GTC announced that it entered another new country, Moldova by acquiring a class-A building in an advanced stage of construction for EUR10m with the total development costs is estimated at EUR12.5m. The building is located in the centre of Chisinau. The building is expected to hold c8.3k of gross office space and c3.5k sqm of gross retail space. GTC Moldova, 95% owned by GTC, will hold 51% in the project while the opening of the building is scheduled for 2Q2007. Assuming the total costs at EUR12.5m (EUR10m for the building and additional EUR2.5m for development), the price per sqm equals EUR1,059 per gross sqm compared with the average cost of EUR1,500 per sqm in the traditional C3 markets. Net NAV contribution to GTC should be PLN0.4 per share. In addition, GTC signed a memorandum of understanding to buy 2 plots of land of the total size of 22.7k sqm in Budapest, District XI, for EUR7.3m. The plots will be used to develop upto 90k of gross sqm of retail and office space.
Our view:
Despite the size of the deal being relatively small, we see it as a first step to enter into a new market, We regard GTC’s strategy to enter completely new markets as positive due to further geographic diversification and larger upside in the new markets compared with the traditional C3 markets, which may be showing signed to too fast yield compression. Note that, there are deals secured in the range of 5.5-5.95% in Prague and Warsaw. In Moldova, the supply/demand of quality office/retail space is much winder compared to the C3 markets with yields ranging between 10% to 11% offering significant yield compression upside. We reiterate our Buy recommendation and believe that GTC currently trades significantly below its fair value.