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

[Audio Gap] for a Q&A session. As you just heard, the call is being recorded, and the sound recording of the call will be posted on the company's website later today. Let me now give the floor to Gyula for the opening.

Thank you very much, Malgosia. Good morning, everyone, and thank you for the possibility to have this -- to give this presentation to you about the first half of 2024 of GTC Group. Malgosia, can you please put the presentation on the screen? Thank you very much. So as a summary, I would like to start with -- so for the first half of 2024, GTC Group's consolidated rental revenues went up by 3% to EUR 93 million, which then concluded arose of -- a rise of 4% in gross margin as well to 65%. Both of them are a slight increase compared to the same period last year. These are mainly due to new completions, actually 3 assets in Belgrade, in Budapest and Zagreb, combined with the yearly indexation incorporated in our rental income. Malgosia, can you please go to this Slide 3, please?

Sorry. Now I understand you don't see what I see. Okay. Let me try again.

The funds from operation seems stable, seems keeping the trend amounting to EUR 36 million in the first half of 2024. Our EPRA net asset value amounted to EUR 1.237 billion, which is a slight increase compared to the year-end last year. Our loan-to-value decreased to 48.2%, which is a slight decrease compared to last year-end. But if we take into consideration the cash on escrow deposit, it would amount to 46.9% then. A slight drop showed in our occupancy at 86% compared to the 87% at the end of last year. And our cash balance amounted to EUR 89 million, plus our cash on escrow deposit accounts amounted to EUR 31 million. If we turn the slide, we would like to highlight here that the key element of GTC's group's strategy, as it was presented transparently to the market and to the investors recently, is reshuffling the portfolio towards new income stream, towards the diversification of our real estate portfolio to new sectors and to -- and in terms of geography as well. In order to execute this strategy, we managed to dispose one of our noncore, noncash-generating assets, expired in mid-2024, realizing EUR 3 million, almost 30% profit on the sale. And from the cash proceeds, we managed to realize from that. As a first step of the execution of our strategy, we acquired one project in a complex and penetrated in the senior living for rent sector in Köpenick district of Berlin. This is in Germany. This real estate comprises of 6 floors, 50 apartments and more than 400 (sic) [ 4,000 ] square meter project, which will be developed, which will be finished in 2026. And of course, we are seeking for -- and the project reaches the highest environmental and ESG standards on the market. So GTC considers this as the first step of new market penetration, as it was in the strategy of us penetrating in the residential sector in Western Europe at a higher rated country. If we turn to the next slide, Malgosia, please. Our office -- in terms of our office portfolio, our occupancy dropped slightly to 82% compared to the 84% as of last year-end, with an average WAULT of 3.4 years. Hereby, I would like to highlight that besides the new -- besides 2 new prolongation in our Bucharest -- in our Romanian assets. There is a sign of stabilization of Poland's leasing market, especially in the regional cities. So this was -- this Q2 can be qualified as the first quarter when the occupancy rates has not changed. So we see the signs of stabilization in that region as well. If we move forward to the retail portfolio, please. So we managed to keep and stabilize the occupancy rate at 96%. It was the same level as of last year, with a WAULT of 3.3 years. And what we can see here and what we can conclude is our shopping centers performing stable. Big tenants prolonged their leases. So it looks very promising in terms of the performance of the -- of our shopping centers. And if we go to the portfolio analysis, here, we would like -- we can conclude that beside the sale -- beside the disposal of our noncore assets and acquiring the new project in Germany, there is no significant change in the structure of our portfolio. 86% of the whole portfolio are income-producing real estate assets. And out of that 65% is the office -- of the income-producing portfolio is the office portfolio and the remaining 35%, the shopping centers. And of course, GTC is still highly committed on its ESG policies adopted. And we are focusing on to reach the highest green level in terms of our portfolio as possible. For continuing, I would like to give the floor to Mr. Balazs Gosztonyi, our Group CFO, to continue with the financial part of the presentation of H1 2020. Thank you very much.

Thank you, Gyula. Good morning, everybody. As in earlier investor calls, I would like to stick to the structure and now present the profitability of the group first. As mentioned earlier, GTC achieved EUR 2 million increase in revenue from rental activity. That is 3% increase compared to the same period last year. The improvement is due to the completion of 3 buildings mentioned by Gyula in Zagreb, Budapest and Belgrade. And on top of that, the average -- and the increase on top of that is due to the indexation according to the European Consumer Price Index that was executed in the first half of the year. The gross margins from operations, basically for the growth in revenues, so it went up from EUR 63 million to EUR 65 million. Net profit from revaluation increased overall EUR 1 million -- by EUR 1 million, mainly resulting from an increase in the value of Lanchid Project following the offer we received for the project. The transaction was closed in the beginning of July. Additionally, the value of assets under construction increased by EUR 5 million. These were partially offset by the decrease mainly in completed office portfolio's value in Poland as a result of the decrease in occupancy rates compared to 2023. But as Gyula mentioned, the decrease in occupancy decelerated even further, which basically means that on a quarter-to-quarter basis, it stayed unchanged. So we believe that this is -- this shows the opportunity that the decrease is no longer affecting GTC. GTC's net finance cost increased by EUR 1 million, taking group's profit before tax to 70 -- EUR 37 million. And after the taxation, it is EUR 32 million. Yes. Thank you, Malgosia. Coming to the cash flow. Cash flow from operating activities remained strong. The increased revenues were offset -- the increase in revenues offset the increase in interest payments, resulting in EUR 25 million from operating activities, which is approximately 25% improvement compared to the same period last year. Investments in real estate remained strong, but below the levels of last year. Investment in properties under construction accounted for EUR 31 million. These are projects in Hungary that has been engaged in previous quarters, namely the Rose Hill Business Campus, the Center Point 3 office building and Andrassy asset of ours. And these were complemented by the purchase of the Elibre project in Germany that was also mentioned earlier and the purchase of shares of the Hungarian public company, NAP Nyrt, a producer of solar energy, in line with GTC's renewable strategies. The change in deposits related to the escrow account designated for the acquisition of green bonds is solely responsible for that. All these resulted in a negative EUR 45 million of cash flow from investing activities. Coming to the financing cash flow of the group. The key event was in the first quarter, the drawdown of EUR 55 million loan on Mall of Sofia, and that was offset by EUR 8 million repayment of long-term loans on the other assets of the portfolio. This resulted in EUR 47 million positive cash from investing activities. I think we will have a bit more details on the debt metrics shortly. Overall, on the cash flow side, the cash position of the group improved from -- improved by EUR 29 million in the first half of 2024. And as I mentioned, the debt metrics, the total debt of the group stands at EUR 1.31 billion. That's 49%-51% split between unencumbered and secured debt. However, GTC's rated debt maturity decreased to 3.0 years. Management is fairly confident and on the right path to renew the EUR 141 million secured debt that's maturing within 1 year. These negotiations are ongoing, and we are confident that these loans can be prolonged before the year-end. And on top of that, management is actively tracking the bond markets, the capital markets, how they are offering opportunity for the company to address the euro bond maturity that's due in 22 months' time. The net LTV of the group decreased from last year by 0.8% to 48.2%, while the ratio of unencumbered assets decreased by 4% to 42% due to the financing of Mall of Sofia asset. This takes us to the weighted average interest rate in the group to be at 2.58%, while the remaining debt metrics are fairly stable. On GTC's finance position. Investment properties grew from last -- end of last year by EUR 77 million. These were due to increase in assets under construction and purchase of investment property, both were mentioned earlier, while the recognized increase in the right-of-use due to new annual perpetual usufruct fee of EUR 24 million were also included in the increase. The cash balance increased as mentioned earlier, mostly due to acquisition of new long-term secured loan and the change in short-term deposits designated for the bond buybacks. Expenditures offsetting this increase were the investments into properties, interest paid and the repayment of borrowings. I think these were detailed in the previous slides. On the decrease of prepayments on receivables were mainly due to the decrease in the escrow account designated for the buybacks of green bonds. And lastly, on the liability side, proceeds for long-term borrowings of EUR 55 million increased the financial debt of the group that was combined with the foreign exchange difference on bonds denominated in Hungarian forints that had a EUR 5 million effect. These increases were compensated by the repayment of the loan at the size of -- loans at the size of EUR 8 million. The current portion of the long-term debt increased due to the reclassification of the loan related to Galeria Jurajska due to the upcoming maturity in Q1 2025 that I mentioned earlier. The negotiations are ongoing, and we strongly believe that the extension will be closed before the year-end. The EUR 25 million is -- there's EUR 25 million payable following the approval of the dividend on the Annual Shareholders' Meeting that took place on the 26th of June 2024. And lastly, the lease liability was increased due to the annual perpetual usufruct that I mentioned earlier. GTC's financial position is stable. And that concludes our official presentation of the financials for first half of the year 2024.

Thank you very much, Balazs. Ladies and gentlemen, at this time, I'm happy to open the Q&A session. So if you have any questions to the management, please ask them now.

This is Jakub from Wood. Maybe 4 questions from my side, please. Just a technical one, Balazs. Can you remind me what is the value of the unencumbered, income-generating assets that you could potentially use as a collateral?

It's 42% of the portfolio. And the exact value by far -- let me -- could we go back to the...

And 42% would be of the total portfolio or out of the standing assets?

Of the investment properties, which are operational. So none of the nonincome generating assets are financed. Therefore, the portfolios, 42% is unencumbered and they will be -- they're possible to use for refinancing. Let me double check the exact figure.

Maybe in the meantime, you also mentioned that you are looking at the bond market. Does this mean that as a base case, we should expect that you would be looking to refinance the '26 bond with another bond issuance?

We are considering several scenarios. And of course, we would like to look into growth opportunities as well. Therefore, we are working together, consultants, to find best time and the best way to give a tender offer in exchange offer to the bondholders. But yes, we would like to address that before maturity.

I see. I see. So rather than moving towards secured financing, your preference would be to do another bond.

We would like to stay on the bond market. The mix is, let's say, undecided yet. We are in the preparation phase, but we would like to keep GTC on the capital market.

Understood. Then on the Berlin senior living development project. Could you tell us what kind of cost of funding do you expect could be attainable for the construction loan, which I understand you plan to get? And what return or yield on cost do you think that the project could generate?

Balazs, I'd like to jump in if you don't...

Okay.

So the cost of the project amounts to EUR 29.5 million. Out of that, on equity side, GTC has already paid EUR 12 million on that, and the remaining will be financed by senior loan. This is what -- this project as deferred as this first financial model would realize for GTC an approximate NOI of EUR 1.8 million then. So the yield on the project, the initial draft -- initial calculated yield on the project will be around 6%, just below 6% on a yearly basis. And this will be for -- as an initial business model, it will be residential-for-sale senior housing, which will be operated by an operator, a reputable international one.

So for your -- from your perspective, this is a build-to-sell, or you want to...

A residential-for-rent, renting out, operated by this operating company.

I see. I see. Understood. And then on the data center project in Kildare, close to Dublin, can you give us an update on the status of this project and potentially on the nature or extent of any disposal talks that you might be having?

Yes. Yes. In terms of Kildare, I would like to highlight that since the last investors' call, the project management managed to mitigate, let's say, all project risks from now on. So planning permit has been acquired. The required electricity capacity supply has been secured fully as our investors and the market is where the project managed to sign a long-term lease with a hyperscaler. The project management managed to secure financing for the project. So what we can conclude is that the project now is fully marketable. And GTC is committed for this disposal even this year towards the market or towards the major shareholder. So we are in, let's say, advanced negotiations with a couple of market players who expressed their intention on the project. But right now, this is all I can share. This is all the information I can share with the market now.

Understood. Thanks, Gyula. Balazs, have you managed to find the value of the investment properties which have been...

Yes. That's on the property portfolio's book value.

So we should calculate the 42% out of the total value of the portfolio.

Not the investment's book value, so take out the financial assets of it.

But then also the developments and also the land, we take everything and then we take 42% of this, and this is unencumbered. Perfect.

Yes.

Ladies and gentlemen, do you have any additional questions? If there are no other questions, thank you very much for your participation. As I said before, the call -- the sound recording will be put on the website of gtcgroup.com. Thank you very much, and see you next time. Thank you.

Thank you very much. Have a nice day.

Bye-bye.