Riga, 2015-03-02 08:45 CET (GLOBE NEWSWIRE) -- Acme Corporation SIA (hereinafter - ‘the Company’ or ‘Acme Corporation’) and its subsidiaries (hereinafter - ‘the Group’) invest in the operation and management of rental real estates (offices, retail and land development) in Latvia. As at 31 December 2014 Acme Corporation was the parent for four Latvian registered limited liability companies - Apex Investments SIA (grocery anchored retail real estate), Neatkarīgā patentu aģentūra SIA (office anchored real estate), Tukuma Projekts SIA (DIY anchored retail real estate) and Big Truck SIA (logistic development). As of the date of approval of this report Acme Corporation no longer holds shares of Apex Investments SIA and Tukuma Projekts SIA (see below section ‘Sale of investments’).
In both office and retail segments rents appear to have stabilized. Delinquent rents are being well managed at the moment by our property manager.
For the year ended 2014 the Latvian statistics service report inflation at 0.6%. Currently all of the Euro Zone is threatened with a deflationary spiral. The European Central Bank (ECB) has started a quantitative easing program of EUR 60 BILLION per month to stimulate economy in Europe, inclusive of Latvia. For the first time in history rates at the short end of the curve have gone negative. The US Federal Reserve as expected ended their QE policy, the borrowing rate remains at a historical low however, the US Fed is anticipated to raise rates during 2015. The rate differential between Europe and the USA has created significant pressure on the Euro to USD exchange rate.
Retail
Property at Vienibas Gatve has now stabilized. All indications are that traffic has increased significantly.
Property at Slokas iela has been re-let to Cita Santehnika. A separate company SIA Slokas 161 for the Slokas property was established early in January 2015 since management does not want to mix grocery anchored retail with other anchored retail. Transfer of Slokas property from Apex Investments to Slokas 161 took place in January 2015. In 2015 management intends to invest up to EUR 200 000 in to the Slokas asset as a further refurbishment with the goal of attracting a ground floor tenant.
Office
The office sector has a minor vacancy of 400 meters at the Citadeles iela asset due to TecHub vacating the space. For our offices gross rent has settled to a market rate of €11.00 to €12.00 per square meter per month. There are some historical outliers to the current market rate pulling the offices average below current market.
Land
Management has engaged an architectural firm to prepare the detailed planning for the property. Detailed planning is expected to be complete during 2015.
DIY
The K-Rauta in Tukums traded as expected in 2014. We continue to make some improvements to the structure, additional cost are expected to be less than €50,000.
Bond
Whilst the bond is listed, it continued to demonstrate a significant level of illiquidity in 2014.
Acme Corporation has made the first repayment of principal to bondholders of record with the January 2015 payment.
Acme Corporation has made all coupon payments on the bonds to date. Funds have been reserved for settlement of coupon and principal due on 30 April 2015.
Senior Debt
Borrowings from Swedbank mature in July 2015. Management foresee that it will be extended for another 2 year term since the Group has honoured loan covenants so far and is positive about meeting them as well in the future.
At the time of writing one month EURIBOR is quoted at approximately 0.00%. The historical low in Euribor is a clear indication of the European Central Banks concern for the stability of the sovereign debt crisis faced by the majority of European nations. These rates are unprecedentedly low rate; movements up in interest rates will have a dramatic impact on the Group’s cash flows and, inter-alia, Acme Corporation’s ability to repay bondholders.
Sale of investments
In October 2014 management signed a share purchase agreement (SPA) for the sale of Apex Investments SIA and Tukums Projekts SIA to Hili Properties BV. Management believes that the sale offers a significant monetary benefit to the company. Management intends to use the majority of proceeds to deleverage from Swedbank. The delivering will greatly reduce an asymmetrical risk associated with the current portfolio bondholders and equity positions that is amplified in the event of increased interest rates and reductions in gross revenue. The sale is expected to conclude in early 2015.
The Group does not plan on issuing any additional debt or acquiring any assets in 2015, but is focused on conserving its cash flow and internally developing its portfolio. Management’s goal is to further streamline and improve operations and pay down bank debt.
Alona Romanova office manager +371 67333504 alena@rbm.lv
