR 862 OPG respect ) for 862.6 Million, mainly
The Group's property projects are undertaken by dedicated subsidiaries which have recourse to bank loans to finance the projects. OPG has guaranteed certain of its subsidiaries' commitments under such loans. Certain creditors of OPG's subsidiaries have therefore lodged claims relating to the potential application of these guarantees including pledges of certain of the subsidiaries' shares. 710 Million are involved of which EUR 568 Million have been challenged have projects. its itors certain Subject to verification, total liabilities of EUR challenged. OPG March
The share subscription options maturing in 2014 issued by OPG on the basis of the prospectuses registered by the Commission de Surveillance du Secteur Financier on 22 March 2007 and 22 October 2007 (ISIN XS0290764728) ance
could result in a liability for the Company in the event of any change in its control. liabilities of EUR 0.7 Million are involved. in of 151.7 Million control. Subject to verification, total
Subject to verification and validation, they represent total liabilities of EUR 151 loans is posterior to the duration of the plan de sauvegarde. .7 Million. The maturity of these
Since the opening of the Sauvegarde talks with the largest possible number of Bo between bondholders' request and needs and proposed a mixed solution, consisting in an exchange of existing bonds for new convertible bond, new shares and new warrants. Sauvegarde period, the Company has aimed to restructure its bond debt Bondholders. The Company appreciated the need to find a middle debt by engaging in . ground a solution, eld September 15, 2009
This solution was proposed and in Paris and the observation period was then subsequently extended for 6 additional months. new and rejected by the General Assembly of Bondholders held on the September
The major reason for rejecting the first proposed solution seemed to be the perceived Capital for Bondholders. That is why it has been contemplated to entice Bondholders could benefit from the "claims compensations" (pursuant to Bonds 2010 and Bonds 2014 conditions) which allow Bonds to be immediately due and used for exercise of warrants. This proposal had the individual basis, voluntary and therefore not binding. In January 2010, a majority of Bondholders of bonds 2010 and 2014 rejected the proposed resolution, thereby constraining the Bondholders, who had expressed the wi ability to use their bonds for the exercise of warrants shares, which would have reduced OPG debt. observation subsequently and advantage of being implementable on an compulsory entry to the contemplated from the expressed will, the
The Company has been prompted to develop and propose to its creditors, under the terms of the French Commercial Rules ("Code du Commerce") a draft pl which corresponds to its business and market cycles, which are intrinsically tied to long cycles needed to create value in real estate. the which plan based on, the term out of its debt repayment at a pace have creditors, , following
The following debt rescheduling proposal is subject to the Paris Commercial Court Approval. An audience is scheduled to take place by end of June 2010.
It is proposed to repay 100% of the registered claims, subject to verification, over schedule) with effect from the first anniversary of the judgment materialising the Plan: ten years (based on the following
| schedule) with effect from the first anniversary of the judgment materialising the Plan: | judgment | ||||
|---|---|---|---|---|---|
| Year | 1 | 2 | 3 | 4 | 5 |
| % of the total liability | 2% | 5% | 5% | 5% | 5% |
| Year | 6 | 7 | 8 | 9 | 10 |
|---|---|---|---|---|---|
| % of the total liability | 5% | 10% | 14% | 20% 20% |
29% |
This repayment schedule is consistent with the timing of the Group's property investment and development projects which the economic crisis has delayed well beyond the Group's main bond maturities of 2013 of to maximum cash outflows based on the following assumptions: Group's 2013-2014.
The schedule is such as to cover the Group's maxim
• The maximum liability under each bond issue, inclusive of bonds' nominal amounts, repayment premium and all interest payable at the date of the judgment materialising the Plan and accruing throughout th duration of the Plan, assuming that no bonds with equity access are converted or surrendered in payment of the exercise price of share subscription options; um under nominal the
The maximum amount of the guarantees provided by OPG as surety for its subsidiaries' commitments, on the basis of the difference between the latest market value of each applicable property less a discount of 7% plus 3% of selling costs (brokers, lawyers (see the table below). property a lawyers) and the balance remaining due under the corresponding guaranteed loan surety its commitments, estimated 7%, ) the loan weighted maturity of
It is important to stress that, at the date of the judgment materializing the Plan, the average the Group's bond issues as a whole stress will amount to three years.
Bonds providing no equity access (repayable in 2011 and 2012)
The bonds repayable in 2011 and 2012 do not provide access to OPG's share capital. The amount repayable in respect of these bonds is thus subject to no uncertainty and the annual amounts repayab calculated on the basis of a recognized liability comprising the sum of the following items: repayable under the Plan have been
•The principal outstanding on the date of the judgment materializing the Plan; of of at materializing the Plan;
•The interest payable at the date of the judgment
•All interest accruing throughout the duration of the Plan (calculated each year after adjustment for the progressive repayment of principal under the Plan) liability the sum after
| repayment of principal under the Plan) | the | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Repayment Schedule of Bond 2011 Schedule |
||||||||||||
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| Bonds providing equity access (repayable in 2010, 2013 and 2014) The bonds issued in conjunction with share subscription options (repayable in 2010 and 2014) | subscription | 2014) | |||||||||
| The bonds repayable in 2010 and 2014 provide access to OPG's share capital via the option (provide issue contract) of using the bonds to pay the share subscription price (by offset) in the event of exercise of the Company's share subscription options maturing in 2012 or 2014. The amounts of interest accruing after the date of offset, and of repayment premium, will thus remain uncertain until the date of expiry of the share subscription premium, options maturing in 2012 and 2014 (namely 31 December 2019). Further, the repayment premium for the bond maturing issue maturing in 2010 will only be recognized as a l lower than the exercise price for the share subscription options maturing in 2012. the | in | December iability | date | (provided for in the exercise subscription liability if OPG's share price on 18 November 2010 proves | |||||||
| Payments under the Plan have thus been calculated, for the bonds maturing in 2010 and 2014, on the basis of the recognized and certain liability for each year comprising the sum of the following items: gnized | comprising | of | 2010 | the | |||||||
| •The principal outstanding on the date of the judgment materializing the Plan; | of | ||||||||||
| •The interest payable at the date of the judgment materializing the Plan; at | |||||||||||
| •All interest accruing from the date of the judgment materializing the Plan and due at the end of each applicable ruing year; | the | the | of | ||||||||
| •For the last year of the Plan, the repayment premium | repayment | ||||||||||
| The amount of recognized and certain liability thus increases year by year, for the bonds not subje the continuing accrual of interest in favor of bondholders whose bonds remain outstanding (i.e. have not been offset). | subject to offset, given | ||||||||||
| On the assumption that no such offset of the bonds maturing in 2010 and 2014 takes place throughout the duration of the Plan, the cash outflows for settlement of the applicable liability may be calculated as follows he | applicable | in liability | |||||||||
| Repayment Schedule of Bond 2010 Schedule |
| %#&% %#&% %#&% %#&% | %#&% % '&#!' "'& '\$\$ | "\$\$\$&& & \$"&& '! !&&"' | |||||||||
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| %'& | !\$' | \$ "!\$" | \$\$#%"& | \$& &'' | \$'&'# | #"&!%" | &"!\$" %%% \$ \$ !&""!\$ | ||||
| Repayment Schedule of Bond 2014 Schedule |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| #%"& #%"& #%"& #\$&!\$"# &#"'&&" &&#"%! | %\$"\$ !% \$"&&"%%# &\$''#" &\$#\$&'\$ | ||||||||||
| ( ) * ( ) | !%\$""! | "\$#% | "\$#% | "\$#% | "\$"\$\$# | " '%# # | " % '& | \$'\$ ' | \$\$&&& " | &%!# ! | \$&%' %!\$" |
| | '"%\$! | ''&'! !\$\$!\$" !#\$#'!"% # ' %!&!!! | !! '% \$#%\$&% # !'#! !##!%!# \$#\$ | ||||||||
\$##%#' | !&% !# | !'&'!"# '&&" !%\$% | "!& ! \$#%\$# \$\$!&#'\$ "\$!%%! ! &" !' # | ||||||||
| + ) , | '#% | \$&% | % ' | # %# | ''\$\$" | \$"\$! | "%&"# | \$%&"%& \$ #%&\$!& | |||
| " | \$##%#' | !#\$#&!# #% !' &# "% &! | | \$#!"% "!# ' \$ &""\$ "%\$ \$#& !%!%"%&& | |||||||
| The convertible bonds maturing in 2013 | |||||||||||
| The bonds maturing in 2013 provide access to OPG's share capital via a share conversion option provided for in 2013 provide the issue contract. The amounts of interest accruing after the date of conversion thus remain uncertain until the date of expiry of the contractual conversion period (namely 15 May 2013). | contractual | option | and of repayment premium, will | provided premium, | |||||||
| Basis of determination of the liabilities payable until 15 May 2013 inclusive | payable | inclusive | |||||||||
| Payments under the Plan have thus been calculated until 15 May 2013, for the bond issue maturing in basis of the recognized and certain liability for each year (with effect from the first year of the Plan) comprising the sum of the following items: | effect from | for | 2013, on the | the | |||||||
| •The principal outstanding on the date of the judgment materializing the Plan; The | |||||||||||
| •The interest payable at the date of the judgment materializing the Plan; ayable at | |||||||||||
| •All interest accruing from the date of the judgment materializing the Plan and due at the end of each applicable All the year. | the | the | of | applicable | |||||||
| The amount of recognized and certain liability thus evolves year by year, unt of any bonds converted. Adjustments will be made each year, for payments made prior to 15 May 2013, in favor of any bondholders not exercising their conversion rights and in order to recognize the ensuing full amount of thei recognized and certain liability. | il the | until 15 May 2013, based on the number based 2013, | number their | ||||||||
| Basis of determination of the liabilities payable with effect from 15 May 2013 | payable | 15 May | |||||||||
| With effect from 15 May 2013, the amount of liability under the bonds maturing in 2013 is no longer subject to uncertainty and therefore reflects both the repayment premium and full amount of interest remaining to be accrued ects on the bonds that remain outstanding. From that date, the Plan payments have been calculated on the basis of a bond liability comprising the sum of the following items | that | the | bonds | maturing | remaining | the | of | ||||
| •The principal outstanding on the date of the judgment materializing the Plan; of | |||||||||||
| •The interest payable at the date of the judgment materializing the Plan; The | |||||||||||
| •The sum of interest accruing from the date of the judgment materializing the Plan and until 15 May 2013, a The accruing until the final year of the Plan (calculated for each applicable year on the outstanding principal after taking account of prior repayments under the Plan); | date the | year | until outstanding | 15 | and | ||||||
| •The repayment premium | |||||||||||
| On the assumption that no offset of the bonds maturing in 2013 t the | in | akes | the | takes place throughout the duration of the Plan, the |
On the assumption that no offset of the bonds maturing in 2013 t cash outflows for settlement of the applicable liability may be calculated as follows
| Term Out | 10/05/2010 10/05/2011 10/05/2012 10/05/2013 10/05/2014 10/05/2015 10/05/2016 10/05/2017 10/05/2018 10/05/2019 10/05/2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Outstanding amount | 149 999 928 146 999 929 143 600 849 137 173 973 137 173 973 137 173 973 137 173 973 137 173 973 107 952 734 | 64 266 983 | |||||||||
| Recognition of newly unconditional repayment premium | 57 929 972 | ||||||||||
| Accrued interests at Judment date finalizing the Plan Annual interests to be due |
2 909 588 | 1499999 | 1469999 | 1436008 | 1371740 | 1371740 | 1 371 740 | 1371740 | 1 371 740 | 1079527 | 642 670 |
| somme des intérêts à échoir annuellement | 8580896 | ||||||||||
| Recognition of newly unconditional interests | n | 4 4 0 5 5 8 7 | 1469999 | 10 016 904 | |||||||
| Unconditional recognized liabilities | 149 999 928 149 999 928 | 154 409 515 | 155 879 514 | 223 826 391 | 223 826 391 | 223 826 391 | 223 826 391 | 223 826 391 | 223 826 391 | 223 826 39 | |
| Amortization Annuities based on unconditional recognized liabilities |
2% 2 999 999 |
5% 7720476 |
5% 7793976 |
5% 11 191 320 |
5% 11 191 320 |
5% 11 191 320 |
10% 22 382 639 |
14% 31 335 695 |
20% 44 765 278 |
29% 64 909 65 |
|
| Follow up of previous annuities on the unconditional recognized liabilities | 88 192 | 102 900 | 8 1 5 3 6 2 5 | ||||||||
| Maximum annuities applicable on Bonds 2013 | 2 999 999 | 7808667 | 7896876 | 19 344 945 | 11 191 320 | 11 191 320 | 22 382 639 | 31 335 695 | 44 765 278 | 64 909 653 | |
| Annuity per Bond 2013 | 2,76 | 7,18 | 7,27 | 17,80 | 10,30 | 10,30 | 20,59 | 28,83 | 41,18 | 59,72 | |
| As provided for by section L. 228-106 of the French code of commercial law, the Plan requires modification of the bond issue agreements in order to adjust the offset or conversion ratios applicable to the bonds maturing in 2010, 2013 and 2014 in line with the progressive repayment of the nominal amount of the bonds scheduled under the Plan. |
|||||||||||
| Special cases Creditors benefiting from guarantees provided by OPG The creditors benefiting from guarantees provided by OPG only have a conditional right to payment for so long as the debt of OPG's subsidiaries towards them has not become due. In the event of such a creditor claiming payment, during the period of performance of the Plan, of any sum become due by the main debtor and thereby by OPG, the said creditor would be eligible for the benefit of the Plan with effect from the applicable due date of payment. Bearers of the share subscription options maturing in 2014 Certain bearers of the share subscription options maturing in 2014 have declared contingent receivables based on compensation that might be due in the event of any change in the Company's control. But no such compensation is payable until any change in the Company's control has become effective. In the event of any bearer of the share subscription options maturing in 2014 claiming payment, during the period of performance of the Plan, of any sum become due in this respect, the said creditor would be eligible for the benefit of the Plan with effect from the applicable due date of payment. |
|||||||||||
| Intercompany liabilities |
But no such compensation is payable until any change in the Compa of any bearer of the share subscription options maturing in 2014 claiming payment, during the period of performance of the Plan, of any sum become due in this respect, the said creditor would be eligible for of the Plan with effect from the applicable due date of payment. subscription due final st of December 2020.
Loans to OPG by subsidiaries are to be reimbursed in fine after the maturity of the Plan. The final repayment date of these loans is typically the 31
The Board of Directors estimate estimates that a rescheduling of its debt is highly probable within the safeguard framework framework.
The 'circularisation' (i.e. the written Representative ) of proposals to creditors might lead to a negative opinion of the majority of the Creditors about the Company proposals. However the 'circularisation' is consultativ rescheduling without approval from creditors. submission for consideration to creditors by the Court lead the Creditors about consultative only, and the Court is able to judge a Court-appointed Creditor majority about e modified Paris Court
The above presented amortization schedules might be modified by the Paris Commercial Court, provided that the payment of annuities is possible under the Business Plan.
While deemed extremely unlikely given the financial situation of the Company, the quality of its restructuring plan and business plan, reviewed by the independent consultant Grant Thornton in Paris, the Paris Commercial Court could decide to send into 'redressement judiciaire' whereby the Court appoint a Receiver to restructure, sell or liquidate the Company. the Paris its Paris dressement possible by the Tribunal and later challenged at Court by some creditors.
It is also possible that the Plan could be adopted by
The approval of the draft Plan, and the decision of the Paris Commercial Court to materialize the Recovery Plan, will have the effect of prohibiting OPG's creditors from demanding the application of any stipulation contained in any agreements or undertakings, whether oral or written, to which they may be a party and relating to the payment of OPG's liabilities, since all of OPG's creditors will be bound to respect the provisions of the Recovery Plan. decision the a 009 ORCO Property Group SA by the Commercial Court
In March 2009 a "Procédure de Sauvegarde" was opened for of Paris, expiring on September 25th 2009. At the Company's application, the safeguard procedure was extended for another six months (until 25th March 2010) and r protection of the "Procédure de Sauvegarde", the Company made significant progress in implementing its strategic transformation and financial restructuring plan. The second extension was granted by the finalize its Sauvegarde plan and communicate it to the creditors. recently it was renewed until 25th June 2010. Given the "Procédure and later Commercial Plan, any may OPG's creditors Court ecently renewed June in strategic second the Court to allow ORCO to
Throughout 2009, ORCO's priority has been to avoid breaching of loan covenants and to ensure smooth financing of the projects currently under development. 's With the strong support of its banking partners, ORCO was able to been covenants With
restart construction works on Vaci 1, Paris Department S due to inability of draw downs. Details of the main Store and Klonowa Aleja, which were temporarily stopped main bank refinancing deals completed in 2009 are listed below tore below:
As for the Zlota development, a refinancing is currently under advanced negotiation with the Bank. A new term sheet is expected to be signed during the second quarter of 2010.
In 2009, the Company repaid a total amount of EUR 44.4 Million of bank loans related to various asset sales in Germany and the Czech Republic. Bank loans related to residential projects that were delivered (Benice EUR Million, Kosik EUR6.6 Million, Nove Dvory EUR 17.4 Million, Feliz Residence EUR of bank debt have been repaid on (Benice EUR 5.1 Million) or are about to be delivered (Klonowa Aleja EUR 4.1 Million) are expected to be repaid on schedule. In 2009, EUR 17.6 Million residential debt.
In its plan to achieve higher integration agreement on the conversion of its shareholder loan in operational restructuring plan for integration of ORCO Germany S.A., ORCO Property Group SA has reached an OG into equity. This is the first step of a wider financial and OG. about delivered 2009, has S.A., B.V
This operation was made possible thanks to an agreement signed by (an investment vehicle managed by Morgan Stanley c ORCO Property Group S.A. on August 26, 2009. Million shareholder loan in ORCO from 58.10% to a 65% stake in its subsidiary. This agreement was presented and approved at the Extraordinary General Meeting of ORCO Germany S.A. held at the end of October 2009. The agreement, which grants a short term option to minority sharehold a prospectus and is awaiting regulatory approval expected in April 2010. to ORCO Germany S.A., MSREF V Turtle B.V currently owning 28.91% of ORCO Property Group S.A obtained conversion of its ORCO Germany S.A. into 10,991,750 new shares, set to end agreement, shareholders of ORCO Germany to subscribe at the same price, is urrently ORCO Germany S.A.) and EUR17.6 increase the Company control to is subject to the issuance of
At an issue price of EUR 1.60 per share, relutive for ORCO Property Group. ssue when yearend 2009 net asset value stands at end asset EUR1. 73, the deal is NAV
This shareholder loan restructuring allows the Group to secure its investment in on its subsidiary and collect more benefits from sqm asset portfolio which is mainly composed of offices. ORCO ORCO Germany restructuring. ORCO is ORCO Germany, increase control ORCO Germany owns a 972,000
As of December 2009, the Group ha partners. This amount decreased by 44.5 The subsequent loans restructured are has receivables in a total amount of EUR 21.5Million 44.5 % compared to a total amount of EUR 38.8 Million are: 21.5Million, to various subsidiaries & as of December 2008.
• An agreement has been signed with AIG, whereby EUR 10 Million of the loan granted to the JV will be voncerted in equity and EUR 10 Million will be repaid with cash injected by AIG. ORCO's joint venture partner in the hospitality portfolio, will AIG. EUR 8,7 Million is expected at closind end of 's venture EUR end of April 2010. EUR
20 Million out of ORCO injected EUR 10 Million shareholder loan was converted into equity in the joint venture ORCO Property S.A EUR 46 Million shareholder loan was restructured. Million in cash in Hospitality Invest for repayment to ORCO der restructured. Our partner ORCO, while EUR 10 Million of
• ORCO Property Group SA has received a dividend of Estate on the Kosik development. EUR 2.5 Million from its partnership with GE Real partnership (included 1.3 Million EUR of
In 2009, ORCO completed asset disposals in total value of Property Management) , generating a loss of EUR 1. Management companies amounted to E to sell these assets at distressed prices. EUR 66.6 Million (included 1. ) 1.8 Million (excluded the profit on the sales of Property EUR 1.2 Million). Given the safeguard protection, the Group was not forced Property ). forced 1.2 Million.
Excluding the related debt, these assets disposals freed a total cash amount of EUR 3 31.2
The disposals completed in 2009 are part of the company's portfolio rotation program and are fully aligned with its new strategy, focusing on core markets. All the assets sold were identified by the Management as non the ommercial as Immanuelkirchstr. 3-4, Berlin), residential assets (Vinohrady sold identified non-strategic.
These disposals included commercial assets (such as portfolio), projects under development (such as Fehrbelliner Hofe in Berlinand City Gate in Bratislava). ), Berlinand City
In 2009 ORCO Property Group became Jean-François OTT became a Board companies which own more than EU accounting, reporting and corporate governance investors and to create a framework for the debate and decision the sector. Board member of that association. EPRA's members are Europe's leading property EUR 250bBillion of real estate assets. EPRA strives to establish best practices in governance among its members, to provide highcreate decision-making on the issues that determine the future of Association) and are best -quality information to
EPRA members report in accordance with International Financial Reporting Standards (IFRS). The EPRA BPRs provide a framework for: g BPRs as of 2010. Some tables have
Specific additional guidance for real estate companies within the estate IFRS framework;
Uniform performances reporting and presentation between real estate companies;
Additional disclosure guidance.
ORCO Property Group has decided to implement EPRA reporting recommendations already been introduced in this 2009 report (such as triple n all the reporting standards recommended by roup net NAV). ORCO's objective is to gradually i EPRA. implement
Colony negotiations
On 29th April 2009 ORCO announced the launch of exclusive negotiations for a reserved share capital increase with ColOG, a company controlled by funds advised by April launch ColOG, by Colony Capital.
ColOG was considering to reinforce OPG's equity by extended until November 30th Procédure de Sauvegarde. This capital increase was conditioned by the successful implementation of bond restructuring under the safeguard procedure. conditions have not been met and Colony Capital's option has expired accordingly. conditions, Colony Capital confirms that the discussi high quality. EUR25 Million by the end of the s 2009) and by an additional amount of up to EUR140 of e Given the lack of debt restructuring by given deadline, Colony discussions conducted with ORCO Property Group second quarter 2009 (then 140 Million at the end of the was ck deadline, the investment option accordingly. Despite the current market Group Management were
Since the beginning of the negotiations with Colony of 2009, with the overall improvement of the economic context and revenues growing again, the standing of residential sales, the ability of renegotiate loans Company to develop its business plan without any ca Colony Capital, the context has substantially improved in the 2nd of and, more specifically for the Company, rental again, capital increase. , context half the of residential loans. This has enabled the
However, the Company remains committed to raise fresh equity to strengthen its balance sheet and reinforce its investment capacity. A number of negotiations were initiated during the first months of 2010 which may lead to one or several capital increases during the spring 2010. We can also note that share options (and in particular the Warrants 2014) have been in the money, making an increase of capital through options possible, if not likely. its balance ital since mid February, the an reinforce of Company's of "Insiders'
During 2009, selected hotels that are under ORCO's Management received prestigious industry awards, such as:
Those awards attest ORCO's hospitality business is well cycles. well-positioned to attract clients, irrespective of the market
The Main financial events are described in the statements and include section 7 and 8 describing the 2009 consolidated financial positioned of the 2009 EUR
• NAV decreases at Year end to 8.2 EUR per share
As a result of the group restructuring in two business lines, all real estate assets are classified into: estate assets into:
As of December 2009, on the basis of a review of the real estate portfolio by DTZ, an independent real estate consultancy firm, the portfolio value of the Group from EUR 1,833 Billion as at June 20 review the an has been estimated at EUR 1.81 3 2009, down from the 2.058 Billion as at December 2008. review been estimated 1.815 Billion, relatively stable December
| In Euro 000' | Portfolio valuation December 2008 |
Transfers Sales |
Investments Re-evaluation | Portfolio valuation December 2009 |
||
|---|---|---|---|---|---|---|
| Commercial investment properties Development |
1,115 943 |
54 (54) |
(63) (120) |
19 148 |
(90) (137) |
1,035 780 |
| Total | 2,059 | - | (184) | 167 | (227) | 1,815 |
| Commercial and investment properties the hospitality and rental properties sectors because of the upward movement in yields recorded on all markets (see market analysis for more details). mainly two buildings (Bubenska and Budapest Bank) the rest of the rental income on the portfolio being gs stable; Development: the re-evaluation effect is mainly projects. The "Residual Method" puts a discount on uncompleted buildings estimating that a potential buyer would require an additional return for taking over the the early stage of the project |
(Bubenska evaluation project whereas the gap narrows with the completion. |
properties: the primary cause of re-evaluation is mainly yield | The secondary cause of revaluation is income due to the valuation method |
applied to development construction. This has a discounting effect at |
||
Half-year relative value analysis : high revaluations in H1 followed by positive revaluation year relative value thanks to developments developments |
revaluation |
The situation is contrasted between the two semesters:
The Company's development portfolio consists of land bank and real estate properties development, residential and commercial developments designated to be sold or transferred to its asset management business line. estate commercial be of 780 Million and designated as future
As of December 2009, Orco's development portfolio represented EUR developments, 18% of residential under construction developments, 12% of residential land bank and 9% of finished goods to be sold) Million in value (61% commercial
The total valuation of the Development business, corrected from sales and cash investments has been sharply decreasing by EUR 142 Million Orco to complete those developments of values for restarted projects. velopments, of the investments in the first half of 2009, reflecting risk aversion of the market and the capacity of developments, before increasing by EUR 5 Million in the second construction has capacity of half, reflecting a recovery
The Company's commercial development portfolio consists of properties that the Company has developed or is developing across CEE region to keep and manage or sell mixed-use buildings. The Company also has small number of logistics projects in its commercial portfolio. of sell. The properties in this portfolio are office, retail or Company properties its
Throughout 2009, the Company completed construction works on ten commercial projects, which are listed below among all the 13 commercial projects . construction commercial projects:
| Projects | leasable | Market Value |
Variation | Variation Variation Jun 09- - |
Capex H1 |
Capex H2 |
Total Capex |
|||
|---|---|---|---|---|---|---|---|---|---|---|
| delivered in 2009 |
Location | asset type | area sqm |
construction completion |
EUR Million |
Dec 09- June 09 |
Dec 09 | 2009 | 2009 | 2009 |
| Sky Office | Düsseldorf | office | 33 000 | Q3 2009 | 135,0 | 22,0 | 32,0 | 37,0 | 10,0 | 47,0 |
| H2O | Duisburg | office | 13 000 | Q4 2009 | 29,0 | 11,0 | 17,0 | 12,0 | 9,0 | 21,0 |
| Bernauer strasse | Oranienburg | healthcare healthcare |
8 000 | Q3 2009 | 10,5 | 2,0 | 7,2 | 5,1 | 0,8 | 5,9 |
| Rostock | Rostock | healthcare healthcare |
5 700 | Q3 2009 | 8,8 | 2,5 | 5,7 | 3,2 | 1,0 | 4,2 |
| Gutersloth | Gutersloth | healthcare healthcare |
7 200 | Q3 2009 | 11,9 | 3,3 | 8,3 | 0,0 | 5,7 | 5,7 |
| Hradcanska | Prague | office/retail office/retail |
10 600 | Q1 2009 | 12,5 | -0,6 | -1,9 | 0,0 | 0,3 | 0,3 |
| Palac Archa | Prague | office/retail office/retail |
24 000 | Q1 2009 | 47,6 | 2,1 | 2,1 | 4,3 | 0,5 | 4,8 |
| Vysocany Gate | Prague | office | 16 800 | Q2 2009 | 21,1 | -2,0 | 4,3 | 0,0 | 6,8 | 6,8 |
| Paris Dept. Store | Budapest | retail/office retail/office |
5 900 | Q4 2009 | 15,0 | 1,1 | -6.8 | 0,0 | 2,9 | 2,9 |
| Radischevskaya | Moscow | office | 1 700 | Q3 2009 | 10,5 | 2,5 | -1.3 | 0,0 | 0,5 | 0,5 |
| Peugeot | Warsaw | Retail | 4 030 | Q1 2010 | 3,7 | -0,7 | -1,1 | 0,0 | 0,0 | 0,0 |
| Vaci I | Budapest | Retail | 11 000 | Q2 2011 | 40,1 | 0,2 | -4,1 | 2,7 | 1,5 | 4,2 |
| New Molcom | Moscow | Logistic warehouse |
18 500 | Q4 2009 | 7,5 | 2,6 | -0,1 | 4,3 | 7,9 | 12,2 |
| TOTAL |
These new assets attracted prime tenants, such as Lovel Bohemia Energy, Alexandra Bookstore, etc. The occupancy of these assets on Sky Office, while the healthcare assets are fully leased. Lovells, McKinsey, CSOB, Robert Half, Roland Berger, assets ranges from 21% (H2O office) to 65% s, Berger,
The consolidated market value of the December 2008, their value was EUR 284 Million. Over the first expenditures have been spent. During H2 2009, EUR 47 Million of capital expenditures have been spent. are 13 commercial developments reached EUR 353 half of 2009 353 Million as of year end. As of 2009 EUR 69 Million of capital
Therefore, on a YoY basis, the market value increased of EUR115 Million for EUR 116 Million projects as most of them have been completed in the second half on progress made on occupancy and following the positive market trends expected in 2010. spent. half. Their value is expected to increase in 2010, based EUR expenditures invested in these . 2010.
Such positive evolution of value seems to validate management focused its cash on completing its existing projects, thereby recovering value for all key stakeholders of the Company. and Safeguard strategy in 2009 whereby the Company Company key stakeholders of the
As of end of December 2009, the main commercial project where we had construction in progress was Vaci 1.
Vaci 1 (former Budapest Stock Exchange) is located at the corner of the busiest shopping street of Budapest. The works began in the spring of 2008. After having been put on hold between April 2009, restarted in November and are estimated to conclude in Q2 2011. After refurbishment, 11 will be available. Vaci 1 is already 19% roll over till 2017 if no breach. EUR 2 second one. project is in ted 11 thousand sqm. of net pre-leased and financed by a EUR 46 Million loan limit maturing in 2012; 2.7 Million were spent during the first half and EUR 1.5 Million during the the of leasable retail accommodation EUR at EUR 40.1 Million as at
As at December 2008, the fair value of the building was set at December 2009. Based on the amounts to EUR 85 Million. As the development is at an early stage, the valuation integrates a significantly high discount rate to take into account the development risks 20.6 Million, a mechanical gain of EUR 24.3 Million would be recored. the EUR 44.1 Million, and the expected annual rental income of EUR 6.9 Million valuation risks. With remaining development costs recored. 6.9 Million, the fair value at completion development amounting to EUR
More details on these buildings are available in the Appendix 1 1.5.2.
Other projects from Orco's commercial pipeline are in the stage of planning and/ or zoning. Severa were originally planned to break ground in 2009 (such as Bubenska/ Vltavska and Wertheim), were put on hold because of unfavorable market conditions. Restarting of the projects will depend on the levels of pre achieved. Orco's stage planning and/ Several projects, that on levels pre-leases
The Company is a major developer of residential projects in Central Europe. developments, consisting of apartments and houses, are aimed at the middle and residential housing market. Given the current market conditions in 2009, Orco scaled back on residential development of luxury apartments, thus selling Fehrbelliner Hofe in Berlin and City Gate in EUR 11.3 Million. aimed t. conditions residential development projects into development phases, and the The Company's residential upper middle segment of the back Slovakia with a loss of
The Company divides all its large
Company seeks to pre-sell a certain portion of apartments phase. The Company usually starts construction when an average of 30 per apartments before commencing construction works for the relevant usually per cent pre-sale has been achieved.
The residential development portfolio includes projects where construction works have been undergoing in 2009. As of December 2009, Orco's residential development portfolio represented EUR 177.5 (excluding landbank). the sale has Million in value
During 2009, construction works were finalized on 6 residential projects, representing a total of 525 units. The list of residential projects completed in 2009 is presented below: in 2009 below: 6
| Projects completed in 2009 |
location | Construction completion |
total units | PC booked in 2009 |
units remaining in inventory |
market value (EUR Million) |
|---|---|---|---|---|---|---|
| Plachta 3 | Hradec Kralove Kralove |
Q4 2009 | 89 | 63 | 26 | 2.9 |
| Michle | Prague | Q1 2009 | 49 | 34 | 15 | 2.4 |
| Kosik 3 A | Prague | Q3 2009 | 233 | 96 | 137 | 21.4 |
| Nove Dvory | Prague | Q2 2009 | 100 | 62 | 38 | 5.4 |
| Benice 1 | Prague | Q1 2009 | 46 | 4 | 42 | 12.4 |
| Feliz Residence/ Drawska |
Warsaw | Q3 2009 | 40 | 6 | 34 | 8.8 |
| Mokotowska | Warsaw | Q2 2009 | 14 | 7 | 7 | 5.2 |
The Group registered a 34% decrease in its units delivered and recognized in revenues in 2009, to 515 units Czech Republic, 81 in Poland and 12 in Slovakia) projects either finalized or under construction amounts to 413 units in covered by a future purchase contract to 587 units in Poland out of which 223 are which 5 are covered by a future purchase contract residential developments. its revenues compared to 802 in 2008 (excluding the Czech Republic out of which 95 are ase of and to purchase contract. In Germany, there are only few units left to sell on the in units (422 in (excluding Germany). The backlog on he to 68 units in Slovakia out of . the
As of December 2009, construc 11 and Klonowa Aleja. construction works were in progress on the following residential developments: Americka tion . October 2009 and is due to
Americka 11 is in the Vinohrady district finish in April 2010. The reconstruction sold. The project is financed through group's equity. district of Prague. The construction commenced in October The will consist of 13 apartments. As of December 2009, no units have been been . site is a residential
Klonowa Aleja (Malborska) is scheme that was completed in accommodation and underground car parking facilities (402 parking spaces). The total saleable area amounts to 17817 sqm. As of December 2009, 110 units were pre maturing in 2010. The project has obtained occupancy permit since October 2009 but flats will start to be handed over to clients only in 2010. located in the Targówek district of Warsaw. The site is developed with a late 2009/ early 2010. The development comprises 284 apartments as well as retail total saleable pre-sold. The project was financed by but residential tower in Warsaw were suspended in summer 2009, . area sold. by EUR 4 Million loan, to in due to invalidation
Construction works on Zlota 44 of both the zoning and building permits by the court. Orco has appealed these decisions. The zoning permit was re confirmed on 15 March 2010 (final and binding) both appealed binding), and is the Company is confident in a appealed re- , achieving the same positive
result for the building permit. Orco has cooperated with financing bank and at the same time negotiating potential JV agreement in order to be able to restart the construction immediately after the re Company will depend on the additional contribution mezzanine partner and will become unforcable subject to bank approval restart Zlota in 2010. Sales will reopen after recommencement of construction works. The of Warsaw city centre, immediately adjacent to the Warsaw's Palace of Culture. residential building with 251 apartments and retail at ground floor level . Construction works on Zlota 44 site were suspended in summer 2009 order re-validation of permit. The equity to be invested by the contribution of the bank.A relevant term sheet has been signed with a partner.The Company is committed to The at level. on Zlota Since then, order be been signed The Property is in the heart to This is a luxury, high-rise
Other projects from Orco's residential pipeline are were originally planned to break ground in 2009 ( Wertheim) were put on hold because of unfavorable market conditions. However, thr immediate ground-break, should the market conditions improve: Mostecka (55 units), V Mezihori (142) and Vavrenova (90 units), all located in Prague. in the stage of planning and/ or zoning. Several projects, that ( such as Mostecka, Drawska 2, Szczecin market break, (55 (142) of land bank as of December 2009 reached EUR 303.1 Szczecin, Krakow Jozefoslaw and three projects are ready for
The total market value of the land Million of commercial land bank (including place and EUR 37.1 Million of land Bubny), EUR 63.9 Million of land bank with a residential project in land bank having other kind of projects (plotting programs, solar farms Million of which EUR 202.3 ting farms, etc).
The following tables provide an overview of the Company's land banks, by country, as of 31 December 2009: an
| Commercial Land Bank | DTZ value EUR |
Site area sqm |
|---|---|---|
| Czech Republic (incl. Bubny) | 59 475 000 | 244 800 |
| Germany | 127 910 000 | 47 900 |
| Hungary | 4 920 000 | 1 800 |
| Slovakia | 10 000 000 | 7 200 |
| Total | 202 305 000 | 301 700 |
| Residential Land bank (project in place) |
DTZ value EUR |
Site area sqm |
Potential Units |
Potential sqm |
|---|---|---|---|---|
| Czech Republic (incl. Bubny) | 35 639 465 | 300 000 | 3000 | 361000 |
| Germany | 7 475 000 | 30 000 | 50 | 7 000 |
| Poland | 20 280 000 | 170 000 | 1 700 | 123 000 |
| Croatia | 500 000 | 90 000 | N/A | 19 000 |
| Total | 63 894 465 | 590 000 | 4 750 | 510 000 |
| Residential Land Bank ( plotting, other,) |
DTZ value EUR |
Site area sqm |
|---|---|---|
| Czech Republic | 26 210 000 | 1 162 000 |
| Poland | 2 010 000 | 218 000 |
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