EPH European Property Holdings PLC (EPH) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome to regular conference call of -- on financial results of EPH European Property Holdings PLC. My name is Yulia Makhinova, and this time, I will present the results for half year of 2025. I would like to inform you that this call is being recorded. So should you have any questions, you're always welcome to ask them after I finish the main part of my presentation. So first of all, like a few words about the business highlights, about the activity of the company in the first half of this year. So after the next portfolio expansion in 2024 and successful prolongation of external financing. In the first half of this year, 2025, the company continues to achieve stable operational growth. And in the first half of this year, rental income increased by approximately 3% as compared to the same period of the last year. So as of the end of June of 2025, and as of now, EPH real estate portfolio consists of 10 prime assets in excellent locations across Germany, Austria and Switzerland with a total value of EUR 815 million. So a key driver of the company's sustained growth, it's, first of all, high quality of its portfolio. All of these properties meet high sustainability standards and 7 out of 9 office and hotel buildings, excluding the parking garage QBC 7 have achieved different sustainability certifications. So these properties are leased to tenants with strong credit ratings, which emphasize the portfolio's stability and long-term value. And also the operations of the properties supported by active asset management, which has maintained close to full occupancy of the properties. Also, I would like to mention that in the past 2 years, EPH successfully prolonged all its listed bonds. And now it has secured financing at least until third quarter of 2028. So being at this stabilization stage, EPH is further searching for additional assets to strengthen its portfolio. And the core investment criteria remain the same, like a high-quality office or hotel properties in the central business districts of the main cities of Germany and in Vienna. And as a second priority, we also may consider hotel properties in various cities in Europe such as Amsterdam, Madrid, Rome as well as we may also consider redevelopment projects. So the company is confident in long-term fundamentals for its larger target markets and the resilient demand for modern office and hotel space. About financial highlights, about financial results, I would like to mention that NAV is -- as of the end of June 2025 is EUR 34.57 per share, very slight increase as compared to the year end of 2024, which is also a sign of stability. So the company reported net profit for this period in the amount of EUR 4.73 million as compared to the net loss of approximately EUR 14 million reported for the same period of the last year. So as already mentioned, the operating performance of the group demonstrates stable performance in line with our expectations. And net rental income is reported in the amount of almost EUR 18 million, which is more than rental income for the same period of the last year by approximately 3%. So all investment properties are working at full capacity with a very like a minor vacation, which is a result of the like a normal tenant rotation. And the increase in net rental income is a result of indexation and effective asset management, which allow us to maintain the occupancy level at very high percentage. So also I'd like to mention the financial results for the hotel Trois Couronnes, which was acquired by the group in the beginning of 2024. So although the intention was and is for this property to refurbish it. And the group already started this process, the preparation stage of the refurbishment project. But still currently, this property is in operation, and as -- alone as it is reported as a separate section in our income statement, I would like to mention that the net loss from operations of this property decreased from EUR 1 million in the same period of the last year to EUR 0.6 million in the reporting period. And this improvement is driven both by external factors, such as overall higher demand in the tourism and hospitality sector in [ Serbia ], and also by internal factors such as opening of renovated restaurant in the second half of the last year as well as investments in customer loyalty and other marketing activities. So in the reporting period, the group recognized a profit on revaluation of investment properties in Europe after a decline in values during the past several years. So the gain on revaluation reported in the amount of EUR 3 million, and this is a result mainly from a slight increase in market rental rates and stabilization of discount and capitalization rates at the level of year-end 2024. Just to remind you that in the first half of the last year, EPH recognized a loss of EUR 20 million as a result of rising capitalization and discount rates during that period as a result of -- to reflect the macroeconomic situation at that point of time. So in the next slide, you may see a table with key performance indicators. So these are the same parameters, same items which we report in the income statement, but just structured it a little bit differently, it's like kind of management presentation and with a focus on operational activity of the company. And you may see the confirmation of stability of the operating performance of the company and operating income increased during the last 2 years. Although this time, the earnings from operational activity slightly decreased, but mainly due to the increase of finance costs as a result of a change of their interest rates on bonds during the prolongation. So also in this table, I would like to emphasize and draw your attention to the loan-to-value ratio. And just to emphasize that it remains stable during the last 3 years. And I think that it's like a moderate percentage of ratio and maybe like lower than for the most of peer companies in our sector. So that I will describe briefly the main items of our balance sheet and income statement reported for the first half of 2025. So the main item in now like asset side of our balance sheet is investment properties. So the value of investment properties reported for this half of the year is EUR 763 million. Fair values of investment properties remain more or less stable. That's a slight increase by EUR 3 million as compared to the values reported for the year-end of 2024. So as I already mentioned, the major effect on value relates to slight increase in estimated rental rates, market rental rates, and discount and capitalization rates have basically stabilized at the level of year-end 2024, and you may see the breakdown by properties in the table on the bottom of this slide is like a very detailed information. So [ Austrian ] properties and City Gate capitalization rate increased by 0.05% to reflect the factor of aging of these properties and for other properties localized center and hotel properties in Germany, aging factor was counterbalanced by the miscellaneous factors. So the capitalization rates for those properties remained at the level of year-end 2024. So the next item is accounts receivable. So there are 2 lines in our balance sheet in noncurrent asset section and the current asset section. So in the loans and accounts receivables in noncurrent assets section represents mainly receivables from the former Russian segment. So in the table above, these receivables are presented net of impairment provision and -- so in the past period, we had both like receivables from the sale of the Russian segment as a deferred purchase price consideration as well as also like loans provided to former Russian subsidiaries. And during the reporting period, the loans from this segment were fully repaid and the company EPH itself received EUR 13.5 million in cash. And the outstanding balance of EUR 29.5 million as of the end of June represents long-term deferred consideration receivable from the company Lenbury, sold in 2023. And the gross nominal amount of this receivables is EUR 39 million because EUR 29 million is like a net of expected credit loss provision as well as represent the fair value of these receivables. So the group assesses the expected credit loss on this receivable in the amount of EUR 5.4 million as compared to EUR 6.6 million as of the end of the last year. And respectively, income on release of impairment allowance was recognized for the amount of EUR 0.4 million. So decrease in allowance is a result primarily of repayment of the loan receivable which I mentioned. So also in the line accounts receivable as a part of current asset section, we have bank deposits in the amount of EUR 4.6 million. These deposits are of original maturity of more than 3 months and up to 6 months at fixed rates in the range of 1.6% up to 2% per annum. So cash -- yes, I think cash and cash equivalents. So we have EUR 37.7 million of cash on our accounts as of the end of June, which, together with the long-term deposits, which I included in to the line accounts receivable represents more than EUR 100 million of cash available for our further investments. So main cash inflows for the reporting period represents net rental income received from rental properties as well as repayment of loans from the former Russian segment. And main outflows, first of all, interest payments on bonds and loans as well as, as I mentioned, part of the cash is classified as accounts receivable because the maturity of these deposits is over 3 months. On the liability side, so the major item is borrowings, and there were no significant changes in the balance and maturity of the borrowings as compared to the year end of 2024. And so you may see that the significant amount of borrowings currently represent noncurrent part of our liabilities. So we have some increase of other noncurrent liabilities, and this is -- so you may see the breakdown of this both current and noncurrent liabilities, other liabilities in the right part -- top part of this slide. Just to mention that we have the new item in noncurrent liabilities, which is like a put option liabilities. So -- in the previous period, one of the companies former major shareholders, Aurora Value Fund entered into a put option agreement with another minority shareholder of the company, which -- and this put option grants the right to this minority shareholder to sell a fixed number of ordinary shares of the company at fixed price. And this put option obliges Aurora Value Funds to repurchase the shares if the option holder decides to excise this right. So in the reported period, the company entered into agreement with these shareholders and became the legal successor of Aurora Value Fund under the put option agreement. So -- and if there is a difference between the obligation on put option and between the current market price of our shares, Aurora Value Fund compensated company this difference in the amount of EUR 1 million. So the company recognizes financial liability on the put option at the present value of the option price. And subsequently, the financial liability is measured at amortized cost using effective interest method with an interest charge recognized in line finance costs of the statement of profit and loss. And if the contract expires without delivery, the carrying amount of the financial liability will be reclassified back to equity. So accordingly, in the equity section, we have for new line, other equity, which also represents a result of this acquisition of the obligation under the put option. So -- and this EUR 2.2 million of other equity represent the net decrease in equity due to the put option agreement. So it's like obligation -- the value of the obligations minus compensation received from Aurora Value Fund. So rental income, as I mentioned, reported as in the amount of EUR 17.9 million increased as compared to the net rental income reported in the first half of 2024. And you may see also the breakdown by property and the increase mainly is a result of rent indexation, higher occupancy rates and active asset management of the properties. Also, I mentioned the improvement of the results, although still negative of the hotel properties -- hotel property Trois Couronnes. And you may see the exact breakdown also of the revenues and costs of this property in the right side of this slide. So for revaluation of investment properties, we reported a gain of EUR 3 million as compared to the loss of EUR 20 million reported for the first half of 2024. And all the properties except for Lassallestrasse 1 was slightly appreciated in the reporting period. And for Lassallestrasse 1, loss on revaluation, like some minor loss of own revaluation in the amount of EUR 0.19 million was recognized as a result of renegotiation of lease terms with one of the main tenants in this property, which is a supermarket Billa. Finance income and cost. So finance income represents the interest on loans provided as well as interest on bank deposits placed by the company and finance costs, so increased by approximately EUR 1 million, mainly as a result of increase of interest on bonds as a result of change of the interest rate upon the extension of bonds during -- at the end of 2024. So income tax, so this time -- so this time, we have income tax expense as compared to income tax benefit reported for the same period of the last year. So usually, income taxes include both current income tax and deferred income tax and current income tax expense includes primarily income taxes accrued by the company itself and its subsidiaries. And the current income tax of subsidiaries basically relates to income on their cash deposits, interest on the cash deposits. And deferred tax expense is a result from the positive property revaluation adjustment because the taxable difference between the fair values of the properties and the tax values also increased. And in the previous period, it was the opposite result, which -- due to which we reported the income tax benefit. So this is mainly it on the main financial results of the company. And if you have any questions or comments, you're very welcome to ask. [Operator Instructions] So if there are no questions, I would like to thank you for the presence on this call. And if you have any questions on the later stage, you're always welcome to send these questions using the contacts published on the official website of the company. And then I wish you all have a nice day, nice time, and thank you.