Dawnay, Day Carpathian PLC has announced that it has agreed the purchase of a 55% stake on completion of the development of the Galleria Patollo shopping center in Riga, Latvia. The development partner and vendor is Titan Invest A/S. Following this investment, DDC has reached its full investment target set at IPO and is considering its funding options, with the intention of continuing to maximize the future growth of the company.
Under the agreement, DDC is committed to provide staged, conditional payments of £21.8 million (€32 mln) of equity to partially fund the project, and is expecting to also invest up to a further £6.8 million (€10 mln) during the project period. All of the investment will earn attractive priority interest accruing against the completion price. DDC's equity investment and accrued interest thereon will be secured against the seller's substantial site value A project debt finance facility has also been agreed with Nordea Bank.
On completion, DDC will have secured a 55% stake in the center at an agreed initial yield of 8% based on achieved Net Operating Income. On or near completion, the partners intend to realize a significant uplift in value as recognized by the market for such prime completed projects.
Construction of the shopping center is expected to commence in June 2007 and be completed by the third quarter of 2009. Currently the vendor has completed site assembly for the main part of the scheme. There is also an opportunity to expand the scheme by incorporating two additional buildings into the shopping center. The enlarged scheme will comprise 220 shops and restaurants, 41,000 m² of retail space and 175 underground parking spaces.
The site is ideally located in a prime location in the commercial center of Riga. Given the quality of the location and the critical mass of the scheme, Galleria has the potential to become the leading fashion shopping center in Latvia.
In Cushman & Wakefield's 'Marketbeat Europe Annual Review 2006/7', Riga was shown as currently having the second lowest prime retail rent of any European capital city. Riga's prime retail rent level is below that of its Baltic neighbours, Vilnius and Tallinn, therefore indicating excellent scope for growth and yield compression.
In July 2005, DDC was admitted to AIM and raised gross proceeds of £140 million. As a result of today's announcement, the company has now reached full investment with over 90% of its funds invested or committed.
On 1 February 2007, the Directors announced that, barring unforeseen circumstances, it was the company's objective to recommend a total dividend of approximately 10p per share following full investment of the fund for the 12 months to 31 December 2007. This remains the Company's objective and reflects the Directors' intention to continue to provide investors with substantial dividends in addition to the confirmed potential for capital growth. In this regard the Board is pleased to confirm that it now also targets 10p per share for the year ending December 2008. This reflects the strong underlying cashflows associated with the Company's portfolio and the flexibility now available to the Company to advance cashflows as a consequence of refinancing opportunities.
The potential for capital growth was reflected in the announcement of 12 March 2007 which indicated that the unaudited net asset value per share (adjusted to exclude goodwill and any deferred tax liabilities arising on the property valuations) had risen to 126.7p from 98.2p, an increase of 29%.
The pipeline of potential future transactions remains strong and now significantly exceeds the residual liquidity remaining within the company. In addition, as was noted in the recent trading update made on 1 February 2007, a number of development opportunities exist which the Company is seeking to pursue. Overall, the Directors' objective is to ensure that the Company is able to maintain the existing positive momentum.
Commenting on this announcement, Rupert Cottrell, Chairman of D