Orco Ponders Offering Shares for Stakes in Units, Chief Says

Orco Property Group SA, a central European developer, may offer to swap shares for stakes in its subsidiaries to boost its market value and simplify its business structure, Chief Executive Officer Jean-Francois Ott said.

“It’s a smart idea for Orco,” he said in an interview in Prague. The developer will hold “serious” talks with some investors in the next “few” weeks. “My goal for the future would be to buy them out.”

Orco owns 58 percent of its Orco Germany unit, which develops and manages real estate properties in that country. It controls a majority stake in Mamaison, which owns and manages hotels in Central Europe, and a 55 percent share in the Suncani Hvar island resort in Croatia. The developer also has a minority stake in Endurance Fund, where it acts as a fund manager.

Orco emerged from creditor protection in May after a Paris-based court approved its plan to change its structure and repay bondholders over 10 years. The company said this month it plans to sell properties worth 300 million euros ($400 million) next year, up from more than 200 million euros in 2010, to cut its debt.

Next year is going to be a “year of growth” for Orco, Ott said. The market environment, while remaining “extremely complicated,” will allow Orco to better pursue buyouts of minority stakes as well as lower debt through asset sales, the executive said. The company should grow first “from the inside” by recapturing assets it partially owns or has under management, Ott said.

‘Attractive’ Rating

Morgan Stanley raised its rating to “attractive” from “cautious” on European real estate in November, saying the stocks will probably outperform the broader market during 2011 on rising investment. British Land Co., the U.K.’s second-largest real-estate investment trust, or Segro Plc were Morgan Stanley’s top picks.

Orco sees a “fundamental appetite” mainly from its current or former U.S investors, who are looking for long-term exposure to real-estate stocks in the region. The developer’s shares should benefit from a residential and commercial real-estate market pickup in eastern and central European capital cities like Prague or Berlin.

“The regional market and companies may be more fragile, but they also have bigger potential,” Ott said. “Prague, Budapest or Warsaw are big vibrant cities with a spirit, with a huge potential for growth.”

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