Globe Trade Centre S.A. (GTC) Earnings Call Transcript & Summary

Thank you very much for joining our 2023 Annual Results Call. It is my pleasure to introduce you all to kind of show you who the speakers of today's call going to be. He's going to be Gyula Nagy, who is the CEO of GTC SA. It's going to be Zsolt Farkas, who is the COO of GTC SA. We also have Barbara Sikora with us today, who will present the financial statements and the financial results for 2023. As usually, the call is being recorded, and it will be posted on GTC's website later today. Let me give the floor to Gyula, who will make a short introduction, followed by Barbara. Following the official presentation, we will open a Q&A session. Thank you very much.

Thank you very much, Malgosia, and good morning, everyone, and thank you for the opportunity to have this presentation about the 2023 figures of GTC. I would like to start that despite the fact that the economic situation was not favorable for the real estate market, market sentiment on real estate factor was down at the level it was 8 to 10 years ago in high inflation rates and in high interest environment and in a challenging leasing market, GTC managed to achieve quite a good financial performance and KPIs. The revenue in 2023, the rental income, the revenue for rental activity went up by 10% to EUR 183 million which is mainly due to disposals of assets, offset by completions in 2022, and 2023 as well resulting in a like-for-like rental revenue growth of around 10%, which is mainly due to the indexation of the rental fees and rental rates. Gross margin rose by 8% to EUR 128 million in 2023. Our FFO reached EUR 71 million, which is adjusted for one-off items, which will be in detail presented by Barbara. Our EPRA NAV amounted to EUR 1.232 billion as of 31st December, which is a slight increase due to the devaluation of our portfolio, mainly due to the yearly appraisal procedure, which takes twice a year in terms of financials. Our net loan-to-value resulted in 49.3% adjusted -- if we adjust the loan-to-value with the cash on an escrow account, it's the adjusted net loan-to-value leveled down to 47%, more than 47%. We managed to reach an average occupancy level for our portfolio of 87% as of December 31. We have still quite high and robust cash amount on our balance sheet, EUR 60 million plus an escrow account build up for the acquisition of our euro bonds amounting to EUR 29.5 million. So altogether, the like-for-like cash balance amounts to EUR 108 million. Malgosia, can you please turn to the next slide. In terms of our office portfolio, we managed to maintain the occupancy of 2022 -- in 2023 as well at the level of 84%, with a [ volt ] of 3.5 years. We have quite -- we achieved quite a good leasing activity in terms of office portfolio, 406,000 square meters. The disposal of forest office in Debrecen took place in 2023. January, we generated a cash flow of EUR 49 million. We reinvested in real estate, and there was -- there were two completions, Rosehill Campus and Matrix C, which has an added area for our portfolio of more than 50,000 square meter. So as I mentioned, Rose Hill Business Campus was the first completion in 2023 with two refurbished office AAA or A-class office buildings of 4,600 square meters. The occupancy reached 100% for that at an average rental rate of 18 square meter -- EUR 18 per square meter. And in Zagreb in Croatia, we completed Matrix C, a new A-class office building of more than 10,000 square meter with an occupancy rate of 95% at an average rental rate of EUR 14.5 per square meter. In terms of our retail portfolio, we're still performing good. The occupancy level, we managed to maintain at 96% with a [ volt ] of 3.5 years as well. We have reached a quite new -- quite a good leasing activity of 38,000 square meter in 2023. Malgosia, could you please go to the next slide. Our portfolio did not change compared to the Q3 as presented for the Q3 figures, 88% of the total portfolio on gross asset value basis is qualified as recurring income portfolio. And out of the income-generating portfolio, 65% is the office portfolio and the remaining 35% qualifies as a retail portfolio. 3% of our portfolio is under development and the land reserves amount to 8% out of that. We still managed to maintain our presence in EU countries at the level of 20 -- a level of 92% out of the -- out of our whole portfolio. and we are still concentrating of our commitment -- on our commitment of green certification and ESG compliance by having a portfolio which the majority of our assets, 92% is green certified and 6% is under certification. If we move forward to our developments, we are still continuing the development activity as committed ourselves to turn GTC to a development company. Our current development activity up on completion will have an added value to our portfolio of more than 51,000 square meter with a gross asset value of more than EUR 68 million realizing an ERV of more than EUR 13 million there. One of the Hungarian developments are -- is on [ Rashi Street ] with a 3,600 square meter office space. Now the [ Chalencore ] status has been completed, and we are seeking for tenants in terms of hospitality and office and -- the next one is the refurbishment as we presented last quarter, Center Point 1 and 2 with, this was the former headquarter of Exxon, which moved to our Pillar office building. This building, this Center Point 1 and Point 2 consist of more than 40,000 square meter, and the refurbishment contains the full renovation of the groundfall areas, lifts and -- and the lobbies. We still committed ourselves to continue the redevelopment of Rosehill business campus, the remaining buildings. We managed to sign with a private hospital, a 10-year leasing agreement with EUR 18 per square meter with a future possible extension. And still, there are leads in the pipeline for 4 or 3 tenants, just like private schools and for offices as well. The fourth one is Center Point 3, our Center Point 3 development consisting of 36,000 square meter new office space. At that time, we are -- in terms of this asset, there is a big tenant, a key blue-chip tenant in an advanced negotiation status for 12,000 square meter at EUR 18 per -- EUR 18 per square meter and there are 2 or 3 tenders in the pipeline for 2,000 to 8,000 square meter each. So in terms of the financials, I would like to give the word to Barbara to continue in presenting 2023 KPIs and financials to you. Thank you very much.

Thank you, Gyula. Good morning, ladies and gentlemen. I'd like to start from a comment that it has been a very decent financial year of stable increases on the operating side and the Q4 has been a very strong quarter. On the revenue from rental activity side, there was an increase of 10%, as Gyula mentioned, which resulted in gross margin from operations growing by 8% as compared to 2022. And profit for the 2023 in the amount of EUR 12 million. The result for the year, of course, was strongly influenced by loss from revaluation of loss of assets. And again, referring to Q4. It was a good quarter as we promised, the Q2 down the valuation of the assets was definite, meaning at the end, it was a big decrease. But as we promised, it should have represent the entire evaluation. And in fact, in Q4, there was no further revaluation with minor adjustments on the asset by asset level, but the net result from revaluation of assets was plus EUR 1 million. On the EBITDA side, you can see that the results obtained for 2023 as compared to 2024, was at the similar level. This is, of course, due to the fact that there were one-offs which were not planned. As for the other line items, you can see more or less stable increase in line with the inflation. The one-offs that Gyula mentioned and need to be repeated also from the previous quarters. These were severance payments related to our Board members leaving as well as a number of employee leaving the company. This totaled approximately EUR 4 million. On top, there was a significant write-off of the costs related to demand transaction, which we decided not to continue. Just -- I think I didn't -- we should move forward with the next slide, Malgosia. On the customer side, what is quite important is to look at the bottom line and the cash decreasing significantly. And this -- this line should be read in connection with another line that you will see in the balance sheet while we move there, meaning the receivables and prepayments, just before the year-end, the company transferred a significant money to escrow accounts. One of them is escrow account dedicated to Aurora bonds buyback. And another one is this was amounting to EUR 30 million, and another EUR 19 million was transferred to construction accounts. This is the specifics of Hungary in connection with significant construction on CP3 side and other construction sites in Hungary, you just forward demand to the dedicated escrow account. And out of that, the bank pays for the construction cost. Regrettably, this year, this happened in December. And as I said, it was a significant amount, EUR 19 million on over -- overall, which brought our cash significantly downwards at the year-end. Going through the cash flow itself. As you can see, the cash flow from operating activities increased by approximately 8%, in line with what we have seen on the gross margin side. Moving to the investment activities because there you see a lot of movement. In 2023, the company invested heavily as well as acquired the new -- two new properties in Hungary. This is [indiscernible] market property and [indiscernible]. On the development side, Gyula already mentioned a couple of times, Center Point 3, under actually Matrix C in total, approximately EUR 60 million expanded onto that as well as a significant money was used to fit out in CapEx activities, more than EUR 15 million went to this purpose. And the next line marked two is the money transferred to the escrow accounts, as I mentioned that dedicated to the bonds buy-back. And finally, sale of investments, the EUR 50 million, this is to well-known Forest Offices, Debrecen sale. And finally, going to financing activity in 2023, the company acquired three loans secured on Matrix C and GTC X as well as advanced business center. Let's move to the next slide. Some selected debt metrics, our total net debt increased due to the fact that the net increase in the loans and bonds amounted to EUR 36 million. And cash, as mentioned, was decreased due to the money transfers mainly. The net LTV resulting from these movements or changes amounts to 49.3%. This is a significant increase for 44.5%. But we have to remember again that this is before the adjustment to reflect the escrow accounts. The weighted average debt to maturity, this is regrettably decreasing due to the fact that the repayment of bonds and significant repayment of loans coming in 2026 is approaching. Of course, the company is taking care of all these significant movements or events that will come in 2026. However, in the meantime, there is 2024 and 2025 loan maturities to be addressed. And we have to say that 2024 is nearly already fully managed. And partially 2025 has been managed. This is the same bank and we are in the very advanced stage of closing this either prolongations or refinancing activities. For 2025, what remains is Galeria Jurajska refinancing or prolongation. We are also in discussions with the financing bank. And currently, it looks very promising, meaning we will do -- we will act in cooperation with the bank to prolong this financing. The remaining metrics remained more or less on similar levels with adjustments reflected -- reflecting the new loans acquired. On the balance sheet side, there is -- not a huge increase in the investment properties due to the fact that the before mentioned revaluation of assets took place. So even if the company expanded EUR 85 million on investments, fit-outs and CapEx and purchased the new land bank, the revaluation of assets decreased the value of the investment properties. And assets held for sale reflect the sale of Forest Offices, Debrecen. As I mentioned before, cash and cash equivalents should be read in connection with the prepayments and other receivables line were approximately EUR 48 million represents money transferred to the escrow accounts. On the short and long-term financial debt, as I mentioned, there is an increase of EUR 36 million. This has been explained. And partial increase of this item should be also already in connection with the next line, meaning the derivatives line because there is FX hedges closed for the Hungarian bonds and they are reflected in Line 5. And I think that's it from my side. Unless you have questions. Of course, you are please feel invited to ask any questions.

Yes, all. That concludes the formal presentation. I can open the floor to the Q&A. So if you have a question, just unmute yourself and ask the questions.

Hi, everybody. Good morning. Thanks for the presentation. This is Jakub from Wood. Maybe if I can go first, I would have a couple of questions. I would prefer to ask them one by one. First, could you please talk about the project you have acquired in Ireland? And sort of what are the options there now?

Yes, please. In terms of our Kildare project in 2023 and 2024, we achieved a few major milestones in terms of the development and execution of the project. Last year, Kildare county granted us the 10-year planning permission to expand the whole campus itself. And this year in 2024, the project managed to sign the lease agreement with a [indiscernible] who we agreed to take the entire 179 megawatt data center capacity for 20 years, which is now quite a good milestone in terms of the valuation and in terms of the successful execution of the project. The GTC's strategy for that is the exit -- still an exit in a 6 to 12 months period with an upside and order initiated negotiations to achieve that.

And as Gyula mentioned, this major improvement in terms of the lease signing should result in uplift of the value of the project in the next quarters. We are currently in the process of a new valuation that will reflect the new leasing conditions achieved.

Given that you have signed accurately, so I understand that some sort of project has been prepared. Could you share with us some ballpark numbers as to what kind of construction CapEx will the eventual buyer be looking at in order to sort of bring this project live. And what sort of development yields do these types of projects generate?

Barbara, can you please.

Yes. Yes, I can only say that because this lease is confidential. Regrettably, we cannot share any details of what has been signed. But what needs to be underlined is that we do not really plan to engage into the construction and then the idea would be to exit as Gyula said within the next 6 to 12 months. So I believe this is the only thing that we can say at this stage.

That's clear. If you fail to find a buyer for this project, can you walk us through the plans for tackling the '26 maturity?

Actually, the -- so there are scenarios to which enables us and which ensures the feasibility to pay back the bonds and the debt consolidation by 2026. Of course, the cash proceeds for this sale. We count on that and budgeted in order to pay it back, but there are alternative scenarios we are seeking for and phasing with and budgeting if there is a fail in. But the management does not think that it is not marketable. So we hardly believe that we can exit from this project with a significant upside in the next the forthcoming 6 to 12 months.

Or maybe what you've said was, I would say, quite decent. There is an interest in the market. This is really a hot type of asset that is searched for rather than you go around and seek for a buyer for an investor. This is exactly the place to be. So when to exit is also a decision on our side how much to advance the project because, of course, with every -- advancing the project, the upside to be executed will be even higher. So most probably, if we decided to exit today, it would be a nice upside. But if we wait a little bit longer and execute maybe another stage of the development, there will be even a higher upside on our side. So this is now more or less when to exit rather than if we can exit.

And could you talk us through at least broadly through the scenarios where the exit for any reason maybe higher rates for longer, no transactions in this type of project in Europe when it doesn't take place? I mean, would you have capacity to refinance it with secured debt? Or would it breach the covenants on the bonds because the unsecured portion of the portfolio would fall too much.

So even if we disregarded the value of our assets, which we can always exit, and this is one of the scenarios, of course, that is being considered. Just taking into account the assets that are currently unsecured with very, very, I would say, conservative approach, we could acquire new financing in the value of EUR 300 million to EUR 350 million. So this is one of the plans, the biggest being our shopping mall in Warsaw, and Galeria Polnocna in the value of nearly EUR 300 million. This is a significant chunk of unsecured assets. Of course, we cannot go now to -- we cannot start the refinancing now or we can, but it wouldn't be possible to draw down this loan without breaching the covenants on bonds. So this needs to be prepared, but this step should be executed at the -- just before the repayment of bonds. So this is one of the scenarios that can be mentioned.

Got it. Could I also ask what will be the management's recommendation with regards to dividend from the 23-year profit?

Yes. Just as we discussed, we are -- the management is developing and quite a good advanced status of developing and interpreting and executing a budget for that mainly for the approaching maturity of our Euro bond 2026. The management's recommendation would be to execute cash reserve and not to pay dividend on 2023 for the financial year 2023 and 2024. As at the level of management recommendation to the Board and the General Meeting.

I think that's a reasonable decision. Could you also please talk about the acquisitions, the land sheet office? And I think it's the [ Veris Marty ], maybe hotel who were the sellers? What is the value of these acquisitions? What kind of yield are we looking at? And how do these tie to the broader strategy of GTC.

Barbara, do you take it?

Yes, in terms of the strategy. It was -- the decision was taken already some time ago. This was a part of the bigger portfolio that has been acquired or preacquired at least in 2022, Mangolsia, right, as far as I remember, with partially the transaction executed in '22, and there is in 2023. What are the yields -- what we can say, I think that we already signed a PSPA related to the [ Lancet ] property with a very nice return of approximately, I remember -- as far as I remember, Gyula like 30% or so. So it is what I can say with the [indiscernible] currently, this is a land bank and what will be done, I think this is the management.

The concept and the business plan for [indiscernible] Square is a hospitality and still under development. So at this stage, we cannot say anything about the expected yields because the whole concept is under development for that.

I see. And sorry, on [ Lancet ]. Have I understood correctly that the total return should be around 30%?

Yes, around 30%.

And this is the yield. So this is the rental income divided by the value or...

No, it's not the rental income, as Barbara mentioned, we already signed in the PSPA for dispose these assets to a market player. And this is the -- the share price, that's the cost.

This is -- sorry, if maybe this sounded wrong, this is currently also a land bank. So this is a hotel, but it is not operational. So this was just a profit.

I see, I see. And last question for me. The occupancy at some of the offices has been quite weak for quite some time now. How much renovation CapEx. Do you expect the GTC may need to be spending annually for the next 2, 3 years into the portfolio to make sure that all of the buildings are sort of modern and meeting the expectations of the tenants?

The plan and the capital expenditure budget is still ongoing in terms of considering all the factors and all the market situation of the leasing market as it is. We are trying our best to determine the exact and adequate level of capital expenditures and fit-out granted to the clients. And of course, for repositioning the CapEx required for repositioning as well and where we are able to determine and conclude that it's not worth pulling capital expenditure on the asset which will not be returned then we are seeking for and we are considering to dispose those assets. So at now -- right now, we are not able to grant you exact figures, especially for the next -- for the fourth time year for capital expenditure. But this is the concept and the strategy for that.

Got it. Are there any more questions to the management at this stage?

Yes, I just have a couple of questions. My first question is regarding liquidity. So your unrestricted cash balance at the end of the year was $60.4 million and I think $15.5 million of that is restricted due to customer tenant deposits. And my question is, do you have -- do you still have $94 million of undrawn facilities that are still available to the company?

So maybe starting from where our deposits are -- or what is the value of the deposits -- it's approximately EUR 15 million, the tenant's deposit. So it's not that much figure. There is more money related to the DSA accounts related to our bank loans. Still, I agree there is some significant chunk of restricted money. So in March 2024, we have acquired another bank loan amounting to EUR 55 million secured on our Bulgarian assets and the other loan and other center.

Sofia.

Sofia Mall, sorry. Yes.

So it's ABC and Mall of Sofia.

No, ABC was signed in 2003, but yes, one of Sofia in 2024, sorry, it was slip of tongue. Yes, of course, Sofia Mall. So EUR 55 million flew to the company in Q1 2024. We'll see it, of course, in the financial statements and our cash position will be much stronger in the next financial statements. And there is -- as I mentioned, there is a very high potential -- further potential to acquire new financing. We are discussing currently our Romanian assets but still also in Poland and in other countries, there is still a factor, financing acquisition potential.

I guess regarding the $55 million of new loans that you received in March, was that part of the $94 million of undrawn facilities that you had at the end of third quarter? Or are these new facilities beyond the $94 million of undrawn facilities?

No, 94, what do you mean? I said that -- no, no, no. RCF has been closed already in -- this was in October, right, Malgosia, I think, in October 2023. So no, this is not under own facility. This is a completely new project financing that has been acquired.

Understood. And then just regarding your discussions with the banks about extending the bank loans. What amount is currently being negotiated in FY '25?

Okay. Negotiated currently, we are discussing loans related to Polish portfolio, but this is more, let's say, refinancing and rolling forward of the assets -- sorry, of the loans that you see -- you have seen in the debt metrics, meaning in total for 2024, it's EUR 46 million that needs to be refinanced. And as I said in 2025, EUR 123 million. And also the EUR 123 million, including Galeria Jurajska is being discussed with the financing bank. In terms of the new loans, as I said, the potential to acquire new loans amounts to approximately EUR 300 million to EUR 350 million, including the Galeria Polnocna being the biggest asset and long term. And still we also have to remember that there is new assets being completed in Hungary shortly, which also will bring new financing potential to the group. They are currently all equity financed. But of course, liquidity management is one of the key topics. And we have -- the group has to carefully watch the situation and work on it, that's clear. If we are to invest further because there is big plans, we want to grow or develop. So of course, we have to work also on the liability side.

Are there any additional questions? Ladies and gentlemen, as I see no further questions, please let me conclude this call. I will be available to answer any questions you may have in more one-on-one session. So please let me know if you need additional explanation or additional time of the company. Thank you very much for your participation and for your interest. Have a good...

I think somebody mentioned somebody, somebody want to speak.

Can you hear me? Sorry for interrupting. Just a quick question on the 2026 maturity. Do you consider it all to coming to international capital markets and perhaps issuing a new bond.

We closely watch this market, but it's too early to say. We might, of course, consider going to this market if this is open as it was in the past.

We try to close again. Thank you very much, everybody. Have a lovely day and speak to you in a month on our Q1 results. Thank you very much. Bye-bye.

Thank you. Bye bye.