"Flaros", riding on the coat-tails of Ikea

• The company wants to turn its former shoe manufacturing facility into an office building, banking on the development of the Timpuri Noi area, once the real estate project of the Ikea group completes

The "Flaros" plant of Bucharest (symbol:FLAO) switched from manufacturing to real estate ever since 2009, and this year, it plans to invest into turning its former manufacturing buildings into office and warehouse spaces.

In order to lease out those spaces, the company will target small and medium companies, betting on the development of the area, after the completion of Ikea's project, which is under way nearby (the former Timpuri Noi platform), according to the statements of the general manager of "Flaros", Liviu Ungureanu.

77% of "Flaros" Bucureşti is owned by SIF5 Oltenia. The company is located near the Timpuri Noi and Unirii Square areas. In other words, very close to the Timpuri Noi platform, which was acquired in 2010, by the real estate investment division of the IKEA group, Vastint Holding B.V., which has made it its plan to develop buildings with several destinations: residential, offices and retail.

In total, "Flaros" owns a leasable area of 25,413 square meters, but the occupancy rate is only 63%, because the spaces have not been modernized.

However, Liviu Ungureanu said that in 2012, Flaros spent 780,000 lei on increasing the comfort of its customers, and in 2013 the general manager wants to take further steps towards that goal.

He is betting on the support of the company's majority shareholder SIF5 Oltenia, which he says is rethinking the activities of the companies it has majority stakes in, reorienting them towards business. "Essentially, through this approach, SIF Oltenia is financing the real economy", Liviu Ungureanu said.

Thus, immediately after the investment plan for 2013 gets approved by shareholders, Flaros will begin work on converting the former footwear factory into an office building.

Liviu Ungureanu had the following to say about this project: "At this moment, the former production plant has not been used since the end of 2011. Our efforts to rent this facility to a footwear maker yielded no results, even though we had talks with the main Romanian footwear manufacturers. Therefore, we had to find the best way to rent this space, and the solution of turning it into an office building provides us with several advantages: a change in the structure of our tenants, in the form of an increase in the weight of customers who operate in the services industry, a greater ease in renting the space as we will be able to offer more attractive prices. We are also looking to balance the structure of the economic divisions which our customers operate in, to reduce the collection risk, as customers in the manufacturing sector are taking increasingly longer to pay.

Another argument taken into is the development of the area which will occur once the Ikea project which is currently ongoing nearby (ed. note: the Timpuri Noi platform) will be completed and we will try to seize that opportunity".

The project involves the construction of a number of 39 offices with an average area of 24 sqm which will have all the facilities which small and medium firms need to operate, according to Mr. Ungureanu.

He added: "The project also involves the building of seven storage areas, which can be used as archives by our customers, three dining rooms, three restrooms with separate booths for men and women, three conference rooms with a surface of 60 square meters each. The façade of the building will be changed, and we will also perform the thermal insulation of the building, to cut the utility costs for those who choose to become our customers.

We are at the stage of obtaining all the necessary permits needed to conduct this investment, and the works will begin as soon as our investment program for 2013 gets approved".

At the moment, over 100 companies are hosted in the spaces owned by "Flaros", involved in the most diverse lines of business: footwear manufacturing and related services, print shops, construction companies, entertainment (theatre studio and dance school), recording studios, garment manufacturing, furniture manufacturing, pharmaceutical warehouses, coffee distribution, alcohol warehouses.

• Liviu Ungureanu: " A positive result in 2012"

Flaros Bucureşti has not yet published its financial results for the year 2012, but Liviu Ungureanu has said that in spite of the difficult environment, he has succeeded in turning a profit.

He said: "But this profit was affected by the fact that we had to setup provisions for older receivables, which has prevented us from exceeding the profit we turned out in 2011. Even though difficulties have appeared in the economic activity of the customers of Flaros, which have been confronted with delays in payments or cancellations of the contracts concluded with their partners, in 2012 Flaros has succeeded in collecting all of the invoices issued throughout the entire year, and also to recoup certain receivables from the past. There has been a major customer turnover, many of them have been forced to reduce their activity or to shut it down completely, but we have succeeded in attracting new customers to occupy the vacated spaces. At the end of 2012, the occupancy rate was 63%, influenced by the fact that no modernizations have been made".

At the end of the first nine months of 2012, the company had a net profit of 655,515 lei, five times greater than the similar period of the previous year.

Liviu Ungureanu considers that the investments in modernization that Flaros owns some buildings which are more than 60 years older, which have not been re-arranged for many years, which makes it hard to rent them out.