Arco Vara AS will sell its 100% holdings in its subsidiaries Arco Vara Kinnisvarabüroo AS (subsidiary registered in Estonia) and Arco Imoti EOOD (subsidiary registered in Bulgaria) to the management teams of these subsidiaries as of 01.01.2019. Arco Vara Kinnisvarabüroo AS and Arco Imoti EOOD will continue to operate under Arco Vara trademarks and to use the databases and other intellectual property of Arco Vara under a 5-year license agreement. As a result of the sale of shares, the two companies will not belong to Arco Vara consolidation group from 01.01.2019, but the license fees calculated on the basis on sales revenues of both companies will remain to contribute to the revenues of Arco Vara group.
In addition, Arco Vara has started to sell the 15 apartments in the Madrid Blv building in Sofia, which have so far been kept for offering accommodation service. The proceeds from the sale of apartments will be used to decrease within year 2019 the loan balance associated with the Madrid Blv building to a level, which is necessary for refinancing the existing loan at a substantially lower interest rate. The activities of two group companies – Arco Projekti EOOD (which has offered accommodation service with the apartments) and Arco Facility Management EOOD (which has offered facility management services in Madrid Blvd building) – will be discontinued.
In relation to these changes, the service division in Arco Vara group will cease to exist from 01.01.2019 and the group will continue with the development division only.
From the consolidated group turnover, the service division contributed 2.5m euros (13,6 per cent) in 2017 and 2.3m euros (43 per cent) in the first 6 months of 2018. As the net result of Service Division has been close to zero in recent periods, its discontinuation will not have a significant effect on the bottom line of the group.
Comments by the CEO of Arco Vara AS: “The work we have done in recent years for standardizing and digitalizing the processes of the service division and increasing its revenues has provided results. One may ask, why does Arco Vara not wait for profits to increase and sells its ownership stakes. The answer is that we don’t need to remain owners in order to earn profits. We will earn our profits from the license fees, which will be paid to Arco Vara for using our intellectual property. Interested users and payers have emerged. Quality of services provided under Arco Vara brand name, and customer satisfaction will remain important for us, but we can benefit from it without bearing the owner’s risk. Considering that Arco Vara will remain the owner of intellectual property, the transactions perfectly fit into our larger plan, and we will continue good cooperation with people, who now become the owners of the real estate services business.
The sale of Madrid Blvd apartments is also part of the larger plan to decrease the share of rental revenues that goes to the bank as interest expense, and to retain most of the revenues for Arco Vara. In order for this to happen, the loan balance must be decreased, for which the sale of apartments is a suitable solution. Arco Vara’s plan is not to develop accommodation services. Arco Vara’s plan is to develop real estate according to the market situation, and we have suitable land plots for doing this.”
Evelin Kanter
Head of Legal Department
Arco Vara AS
Tel: +372 614 4594
evelin.kanter@arcovara.ee
http://www.arcorealestate.com