First Property Group plc (FPO.L) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the First Property Group plc AGM. [Operator Instructions] The company may not be in a position to answer every question it receives today. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. I'd now like to hand over to Chairman, Alasdair Locke. Good afternoon.

Thank you very much, and thank you, everybody, for joining the meeting and participating. We're going to run the formal part of the meeting initially and go through the various resolutions. I will then make an AGM statement. And then we'll be happy to move on to question and answers thereafter. So without further ado, I'd like to welcome everybody here for the AGM of the company and all the shareholders are watching via the live presentation. I'm Alasdair Locke, I'm the group's Chairman. I'll be chairing the meeting, and I will introduce you to my colleagues. Peter Moon, on my right, your left, as you look at it, is my fellow Non-Executive Director; Ben Habib as the Chief Executive; Laura James, our Financial Director, Jill Aubrey, who you may just be able to see as our Company Secretary; and Jeremy Barkes, our Business Development Officer. So the formal matters of this meeting relate to the report and accounts for the year to the 31st of March 2022. And with the consent of those shareholders present, I would like to take the notice of the meeting as set out on Pages 77 to 78 of the report and accounts as read. Thank you. I will now ask that I take the report of Haines Watts as set out on Pages 36 to 41 of the report that counts as read also -- thank you. The company's shareholders have been able to submit questions in advance of this meeting. And then also, you'll also have the opportunity to submit questions during the meeting via the live presentation, and we'll deal with those at the end of the formal business. I declare that the quorum required by the articles of association of the company is present and that the meeting is therefore properly constituted. And on your screens, you should now see hopefully the ordinary and special resolutions being proposed. And after there has been a show of hands on each resolution, I'll advise in the proxy count. So Resolution 1. I now propose that the report of the directors and the audited accounts for the year ending 31st of March 22, now submitted to this meeting be approved and adopted. I'll ask Mr. Peter Moon to second the proposal.

Mr. Chairman, I have much pleasure in seconding the proposal.

Those in favor. [Voting]

Those against. [Voting]

The resolution has been carried. The proxy vote was 42,200,098 shares in favor, 1,910 against 19,395 abstentions. Resolution 2 is to declare and approve a final dividend of 0.25 per order share for the financial year ending 31st of March 2022. And I'll ask Mr. Peter moving again to second the proposal.

Mr. Chairman, I have much pleasure in seconding the proposal.

I put it to the meeting. Those in favor? [Voting]

Those against. [Voting]

I declare the resolution carried. The proxy vote was 42,202,008 in favor, no shares against 19,395 abstentions. Resolution 3. I now propose resolution #3, whereby Mr. Peter Moon, we reappointed as a Director of the company. And I will ask Mr. Jeremy Barkes to second the proposal.

Mr. Chairman, I have much pleasure in seconding the proposal.

I put it to the meeting. Those in favor. [Voting]

Those against. [Voting]

I declare the resolution carried. Proxy vote was 30,963,932 in favor, 28,719 against and 11,228,752 abstentions. I now propose resolution #4, whereby Mr. Ben Habib be reappointed as a Director of the company. And I will again ask Mr. Jeremy Barkes to second the proposal.

Mr. Chairman, I have much pleasure in seconding the proposal.

I put it to the meeting. Those in favor? [Voting]

Those against? [Voting]

I declare the resolution carried. The proxy vote was 42,173,289 in favor, 28,719 against 19,395 abstentions. I now propose resolution #5, whereby the directors be authorized to reappoint Haines Watts as auditors of the company to hold office for the conclusion of the meeting until the conclusion of the next general meeting of the company at which accounts are made. I will ask Mr. Peter Moon to second the proposal.

I have much pleasure in seconding the proposal.

Those in favor? [Voting]

Those against? [Voting]

I declare the resolution carried. The proxy vote was 42,201,508 in favor, 500 against 19,395 abstentions. Resolution #6. I now propose resolution #6, whereby the directors are authorized to pick the remuneration of the auditors. And I will ask Mr. Peter Moon to second the proposal.

Mr. Chairman, I have much pleasure in seconding the proposal.

Those in favor? [Voting]

Those against? [Voting]

I declare the resolution carried. Proxy vote was 42,202,008 shares in favor, no shares against 19,395 abstentions. I now propose Resolution 7 set out in full on Page 77, which is an ordinary resolution and requires authority to authorize the directors to allot shares and grant rights to subscribe for or to convert any security into shares. I now propose that the directors to be authorized to lock shares and or grant rights to subscribe for compared securities in accordance with the terms of resolution #7, and I'll ask Mr. Jerry Barkes to second the proposal.

Mr. Chairman, I have much pleasure in seconding the proposal.

I put it to the meeting. Those in favor? [Voting]

those against? [Voting]

I declare the resolution carried. The proxy vote was 30,750,066 in favor, 11,451,942 against to 19,395 abstentions. Now resolution #8. I believe that the result of the vote on Resolution #8 will be different if I call a poll. And I'm going to demand a poll to be taken as I'm entitled to do so under Article 74.1 of the company's Articles of Association. I will mention that the proxy vote was 30,684,442 shares in favor, 11,514,666 shares against 22,295 abstentions. It will take some time to complete the proposed future, and the final results of the voting on Resolution #8 will be announced through our regulatory information service as soon as reasonably practical. Each shareholder, proxy and corporate representatives will be issued with a poll card. If there's anyone who thinks they should have a poll card that doesn't have one, please raise your hand. I should mention for those shareholders who have already lost a proxy, they do not, of course, need to change to complete a poll card unless they want to change their vote. We have 3 options for each resolution. You can vote for the resolution, against the resolution or you may withhold your vote. A vote withheld is not a vote in law and will not be counted in the calculation of the proportion of the votes for against a resolution or against. Will you please complete your poll card by ticking the appropriate box depending on how you wish to cast your vote. Please then sign the poll card indicate that we've done so by raising his hand. The company secretary will then come around and collect your completed poll card. I now propose Resolution #8 as set out in full on Page 77. It's a special resolution requires authority to authorize the directors to disapply statutory preemption rights in respect of new allotment of shares and the sale of treasury shares. I now propose that the directors be authorized in accordance with the terms of resolution #8, and I'd ask Mr. Jeremy Barkes to second the proposal.

Mr. Chairman, I have much pleasure in seconding the proposal.

Could you please vote now. I declare the poll closed. I now propose Resolution #9 as set out in full on Page 78, which is a special resolution and requires a authority to authorize the directors to purchase on behalf of the company its own shares in accordance with the terms of resolution #9. I'd ask Mr. Jeremy Barkes to second the proposal.

Mr. Chairman, I have much pleasure in seconding the proposal.

I put it to the meeting. Those in favor. Those against, I declare the resolution carried. The proxy vote was 42,030,532 in favor, 168,576 against and 22,295 of abstentions. So ladies and gentlemen, that now concludes the formal part of the business, that of this meeting. And I will now like to read a statement which is released on the regulatory news service this morning. First Property Group plc, the property fund manager and investor with operations in the United Kingdom and Central Europe will hold its Annual General Meeting today at 12 noon. The AGM is being held online by our investor meet company and at the company's head office in London. The meeting will be chaired by Alasdair Locke, Chairman of the Board at this meeting, I will make the following statement. Since its financial year end on the 31st of March 2022, the group has leased additional space at its office building in Gdynia of Poland, increased its share in Blue Tower Warsaw, by 32% to 80% and sold a property owned directly by the group in Tureni Romania. Total funds under management at the 31st of August 2022, including properties owned directly by the group, amounted to GBP 547.5 million. compared to GBP 558.7 million at 31st of March 2022. The reduction of GBP 11.2 million for the financial year-end is due to the sale of 3 properties, properties in the United Kingdom for GBP 21.1 million by funds managed by First Property Asset Management Ltd and the sale of the group's directly owned warehouse in Tureni Romania for GBP 3.05 billion. These sales were offset by Inter Alia purchase by the group of a further 32% of Blue Tower Warsaw for GBP 7.2 million. Third-party funds under management as at 31st of August 22, amounted to GBP 499.4 million compared to GBP 516.5 million at 31st of March. Group cash as at 21st of September 2022 amounted to GBP 6.34 million -- at the 31st of March 2022, this figure was GBP 6.42 million. This equates to 5.75p per share as compared to 35.81p per share for the 31st of March. That is the end of our AGM statement. And so we are now happy to answer any questions that have been submitted in advance or during the meeting. And I would also like to direct all of those present either here or online, to offer preliminary results presentation, which is available via the Investor Meet company platform or on our website. And we will now answer your questions.

Thank you very much, Alasdair. Our prelims were back in June. And I think just before I answer questions, perhaps it would be helpful for shareholders to have a brief synopsis of the group and our prospects since June when we last reported. The principal changes in the group, and as Alasdair mentioned, include the sale of the warehouse in Tureni, which we sold for EUR 3.6 million, having bought it for EUR 2 billion back in the depths of the credit crunch. So that produced a healthy profit after cost of about EUR 1.3 million, just GBP 1 million, I think. We also bought another 32% of Blue Tower, which equated to 7,000 square meters of the building, 2,000 square meters of the 7,000 we bought was leased with leased back to the vendor, a bank called Pekao Bank a local Polish bank. And the remaining 5,000 square meters is vacant, requires a new ventilation system and a complete upgrade before we can lease it. And we are now going through the process of that refit so that the property can be leased. The Warsaw office market, surprisingly, perhaps given all the negative news in the United Kingdom is quite buoyant. The Polish economy is buoyant, inflation is up, but with high inflation has come virtually a complete stop to new development of offices in Warsaw, which has meant that you've got constrained supply with reasonably buoyant demand, and we're already beginning to see rents firm up in Warsaw. And if things continue as we expect them to, I would hope that the new investment we've made in Blue Tower will pay off extremely well. It's worth also bearing in mind that the purchase price that we paid of just over GBP 7 million is phased in 7 payments over 6 years. So the property should, from an internal rate of return perspective, throw off a very good return for the group anyway, just as a result of that phasing. But we now own 80% of Blue Tower. It's our biggest asset in the group. Any shareholders who know Warsaw will know that it is a prime location. And after the work that we've done to the building so far will continue to do to the space we just bought, it will be a first-class building. So I think with a fair wind and without the -- as long as the economy doesn't implode, we should exit that property eventually extremely elocantly and satisfactorily. The other change since the -- since I last spoke to shareholders, really revolves around refinancings that we've done in the group. So we refinanced a property in Cluj, which we only have a minority interest in, but that release some free cash to the group. We also are in the process of refinancing 3 other properties in Poland, which should free up another EUR 2.5 million of capital for the group. And of course, we leased up a significant amount of space, as Alasdair mentioned, I think you mentioned Alasdair, in our baking property in Gdynia, which is now 4,000 square meters or just over 40% of that building is now at least 13,350 square meter building, and we have continued healthy demand for office space in it. So with the Polish economy doing relatively well, I would expect the Gdynia property to continue that trajectory of being met up and hopefully be fully leased in the next year, 1.5 years. It is a sizable amount of space that we still have 9,000 square meters. The big -- the big upside to the group does, in fact, come from the leasing of vacant space that we already had in the group. The 5,000 square meters that we just bought in Blue Tower, the 9,000 square meters remaining in Gdynia. We also have a 23% interest in a company called Phoenix Limited, which owns an office park in Krakow where 40,000 square meters of offices is vacant. And as we lease these properties up, we will naturally see first property group's profits rising and on the back of our profits rising, obviously, our cash reserves growing as well. But having said that, in order to lease up properly, they're often and more often than not, you've got to do fit out for the tenants. So there will be some fit out capital expenditure, which precedes the income generation that would then follow not with standing all the negativity in the press about the economy itself, I remain bullish about Poland. Poland has done really very well when you think that it sits next door to Ukraine and given what's been happening in Ukraine. It's taken an influx of 2.4 million refugees from Ukraine. It's rehouse them extremely effectively. They've become part of the Polish working force these refugees ought really almost seamlessly and trading companies from Ukraine have also relocated to Poland. And naturally, there's been an influx of capital into Poland on the back of NATO extra NATO spend in the region as well as to help Poland with the effects of the Ukrainian war. So the war, if you like, for Poland has not been an adverse economic event. And part of the buoyancy of the Polish economy stems back to that. So I see Poland, even though it's suffering from high inflation and interest rates have gone up as being a continued -- not Oasis, but certainly a continued good place to be invested. The U.K. has more challenging time ahead of it. I don't want to get drawn into what we all think of the budget or what I think, in particular because you guys can ask questions, but I don't need to answer them. What I think of the budget. But I do welcome I think the general direction of deregulation and lower taxes. And that is something which in the medium to long term will, I'm sure, pay off for the United Kingdom. That's basically, I think, a reasonable update. Is there anything you'd like to add to that Laura or Jeremy that I've missed?

Perhaps that we're having to raise a new fund to decarbonize commercial property?

Yes. I mean of course, raising money at the moment is very challenging. The debt markets are closed. And with the closing of the debt markets, the equity markets are obviously also challenged. But we do have a plan to raise a new fund, which would buy properties that are noncompliant with government legislation following our commitment to Net Zero. So government has legislated that by 2027, all commercial buildings in the United Kingdom should be -- should achieve an energy performance certificate rating of at least C, and it's moved that by 2030, buildings will have to comply with an EPC rating of B. 80% of U.K. commercial property stock does not comply with those legislative moves. So the plan behind this new fund will be to buy best-in-class locations but substandard buildings across the United Kingdom in secondary cities, dominate the location that we buy, upgrade the buildings and become the De facto-go-to buildings in those locations and benefit naturally from an improvement in value as a result of that exercise. Whether or not we're able to raise the fund, of course, from make seen, as I mentioned, it's extremely challenging times. So having given you that brief update, perhaps we can just go straight to questions. There are a couple of presubmitted questions. The first is how is the current exchange rate affecting the company. Well, the principal exchange rate about which we fuss is the euro sterling exchange rate and the Euro-PLN exchange rate. If I deal with the latter first, the vast majority of properties in Poland are leased in euros. But of course, the underlying exposure that tenants have is zlotys. So the fear, if you like, that we have is that if zlotys weakens dramatically against the euro, we might get tenants defaulting -- even though there's been big inflation in Poland, bigger than in Europe, actually, the zlotys held pretty steady at around PLN 4.7 to the euro, and I think it's about PLN 4.75 today. So we see no stress in our portfolio as a result of zloty-euro movement. And then as far as the euro sterling exchange rate is concerned, and that's relevant to us because properties in Poland trade in euros, and so we had to convert back to sterling when we consolidate those accounts into our books. There's been a marginal weakening of the pound since last year. So last year, on average, this euro sterling exchange rate was EUR 1.17. And this year, at the moment, it's EUR 1.12. But these exchange rates can move up and down quite a lot in quite a short period of time. So I wouldn't expect too much of a factoring of our profits coming from the euro sterling exchange rate. The next question is, are there any plans to convert office space into apartments. Well, that is something that we constantly monitor, particularly for U.K. properties. It's not that easy in Poland to do it. The Polish office buildings we own it's simply too deep and too big to lend themselves to resi conversion, but we do own a number of buildings in our funds in the U.K., which would lend themselves to resi conversion. And that is always an option for exit. But there's nothing -- there's no building at the moment, which we're considering that particular conversion for. I think we should -- so third question from Jaskaran S, I think we should invest in Dubai. There are many upcoming projects. Bizzari, Dubai is a place we looked at about 14 years ago, Peter will remember, we consider Dubai. But Dubai is an incredibly volatile market. And it's very boom and bust. And when we looked at it, we were encouraged. But actually, I was delighted we didn't invest because even though the oil price back when we were looking at it was, I think, pushing $200 a barrel, wasn't it to remember and makes today's price to like a walk in the park. And so we thought Dubai would do well on the back of that. But actually shortly there after the oil price collapse, Dubai had real issues with it through the state market. So I don't think we'll be investing in Dubai in a huge hurry. I don't think there are any other questions online. I don't know if there are any questions in the room from my colleagues, this is your opportunity to ask the CEO an impertinent questions in the public domain.

Is there a Net asset value per share?

Is there a Net asset value?

Yes i want to account for Net asset value.

Yes, we do. And we publish it as well. it's in the report we do it on 2 bases on book value, and we hold our properties at the lower value or cost. So our book value NAV, if you like, our published NAV accounting NAV is conservative in that we don't take revaluations upwards into account to hold things at the lower of cost or market value. And I think our NAV on that basis is.

42p per share.

Yes. And on the market value basis, it's 40 to 70 per share compared to a current share price.

27.5% this morning, -- on that metric, they are for.

Is your asset value impressive?

Yes, they are. And Nick Naylor of Nomad is sitting on your left. If you got complaints about the share price that restore -- but I mean, I -- frankly, speaking candidly, I -- the stock market is not valuing first property group, in my view, adequately. We're a safe pair of hands. We've existed for 22 years. We've gone through many economic difficulty time when the -- and we've always -- and we -- I think we.

But we believe. We did pay a dividend during the year.

Yes, we cut the final during COVID, and we've reinstated the dividend now. And we will wish to increase the dividend as we lease up our properties. Yes. Well, thank you. Thank you for that. That's kind of you.

Just going back to the ultimate question about converting offices to residential. We have done it in the past. We raised a fund clients Willis Towers Watson, which generated an IRR net after our fees of 98% for the clients Willis Towers Watson.

Yes. So a new question has come in. Any update on your exposure in Romania. Well, we used to own an office block of warehouse and then we own a minority stake in another office block in Lodz. We sold the warehouse. We still own an office block 100% ownership in our name in Bucharest, which is worth about EUR 4.5 million. And it's on the market to be sold. But we're not going to sell it at any price. It's a fantastic location, Central Bucharest. Follows the format of the typical kind of properties we own a Class B correct location, produces a very healthy income of EUR 330,000 net a year roughly. So we're in no hurry to sell it. If we get a bid that we think makes sense, we will. In Cluj, we own 23% of an office block, the other 77% being owned by our third-party shareholders in the fund. And that is an office spot that also is freely let doing it truly well. Cluj one of Romania's first-class cities. And we -- again, we would sell it if we got the right bid, but we're not going to sell it unless we're satisfied with the price we're offered. And I think that's it.

Yes. Well, if there's nothing else, thank you all very much for attending. We look forward to seeing you in the next year.

That's great. May I thank the Board of First Property Group for your time this afternoon. Companies ask attendees not to close this session as we now automatically redirect you for the opportunity to provide your feedback in order the Board can better understand your views and expectations. So I took a few moments to be completed, but I'm sure it'll be greatly valued by the company. On behalf of the Board of First Property Group plc, we'd like to thank you for attending today's Annual General Meeting online and may wish you a very pleasant afternoon