All over the plaza

World It's a quiet Tuesday afternoon at the Plaza Center office in Warsaw, but make no mistake about it - the CEE retail developer by no means is resting on its laurels. As a matter of fact the firm currently has its plate full with projects underway in Poland, Serbia, India and the US. In case you have missed the news, here's an update: Plaza Centers, through its joint US subsidiary, is also now the sole owner of a portfolio of 48 community shopping centres in the USA, covering 1 mln sqm of space, which it acquired from the Australian-based EDT Retail Trust. The move, a result of Plaza's year and a half old strategy to also invest in high yield assets to augment its core development business, is already producing positive results. Over the past year, as seen in its H1 results, Plaza Centers has managed to double its revenues and its consolidated income, both due to the completion of the Suwałki Plaza and Zgorzelec Plaza malls in Poland and the company's US operations. The group has announced that it has assets worth EUR 1.48 bln (compared to EUR 1.43 bln in December 2010) with gross revenues of EUR 28.6 mln ?(up from EUR 9.5 mln at the end of June 2010), as well as a short term cash position of EUR 230 mln, working capital of EUR 750 mln and a current cash position of EUR 140 mln.

What lies ahead?
In November the 40,000 sqm Toruń Plaza shopping centre is to be open, with occupancy expected to reach 85 pct prior to the opening ceremony. Simultaneously work is underway in Kragujevac, Serbia, where the firm's first project - Kragujevac Plaza (22,000 sqm gla, 75 pct leased) - should be ready in Q1 2012, and in Pune, India, the location of the Kharadi Office project and the Koregaon Park mall, scheduled for completion in Q4 2011. Last, but not least, "we are happy to look at other properties in the US," reveals Ran Shtarkman, CEO of Plaza Centers. "The portfolio we acquired was put up for sale by a distressed seller, but the portfolio itself is not distressed. This is the product we are looking for - well-performing assets from distressed sellers." The company maintains that the acquisition was "at a bargain price". Plaza Centers has invested USD 83 mln, but it is confident that it will be able to exit the American deal with at least USD 140 mln in its pocket. As Ran Shtarkman claims, offers from potential buyers have already been received, one of which might be accepted in due course. He also believes that a successful future exit will boost the company's stock as shareholders become more confident about the American market.
The company's optimism is also evident in its projected H2 results, when it expects a further increase in earnings from operations. In August, following the announcement of the company's H1 results, Wood & Company, an investment bank focused on European emerging markets, wrote: "We are pencilling-in at least a 50 pct increase (in income) in H2 compared to H1, thanks to the full consolidation of US assets."
The market, however, has yet to show a full appreciation of Plaza's expansion strategy. Nevertheless, market analysts admit that next year, with three new operating assets, looks better for the company. Meanwhile Wood & Company and emerging markets financial services group Religare, have, issued ?buy' recommendations for Plaza's shares, maintaining that the stock, listed in London and Warsaw, is currently being traded well below its value. According to Wood ?& Company Plaza's stock, based mainly on valuations and the improving cash flow from operations, has a price target of GBP 1.60 - up from its current price of around GBP 0.35.

Still in love with Poland
After the opening of Toruń Plaza the developer will be turning its sights on Łódź, where it has planning Łódź Plaza, the first major modern retail project in the southern part of the city. Two other retail projects in Poland - Kielce Plaza (33,000 sqm) and Leszno Plaza (16,000 sqm) - are expected to be completed in 2014. All in all, Plaza Centers targets four to five new development projects in its area of operation per year, with target returns of at least 40-60 pct on the equity invested. "As for the CEE region our top priorities remain Poland and Serbia. We also have two plots in Bulgaria, but this market has yet to recover. This is why our projects in Sofia and Shumen will have to wait a bit," reveals Ran Shtarkman.
Financing is not Plaza's major concern when it comes to the project in Łódź. The company is confident it will soon have news to announce in this regard, as it is still waiting for all the necessary permits. Construction work is expected to kick off in H2 2012. The scheme, which is to add 30-40,000 sqm to the market, should be ready in 2014. Also next year, Plaza Centers expects to start work on its first project - Sport Star Plaza - in Belgrade, where it has two plots. "Getting the financing for projects in Serbia is somewhat challenging. The local banks are not likely to grant loans for such projects, which is in fact good for us. The market needs players with a proven track record," comments Roy Linden, Plaza's CFO, adding that the company is talking to banks outside Serbia for this project, which will add app. 40,000 sqm gla to the market.
In neighbouring Romania, Plaza Centers will next year most probably start work on projects in Timişoara - the Timişoara shopping centre (40,000 sqm) - and Bucharest. The company owns a massive plot in Bucharest's sector one, designated originally for the mixed-use Casa Radio project. Naturally, some changes were enforced by the credit crunch. "We have recognised the need for class ?A' office projects in this area and as a first step we will test the market by developing an office building. If the interest proves strong, we are ready to develop more office space, followed by additional facilities such as retail space and a hotel complex," declares Ran Shtarkman.

Mladen Petrov