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Bucharest a capital place to invest for SPDI

Published: 06:42 16 Aug 2016 EDT

Bucharest
The focus shifted from Ukraine to Romania and, to a lesser extent, Bulgaria

Secure Property Development & Invest PLC (LON:SPDI) might once have worried about political developments, but its focus has shifted more to Romania.

The Aim-listed property development and investment company once had assets solely in Ukraine, but most of its assets are now located in Romania and Bulgaria.

Focused on south-east and eastern European markets, where the yields on offer are enticing, its growth has been fast, with the company going from having just one property producing income in 2012 to a portfolio of seven properties in four countries at the end of 2015.

Acquisitions completed in 2015 resulted in a 50% year-on-year increase in the asset value of its property portfolio to €117 million, and a 52% step-up in its revenues from income producing assets to €5.5 million.

The company is disciplined in its acquisition policy, looking for properties that benefit from excellent addresses and transport links; are let to blue chip customers on long leases with strong covenants; generate visible income streams; and offer scope for significant capital appreciation.

The shares trade at 15p, whereas the net asset value (NAV) per share at the end of 2015 stood at 35p, prompting the company to complain the market does not recognise the transformation it has undergone recently.

The market’s perception of its exposure to Ukraine could have large bearing on its stingy rating. The political problems in Ukraine meant a €18.6mln currency hit in 2015, which caused a loss for the year of €16.7mln, versus a loss of €9.7mln in 2014.

Given, however, that the NAV per share dropped to 35p in 2015 from 75p at the start of the year, it could be argued that worries over Ukraine are built into the price.

Another concern was raised by the company’s auditor, who qualified the accounts due to a €21mln working capital deficit but SPDI says this reflects the way it accounts for properties for sale and should be rectified once sales that have been agreed go through.

In August of this year the company received a €1.39mln settlement from Nestlé România for the foods producer’s early departure from the Innovations Logistics Park in Bucharest, Romania.

Nestlé România occupied about 60% of the Innovations Park space, a lease that was due to expire in September 2018 and the payment is equal to rent for around 18 months, although some €250,000 of the payment will be paid to lender Piraeus Bank Leasing.

In addition, Nestle România has agreed to forego the rental deposit guarantee of approximately €0.28mln and will leave certain fixtures and fittings, including storage racks.   

The company is looking for a new tenant and Lambros Anagnostopoulos, SPDI’s chief executive said that given Innovations Park‘s location he was confident a replacement for Nestlé România will be found quickly.

The cash boost toped up the company's war chest, which had already been boosted in May by the sale of a residential portfolio in east Bucharest.

Speaking to Proactive Investors in May after that sale, Anagnostopoulos sounded keen to invest the company’s war chest back into the Romanian capital.

Bucharest has virtually no unemployment and a thriving economy that has seen living standards and average salaries “galloping over the past few years”.

Anagnostopoulos said the Bucharest economy provides returns on investments with average income yields of 8-8.5%.

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