Yesterday, Orco announced an acquisition of Viterra Developer for cEUR100m (Germany), which includes debt and number of properties. Viterra has been active in Germany (Berlin, Frankfurt, Dusseldorf, Munich and Duisburg), Poland and the Czech Republic in commercial and residential projects. We are awaiting more information to be able to quantify the impact on Orco’s share value. In the meantime we regard the acquisition as positive and reiterate our Buy recommendation:
(i)high growth potential in residential segment in the CEE market, including Warsaw, where there is despite increasing competition, lack of quality residential projects
(ii)rebound of residential market across Germany and Berlin. We have been recently witnessing increasing attractiveness of the German residential market after several years of depression. This view has been recently confirmed to us by Immoeast.
(iii)The German real estate market has been recovering following several years of depression and recent downward re-valuation of real assets creating an upside
(iv)Due to significant yield compression in the traditional C3 markets in the last year, Orco has been looking for opportunities deals such as assets in depressed markets and projects offering re-development potential increasing the upside for the company
(v)the acquisition should add further EUR60-80m to Orco’s sales in 2006 and onwards and EUR130m over the next 3 years in cash flow, which we see as crucial given the company further expansion assuming rising interest rate cycle.