Carpathian disposes of 2 finance-bleeding developments

AIM-listed CEE real estate investment firm Carpathian has entered into agreements to dispose of subsidiaries that own two debt-laden shopping centre development projects in the western Romanian cities of Arad and Cluj.

The sites are being acquired by related parties for nominal sums. As part of the disposals, the outstanding loans made by Carpathian to Arad and Cluj will be assigned to the buyers. Carpathian has agreed to contribute EUR 400,000 to the subsidiaries to relieve the company from having to fund any future costs for the development sites.

Although Carpathian described Arad as a project, developer Atrium announced the opening of Atrium Center, the 30,000-m² mall centrepiece of the Arad scheme, on Tuesday afternoon. 'Between the years 2007 to 2008 approximately eight commercial center projects were announced in Arad, five of them on the same boulevard where Atrium Center, the only one of the eight to be handed over, is standing now, said Adina Calinescu, country manager of Atrium Centers.

Carpathian acquired the Cluj site in August 2007 for EUR 14.3 mln and the Arad site was acquired two months later for EUR 11.8 mln.

Carpathian said that property values have fallen significantly since the commencement of development of Arad. The Arad and Cluj assets secure a total of EUR 48.3 mln of debt drawn down from facilities provided by MKB Bank and will require further funding before any development can be completed. Arad and Cluj generated a loss of just under EUR 31 mln for the year to 31 December 2008.

A recent independent valuation of the Arad project showed an investment valuation of EUR 21.4 mln. The site presently has EUR 39.8 mln of debt with a further EUR 19.4 mln likely to be drawn down prior to completion of the project, resulting in potential total debt of EUR 59.2 mln. Carpathian said it believes the net operating income on opening will not exceed EUR 3 mln per year.

The Arad development will be acquired by Glarstyle, which is owned by key managers within Carpathian's development partners, Atrium Centers Management and within CPT. Arcadom, the development's main contractor, will join as 50% shareholder of the Arad project. Cluj will also be acquired by Glarstyle. The property is a vacant site with EUR 8.5 mln of debt presently drawn, against a recent independent investment valuation of EUR 6.5 mln.

Rory Macnamara, chairman of Carpathian, said: 'The significant operating costs of managing the developments were no longer justified, particularly given the size of the associated debt drawn down against the assets and underlying property values in the region. This sale allows the board and property investment adviser to focus on maximising returns on the investment portfolio.'