Orco Property Group Buy
REAL ESTATE, Central Europe
January 24, 2005
Orco Property Group
Buy
(Initiated Coverage)
Share Price: EUR 38.5 Price Target: EUR 45.5
“First Real Access to Czech Real Estates” Orco Property Group (OPG) is a diversified real estate company focusing on Central Europe, particularly the Czech Republic. OPG, which is a Luxembourg SOPARFI (not liable for tax on real estate investment capital gains), was listed on the Euronext stock exchange in December 2000 and is currently seeking a listing of its shares and convertible bonds on the Prague Stock Exchange in February 2005. The launch of the Endurance Fund, in which OPG will act as the fund manager, will enable OPG to benefit from opportunities that OPG alone would have trouble financing. The fund’s asset size is estimated at EUR 350mil, with a favorable 70% leverage. The management fee structure will provide another pillar strengthening OPG’s cash flow. The acquisition of residential developer IPB Real in 2003 will be fully reflected in the 2004 consolidated result. We estimate IPB Real contributing 50% to the consolidated EBITDA, which is expected to double in 2004 and continue growing by 25% p.a. over the modeled period. Currently trading at P/NAV of 1.15x OPG offers 11% upside to 1.3x P/NAV ratio of its peers. Even after the excellent share performance of OPG in 2004, we believe that the stock offers 18% upside to current share price of EUR 38.5 in a 12 month horizon. We are initiating coverage of Orco Property Group with a BUY recommendation and price target of EUR 45.5 per share. Year
EQUITY RESEARCH
2008e 2007e 2006e 2005e 2004e 2003 2002PF
Sales (EUR '000) 103,752 98,684 96,361 83,965 70,189 22,779 10,059
Net Income (EUR '000) 15,064 15,247 19,786 10,978 8,271 250 2,555
Shares Out. (mil) 5.6 5.6 5.6 4.6 4.6 4.0 2.9
EPS (EUR) 2.7 2.7 3.5 2.4 1.8 0.1 0.9
EPS growth -1% -23% 48% 33% >100% -93% 18%
Expected Events
1 February 05
Dual listing on Prague Stock Exchange
Key Data Market Cap (EURm) 177 Enterprise Value end-04e (EURm) 243 Free Float 78.4 % EV/EBITDA ‘05E 11.0x ROAE ‘05E 9.9% Majority Shareholder Orco Holding (21.6%) Reuters Code ORCO.PA Bloomberg Code ORC FP Ex. Rate (CZK/EUR) 30.3 PX-50 Index 1,056.2
Price Performance 52-w range (EUR) 52-w EUR Performance
20.3 – 39.4 89.6%
Orco Property Group
EPRA rebased
40 35 30 25 20 1/27/04
P/E (x) 14.4 14.2 10.9 16.2 21.5 >100 43.5
EV/ EBITDA 10.1 10.4 8.6 10.8 20.1 36.4 30.5
5/26/04
P/ NAV 0.68 0.73 0.80 0.86 1.15 n.m. n.m.
9/23/04
DPS (EUR) 1.3 1.0 0.7 0.6 0.5 0.5 0.4
1/21/05
Divid. yield (%) 3.2% 2.6% 1.8% 1.4% 1.3% 1.2% 1.0%
Note: 2006 figures affected by EUR 5mil one-off EBITDA
Analyst: Tibor Bokor E-mail: [email protected]
Prague (tel.): +420 222 096 249 Website: www.wood.cz
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TABLE OF CONTENTS
Page: Executive Summary
5
Business Model
7
Rental Business
7
Hotels
9
IPB Real
11
Endurance Fund
13
Reporting changes
14
Capital Structure
14
Valuation
16
Mortgage Market in Czech Republic
18
Appendix
21
Peer Comparison
23
OPG’s portfolio value
24
Income statement
26
Balance Sheet
27
Closing prices as of January 21, 2004
© 2005 by WOOD & Company Financial Services, a.s. All rights reserved. No part of this guide may be reproduced or transmitted in any form or by any means electronic or mechanical without written permission from WOOD & Company Financial Services, a.s. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without written permission from WOOD & Company Financial Services, a.s. Requests for permission to make copies of any part of the book should be mailed to: WOOD & Company Financial Services a.s. Vaclavske namesti 772/2 110 00 Prague 1 – Czech Republic
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Executive Summary OPG offers exposure to highly growing CEE real estate market
Orco Property Group (OPG) is currently a publicly listed real estate company focusing on Central Europe, particularly on the Czech Republic. OPG, a Luxembourg SOPARFI (not liable for tax on real estate investment capital gains) that was listed on the Euronext stock exchange in December 2000, is currently seeking a listing of its shares and convertible bonds on the Prague Stock Exchange in February 2005.
Endurance Fund provides alternative possibility for investors and stable CF for OPG
Together with the dual listing OPG launches a real estate fund to capture the growing opportunities on CEE real estate market. The launch of the Endurance Fund, in which OPG will act as the fund manager, will enable OPG to benefit from sizeable projects that OPG alone would have trouble financing on its own. The fund’s asset size is estimated at EUR 350mil or roughly double of current property value of OPG. With a favorable 70% leverage, OPG seeks above 17.5% ROE. The management fee structure (2% management fees + bonuses for above 17.5% performance) will provide another pillar for OPG’s cash flow stability.
Successful acquisition of IPB Real will boost the results of OPG for 2004.
The acquisition of residential developer IPB Real in 2003 will be fully reflected in the consolidated 2004 results that are expected in February 2005. We estimate IPB real contributing 50% to the consolidated EBITDA in 2004 and thus doubling it on y/y basis. High demand for residential living and IPB Real’s excellent sales results should result in the sale of 800 flats annually in the next three years. We expect IPB Real’s potential to be fully revealed in 2005, when the group will start reporting under International Financial Reporting Standards, which will better reflect annual sales of IPB Real’s 15-18 month investment cycle.
We see OPG offering minimum 18% upside in 12 month horizon.
Even after OPG’s excellent share performance in 2004, we believe that the stock offers 18% upside in a 12 month horizon.
We issue BUY recommendation with the 12-M price target of EUR 45.5
We are initiating coverage of Orco Property Group with a BUY recommendation and price target of EUR 45.5 per share. For the valuation purposes we have divided OPG’s business structure into four key segments. We have valued the hotel business and rental business at 17.2x expected 2005 EBITDA , whereas the development and fund management business at 7x EBITDA. Adding the properties not currently used (EUR 36.7mil), we arrived at the group’s consolidated enterprise value of EUR 282.6mil at YE 2005. We set the price target at EUR 45.5 per share as fully diluted Equity value. (EUR '000) EV Property available for sale Net Debt Equity Equity per share (EUR) Fully diluted Equity per share (EUR) Target Price (EUR)
#
2005e 245,914 36,700 59,359 223,255 48.3 45.5 45.5
Source: Wood & Co. estimates
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The equity will improve significantly from warrant and convertible bond conversions
Please note that even though the company has 4.6mil ordinary shares currently, there are two programs that we expect to increase the number of shares significantly, starting in 2006. For the fully diluted per share valuation we have used the 4.6mil shares increased by 1mil shares expected to be converted in 2006 from 3mil warrants and 1mil shares from convertible bonds expected to be converted in 2011, as both these instruments are currently in the money. Even though the conversion will increase the equity of the group, due to lower strike prices compared to share price, the value of current shareholders will be diluted. Shares Current shares outstanding Shares from Warrants (2006) Shares form convertible bonds (2011) Total number of shares for valuation
Current P/NAV of 1.15 offers 11% upside compared to Globe Trade Centre
mil 4.6 1 1 6.6
We estimate that the value of Orco’s property holdings increased by 15% in 2004 reaching EUR 253.6mil. The net asset value per diluted share thus represents EUR 33, which is 15% discount to current share price of EUR 38.5. We believe that OPG should trade with significant premium to the net asset value particularly due to the fact that development and fund part of the business is not fully captured in the balance sheet and/or NAV. As a reference we took the P/NAV ratio of Polish Globe Trade Centre that currently trades at 1.3x NAV. This would represent 11.4% upside for the OPG stock. Assumptions and Risks to our valuation. Growth. We have assumed faster growth of real estate asset value (on average 8% p.a.) compared to expected construction costs increase of 5% p.a. Hotel business recovery. OPG hotel portfolio that underperformed in 2003 mainly due to being new in the business should recover the occupancy rate above 50% in 2005 as well as the room prices should grow by 5.5% p.a. over the projected period. IPB Real. We assumed IPB Real to deliver on average 800 residential flats p.a. over next four years, compared to 750 sold in 2004. WACC. We have calculated OPG’s consolidated WACC at 5.8% for the whole projected period. We estimated OPG’s credit spread decrease to be offset by the increasing risk free interest rates.
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Business Model Business Model. business: • • • • •
We have identified the following key areas of OPG’s
Rental business. Residential real estate as well as office ownership and rental. Hotel Business. Extended stay hotels and small luxury hotel ownership and management. IPB Real. Residential development. Endurance Fund. Real estate investment fund management. Development. Luxembourg Plaza and other development projects.
Rental business
Residential EBITDA yield of 5.6% slightly below WACC…
Residential. In the residential area, Orco focuses on high-end clients renting flats for an average EUR 15 per square meter per month. The company’s primary area of operation, Prague 2, makes us confident that it stands to benefit from the robust demand for residential living in this segment of the real estate market. The average occupancy rate improved in 2004 to 92% from 85% in 2003. External appraiser DTZ evaluated the residential portfolio at EUR 25.2mil at the end of 2003. We estimate the book value of the portfolio at EUR 17.6mil. The portfolio is expected to earn revenues of EUR 1.8mil in 2004. We estimate this segment contributing EUR 1.4mil to group EBITDA in 2004; the resulting EBITDA yield of 5.6% is slightly below our estimated WACC of 5.8%. 2003 1,466 85%
Residential Rental Revenues Occupancy Change in occupancy Price per sqm Price change
15.1
2004e 1,787 92%
2005e 1,974 95%
2006e 2,093 95%
2007e 2,198 95%
2008e 2,285 95%
8.2%
3.3%
0.0%
0.0%
0.0%
15.8
16.91
17.92
18.82
19.57
4.6%
7.0%
6.0%
5.0%
4.0%
Source: Wood & Co. estimates
Higher occupancy (95% projected in 2005 in our model), high operational leverage and 5.5% compounded annual growth in rent should be the main drivers behind the gradual improvement of the EBITDA margin earned on residential rentals, which we project reaching 80% at the end of 2008. 2003 1,082 EBITDA margin 74.8% Source: Wood & Co. estimates
2004e 1,358 76.0%
Residential
…results in residential portfolio to be fairly valued.
2005e 1,520 77%
2006e 1,632 78%
2007e 1,736 79%
2008e 1,828 80%
Value of residential. Given the estimated WACC of 5.8%, we set the 12 month target value of the residential part of Orco’s business at 17.2x EBITDA 2005. (17.2 x EUR 1,5mil = EUR 25.8 mil). Therefore we do not anticipate DTZ’s valuation of the portfolio to improve significantly over time.
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Higher occupancy rates of 90% in 2005e should push up the revenues by 22% p.a. on comparable basis
Offices. The occupancy rate in the office segment dropped to 50% in 2003, as Orco lost tenants due to a shift of demand to newly constructed office spaces as opposed to renovated office buildings, even with a better address. As Orco managed to substitute tenants relatively quickly, the occupancy rate improved to 90% at YE2004, averaging 80% occupancy for 2004. We estimate that a return of occupants in the office segment to have its full impact on revenues in 2005 due to the fact that long term contracts usually include a discount worth a couple months’ rent. Revenues from Offices Offices '03 portfolio Occupancy Change in occupancy Price per sqm (EUR) Price change
2003 2,091 57%
2004e 2,424 75%
2005e 2,967 90%
2006e 3,226 95%
2007e 3,323 95%
2008e 3,423 95%
-42.8%
32.5%
20.0%
5.6%
0.0%
0.0%
15.6
13.65
13.92
14.34
14.77
15.21
-20.8%
-12.5%
2.0%
3.0%
3.0%
3.0%
Source: Wood & Co. estimates
Newly acquired buildings causing 67% revenue increase in 2005…
Orco Property Group expanded its office portfolio by two acquisitions in 2004 -- Londynska in Prague and Zlota in Poland. We also included in our model expected revenues from the under-development Luxembourg Plaza project, which is expected to be finished in 1H2006 (see the appendix for details). For Londynska, OPG entered into a 10 year lease contract with a private clinic for annual rent of EUR 0.44mil starting in mid-2005. Assuming 75% EBITDA margin and 17.2x fair enterprise value multiple, we value the Londynska building at EUR 5.7mil vs. an estimated investment of EUR 4.7mil. We assume 8% gross rental yield starting in 2005 for Zlota, which is below the average 8.9% for Orco’s office portfolio due to Zlota’s pre construction stage. Revenues from Offices Offices '03 portfolio Occupancy Change in occupancy Price per sqm (EUR) Price change Londynska Zlota Luxembourg Plaza Revenues from Offices Total
2003 2,091 57%
2004e 2,424 75%
2005e 2,967 90%
2006e 3,226 95%
2007e 3,323 95%
2008e 3,423 95%
-42.8%
32.5%
20.0%
5.6%
0.0%
0.0%
15.6
13.65
13.92
14.34
14.77
15.21
-20.8%
-12.5%
2.0%
3.0%
3.0%
3.0%
220 780
440 780 2,580 7,026
440 780 4,128 8,671
440 780 4,902 9,545
3,967
Source: Wood & Co. estimates
The EBITDA margin of 66.2% in 2003 should improve above 70% due to the expected 90% occupancy of Orco’s offices by 2005. Our medium term target EBITDA margin for the office business is 75% (see table below). Offices EBITDA EBITDA margin
2003 1,385 66.2%
2004e 1,636 67.50%
2005e 2,857 72.0%
2006e 5,129 73.0%
2007e 6,417 74.0%
2008e 7,159 75.0%
Source: Wood & Co. estimates
… should result in 30% increase of OPG’s office portfolio value. (EUR 47.6mil at YE2005)
Value of OPG’s office business. DTZ valued the office portfolio as of YE2003 at EUR 22.5mil vs. our current estimated book value of EUR 14.1mil DTZ/BV points to a 1.6x P/BV (omitting the one year difference). The two 2004 acquisitions valued at cost would add EUR 14.5mil to the book value. Assuming 40% value premium for the newly acquired properties, DTZ’s value of the portfolio at the end of 2004 should amount to at least EUR 42.8mil. By the end of 2006 the DTZ valuation, including EUR 48mil for Luxembourg Plaza, should lead to EUR 90.8mil.
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In our expected EV/EBITDA valuation, we discounted the expected 20062008 enterprise values of the office business to YE 2005 in order to capture the increased EBITDA from Luxembourg (starting in 2006). The average points to a 12 month fair enterprise value of EUR 85mil vs. DTZ’s EUR 90.8mil. One might consider our 17.2x EV/EBITDA multiple as conservative due to the rapid growth of expected EBITDA; however, for conservative purposes, we have kept the valuation at EUR 85mil at the end of 2005. 2003 2004e Offices EBITDA 1,385 1,636 EBITDA margin 66% 68% EV/EBITDA 17.2 EV 28,147 EV discounted to YE 2005 (WACC=6.4%) Average EV at YE2005
2005e 2,857 72% 16.65 47,562 47,562
2006e 2007e 5,129 6,417 73% 74% 16.1 15.55 82,580 99,778 77,613 88,136 84,964
2008e 7,159 75% 15 107,379 89,144
Source: Wood & Co. estimates
Hotel business Aparthotels. Orco Property Group (OPG) operates extended stay hotel chain (Aparthotels) called MaMaison Residences. Mostly located in Prague, 6 subsidiaries offer 182 apartments for short-term stays. Pachtuv Palac, with 51 flats, opened in August 2004 and residence Sulekova in Bratislava, with 32 flats, opened in September 2004. Relatively new aparthotel portfolio benefiting from excellent location will reach 80% occupancy rate in 2006.
The average occupancy rate in MaMaison residences, which dropped to 50% in 2003, recovered in 2004 by averaging 70% over the year. The relatively low occupancy is a result of OPG’s Aparthotels being relatively new on the market; as such, we might expect increasing occupancy rate as well as an above-market increase in room rates in the near future. The key strength of OPG’s Aparthotel portfolio is the excellent location and rental prices that are almost half of comparable hotel rooms. For conservative purposes, we projected long term sustainable 80% occupancy rate reached in 2006. We believe that an 8% annual average price increase charged for the room is achievable. 2003 1,296 50%
Aparthotels occupancy change in occupancy Price per room change in prices
74.0
2004e 2,575 70%
2005e 4,235 75%
2006e 4,889 80%
2007e 5,314 80%
2008e 5,686 80%
40.0%
7.1%
6.7%
0.0%
0.0%
78.1
85
92
100
107
5.6%
8.8%
8.2%
8.7%
7.0%
Source: Wood & Co. estimates
We value aparthotels 10% higher than independent valuator
Aparthotel valuation. The EBITDA margin in OPG’s extended stay business dropped below 50% in 2003. Due to introduction of two new Aparthotels in Bratislava and Prague in 2004, the EBITDA margin in 2004 is expected to have remained at just above 50%. This should improve along with an expected increased in the occupancy rate and operating leverage, with costs expected to increase 5% p.a. compared to an expected 8% p.a. increase in revenues. The EBITDA of EUR 2.3mil in 2005 implies a 12 month target EV of EUR 39.3mil (17.2 x EUR 2.3mil = EUR 39.3mil) compared to DTZ’s valuation of EUR 35.7 at YE 2003. 2003 641 49.5%
Aparthotels EBITDA margin
2004e 1,313 51%
2005e 2,287 54%
2006e 2,738 56%
2007e 3,082 58%
2008e 3,412 60%
Source: Wood & Co. estimates
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We target 80% hotel occupancy ration in the long term
Hotel Business. Apart from MaMaison residences, OPG owns and manages 2 hotels in Czech Republic, 1 hotel in Warsaw and 1 hotel in Budapest with a combined capacity of 330 rooms. The recent opening of the Riverside Hotel in Prague (January 2003) and the Regina Hotel in Warsaw (in 1H2004) explains the low occupancy rates of 39% and 45% in 2003 and 2004, respectively. While we are optimistic about OPG’s ability to attract more clients and reach the market average occupancy rate of 80% in the long term, we remain conservative in projecting an increase to 65% occupancy along with 5.5% compounded annual growth in room prices, both well below average. 2003 4,954 39%
Hotels Occupancy Change in occupancy Prices per room (EUR) Change in prices
2004e 7,903 45%
2005e 9,408 50%
2006e 10,924 55%
2007e 12,544 60%
2008e 14,269 65%
15.4%
11.1%
10.0%
9.1%
8.3%
84
90
95
100
105
16.7%
7.1%
5.6%
5.3%
5.0%
72
Source: Wood & Co. estimates
Due to poor occupancy the EBITDA margin dropped below 20% in 2004, but this was still higher than the below 10% reported in 2003. In light of the improvement in occupancy, we forecast 33% compounded annual growth (CAGR) of Hotel EBITDA for the projected period of 2005-2008 (see the detail below). Hotel EBITDA margin
2003 474 9.6%
2004e 1,818 23%
2005e 2,352 25%
2006e 3,277 30%
2007e 4,390 35%
2008e 5,707 40%
Source: Wood & Co. estimates
We value OPG hotels 19% higher that DTZ.
Hotels value. In order to capture the strong 33% CAGR of estimated EBITDA we have once again discounted the future fair EV’ of the hotel business back to 2005, arriving at a 12 month fair EV for the hotel business of EUR 55mil compared to DTZ’s YE2003 value of EUR 46.3mil. Note that DTZ’s estimate of the market value used the 2003 numbers for valuing the business, thus the 39% occupancy rate and 9.6% EBITDA margin. 2003 2004e Hotel's EBITDA 474 1,818 EBITDA margin 10% 23% EV/EBITDA 17.2 EV 31,263 EV discounted to YE 2005 (WACC=6.4%) Average EV at YE2005 Source: Wood & Co. estimates
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2005e 2,352 25% 16.65 39,160 39,160
2006e 2007e 3,277 4,390 30% 35% 16.1 15.55 52,761 68,270 49,587 60,304 55,031
2008e 5,707 40% 15 85,611 71,073
WOOD & COMPANY
IPB Real IPB Real’s value of EUR 98mil not reflected in the DTZ valuation of properties
IPB Real was acquired by Orco Group in 2003 for EUR 18.7mil. The Asset value estimate for IPB Real assessed by DTZ amounted to EUR 38.8mil as of the end of 2003 (see the appendix for detailed valuation of IPB Real’s assets). We believe that investment into IPB Real increased the value of Orco Group substantially, and that the real contribution has not yet been reflected in the results. We value the IPB Real business at 7x EBITDA 2005e, or EUR 71mil excluding the Benice land revaluation. Please note that we expect significant 35% p.a. EBITDA increase in 2006. If valued at 6.5x EBITDA 2006e the value would be EUR 89mil. For the conservative purposes we use the lower of two estimates, thus valuing IPB Real at EUR 71mil. IPB Real leads the Czech market in the development of residences for middle class and has 2085 flats in the pipeline.
We increased the number of flats sold to 800 p.a. by 2006
Revenues. We expect IPB Real to fulfill its plans to finish and sell 750 residential flats in 2004, of which 670 were sold already in 2003. The expected revenues from the sale are EUR 55mil in 2004. In our model the number of flats sold annually increases to 800 over the next two years. We assume the average price per flat increasing by 8% annually (2005-2006). Overall, IPB Real revenues should grow 11% annually in next two years. Starting in 2007, we have projected 5% decline in the number of flats sold, and we lowered the price increase to 3%. Demand on the residential market is expected to decrease due to a VAT increase on the construction of new real estate property from 5% to 19%. IPB Real expected revenues from residential 2004e 55,000
IPB Real - Revenues (EUR '000) Zelene Udoli Kbely Tyrsuv Vrch Klanovicky Les Kosik Sterboholy Hagibor Brno Hradec Kralove Total flats sold Average flat price (EUR)
2005e 61,380 100 56 29 370 136
2006e 68,429 20 55 30 395
2007e 66,958
2008e 68,966
473 187
84 750 73,333
775 79,200
300 800 85,536
100 760 88,102
760 90,745
Source: Wood & Co. estimates
Under the accounting principles (Luxembourg accounting principles) used by Orco Group in the development business, developed property is held in the balance sheet as inventory until the keys are handed over. This creates seasonality and uneven revenues. Once Orco Group implements IFRS as of 2005, we expect 2005 revenues to reflect the real production of Orco. Unfinished flats will be reported as revenues at the end of the accounting period and not inventories. Cost saving will increase EBITDA margin up to 20% in the projects started in 2004.
Profitability. IPB Real operated with an EBITDA margin of 9.3% in 2003. After areas for cost savings were identified in 2004, we expect EUR 2mil of savings to be implemented in new projects over the next three years. As 26.4% of the cost has been identified as depressible, we estimate the EBITDA margin gradually increasing to 20% in 2006 from 15% in 2004e.
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This assumption underlines our view that real estate prices will increase at a faster pace than construction expenses in next two years (8% vs. 5%). Other impacts. DTZ’s valuation for the sites owned by IPB Real totaled EUR 24.3mil at the end of 2003 (see the table below). In 2004, extraordinary income of EUR 4mil from the sale of 50% of Kosik site was booked. We expect DTZ’s valuation of the sites to increase by 20% in 2004; we estimate significant increase of the Benice land value in 2005 after the zoning permit is received. Development site valuation by DTZ 2003 DTZ valuation EUR mil Benice 4.7 Hagibor 7.0 Kosik 8.0 Michle 1.3 Medlanky 0.5 Kbely 1.0 Sterboholy 1.9 Total 24.3 Excluding Benice 19.6 Sources: DTZ
We value the site at Benice at EUR 28.1mil compared to EUR 4.7mil by external valuator
size sqm 602,326 26,229 85,733 1,272 2,832 5,627 16,982 741,001 138,675
value/sqm EUR 7.8 266.9 93.3 1029.9 173.0 172.4 109.5 32.8 141.6
Benice. IPB Real owns 602,326 sqm land bank in Benice, 13km from the city center of Prague. The latest 2003 market value estimate by DTZ of the site amounts to EUR 4.7mil, or EUR 7.8 per sqm. This is well below the average EUR 141.6/sqm for all sites owned by IPB Real, due to fact that IPB real has yet to receive zoning permits for residential development at Benice. We expect the site to benefit from the zoning permits obtained partially in 2005 (110,000 sqm) and 2010 at latest (492,326 sqm). As a reference price for zoned land, we used the selling price of 50% of IPS Real’s site Kosik, which was sold for EUR 93 per sqm in 2004. We reduced the fair price for Benice by 15% (EUR 79/sqm) due to its less attractive location as compared to Kosik. Due to the risk of OPG not obtaining the zoning permits, we have halved the expected value of the site(EUR 56.2mil) down to EUR 28.1mil. Benice land valuation Size FV (EUR/sqm) Zoning in 2005 110,000 87.0 Zoning in 2010 492,000 127.8 Total land size (sqm) 602,000 DTZ 2003 Estimated upside Upside per share Discount 50% Estimated upside after 50% discount Upside per share after 50% discount Value increase for Orco Property Group Sources: Orco Group, DTZ, WOOD & Co. estimates
PV (EUR/sqm) 79.0 96.6
PV (EUR) 8,690,000 47,539,916 56,229,916 4,700,000 51,529,916 9.2 23,414,958 4.6 28,114,958
We have increased the value of OPG by EUR 28.1mil (EUR 4.7mil + EUR 23.4mil) for Benice, since the land is not contributing any EBITDA into our model; we believe if it were to be sold today, a fair price would be close to EUR 28mil.
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Development. The value of Luxemboug Plaza will be transferred into other part of business after completing
Besides residential development, Orco develops real estate properties for the group. In 2006 Luxembourg Plaza is expected to be finished. The total cost of development is expected to amount to EUR 47mil. The value of the property upon completion should be EUR 68mil. Currently DTZ values the Luxembourg Plaza at EUR 16mil. We have put EUR 5mil of EBITDA into 2006 results, as OPG can increase EBITDA through arbitrage within the group. All the future cash inflow from the Luxembour Plaza assets after completion we have included into hotel and office part of OPG. The expected gross yield of 8.5% makes the project sufficiently profitable in our view. Endurance Fund. OPG plans to launch a real estate property fund, with an equity injection of EUR 100-150mil that will represent 30% of the fund’s assets. The total asset size of EUR 350-450mil will enable OPG to capture investment opportunities too big for Orco itself.
Endurance fund will contribute stable EUR 2.5mil minimum management fees to OPG
OPG will act as fund manager, and will receive a 2% of equity fee annually, plus a 1% transaction fee if the assets are sold to the fund without the brokers. In case of out-performance of the planned 17.5% ROE, OPG will get further bonuses. With 70% leverage and expected 10%-12% return on investment, we believe that Orco will be successful in achieving the targeted minimum 17.5% ROE (OPG’s portfolio increased value by 10.2% in 2003, and we expect a 15% increase in 2004), however we did not incorporate into our model any special bonuses for the conservative purpose. We assume that OPG will be able to generate EUR 2.5mil on management fees from the fund starting 2006. OPG has already purchased an EUR 18.9mil (yield of 7.8%) Atronyx Office Center in Hungary for the fund, which we excluded from OPG assets even though it might appear on the OPG balance sheet for the time being.
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Reporting changes will improve the picture of OPG as well as comparability to its peers
Reporting changes
As of January 2005, OPG will start using the IFRS vs. currently used Luxmebourg reporting standards; with the following consequences on its statements and valuation. The property held for the investment portfolio will be revalued to market value as defined by DTZ as of 2005. While we have increased the tangible fixed assets by EUR 30mil for 2005 due to this accounting change, this should have no impact on valuation as we do no use the book value of assets in any calculations. However the increase of the asset BV to the market will improve the comparability with OPG peers that are using IFRS. The unfinished development projects will be booked to P&L rather than inventories, decreasing accruals in IPB Real’s books. We believe this accounting change will increase IPB Real’s revenues in 2005, and that it will more realistically reveal the potential of the developer. Prior to this change, revenues were booked only after the keys were handed to the new owner. Therefore, inventories as well as short term receivables increased significantly in 2003. We expect the revenues of IPB Real to amount EUR 61.4mil in 2005.
Capital structure We have used 6.6mil shares for the valuation purposes as both the warrant and convertible bonds currently trade in the money
Even though the company has 4.6mil ordinary shares currently, there are two programs that we expect to increase the number of shares significantly, starting in 2006. Warrants. During the last capital increase in November 2003, 3.04mil warrants were issued to remaining shareholders. These warrants carry an option to be exchanged for ordinary shares until November 2006 at a 1:3 ratio, thus for 1.01mil ordinary shares. The bearers of the shares will pay EUR 23 each. Consequently we expect the company’s total equity to increase by EUR 23.2mil. The warrants are being traded on the secondary market of EURONEXT. Convertible bonds. In September 2004, 1mil convertible bonds were issued @ EUR 32.4 bearing a 5.5% annual coupon payable on December 31 annually, until maturity on December 31, 2011. These bonds are exchangeable for common shares at any time. However, Orco Group has an option to buy back convertible bonds either on the market, through a tender or by recalling all of them. This can be done no sooner than the 19th month after the issue, thus in June 2006. The only condition for an early redemption is that the share price must be higher than EUR 40.5. Orco Group is liable to pay an extra coupon so as to ensure an 8% yield for bondholders. Currently the bonds trade at a 5% premium to the market price of ordinary shares. We remain positive on the share price development, and believe that bondholders will convert at the end of the bonds maturity, thus in 2011. We assume that all of the bondholders will convert into equity prior to redemption in 2011. Therefore, when calculating the equity per share, we use the calculation of diluted equity per share taking into account 1mil convertible bonds. Share dividends. We assume in our model that all the dividends will be paid out in cash in the future.
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Valuation
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Valuation We used target EV/EBITDA multiple valuation for OPG’s portfolio
For the valuation, we have divided Orco Group into 4 parts. As the most appropriate way of valuing OPG we identified the fair value EV/EBITDA multiples based on OPG’s expected low WACC of 5.8%. For the reference we looked at peers listed on the Euronext stock exchange. WACC estimate for OPG Risk free rate Market risk premium Beta Cost of Equity Weight of equity Cost of Debt (after tax) Weight of Debt WACC
4.0% 6.0% 0.34 6.0% 69.6% 5.1% 30.4% 5.8%
Source: Bloomberg, OPG, Wood & Co. estimates
We believe that OPG’s cost of debt is considerably higher than that of its peers due to its small market capitalization and lack of rating. The listing of OPG’s shares and bonds should improve OPG’s credit rating and have a positive effect on WACC. This will absorb any potential interest rate increase. Therefore with these two effect counterbalancing each other in the future, we used the current WACC of 5.8%. (EUR '000) EBITDA for Group Hotels and Aparthotels Rental Fund IPB Real
2005e 21,993 2,352 6,664 2,850 10,128
2006e 29,312 3,277 9,500 2,850 13,686
2007e 31,197 4,390 11,235 2,850 12,722
2008e 33,370 5,707 12,399 2,850 12,414
Source: Wood & Co. estimates
We have set the target EV/EBITDA multiples using the comparison with OPG peers trading on Euronext, even though we believe that OPG should trade with premium to western European peers due to exposition to highly growing and similar risk markets.
We have set 17.2x the fair EV/EBITDA (2005e) multiple for Hotel and Rental divisions and 7.2x for Fund management and development
2005 2006 EV/EBITDA Hotel 17.2 16.5 Rental 17.2 16.5 Fund 7.0 6.5 IPB + Development 7.0 6.5 Enterprise Value (EUR '000)
2005e
2006e
2007e
2008e
40,454 114,617 19,950 70,894 245,914
54,072 156,744 18,525 88,957 318,298
75,514 193,243 19,950 89,054 377,760
98,168 213,259 19,950 86,898 418,275
Source: Wood & Co. estimates
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We set the 12-month price target at EUR 45.5 per OPG share.
We set the 12 month target price at EUR 45.5 per OPG share based on 2005 expected equity value per share. (6.6mil shares used for the fully diluted Equity per share calculation. (EUR '000) EV Property available for sale Net Debt Equity Equity per share (EUR) Fully diluted Equity per share (EUR) Target Price (EUR)
66,817
2005e 245,914 36,700 59,359 223,255 48.3 45.5 45.5
2006e 318,298 51,550 79,685 290,163 51.6 48.7
2007e 377,760 51,550 109,371 319,939 56.9 53.2
2008e 418,275 51,550 119,327 350,498 62.3 57.8
Source: Wood & Co. estimates
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Mortgage market in the Czech Republic Czech mortgage market growth set to drop from 55%y/y to 30-40% over the next 2 years
The combined mortgage loan market and building society loan market is the fastest growing part of Czech banks’ consolidated portfolios (see the chart below). The mortgage market (excluding building society loans) grew by more than 55% y/y in 9M2004. We estimate mortgage lending growing at a rate of 30-40% over the next two years. Mortgage market growth is expected to remain robust in the next 3-5 years due to the following: • • • • • • •
Relatively low (2%) retail mortgage penetration Low interest rate environment (currently 2.5%) Highly competitive mortgage lending market creating favorable conditions for customers 4% growth in real wages to continue over the next two years Expected 4% growth of GDP in next two years fueled by construction Lower VAT on household construction until 2007 Economic life of penal houses to end soon
Czech mortgage market development (CZK mil) 200,000
CAGR 42.6% p.a.
180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000
0 31.03.2002 31.08.2002 31.01.2003 30.06.2003 30.11.2003 30.04.2004 30.09.2004
Building societies' loans
mortgage loans
Source: Czech National Bank
Czech mortgage market With 100,000 retail mortgage contracts for 10.2 million inhabitants, the penetration of 2% lower retail mortgage market represents about 1% penetration in the Czech than EU average of Republic. When including loans from building societies, penetration rises to 59% some 2% -- still well below the European average of 59%, according to our estimate. The average mortgage loan in the Czech Republic amounts to CZK 1.1mil, or EUR 35,800, with a maturity of 15 to 20 years. On average, customers choose a five-year fixing period, typically at a 4.5%-5% fixed interest rate, and about 1% - 1.5% fee charged in the first year. Low interest rate environment triggered boom in mortgage lending in 2003
From October 2003, when the CNB lowered all the reference interest rates (the key 2-week repo rate at 2%), until June 2004, the Czech economy operated under the lowest-ever interest rate environment (see the table below). This, along with government support (interest rates on mortgage loans are tax deductible for individuals), created favorable conditions for the mortgage market. The key 2-week repo rate now stands at 2.5% after two 25bps rate increases in 3Q2004. As real GDP growth in 2005 is expected to
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reach 4%, inflationary pressure is likely to lead the CNB to increase rates by some 50bps in 2005. Even after the second interest rate hike last year, the key banks did not increase interest rates for up to five-year fixing periods due to the highly competitive nature of the mortgage market. Given this, we expect that any rate hikes made in 2004-2005 are not likely to be fully passed onto customers. Interest rate development 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0
2-week repo rate
Aug-04
May-04
Feb-04
Nov-03
Aug-03
May-03
Feb-03
Nov-02
Aug-02
May-02
Feb-02
Nov-01
Aug-01
May-01
Feb-01
Nov-00
Aug-00
1.5
3M PRIBOR
Sources: Czech National Bank, Reuters
Competition on the mortgage market could depress interest rate spreads
The Czech mortgage market has witnessed fierce competition in the past year. As the market share in mortgage lending is evenly distributed among the biggest three banks on the Czech market, we expect competition, and thus favorable conditions for financing real estate development, to continue. Market share based on number of mortgage loans granted Market Share 31.2% 29.3% 24.6% 6.1% 3.5% 2.7% 2.6% 100.0%
CMHB (CSOB) Ceska Sporitelna (ERSTE BANK) KOMERCNI BANKA GE CAPITAL BANK HVB BANK CR RAIFFEISENBANK Others Total Sources: Wood & Company estimates
Mortgage loan interest rates on different fixing periods (%) Komercni Banka Ceska Sporitelna CMHB (CSOB) Gov bond yield Komercni Banka's spread Sources: Banks, Reuters
Czech citizens spend 26.2% of their income on living expenses.
5 year 4.46 4.99 4.95 3.58 0.88
10 year 5.11 5.79 5.7 4.23 0.88
15 year 5.11 6.29 5.85 4.65 0.46
We estimate that the average loan taken in the Czech Republic amounts to CZK 1.1mil (EUR 35,800), with a maturity of 16 years and an interest rate of 5.2% fixed for 5 years. Based on these numbers, the average client makes a monthly payment of about CZK 8,200 (EUR 267). The average gross
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monthly wage in Czech Republic reached CZK 17,418 in 3Q2004. As we calculate on average 1.8 persons per mortgage loan, the percentage of income spent on the mortgage loan comes to 26.2% Real wage growth to outperform interest rate increase in next 2 years
We expect real wage growth, which grew by more than 6% y/y in 2003, to have slowed in 2004, although we still forecast 4% real wage growth in the next two years (see the table below). We expect interest rates on mortgage loans to increase by up to 150bps by 2006 to 6%-6.5% on 5-year fixed mortgage loans, or slightly lower than the expected interest rate hikes. This would increase the monthly payment by 5.5%-8.5% over the next two years assuming similar loan conditions. Nominal wage growth of 12.5% over the next two years would result in a relative decrease in the cost of mortgage loan expenses as a proportion of income. Therefore we believe that room remains for double digit growth in mortgage lending.
Czech Republic -nominal vs. real wage growth 25,000
10.0 8.0
20,000
6.0
15,000
4.0 10,000
2.0
5,000
0.0
0
-2.0 1998
1999
2000
Nominal in CZK (left scale)
2001
2002
2003 2004e 2005e 2006e 2007e Nominal Wage (y/y %)
Real Wage (y/y %)
Source: Czech Statistical Office, Wood & Company estimates
Government subsidies for building societies savings to continue
Government subsidies for building societies are expected to amount to CZK 15.3bil in 2004, compared to CZK 13.2bil in 2003. The government’s cut in the subsidy per contract as of January 2004 created extraordinary demand for building societies contracts under old favorable conditions at the end of 2003, resulting in an increase in the total amount of subsidies in 2004. For 2005, the government expects subsidies to decrease to CZK 14.8bil. According to the Ministry of Finance, there are now 6mil building society contracts in Czech Republic, representing 60% penetration of the Czech population. Most of these contracts are used just for saving and are withdrawn at the end of the five-year cycle; they can be easily converted into loans if conditions (interest rate) become favorable. Currently (end September 2004) building societies owe CZK 266bil to clients, whereas loans granted account for just CZK 78bil.
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Appendix
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Peer Comparison Market Cap EUR mil Real Estate Management UNIBAIL FONCIERE LYONNAISE SILIC Real Estate Management average
NET DEBT EBITDA 05e EUR mil EUR mil
EV/EBITDA
4,130 1,531 1,210
3,582 986 286
436 144 99
17.7 17.5 15.1 17.2
Developers PIERRE & VACANCES FONCIA GROUPE NEXITY Developers average
732 555 797
298 110 337
147 61 160
7.0 10.9 7.1 8.1
Globe Trade Centre
619
171
42
18.7
ORCO PROPERTY GROUP Orco development Orco rentals and hotels
177
65
22
11.0 7.1 17.2
Sources: Bloomberg, Wood & Co. estimates
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Orco Group property value Americka 13 residential Americka 33 residential Na Kozacce residential Nad Petruskou residential Belgicka residential Zahrebska residential Rybalkova residential Londynska residential Americka Park Hotel extended stay hotel Americka Park Residential residential Total residential properties held as investment Dubovy Mlyn residential development Total residential properties in the course of development Machova 18 Americka 11 Anglicka 26 Londynska 41 Manesova Belgicka 40 Revay utca Szekely M. Utca Total office held as investment
office office office office office office office office
value EUR '000 1,490 510 2,856 2,705 2,270 3,790 390 1,610 4,400 5,225 25,246
size value/sqm sqm EUR/sqm 718 2,075 365 1,397 1,378 2,073 1,149 2,354 1,033 2,197 1,857 2,041 265 1,472 794 2,028 1,550
3,371
1,060 1,014 2,240 1,781 2,510 1,213 2,531 1,000
0.94 1.68 1.92 2.19 1.51 1.57 1.38 2.45
1,600 1,600 1,000 1,700 4,300 3,900 3,800 1,900 3,500 2,450 22,550
Luxembourg plaza office development Luxembourg plaza hotel development Total office properties in the course of development
8,200 7,950 16,150
Masaryk extended stay hotel Belgicka extended stay hotel Izabella extended stay hotel Total extended stay hotels held as investment
3,350 6,900 8,200 18,450
1,025 1,540 2,220
3.69
Pachtuv Palac hotel development Residence Sulekova ext.stay hotel dev. Total extended stay hotels in the course of development
16,700 550 17,250
4,251
3.93
Hotel Andrassy Riverside Hotel Hotel Imperial Total hotels held as investment
11,460 10,850 11,500 33,810
3,900 2,065
2.94 5.25
12,500 12,500
4,311
hotel hotel hotel
Regina Hotel hotel development Total hotels held in the course of development SUBTOTAL
ORCO PROPERTY GROUP
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Orco Group property value (continue) Ujezd nad Lesy Palouk Zelene Udoli Vinohrad u Rokytky Lesna Benice Hagibor Kosik Michle Medlanky Kbely Sterboholy Total IPB Real properties
residential development residential development residential development residential development residential development site site site site site site site
value EUR '000 1,870 3,810 4,790 3,320 740 4,700 7,000 8,000 1,310 490 970 1,860 38,860
Total DTZ value of Orco Group properties at YE2003
186,416
Wood & Co. adjustment for Benice 15% increase over 2004
23,400 214,378
Sale of 50% Kosik site in 2004 Other disposals
(4,000) (14,530)
Additions Repy Medlanky II Podkova Isabella 62/64 Zlota 44 (Poland) Majolikova (Poland) Londynska 39
site site site extended stay hotel office site office
1,384 4,000 7,700 6,000 9,750 800 4,760
Total property purchases in 2004
size value/sqm sqm EUR/sqm
602,326 26,229 85,733 1,272 2,832 5,627 16,982
7.80 266.88 93.31 1029.87 173.02 172.38 109.53
8,000
173.02
3,380
1.41
34,394
Total Orco Group portfolio value at YE 2004e
253,643
Sources: external valuator DTZ, Orco Property Group, Wood & Co. estimates.
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INCOME STATEMENT - ORCO PROPERTY GROUP EUR 000' 2001 Offices 2,351 Residential 1,417 Aparthotels 751 Hotel 1,471 Other services 73 Yield from the sale of building in stock 1,936 Total Sales 7,999 Capitalized production costs 1,612 Gain on fixed assets disposal 2 Other operating income 1,348 Cost of sales (1,740) Gross Profit 9,221 Purchases and outside services (4,153) Personnel costs (2,205) Other operating charges (1,546) EBITDA 1,317 Depreciation (1,620) EBIT (Operating Income) (303) Net Financial Profit 2,976 EBT on Ordinary Activities 2,673 Exeptional Charges 258 Income Taxes (955) Minority interest 0 Net Income 1,976 Ratios Number of shares EPS (EUR)
2,625,675 0.8
DPS (EUR) Dividends total (EUR mil) EBITDA margin EBIT margin NI margin
16.5% -3.8% 24.7%
ROA ROE
2002PF 3,330 1,474 1,467 3,665 123 0 10,059 1,360 3,338 517 0 15,274 (5,207) (3,360) (1,234) 5,473 (2,380) 3,093 (2,887) 206 1,097 1,252 0 2,555
2003 2,091 1,446 1,296 4,954 427 12,565 22,779 1,068 2,455 570 (8,947) 17,925 (7,297) (4,059) (482) 6,087 (2,893) 3,194 (5,675) (2,481) 172 1,358 1,201 250
2004e 2,424 1,787 2,575 7,903 500 55,000 70,189 1,000 0 500 (46,750) 24,939 (7,532) (3,856) (500) 13,050 (2,864) 10,186 (5,750) 4,436 4,500 (665) 0 8,271
2005e 3,967 1,974 4,235 9,408 3,000 61,380 83,965 1,000 0 0 (51,252) 33,712 (7,170) (4,049) (500) 21,993 (3,751) 18,242 (5,916) 12,327 500 (1,849) 0 10,978
2006e 7,026 2,093 4,889 10,924 3,000 68,429 96,361 1,000 0 0 (54,743) 42,618 (3,604) (4,251) (500) 34,262 (4,477) 29,785 (5,976) 23,810 500 (4,524) 0 19,786
2007e 8,671 2,198 5,314 12,544 3,000 66,958 98,684 1,000 0 0 (54,236) 45,449 (9,288) (4,464) (500) 31,197 (5,435) 25,763 (7,557) 18,206 500 (3,459) 0 15,247
2008e 9,545 2,285 5,686 14,269 3,000 68,966 103,752 1,000 0 0 (56,552) 48,199 (9,642) (4,687) (500) 33,370 (6,607) 26,763 (8,782) 17,981 500 (3,416) 0 15,064
2,888,914 0.9
4,017,073 0.1
4,622,824 1.8
4,622,824 2.4
5,622,824 3.5
5,622,824 2.7
5,622,824 2.7
0.40 1.2
0.45 1.8
0.50 2.3
0.6 2.5
0.7 3.9
1.0 5.6
1.3 7.0
54.4% 30.7% 25.4%
26.7% 14.0% 1.1%
18.6% 14.5% 11.8%
26.2% 21.7% 13.1%
35.6% 30.9% 20.5%
31.6% 26.1% 15.4%
32.2% 25.8% 14.5%
2.7% 6.2%
0.2% 0.4%
3.6% 10.1%
4.8% 8.9%
8.2% 12.9%
5.2% 9.1%
4.6% 17.2%
Market Capitalization (EUR mil) Net Debt (EUR mil) Enterprise Value (EUR mil) NAV (EUR mil) NAV per share (EUR) NAV per share (fully diluted)
101.1 39.5 140.6 80 30
111.2 55.5 166.7 100 35
154.7 66.8 221.5 120 30
178.0 84.7 262.7 189 41 33
178.0 59.4 237.3 262 57 45
216.5 79.7 296.2 318 57 48
216.5 109.4 325.8 350 62 53
216.5 119.3 335.8 374 66 56
EV/EBITDA P/NAV (fully diluted)
106.8
30.5
36.4
20.1 1.15
10.8 0.86
8.6 0.80
10.4 0.73
10.1 0.68
Sources: Orco Property Group, Wood & Company estimates. Note: 2006 EBITDA inflated by one off sale of Luxembourg Plaza amounting EUR 5mil Consolidated statements according to Luxembourg Accounting Standards until 2004, after IFRS
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BALANCE SHEET - ORCO PROPERTY GROUP EUR '000 2001 Cash and Cash Equivalents 2,256 ST Receivables 3,252 Inventories 75 Other ST Assets 1,962 Total Current Assets 7,545 Investments 162 Intangible Fixed Assets 2,442 Tangible Fixed Assets 74,173 Total Non-Current Assets 76,777 TOTAL ASSETS 84,322 ST Payables 5,845 Related Party Payables 3,075 Other ST Liabilities 5,319 Current Liabilities 14,239 Loans 35,196 Convertible bonds 6,603 Non-convertible bonds 0 Provisions 420 Non-Current Liabilities 42,219 Total Liabilities 56,458 Common Equity 10,765 Retained Earnings & Reserves 2,265 Translation difference -331 Share Premium 15,743 Total Shareholders' Equity 28,442 Minority Equity Positions 0 TOTAL LIAB. & SHLDR's EQUITY 84,900
PF2002 8,266 1,304 3,518 8,136 21,224 1,743 1,924 82,301 85,968 107,192 4,258 3,202 3,719 11,179 49,729 2,812 11,225 437 64,203 75,382 11,844 5,141 -3,172 17,997 31,810 0 107,192
2003 16,551 21,937 42,795 23,556 104,839 138 1,628 108,650 110,416 215,255 63,892 3,457 5,813 73,162 70,633 0 12,735 7,579 90,947 164,109 16,470 6,893 -2,729 32,335 52,969 -1,823 215,255
2004e 13,651 20,000 50,000 20,000 103,651 0 1,500 141,425 142,925 246,576 70,000 3,457 5,900 79,357 50,000 32,400 16,000 7,579 105,979 185,336 16,470 15,164 -2,729 32,335 61,240 0 246,576
2005e 20,571 10,000 10,000 10,000 50,571 0 1,500 157,063 158,563 209,134 10,000 3,457 5,950 19,407 31,530 32,400 16,000 7,579 87,509 106,916 16,470 56,142 -2,729 32,335 102,218 0 209,134
2006e 22,715 20,000 12,500 12,500 67,715 0 1,500 205,244 206,744 274,459 10,000 3,457 5,820 19,277 70,000 32,400 0 7,579 109,979 129,256 39,670 75,927 -2,729 32,335 145,203 0 274,459
2007e 18,029 25,000 20,000 15,000 78,029 0 1,500 235,256 236,756 314,785 10,000 3,457 5,900 19,357 95,000 32,400 0 7,579 134,979 154,336 39,670 91,174 -2,729 32,335 160,450 0 314,786
2008e 18,073 20,000 20,000 15,000 73,073 0 1,500 265,292 266,792 339,865 10,000 3,457 5,915 19,372 105,000 32,400 0 7,579 144,979 164,351 39,670 106,238 -2,729 32,335 175,514 0 339,865
Sources: Orco Property Group, Wood & Company estimates. Note: Consolidated statements according to Luxembourg Accounting Standards until 2004, after IFRS
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Wood & Company:
Václavské náměstí 772/2 110 00 Praha 1 Czech Republic Tel 420 222 096 111 Fax 420 222 096 222
Šoltésovej 12 811 08 Bratislava 1 Slovak Republic Tel 421 2 50219 112 Fax 421 2 50219 212
Although the information contained in this report comes from sources Wood & Company believes to be reliable, we do not guarantee its accuracy, and such information may be incomplete or condensed. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
January 24, 2005
Orco Property Group
Buy
(Initiated Coverage)
Share Price: EUR 38.5 Price Target: EUR 45.5
“First Real Access to Czech Real Estates” Orco Property Group (OPG) is a diversified real estate company focusing on Central Europe, particularly the Czech Republic. OPG, which is a Luxembourg SOPARFI (not liable for tax on real estate investment capital gains), was listed on the Euronext stock exchange in December 2000 and is currently seeking a listing of its shares and convertible bonds on the Prague Stock Exchange in February 2005. The launch of the Endurance Fund, in which OPG will act as the fund manager, will enable OPG to benefit from opportunities that OPG alone would have trouble financing. The fund’s asset size is estimated at EUR 350mil, with a favorable 70% leverage. The management fee structure will provide another pillar strengthening OPG’s cash flow. The acquisition of residential developer IPB Real in 2003 will be fully reflected in the 2004 consolidated result. We estimate IPB Real contributing 50% to the consolidated EBITDA, which is expected to double in 2004 and continue growing by 25% p.a. over the modeled period. Currently trading at P/NAV of 1.15x OPG offers 11% upside to 1.3x P/NAV ratio of its peers. Even after the excellent share performance of OPG in 2004, we believe that the stock offers 18% upside to current share price of EUR 38.5 in a 12 month horizon. We are initiating coverage of Orco Property Group with a BUY recommendation and price target of EUR 45.5 per share. Year
EQUITY RESEARCH
2008e 2007e 2006e 2005e 2004e 2003 2002PF
Sales (EUR '000) 103,752 98,684 96,361 83,965 70,189 22,779 10,059
Net Income (EUR '000) 15,064 15,247 19,786 10,978 8,271 250 2,555
Shares Out. (mil) 5.6 5.6 5.6 4.6 4.6 4.0 2.9
EPS (EUR) 2.7 2.7 3.5 2.4 1.8 0.1 0.9
EPS growth -1% -23% 48% 33% >100% -93% 18%
Expected Events
1 February 05
Dual listing on Prague Stock Exchange
Key Data Market Cap (EURm) 177 Enterprise Value end-04e (EURm) 243 Free Float 78.4 % EV/EBITDA ‘05E 11.0x ROAE ‘05E 9.9% Majority Shareholder Orco Holding (21.6%) Reuters Code ORCO.PA Bloomberg Code ORC FP Ex. Rate (CZK/EUR) 30.3 PX-50 Index 1,056.2
Price Performance 52-w range (EUR) 52-w EUR Performance
20.3 – 39.4 89.6%
Orco Property Group
EPRA rebased
40 35 30 25 20 1/27/04
P/E (x) 14.4 14.2 10.9 16.2 21.5 >100 43.5
EV/ EBITDA 10.1 10.4 8.6 10.8 20.1 36.4 30.5
5/26/04
P/ NAV 0.68 0.73 0.80 0.86 1.15 n.m. n.m.
9/23/04
DPS (EUR) 1.3 1.0 0.7 0.6 0.5 0.5 0.4
1/21/05
Divid. yield (%) 3.2% 2.6% 1.8% 1.4% 1.3% 1.2% 1.0%
Note: 2006 figures affected by EUR 5mil one-off EBITDA
Analyst: Tibor Bokor E-mail: [email protected]
Prague (tel.): +420 222 096 249 Website: www.wood.cz
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TABLE OF CONTENTS
Page: Executive Summary
5
Business Model
7
Rental Business
7
Hotels
9
IPB Real
11
Endurance Fund
13
Reporting changes
14
Capital Structure
14
Valuation
16
Mortgage Market in Czech Republic
18
Appendix
21
Peer Comparison
23
OPG’s portfolio value
24
Income statement
26
Balance Sheet
27
Closing prices as of January 21, 2004
© 2005 by WOOD & Company Financial Services, a.s. All rights reserved. No part of this guide may be reproduced or transmitted in any form or by any means electronic or mechanical without written permission from WOOD & Company Financial Services, a.s. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published without written permission from WOOD & Company Financial Services, a.s. Requests for permission to make copies of any part of the book should be mailed to: WOOD & Company Financial Services a.s. Vaclavske namesti 772/2 110 00 Prague 1 – Czech Republic
ORCO PROPERTY GROUP
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ORCO PROPERTY GROUP
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Executive Summary OPG offers exposure to highly growing CEE real estate market
Orco Property Group (OPG) is currently a publicly listed real estate company focusing on Central Europe, particularly on the Czech Republic. OPG, a Luxembourg SOPARFI (not liable for tax on real estate investment capital gains) that was listed on the Euronext stock exchange in December 2000, is currently seeking a listing of its shares and convertible bonds on the Prague Stock Exchange in February 2005.
Endurance Fund provides alternative possibility for investors and stable CF for OPG
Together with the dual listing OPG launches a real estate fund to capture the growing opportunities on CEE real estate market. The launch of the Endurance Fund, in which OPG will act as the fund manager, will enable OPG to benefit from sizeable projects that OPG alone would have trouble financing on its own. The fund’s asset size is estimated at EUR 350mil or roughly double of current property value of OPG. With a favorable 70% leverage, OPG seeks above 17.5% ROE. The management fee structure (2% management fees + bonuses for above 17.5% performance) will provide another pillar for OPG’s cash flow stability.
Successful acquisition of IPB Real will boost the results of OPG for 2004.
The acquisition of residential developer IPB Real in 2003 will be fully reflected in the consolidated 2004 results that are expected in February 2005. We estimate IPB real contributing 50% to the consolidated EBITDA in 2004 and thus doubling it on y/y basis. High demand for residential living and IPB Real’s excellent sales results should result in the sale of 800 flats annually in the next three years. We expect IPB Real’s potential to be fully revealed in 2005, when the group will start reporting under International Financial Reporting Standards, which will better reflect annual sales of IPB Real’s 15-18 month investment cycle.
We see OPG offering minimum 18% upside in 12 month horizon.
Even after OPG’s excellent share performance in 2004, we believe that the stock offers 18% upside in a 12 month horizon.
We issue BUY recommendation with the 12-M price target of EUR 45.5
We are initiating coverage of Orco Property Group with a BUY recommendation and price target of EUR 45.5 per share. For the valuation purposes we have divided OPG’s business structure into four key segments. We have valued the hotel business and rental business at 17.2x expected 2005 EBITDA , whereas the development and fund management business at 7x EBITDA. Adding the properties not currently used (EUR 36.7mil), we arrived at the group’s consolidated enterprise value of EUR 282.6mil at YE 2005. We set the price target at EUR 45.5 per share as fully diluted Equity value. (EUR '000) EV Property available for sale Net Debt Equity Equity per share (EUR) Fully diluted Equity per share (EUR) Target Price (EUR)
#
2005e 245,914 36,700 59,359 223,255 48.3 45.5 45.5
Source: Wood & Co. estimates
ORCO PROPERTY GROUP
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The equity will improve significantly from warrant and convertible bond conversions
Please note that even though the company has 4.6mil ordinary shares currently, there are two programs that we expect to increase the number of shares significantly, starting in 2006. For the fully diluted per share valuation we have used the 4.6mil shares increased by 1mil shares expected to be converted in 2006 from 3mil warrants and 1mil shares from convertible bonds expected to be converted in 2011, as both these instruments are currently in the money. Even though the conversion will increase the equity of the group, due to lower strike prices compared to share price, the value of current shareholders will be diluted. Shares Current shares outstanding Shares from Warrants (2006) Shares form convertible bonds (2011) Total number of shares for valuation
Current P/NAV of 1.15 offers 11% upside compared to Globe Trade Centre
mil 4.6 1 1 6.6
We estimate that the value of Orco’s property holdings increased by 15% in 2004 reaching EUR 253.6mil. The net asset value per diluted share thus represents EUR 33, which is 15% discount to current share price of EUR 38.5. We believe that OPG should trade with significant premium to the net asset value particularly due to the fact that development and fund part of the business is not fully captured in the balance sheet and/or NAV. As a reference we took the P/NAV ratio of Polish Globe Trade Centre that currently trades at 1.3x NAV. This would represent 11.4% upside for the OPG stock. Assumptions and Risks to our valuation. Growth. We have assumed faster growth of real estate asset value (on average 8% p.a.) compared to expected construction costs increase of 5% p.a. Hotel business recovery. OPG hotel portfolio that underperformed in 2003 mainly due to being new in the business should recover the occupancy rate above 50% in 2005 as well as the room prices should grow by 5.5% p.a. over the projected period. IPB Real. We assumed IPB Real to deliver on average 800 residential flats p.a. over next four years, compared to 750 sold in 2004. WACC. We have calculated OPG’s consolidated WACC at 5.8% for the whole projected period. We estimated OPG’s credit spread decrease to be offset by the increasing risk free interest rates.
ORCO PROPERTY GROUP
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Business Model Business Model. business: • • • • •
We have identified the following key areas of OPG’s
Rental business. Residential real estate as well as office ownership and rental. Hotel Business. Extended stay hotels and small luxury hotel ownership and management. IPB Real. Residential development. Endurance Fund. Real estate investment fund management. Development. Luxembourg Plaza and other development projects.
Rental business
Residential EBITDA yield of 5.6% slightly below WACC…
Residential. In the residential area, Orco focuses on high-end clients renting flats for an average EUR 15 per square meter per month. The company’s primary area of operation, Prague 2, makes us confident that it stands to benefit from the robust demand for residential living in this segment of the real estate market. The average occupancy rate improved in 2004 to 92% from 85% in 2003. External appraiser DTZ evaluated the residential portfolio at EUR 25.2mil at the end of 2003. We estimate the book value of the portfolio at EUR 17.6mil. The portfolio is expected to earn revenues of EUR 1.8mil in 2004. We estimate this segment contributing EUR 1.4mil to group EBITDA in 2004; the resulting EBITDA yield of 5.6% is slightly below our estimated WACC of 5.8%. 2003 1,466 85%
Residential Rental Revenues Occupancy Change in occupancy Price per sqm Price change
15.1
2004e 1,787 92%
2005e 1,974 95%
2006e 2,093 95%
2007e 2,198 95%
2008e 2,285 95%
8.2%
3.3%
0.0%
0.0%
0.0%
15.8
16.91
17.92
18.82
19.57
4.6%
7.0%
6.0%
5.0%
4.0%
Source: Wood & Co. estimates
Higher occupancy (95% projected in 2005 in our model), high operational leverage and 5.5% compounded annual growth in rent should be the main drivers behind the gradual improvement of the EBITDA margin earned on residential rentals, which we project reaching 80% at the end of 2008. 2003 1,082 EBITDA margin 74.8% Source: Wood & Co. estimates
2004e 1,358 76.0%
Residential
…results in residential portfolio to be fairly valued.
2005e 1,520 77%
2006e 1,632 78%
2007e 1,736 79%
2008e 1,828 80%
Value of residential. Given the estimated WACC of 5.8%, we set the 12 month target value of the residential part of Orco’s business at 17.2x EBITDA 2005. (17.2 x EUR 1,5mil = EUR 25.8 mil). Therefore we do not anticipate DTZ’s valuation of the portfolio to improve significantly over time.
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Higher occupancy rates of 90% in 2005e should push up the revenues by 22% p.a. on comparable basis
Offices. The occupancy rate in the office segment dropped to 50% in 2003, as Orco lost tenants due to a shift of demand to newly constructed office spaces as opposed to renovated office buildings, even with a better address. As Orco managed to substitute tenants relatively quickly, the occupancy rate improved to 90% at YE2004, averaging 80% occupancy for 2004. We estimate that a return of occupants in the office segment to have its full impact on revenues in 2005 due to the fact that long term contracts usually include a discount worth a couple months’ rent. Revenues from Offices Offices '03 portfolio Occupancy Change in occupancy Price per sqm (EUR) Price change
2003 2,091 57%
2004e 2,424 75%
2005e 2,967 90%
2006e 3,226 95%
2007e 3,323 95%
2008e 3,423 95%
-42.8%
32.5%
20.0%
5.6%
0.0%
0.0%
15.6
13.65
13.92
14.34
14.77
15.21
-20.8%
-12.5%
2.0%
3.0%
3.0%
3.0%
Source: Wood & Co. estimates
Newly acquired buildings causing 67% revenue increase in 2005…
Orco Property Group expanded its office portfolio by two acquisitions in 2004 -- Londynska in Prague and Zlota in Poland. We also included in our model expected revenues from the under-development Luxembourg Plaza project, which is expected to be finished in 1H2006 (see the appendix for details). For Londynska, OPG entered into a 10 year lease contract with a private clinic for annual rent of EUR 0.44mil starting in mid-2005. Assuming 75% EBITDA margin and 17.2x fair enterprise value multiple, we value the Londynska building at EUR 5.7mil vs. an estimated investment of EUR 4.7mil. We assume 8% gross rental yield starting in 2005 for Zlota, which is below the average 8.9% for Orco’s office portfolio due to Zlota’s pre construction stage. Revenues from Offices Offices '03 portfolio Occupancy Change in occupancy Price per sqm (EUR) Price change Londynska Zlota Luxembourg Plaza Revenues from Offices Total
2003 2,091 57%
2004e 2,424 75%
2005e 2,967 90%
2006e 3,226 95%
2007e 3,323 95%
2008e 3,423 95%
-42.8%
32.5%
20.0%
5.6%
0.0%
0.0%
15.6
13.65
13.92
14.34
14.77
15.21
-20.8%
-12.5%
2.0%
3.0%
3.0%
3.0%
220 780
440 780 2,580 7,026
440 780 4,128 8,671
440 780 4,902 9,545
3,967
Source: Wood & Co. estimates
The EBITDA margin of 66.2% in 2003 should improve above 70% due to the expected 90% occupancy of Orco’s offices by 2005. Our medium term target EBITDA margin for the office business is 75% (see table below). Offices EBITDA EBITDA margin
2003 1,385 66.2%
2004e 1,636 67.50%
2005e 2,857 72.0%
2006e 5,129 73.0%
2007e 6,417 74.0%
2008e 7,159 75.0%
Source: Wood & Co. estimates
… should result in 30% increase of OPG’s office portfolio value. (EUR 47.6mil at YE2005)
Value of OPG’s office business. DTZ valued the office portfolio as of YE2003 at EUR 22.5mil vs. our current estimated book value of EUR 14.1mil DTZ/BV points to a 1.6x P/BV (omitting the one year difference). The two 2004 acquisitions valued at cost would add EUR 14.5mil to the book value. Assuming 40% value premium for the newly acquired properties, DTZ’s value of the portfolio at the end of 2004 should amount to at least EUR 42.8mil. By the end of 2006 the DTZ valuation, including EUR 48mil for Luxembourg Plaza, should lead to EUR 90.8mil.
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In our expected EV/EBITDA valuation, we discounted the expected 20062008 enterprise values of the office business to YE 2005 in order to capture the increased EBITDA from Luxembourg (starting in 2006). The average points to a 12 month fair enterprise value of EUR 85mil vs. DTZ’s EUR 90.8mil. One might consider our 17.2x EV/EBITDA multiple as conservative due to the rapid growth of expected EBITDA; however, for conservative purposes, we have kept the valuation at EUR 85mil at the end of 2005. 2003 2004e Offices EBITDA 1,385 1,636 EBITDA margin 66% 68% EV/EBITDA 17.2 EV 28,147 EV discounted to YE 2005 (WACC=6.4%) Average EV at YE2005
2005e 2,857 72% 16.65 47,562 47,562
2006e 2007e 5,129 6,417 73% 74% 16.1 15.55 82,580 99,778 77,613 88,136 84,964
2008e 7,159 75% 15 107,379 89,144
Source: Wood & Co. estimates
Hotel business Aparthotels. Orco Property Group (OPG) operates extended stay hotel chain (Aparthotels) called MaMaison Residences. Mostly located in Prague, 6 subsidiaries offer 182 apartments for short-term stays. Pachtuv Palac, with 51 flats, opened in August 2004 and residence Sulekova in Bratislava, with 32 flats, opened in September 2004. Relatively new aparthotel portfolio benefiting from excellent location will reach 80% occupancy rate in 2006.
The average occupancy rate in MaMaison residences, which dropped to 50% in 2003, recovered in 2004 by averaging 70% over the year. The relatively low occupancy is a result of OPG’s Aparthotels being relatively new on the market; as such, we might expect increasing occupancy rate as well as an above-market increase in room rates in the near future. The key strength of OPG’s Aparthotel portfolio is the excellent location and rental prices that are almost half of comparable hotel rooms. For conservative purposes, we projected long term sustainable 80% occupancy rate reached in 2006. We believe that an 8% annual average price increase charged for the room is achievable. 2003 1,296 50%
Aparthotels occupancy change in occupancy Price per room change in prices
74.0
2004e 2,575 70%
2005e 4,235 75%
2006e 4,889 80%
2007e 5,314 80%
2008e 5,686 80%
40.0%
7.1%
6.7%
0.0%
0.0%
78.1
85
92
100
107
5.6%
8.8%
8.2%
8.7%
7.0%
Source: Wood & Co. estimates
We value aparthotels 10% higher than independent valuator
Aparthotel valuation. The EBITDA margin in OPG’s extended stay business dropped below 50% in 2003. Due to introduction of two new Aparthotels in Bratislava and Prague in 2004, the EBITDA margin in 2004 is expected to have remained at just above 50%. This should improve along with an expected increased in the occupancy rate and operating leverage, with costs expected to increase 5% p.a. compared to an expected 8% p.a. increase in revenues. The EBITDA of EUR 2.3mil in 2005 implies a 12 month target EV of EUR 39.3mil (17.2 x EUR 2.3mil = EUR 39.3mil) compared to DTZ’s valuation of EUR 35.7 at YE 2003. 2003 641 49.5%
Aparthotels EBITDA margin
2004e 1,313 51%
2005e 2,287 54%
2006e 2,738 56%
2007e 3,082 58%
2008e 3,412 60%
Source: Wood & Co. estimates
ORCO PROPERTY GROUP
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We target 80% hotel occupancy ration in the long term
Hotel Business. Apart from MaMaison residences, OPG owns and manages 2 hotels in Czech Republic, 1 hotel in Warsaw and 1 hotel in Budapest with a combined capacity of 330 rooms. The recent opening of the Riverside Hotel in Prague (January 2003) and the Regina Hotel in Warsaw (in 1H2004) explains the low occupancy rates of 39% and 45% in 2003 and 2004, respectively. While we are optimistic about OPG’s ability to attract more clients and reach the market average occupancy rate of 80% in the long term, we remain conservative in projecting an increase to 65% occupancy along with 5.5% compounded annual growth in room prices, both well below average. 2003 4,954 39%
Hotels Occupancy Change in occupancy Prices per room (EUR) Change in prices
2004e 7,903 45%
2005e 9,408 50%
2006e 10,924 55%
2007e 12,544 60%
2008e 14,269 65%
15.4%
11.1%
10.0%
9.1%
8.3%
84
90
95
100
105
16.7%
7.1%
5.6%
5.3%
5.0%
72
Source: Wood & Co. estimates
Due to poor occupancy the EBITDA margin dropped below 20% in 2004, but this was still higher than the below 10% reported in 2003. In light of the improvement in occupancy, we forecast 33% compounded annual growth (CAGR) of Hotel EBITDA for the projected period of 2005-2008 (see the detail below). Hotel EBITDA margin
2003 474 9.6%
2004e 1,818 23%
2005e 2,352 25%
2006e 3,277 30%
2007e 4,390 35%
2008e 5,707 40%
Source: Wood & Co. estimates
We value OPG hotels 19% higher that DTZ.
Hotels value. In order to capture the strong 33% CAGR of estimated EBITDA we have once again discounted the future fair EV’ of the hotel business back to 2005, arriving at a 12 month fair EV for the hotel business of EUR 55mil compared to DTZ’s YE2003 value of EUR 46.3mil. Note that DTZ’s estimate of the market value used the 2003 numbers for valuing the business, thus the 39% occupancy rate and 9.6% EBITDA margin. 2003 2004e Hotel's EBITDA 474 1,818 EBITDA margin 10% 23% EV/EBITDA 17.2 EV 31,263 EV discounted to YE 2005 (WACC=6.4%) Average EV at YE2005 Source: Wood & Co. estimates
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2005e 2,352 25% 16.65 39,160 39,160
2006e 2007e 3,277 4,390 30% 35% 16.1 15.55 52,761 68,270 49,587 60,304 55,031
2008e 5,707 40% 15 85,611 71,073
WOOD & COMPANY
IPB Real IPB Real’s value of EUR 98mil not reflected in the DTZ valuation of properties
IPB Real was acquired by Orco Group in 2003 for EUR 18.7mil. The Asset value estimate for IPB Real assessed by DTZ amounted to EUR 38.8mil as of the end of 2003 (see the appendix for detailed valuation of IPB Real’s assets). We believe that investment into IPB Real increased the value of Orco Group substantially, and that the real contribution has not yet been reflected in the results. We value the IPB Real business at 7x EBITDA 2005e, or EUR 71mil excluding the Benice land revaluation. Please note that we expect significant 35% p.a. EBITDA increase in 2006. If valued at 6.5x EBITDA 2006e the value would be EUR 89mil. For the conservative purposes we use the lower of two estimates, thus valuing IPB Real at EUR 71mil. IPB Real leads the Czech market in the development of residences for middle class and has 2085 flats in the pipeline.
We increased the number of flats sold to 800 p.a. by 2006
Revenues. We expect IPB Real to fulfill its plans to finish and sell 750 residential flats in 2004, of which 670 were sold already in 2003. The expected revenues from the sale are EUR 55mil in 2004. In our model the number of flats sold annually increases to 800 over the next two years. We assume the average price per flat increasing by 8% annually (2005-2006). Overall, IPB Real revenues should grow 11% annually in next two years. Starting in 2007, we have projected 5% decline in the number of flats sold, and we lowered the price increase to 3%. Demand on the residential market is expected to decrease due to a VAT increase on the construction of new real estate property from 5% to 19%. IPB Real expected revenues from residential 2004e 55,000
IPB Real - Revenues (EUR '000) Zelene Udoli Kbely Tyrsuv Vrch Klanovicky Les Kosik Sterboholy Hagibor Brno Hradec Kralove Total flats sold Average flat price (EUR)
2005e 61,380 100 56 29 370 136
2006e 68,429 20 55 30 395
2007e 66,958
2008e 68,966
473 187
84 750 73,333
775 79,200
300 800 85,536
100 760 88,102
760 90,745
Source: Wood & Co. estimates
Under the accounting principles (Luxembourg accounting principles) used by Orco Group in the development business, developed property is held in the balance sheet as inventory until the keys are handed over. This creates seasonality and uneven revenues. Once Orco Group implements IFRS as of 2005, we expect 2005 revenues to reflect the real production of Orco. Unfinished flats will be reported as revenues at the end of the accounting period and not inventories. Cost saving will increase EBITDA margin up to 20% in the projects started in 2004.
Profitability. IPB Real operated with an EBITDA margin of 9.3% in 2003. After areas for cost savings were identified in 2004, we expect EUR 2mil of savings to be implemented in new projects over the next three years. As 26.4% of the cost has been identified as depressible, we estimate the EBITDA margin gradually increasing to 20% in 2006 from 15% in 2004e.
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This assumption underlines our view that real estate prices will increase at a faster pace than construction expenses in next two years (8% vs. 5%). Other impacts. DTZ’s valuation for the sites owned by IPB Real totaled EUR 24.3mil at the end of 2003 (see the table below). In 2004, extraordinary income of EUR 4mil from the sale of 50% of Kosik site was booked. We expect DTZ’s valuation of the sites to increase by 20% in 2004; we estimate significant increase of the Benice land value in 2005 after the zoning permit is received. Development site valuation by DTZ 2003 DTZ valuation EUR mil Benice 4.7 Hagibor 7.0 Kosik 8.0 Michle 1.3 Medlanky 0.5 Kbely 1.0 Sterboholy 1.9 Total 24.3 Excluding Benice 19.6 Sources: DTZ
We value the site at Benice at EUR 28.1mil compared to EUR 4.7mil by external valuator
size sqm 602,326 26,229 85,733 1,272 2,832 5,627 16,982 741,001 138,675
value/sqm EUR 7.8 266.9 93.3 1029.9 173.0 172.4 109.5 32.8 141.6
Benice. IPB Real owns 602,326 sqm land bank in Benice, 13km from the city center of Prague. The latest 2003 market value estimate by DTZ of the site amounts to EUR 4.7mil, or EUR 7.8 per sqm. This is well below the average EUR 141.6/sqm for all sites owned by IPB Real, due to fact that IPB real has yet to receive zoning permits for residential development at Benice. We expect the site to benefit from the zoning permits obtained partially in 2005 (110,000 sqm) and 2010 at latest (492,326 sqm). As a reference price for zoned land, we used the selling price of 50% of IPS Real’s site Kosik, which was sold for EUR 93 per sqm in 2004. We reduced the fair price for Benice by 15% (EUR 79/sqm) due to its less attractive location as compared to Kosik. Due to the risk of OPG not obtaining the zoning permits, we have halved the expected value of the site(EUR 56.2mil) down to EUR 28.1mil. Benice land valuation Size FV (EUR/sqm) Zoning in 2005 110,000 87.0 Zoning in 2010 492,000 127.8 Total land size (sqm) 602,000 DTZ 2003 Estimated upside Upside per share Discount 50% Estimated upside after 50% discount Upside per share after 50% discount Value increase for Orco Property Group Sources: Orco Group, DTZ, WOOD & Co. estimates
PV (EUR/sqm) 79.0 96.6
PV (EUR) 8,690,000 47,539,916 56,229,916 4,700,000 51,529,916 9.2 23,414,958 4.6 28,114,958
We have increased the value of OPG by EUR 28.1mil (EUR 4.7mil + EUR 23.4mil) for Benice, since the land is not contributing any EBITDA into our model; we believe if it were to be sold today, a fair price would be close to EUR 28mil.
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Development. The value of Luxemboug Plaza will be transferred into other part of business after completing
Besides residential development, Orco develops real estate properties for the group. In 2006 Luxembourg Plaza is expected to be finished. The total cost of development is expected to amount to EUR 47mil. The value of the property upon completion should be EUR 68mil. Currently DTZ values the Luxembourg Plaza at EUR 16mil. We have put EUR 5mil of EBITDA into 2006 results, as OPG can increase EBITDA through arbitrage within the group. All the future cash inflow from the Luxembour Plaza assets after completion we have included into hotel and office part of OPG. The expected gross yield of 8.5% makes the project sufficiently profitable in our view. Endurance Fund. OPG plans to launch a real estate property fund, with an equity injection of EUR 100-150mil that will represent 30% of the fund’s assets. The total asset size of EUR 350-450mil will enable OPG to capture investment opportunities too big for Orco itself.
Endurance fund will contribute stable EUR 2.5mil minimum management fees to OPG
OPG will act as fund manager, and will receive a 2% of equity fee annually, plus a 1% transaction fee if the assets are sold to the fund without the brokers. In case of out-performance of the planned 17.5% ROE, OPG will get further bonuses. With 70% leverage and expected 10%-12% return on investment, we believe that Orco will be successful in achieving the targeted minimum 17.5% ROE (OPG’s portfolio increased value by 10.2% in 2003, and we expect a 15% increase in 2004), however we did not incorporate into our model any special bonuses for the conservative purpose. We assume that OPG will be able to generate EUR 2.5mil on management fees from the fund starting 2006. OPG has already purchased an EUR 18.9mil (yield of 7.8%) Atronyx Office Center in Hungary for the fund, which we excluded from OPG assets even though it might appear on the OPG balance sheet for the time being.
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Reporting changes will improve the picture of OPG as well as comparability to its peers
Reporting changes
As of January 2005, OPG will start using the IFRS vs. currently used Luxmebourg reporting standards; with the following consequences on its statements and valuation. The property held for the investment portfolio will be revalued to market value as defined by DTZ as of 2005. While we have increased the tangible fixed assets by EUR 30mil for 2005 due to this accounting change, this should have no impact on valuation as we do no use the book value of assets in any calculations. However the increase of the asset BV to the market will improve the comparability with OPG peers that are using IFRS. The unfinished development projects will be booked to P&L rather than inventories, decreasing accruals in IPB Real’s books. We believe this accounting change will increase IPB Real’s revenues in 2005, and that it will more realistically reveal the potential of the developer. Prior to this change, revenues were booked only after the keys were handed to the new owner. Therefore, inventories as well as short term receivables increased significantly in 2003. We expect the revenues of IPB Real to amount EUR 61.4mil in 2005.
Capital structure We have used 6.6mil shares for the valuation purposes as both the warrant and convertible bonds currently trade in the money
Even though the company has 4.6mil ordinary shares currently, there are two programs that we expect to increase the number of shares significantly, starting in 2006. Warrants. During the last capital increase in November 2003, 3.04mil warrants were issued to remaining shareholders. These warrants carry an option to be exchanged for ordinary shares until November 2006 at a 1:3 ratio, thus for 1.01mil ordinary shares. The bearers of the shares will pay EUR 23 each. Consequently we expect the company’s total equity to increase by EUR 23.2mil. The warrants are being traded on the secondary market of EURONEXT. Convertible bonds. In September 2004, 1mil convertible bonds were issued @ EUR 32.4 bearing a 5.5% annual coupon payable on December 31 annually, until maturity on December 31, 2011. These bonds are exchangeable for common shares at any time. However, Orco Group has an option to buy back convertible bonds either on the market, through a tender or by recalling all of them. This can be done no sooner than the 19th month after the issue, thus in June 2006. The only condition for an early redemption is that the share price must be higher than EUR 40.5. Orco Group is liable to pay an extra coupon so as to ensure an 8% yield for bondholders. Currently the bonds trade at a 5% premium to the market price of ordinary shares. We remain positive on the share price development, and believe that bondholders will convert at the end of the bonds maturity, thus in 2011. We assume that all of the bondholders will convert into equity prior to redemption in 2011. Therefore, when calculating the equity per share, we use the calculation of diluted equity per share taking into account 1mil convertible bonds. Share dividends. We assume in our model that all the dividends will be paid out in cash in the future.
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Valuation
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Valuation We used target EV/EBITDA multiple valuation for OPG’s portfolio
For the valuation, we have divided Orco Group into 4 parts. As the most appropriate way of valuing OPG we identified the fair value EV/EBITDA multiples based on OPG’s expected low WACC of 5.8%. For the reference we looked at peers listed on the Euronext stock exchange. WACC estimate for OPG Risk free rate Market risk premium Beta Cost of Equity Weight of equity Cost of Debt (after tax) Weight of Debt WACC
4.0% 6.0% 0.34 6.0% 69.6% 5.1% 30.4% 5.8%
Source: Bloomberg, OPG, Wood & Co. estimates
We believe that OPG’s cost of debt is considerably higher than that of its peers due to its small market capitalization and lack of rating. The listing of OPG’s shares and bonds should improve OPG’s credit rating and have a positive effect on WACC. This will absorb any potential interest rate increase. Therefore with these two effect counterbalancing each other in the future, we used the current WACC of 5.8%. (EUR '000) EBITDA for Group Hotels and Aparthotels Rental Fund IPB Real
2005e 21,993 2,352 6,664 2,850 10,128
2006e 29,312 3,277 9,500 2,850 13,686
2007e 31,197 4,390 11,235 2,850 12,722
2008e 33,370 5,707 12,399 2,850 12,414
Source: Wood & Co. estimates
We have set the target EV/EBITDA multiples using the comparison with OPG peers trading on Euronext, even though we believe that OPG should trade with premium to western European peers due to exposition to highly growing and similar risk markets.
We have set 17.2x the fair EV/EBITDA (2005e) multiple for Hotel and Rental divisions and 7.2x for Fund management and development
2005 2006 EV/EBITDA Hotel 17.2 16.5 Rental 17.2 16.5 Fund 7.0 6.5 IPB + Development 7.0 6.5 Enterprise Value (EUR '000)
2005e
2006e
2007e
2008e
40,454 114,617 19,950 70,894 245,914
54,072 156,744 18,525 88,957 318,298
75,514 193,243 19,950 89,054 377,760
98,168 213,259 19,950 86,898 418,275
Source: Wood & Co. estimates
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We set the 12-month price target at EUR 45.5 per OPG share.
We set the 12 month target price at EUR 45.5 per OPG share based on 2005 expected equity value per share. (6.6mil shares used for the fully diluted Equity per share calculation. (EUR '000) EV Property available for sale Net Debt Equity Equity per share (EUR) Fully diluted Equity per share (EUR) Target Price (EUR)
66,817
2005e 245,914 36,700 59,359 223,255 48.3 45.5 45.5
2006e 318,298 51,550 79,685 290,163 51.6 48.7
2007e 377,760 51,550 109,371 319,939 56.9 53.2
2008e 418,275 51,550 119,327 350,498 62.3 57.8
Source: Wood & Co. estimates
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Mortgage market in the Czech Republic Czech mortgage market growth set to drop from 55%y/y to 30-40% over the next 2 years
The combined mortgage loan market and building society loan market is the fastest growing part of Czech banks’ consolidated portfolios (see the chart below). The mortgage market (excluding building society loans) grew by more than 55% y/y in 9M2004. We estimate mortgage lending growing at a rate of 30-40% over the next two years. Mortgage market growth is expected to remain robust in the next 3-5 years due to the following: • • • • • • •
Relatively low (2%) retail mortgage penetration Low interest rate environment (currently 2.5%) Highly competitive mortgage lending market creating favorable conditions for customers 4% growth in real wages to continue over the next two years Expected 4% growth of GDP in next two years fueled by construction Lower VAT on household construction until 2007 Economic life of penal houses to end soon
Czech mortgage market development (CZK mil) 200,000
CAGR 42.6% p.a.
180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000
0 31.03.2002 31.08.2002 31.01.2003 30.06.2003 30.11.2003 30.04.2004 30.09.2004
Building societies' loans
mortgage loans
Source: Czech National Bank
Czech mortgage market With 100,000 retail mortgage contracts for 10.2 million inhabitants, the penetration of 2% lower retail mortgage market represents about 1% penetration in the Czech than EU average of Republic. When including loans from building societies, penetration rises to 59% some 2% -- still well below the European average of 59%, according to our estimate. The average mortgage loan in the Czech Republic amounts to CZK 1.1mil, or EUR 35,800, with a maturity of 15 to 20 years. On average, customers choose a five-year fixing period, typically at a 4.5%-5% fixed interest rate, and about 1% - 1.5% fee charged in the first year. Low interest rate environment triggered boom in mortgage lending in 2003
From October 2003, when the CNB lowered all the reference interest rates (the key 2-week repo rate at 2%), until June 2004, the Czech economy operated under the lowest-ever interest rate environment (see the table below). This, along with government support (interest rates on mortgage loans are tax deductible for individuals), created favorable conditions for the mortgage market. The key 2-week repo rate now stands at 2.5% after two 25bps rate increases in 3Q2004. As real GDP growth in 2005 is expected to
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reach 4%, inflationary pressure is likely to lead the CNB to increase rates by some 50bps in 2005. Even after the second interest rate hike last year, the key banks did not increase interest rates for up to five-year fixing periods due to the highly competitive nature of the mortgage market. Given this, we expect that any rate hikes made in 2004-2005 are not likely to be fully passed onto customers. Interest rate development 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0
2-week repo rate
Aug-04
May-04
Feb-04
Nov-03
Aug-03
May-03
Feb-03
Nov-02
Aug-02
May-02
Feb-02
Nov-01
Aug-01
May-01
Feb-01
Nov-00
Aug-00
1.5
3M PRIBOR
Sources: Czech National Bank, Reuters
Competition on the mortgage market could depress interest rate spreads
The Czech mortgage market has witnessed fierce competition in the past year. As the market share in mortgage lending is evenly distributed among the biggest three banks on the Czech market, we expect competition, and thus favorable conditions for financing real estate development, to continue. Market share based on number of mortgage loans granted Market Share 31.2% 29.3% 24.6% 6.1% 3.5% 2.7% 2.6% 100.0%
CMHB (CSOB) Ceska Sporitelna (ERSTE BANK) KOMERCNI BANKA GE CAPITAL BANK HVB BANK CR RAIFFEISENBANK Others Total Sources: Wood & Company estimates
Mortgage loan interest rates on different fixing periods (%) Komercni Banka Ceska Sporitelna CMHB (CSOB) Gov bond yield Komercni Banka's spread Sources: Banks, Reuters
Czech citizens spend 26.2% of their income on living expenses.
5 year 4.46 4.99 4.95 3.58 0.88
10 year 5.11 5.79 5.7 4.23 0.88
15 year 5.11 6.29 5.85 4.65 0.46
We estimate that the average loan taken in the Czech Republic amounts to CZK 1.1mil (EUR 35,800), with a maturity of 16 years and an interest rate of 5.2% fixed for 5 years. Based on these numbers, the average client makes a monthly payment of about CZK 8,200 (EUR 267). The average gross
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monthly wage in Czech Republic reached CZK 17,418 in 3Q2004. As we calculate on average 1.8 persons per mortgage loan, the percentage of income spent on the mortgage loan comes to 26.2% Real wage growth to outperform interest rate increase in next 2 years
We expect real wage growth, which grew by more than 6% y/y in 2003, to have slowed in 2004, although we still forecast 4% real wage growth in the next two years (see the table below). We expect interest rates on mortgage loans to increase by up to 150bps by 2006 to 6%-6.5% on 5-year fixed mortgage loans, or slightly lower than the expected interest rate hikes. This would increase the monthly payment by 5.5%-8.5% over the next two years assuming similar loan conditions. Nominal wage growth of 12.5% over the next two years would result in a relative decrease in the cost of mortgage loan expenses as a proportion of income. Therefore we believe that room remains for double digit growth in mortgage lending.
Czech Republic -nominal vs. real wage growth 25,000
10.0 8.0
20,000
6.0
15,000
4.0 10,000
2.0
5,000
0.0
0
-2.0 1998
1999
2000
Nominal in CZK (left scale)
2001
2002
2003 2004e 2005e 2006e 2007e Nominal Wage (y/y %)
Real Wage (y/y %)
Source: Czech Statistical Office, Wood & Company estimates
Government subsidies for building societies savings to continue
Government subsidies for building societies are expected to amount to CZK 15.3bil in 2004, compared to CZK 13.2bil in 2003. The government’s cut in the subsidy per contract as of January 2004 created extraordinary demand for building societies contracts under old favorable conditions at the end of 2003, resulting in an increase in the total amount of subsidies in 2004. For 2005, the government expects subsidies to decrease to CZK 14.8bil. According to the Ministry of Finance, there are now 6mil building society contracts in Czech Republic, representing 60% penetration of the Czech population. Most of these contracts are used just for saving and are withdrawn at the end of the five-year cycle; they can be easily converted into loans if conditions (interest rate) become favorable. Currently (end September 2004) building societies owe CZK 266bil to clients, whereas loans granted account for just CZK 78bil.
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Appendix
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Peer Comparison Market Cap EUR mil Real Estate Management UNIBAIL FONCIERE LYONNAISE SILIC Real Estate Management average
NET DEBT EBITDA 05e EUR mil EUR mil
EV/EBITDA
4,130 1,531 1,210
3,582 986 286
436 144 99
17.7 17.5 15.1 17.2
Developers PIERRE & VACANCES FONCIA GROUPE NEXITY Developers average
732 555 797
298 110 337
147 61 160
7.0 10.9 7.1 8.1
Globe Trade Centre
619
171
42
18.7
ORCO PROPERTY GROUP Orco development Orco rentals and hotels
177
65
22
11.0 7.1 17.2
Sources: Bloomberg, Wood & Co. estimates
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Orco Group property value Americka 13 residential Americka 33 residential Na Kozacce residential Nad Petruskou residential Belgicka residential Zahrebska residential Rybalkova residential Londynska residential Americka Park Hotel extended stay hotel Americka Park Residential residential Total residential properties held as investment Dubovy Mlyn residential development Total residential properties in the course of development Machova 18 Americka 11 Anglicka 26 Londynska 41 Manesova Belgicka 40 Revay utca Szekely M. Utca Total office held as investment
office office office office office office office office
value EUR '000 1,490 510 2,856 2,705 2,270 3,790 390 1,610 4,400 5,225 25,246
size value/sqm sqm EUR/sqm 718 2,075 365 1,397 1,378 2,073 1,149 2,354 1,033 2,197 1,857 2,041 265 1,472 794 2,028 1,550
3,371
1,060 1,014 2,240 1,781 2,510 1,213 2,531 1,000
0.94 1.68 1.92 2.19 1.51 1.57 1.38 2.45
1,600 1,600 1,000 1,700 4,300 3,900 3,800 1,900 3,500 2,450 22,550
Luxembourg plaza office development Luxembourg plaza hotel development Total office properties in the course of development
8,200 7,950 16,150
Masaryk extended stay hotel Belgicka extended stay hotel Izabella extended stay hotel Total extended stay hotels held as investment
3,350 6,900 8,200 18,450
1,025 1,540 2,220
3.69
Pachtuv Palac hotel development Residence Sulekova ext.stay hotel dev. Total extended stay hotels in the course of development
16,700 550 17,250
4,251
3.93
Hotel Andrassy Riverside Hotel Hotel Imperial Total hotels held as investment
11,460 10,850 11,500 33,810
3,900 2,065
2.94 5.25
12,500 12,500
4,311
hotel hotel hotel
Regina Hotel hotel development Total hotels held in the course of development SUBTOTAL
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Orco Group property value (continue) Ujezd nad Lesy Palouk Zelene Udoli Vinohrad u Rokytky Lesna Benice Hagibor Kosik Michle Medlanky Kbely Sterboholy Total IPB Real properties
residential development residential development residential development residential development residential development site site site site site site site
value EUR '000 1,870 3,810 4,790 3,320 740 4,700 7,000 8,000 1,310 490 970 1,860 38,860
Total DTZ value of Orco Group properties at YE2003
186,416
Wood & Co. adjustment for Benice 15% increase over 2004
23,400 214,378
Sale of 50% Kosik site in 2004 Other disposals
(4,000) (14,530)
Additions Repy Medlanky II Podkova Isabella 62/64 Zlota 44 (Poland) Majolikova (Poland) Londynska 39
site site site extended stay hotel office site office
1,384 4,000 7,700 6,000 9,750 800 4,760
Total property purchases in 2004
size value/sqm sqm EUR/sqm
602,326 26,229 85,733 1,272 2,832 5,627 16,982
7.80 266.88 93.31 1029.87 173.02 172.38 109.53
8,000
173.02
3,380
1.41
34,394
Total Orco Group portfolio value at YE 2004e
253,643
Sources: external valuator DTZ, Orco Property Group, Wood & Co. estimates.
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INCOME STATEMENT - ORCO PROPERTY GROUP EUR 000' 2001 Offices 2,351 Residential 1,417 Aparthotels 751 Hotel 1,471 Other services 73 Yield from the sale of building in stock 1,936 Total Sales 7,999 Capitalized production costs 1,612 Gain on fixed assets disposal 2 Other operating income 1,348 Cost of sales (1,740) Gross Profit 9,221 Purchases and outside services (4,153) Personnel costs (2,205) Other operating charges (1,546) EBITDA 1,317 Depreciation (1,620) EBIT (Operating Income) (303) Net Financial Profit 2,976 EBT on Ordinary Activities 2,673 Exeptional Charges 258 Income Taxes (955) Minority interest 0 Net Income 1,976 Ratios Number of shares EPS (EUR)
2,625,675 0.8
DPS (EUR) Dividends total (EUR mil) EBITDA margin EBIT margin NI margin
16.5% -3.8% 24.7%
ROA ROE
2002PF 3,330 1,474 1,467 3,665 123 0 10,059 1,360 3,338 517 0 15,274 (5,207) (3,360) (1,234) 5,473 (2,380) 3,093 (2,887) 206 1,097 1,252 0 2,555
2003 2,091 1,446 1,296 4,954 427 12,565 22,779 1,068 2,455 570 (8,947) 17,925 (7,297) (4,059) (482) 6,087 (2,893) 3,194 (5,675) (2,481) 172 1,358 1,201 250
2004e 2,424 1,787 2,575 7,903 500 55,000 70,189 1,000 0 500 (46,750) 24,939 (7,532) (3,856) (500) 13,050 (2,864) 10,186 (5,750) 4,436 4,500 (665) 0 8,271
2005e 3,967 1,974 4,235 9,408 3,000 61,380 83,965 1,000 0 0 (51,252) 33,712 (7,170) (4,049) (500) 21,993 (3,751) 18,242 (5,916) 12,327 500 (1,849) 0 10,978
2006e 7,026 2,093 4,889 10,924 3,000 68,429 96,361 1,000 0 0 (54,743) 42,618 (3,604) (4,251) (500) 34,262 (4,477) 29,785 (5,976) 23,810 500 (4,524) 0 19,786
2007e 8,671 2,198 5,314 12,544 3,000 66,958 98,684 1,000 0 0 (54,236) 45,449 (9,288) (4,464) (500) 31,197 (5,435) 25,763 (7,557) 18,206 500 (3,459) 0 15,247
2008e 9,545 2,285 5,686 14,269 3,000 68,966 103,752 1,000 0 0 (56,552) 48,199 (9,642) (4,687) (500) 33,370 (6,607) 26,763 (8,782) 17,981 500 (3,416) 0 15,064
2,888,914 0.9
4,017,073 0.1
4,622,824 1.8
4,622,824 2.4
5,622,824 3.5
5,622,824 2.7
5,622,824 2.7
0.40 1.2
0.45 1.8
0.50 2.3
0.6 2.5
0.7 3.9
1.0 5.6
1.3 7.0
54.4% 30.7% 25.4%
26.7% 14.0% 1.1%
18.6% 14.5% 11.8%
26.2% 21.7% 13.1%
35.6% 30.9% 20.5%
31.6% 26.1% 15.4%
32.2% 25.8% 14.5%
2.7% 6.2%
0.2% 0.4%
3.6% 10.1%
4.8% 8.9%
8.2% 12.9%
5.2% 9.1%
4.6% 17.2%
Market Capitalization (EUR mil) Net Debt (EUR mil) Enterprise Value (EUR mil) NAV (EUR mil) NAV per share (EUR) NAV per share (fully diluted)
101.1 39.5 140.6 80 30
111.2 55.5 166.7 100 35
154.7 66.8 221.5 120 30
178.0 84.7 262.7 189 41 33
178.0 59.4 237.3 262 57 45
216.5 79.7 296.2 318 57 48
216.5 109.4 325.8 350 62 53
216.5 119.3 335.8 374 66 56
EV/EBITDA P/NAV (fully diluted)
106.8
30.5
36.4
20.1 1.15
10.8 0.86
8.6 0.80
10.4 0.73
10.1 0.68
Sources: Orco Property Group, Wood & Company estimates. Note: 2006 EBITDA inflated by one off sale of Luxembourg Plaza amounting EUR 5mil Consolidated statements according to Luxembourg Accounting Standards until 2004, after IFRS
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BALANCE SHEET - ORCO PROPERTY GROUP EUR '000 2001 Cash and Cash Equivalents 2,256 ST Receivables 3,252 Inventories 75 Other ST Assets 1,962 Total Current Assets 7,545 Investments 162 Intangible Fixed Assets 2,442 Tangible Fixed Assets 74,173 Total Non-Current Assets 76,777 TOTAL ASSETS 84,322 ST Payables 5,845 Related Party Payables 3,075 Other ST Liabilities 5,319 Current Liabilities 14,239 Loans 35,196 Convertible bonds 6,603 Non-convertible bonds 0 Provisions 420 Non-Current Liabilities 42,219 Total Liabilities 56,458 Common Equity 10,765 Retained Earnings & Reserves 2,265 Translation difference -331 Share Premium 15,743 Total Shareholders' Equity 28,442 Minority Equity Positions 0 TOTAL LIAB. & SHLDR's EQUITY 84,900
PF2002 8,266 1,304 3,518 8,136 21,224 1,743 1,924 82,301 85,968 107,192 4,258 3,202 3,719 11,179 49,729 2,812 11,225 437 64,203 75,382 11,844 5,141 -3,172 17,997 31,810 0 107,192
2003 16,551 21,937 42,795 23,556 104,839 138 1,628 108,650 110,416 215,255 63,892 3,457 5,813 73,162 70,633 0 12,735 7,579 90,947 164,109 16,470 6,893 -2,729 32,335 52,969 -1,823 215,255
2004e 13,651 20,000 50,000 20,000 103,651 0 1,500 141,425 142,925 246,576 70,000 3,457 5,900 79,357 50,000 32,400 16,000 7,579 105,979 185,336 16,470 15,164 -2,729 32,335 61,240 0 246,576
2005e 20,571 10,000 10,000 10,000 50,571 0 1,500 157,063 158,563 209,134 10,000 3,457 5,950 19,407 31,530 32,400 16,000 7,579 87,509 106,916 16,470 56,142 -2,729 32,335 102,218 0 209,134
2006e 22,715 20,000 12,500 12,500 67,715 0 1,500 205,244 206,744 274,459 10,000 3,457 5,820 19,277 70,000 32,400 0 7,579 109,979 129,256 39,670 75,927 -2,729 32,335 145,203 0 274,459
2007e 18,029 25,000 20,000 15,000 78,029 0 1,500 235,256 236,756 314,785 10,000 3,457 5,900 19,357 95,000 32,400 0 7,579 134,979 154,336 39,670 91,174 -2,729 32,335 160,450 0 314,786
2008e 18,073 20,000 20,000 15,000 73,073 0 1,500 265,292 266,792 339,865 10,000 3,457 5,915 19,372 105,000 32,400 0 7,579 144,979 164,351 39,670 106,238 -2,729 32,335 175,514 0 339,865
Sources: Orco Property Group, Wood & Company estimates. Note: Consolidated statements according to Luxembourg Accounting Standards until 2004, after IFRS
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Wood & Company:
Václavské náměstí 772/2 110 00 Praha 1 Czech Republic Tel 420 222 096 111 Fax 420 222 096 222
Šoltésovej 12 811 08 Bratislava 1 Slovak Republic Tel 421 2 50219 112 Fax 421 2 50219 212
Although the information contained in this report comes from sources Wood & Company believes to be reliable, we do not guarantee its accuracy, and such information may be incomplete or condensed. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
