Destination: profit
Banking on the strength of its immense store of real-estate properties, Polish railway company PKP is riding the booming market as it readies itself for privatization and tries to wipe out its outstanding historical debt.
Over the past six years, PKP has focused its efforts on restructuring the company in the face of increased competition on the trans-European rail network. Cashing in on its vast store of property holdings was a clear step towards streamlining the company's capital holdings and maximizing profitability.
PKP's property stock amounts to close to 15,000 ha of land and 10,000 individual real properties - close to half of which have undergone the necessary legal documentation and are already up for sale. Such properties include both large swathes of undeveloped land and existing real properties such as warehouses, service and operational facilities, offices and of course the railway stations themselves. These properties are available either in their entirety, referring primarily to disused properties designated for redevelopment; or in part, referring to existing sites with dynamic economic potential, such as central stations in major cities, designated for further commercial development.
"The capability for commercial exploitation of PKP's real estate is the result of lengthy efforts on the part of PKP and the Ministry of Transport," says Andrzej Wach, president of the board at PKP. "A substantial proportion of PKP properties have undergone the necessary legal procedures to open them up for development and provide PKP Group's transit companies with a fitting capital injection," he adds.
Laying down a new track
The company is not only selling off a number of pricey plots but also dipping into the development business itself. Earlier this month, PKP finalized a contract with PKO Inwestycje, the investment subsidiary of Grupa PKO BP, to develop a 24-ha plot at the intersection of ul. Jana Kazimierza and ul Juliusza Konstantego Ordona, in the vicinity of the Warszawa Zachodnia railway station. The plot is located in the city's Odolany district, some four kilometers from the city center, on a direct line along ul. Świętokrzyska. PKP and PKO Inwestycje have created a separate entity for the purposes of the investment, in which the two companies each hold a 50-percent stake.
"The cooperation between a well-known real-estate investment company belonging to the largest bank on the Polish market and PKP, which holds a substantial real-estate portfolio across the entire country, is one of great potential and fits in ideally with the bank's strategic development," says Rafał Juszczak, president of the board at PKO BP.
A business plan for the project is currently in the works and there are no estimates established as yet regarding the costs of investment, which will create several hundred apartments in the next few years withina complex to be known as Odolany 1. As for Warszawa Zachodnia, the railway station could see its own potential developed at the same time as the Central Station. As transport activity is shifted away from the latter as it undergoes reconstruction, Warszawa Zachodnia will have to be improved to better serve Warsaw. Given its location along the main railway arteries and relative proximity to the city center, a boost to commercial activity is likely to follow.
Changing business models
PKP is in the process of revamping its business from railway stations to the tracks and the trains themselves. Last week, the Transport Ministry approved a privatization schedule for PKP Intercity, which will formally restructure the company as a private entity by the end of this year. The plan also sets 2009 as the year for its WSE debut, which offcials say is an essential step in securing the company's future on the competitive European transit market. The value of the public offering is expected to amount to around zł.400 million. The railway company's current strategy also calls for products in the Intercity portfolio to be evaluated on the basis of profitability and streamlined accordingly.
Poland's railway stations, big and small, are undergoing renovation and reconstruction. With regard to the project for Warsaw's Central Station, negotiations are currently underway between representatives from PKP and Warsaw's City Hall to work out a functional concept for what is one of the city's most important sites. Negotiations with outside investors will be initiated once this concept is finalized. The potential for commercial activity on such a property is enormous and establishing the exact scale and character of the project is sure to be a lengthy and delicate one - not to mention vital to the economic livelihood of Poland's capital. PKP is set to add new transit routes and implement advanced rail technology to upgrade and speed up rail transit - an issue of great import given the role of transportation during the Euro 2012 soccer championship.
To finance its high-powered goals, PKP is determined to continue to take advantage of its wealth of resources. These will prove invaluable at a time when the property market is riding a wave of enormous prosperity as investors across the world are recognizing Poland's potential as the heart of "new" Europe and the dynamic economic development that implies.
"PKP's deal with PKO Bank is the first of this sort in the history of PKP. Based on this pilot project, we are looking to prepare similar deals with PKO and other partners as well. In line with this strategy, we want to build attractive homes and apartments in cities all over Poland, where such investments are economically viable for PKP and its partners."
This strategy is already playing out. Last week, for example, PKP invited several prominent investors to enter into negotiations over the terms of investment for its 7,000-ha plot in the heart of Katowice. Other such offers are sure to follow.
