Operational Review
During 2007, Ablon Group had residential, retail and office development projects at the following locations:
Budapest
In July 2007, Global Immo Kft., a wholly owned subsidiary of Ablon Group and the project company for the Gateway Office Park project in Budapest, won a significant public tender from the Hungarian Post for approximately 24,000 square metres of office space on a 10 year lease contract. Under the terms of this agreement, the total gross rental income is approximately EUR 5 million per annum. Construction of the Gateway Office Park project is completed and the property is situated on approximately 11,250 square metres of land in district 13 of Budapest, an area that has become the ‘Office Building Corridor’ of Budapest. The project has a total of 36,298 square metres of lettable office and retail space and underground parking.
In December 2007, the company signed a 30 year management contract with Marriot for the hotel part of the Blaha Center (previously called Europeum). The Group started construction of the project in December 2006 and the site is situated in Blaha Lujza Square, one of the busiest squares in downtown Budapest, with easy access to public transportation and motorways. The development includes a four-star hotel which will have 235 rooms, 5,500 square metres of retail space and 229 parking places. Construction is expected to be completed during the fourth quarter of 2009 and the total cost of the project is estimated to be EUR 40 million, while net operating income from the project, including income from (1 of 7)
the hotel, parking and retail space, is expected to reach around EUR 4.5 million per year for the Company.
In August 2007, the Group started the construction of the second phase of the M3 business centre. The property is an office building situated in the developing business district of Budapest, located near the junction of the M3 highway and Hungaria krt. Once the entire development is completed, it will provide a total of approximately 18,000 square metres of lettable office space. Completion of the second and final phase of development, totaling 8,400 square metres of office space, is expected to happen during the fourth quarter of 2008.
In November 2007, the Group started the construction of the first phase of the Airport City Logistic Park in the southeast of Budapest. The first phase will see the completion of 10,000 square metres of warehouse space, and construction is expected to be completed by the second quarter of 2008. The other phases of the project are expected to be completed by the end of the second quarter of 2009, and the property will cover 117,140 square metres. The Company plans to develop a logistics centre consisting of a 66,000 square metre warehouse and 5,000 square metres of commercial space.
Prague
Following a period of due diligence, Ablon completed the acquisition of 394,701 square metres of land located 30 kilometres southwest of Prague city centre in April. The site, which is situated 0.7 kilometres from a main highway, was purchased for EUR 7.1 million and the sale was initiated in December 2006. Ablon is confident of obtaining planning permission for the plot and subject to this, plans to develop the site for residential housing. The expected building rights for the land will enable the Company to construct 320 family homes. 50% of these homes will be semi detached houses (with a floor area of 150 square metres each); 47% will be detached houses (with a floor area of 150 – 330 square metres
each) and 3% will be terraced houses (with a floor area of 150 square metres each). A kindergarten as well as some retail and service units will also be built on-site. Ablon expects to begin marketing shortly after a building permit is obtained around January 2009. The site will be developed in three one-year phases, the timing of which will be determined by market demand.
Bucharest
In June 2007, the Company increased its stake in the two development companies that own the plots and development rights to the Timisoara Avenue and Mogosoaia Village development projects, in Bucharest, from 80% to 88% as part of a non-cash transaction. Under the terms of the agreement, Ablon will take on all future equity and shareholders’ loans required to finance these projects. The share of Ablon’s partners in the two development companies will be diluted from 20% to 12%. Timisoara Avenue is a 40,930 square metre plot in the Brâncusi neighborhood in western Bucharest. The Group expects to build a residential complex on the plot, including leisure facilities, consisting of approximately 2,120 apartments for middle class residents. Ablon expects to complete work on the development in 2012 with the aggregate expected gross saleable area expected to be 180,000 square metres. Mogosoaia Village is a 93,800 square metre plot, located seven kilometres northwest of the city centre of Bucharest; Ablon expects to build 116 villas on the plot. The development is expected to be completed in 2009 with an aggregate expected gross saleable area of 40,000 square metres.
The Group also completed the acquisition of a 33,650 square metre plot of land, located in the Pipera District of Bucharest, in June, for a purchase price of EUR 9.5 million. Ablon has obtained building rights for 117,000 square metres on the plot and plans to develop the site for residential housing and office use. The Company will construct approximately 1,000 apartments, taking up 100,000 square metres, with offices being constructed on the remaining 17,000 square metres of space. This will be the Company’s first office development in the city and total revenues from the project are expected to be between EUR 120 and EUR 140 million.
In October 2007, the Group completed the acquisition of a new 40,000 square metre plot of land located in the Pipera District of Bucharest for a purchase price of EUR 18.5 million. Ablon has obtained building rights for 120,000 square metres on the plot and plans to develop the site for residential housing, offices and a retail complex. The Company will construct approximately 1,000 apartments, taking up 72,000 square metres, with offices and retail space being constructed on 28,000 square metres of space. The total revenues from the project are expected to be between EUR 185 and EUR 205 million.
Ablon’s portfolio in Bucharest now stands at approximately 4,000 apartments and 41,000 square metres of office and commercial space. The Company is looking to complete all of its current development projects in Bucharest within 5 years.
Recent Developments
In January 2008, Ablon completed the acquisition of the Company’s first residential venture in Poland, in-line with the Company’s strategy of building a solid portfolio of assets in the most attractive cities in Central and Eastern Europe. Ablon acquired a new 5,290 square metre plot of land located in the centre of Warsaw. The plot is strategically situated within close proximity of the Daewoo / World Trade Tower and the new Hilton Hotel and Residential Towers and is situated in one of the most exclusive and highly sought after locations in central Warsaw.
The Company plans to build up to 13 floors of residential space at the site, occupying approximately 17,000 square metres for a total development cost of EUR 40 million. Construction at the site will commence in the third quarter of 2008 and is expected to last 2 years. The total revenues from the project are expected to be between EUR 70 and EUR 85 million.
Earlier this month, Ablon announced the acquisition of a 5,409 square metre building in Budapest with the intention of converting it into a 74 bedroom luxury boutique hotel for a total development cost of EUR 11 million. Work on the development is expected to be completed towards the end of 2008. Located in the 6th district on the Pest side of Budapest, the property is part of a historical residential area with traditional retail units on the ground levels of the site. The development lies on the border of Budapest’s historic downtown and the dynamic 13th district, opposite the planned new Government Quarter. Budapest’s biggest shopping centre (Westend) and the West Railway Station are also in close proximity. The development further strengthens the Group’s portfolio of high-end properties in the in Central and Eastern Europe.
Ablon also recently completed the acquisition of an 88,000 square metre plot of land in Gdansk, through a joint venture in which Ablon has a 51% stake. Ablon intends to develop the site into a 3 floor luxury residential complex with recreational facilities for a total development cost of approximately EUR 95 million. Construction at the site is scheduled to commence within 15 months over 4 different phases with completion expected 4 years later. Ablon expects the project to generate an income of between EUR 190 million to EUR 220 million once all four phases are complete. The Company also has an option to buy an additional 30,000 square metres of land in close proximity to the site.