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

Ladies and gentlemen, thank you very much for joining today's call related to Q1 2025 financial results of the GTC Group. Today I can welcome you as a newly appointed President of the Management Board of the Group. Together with Balazs Gosztonyi and Zsolt Farkas, we will take you through the first quarter, solid first quarter results presentation. We can confirm that the portfolio is continuing to deliver, and we see the momentum for the [indiscernible] in all sectors of our operations. Let me start the presentation and we can take it from there. So in CEE, we have continued improvement in the financial results. Our revenues -- combined revenues for the CEE and German residential portfolio improved by around 9%. We see the results of the German acquisition on the gross margin. That's an impact which makes the gross margin stable. However, we expected this to be exactly this way when we were acquiring the portfolio. The portfolio requires some work, and we already put significant work into the portfolio, improving the occupancy by 2 percentage points in the first quarter only. The FFO I, Balazs will tell a little bit more during his speech, but it declined to around EUR 12 million. That's the result of increased interest cost, mostly on the new funding that we acquired during the end of 2024 and the beginning of 2025. If you look at the LTV, LTV improved to 52.1%. That's the result of mostly improvement of the cash position. As you see, the cash position improved significantly. We conducted a number of different disposals over the first quarter of this year. And those disposals significantly added to our cash position. As I said, we had significant disposals, which not only prove the value of our assets, but also show the -- not only allowed for the -- not only prove the value of our assets, but also allowed us to build the cash position. On the top of the disposal of Matrix C, which we concluded in Q4 of last year, however, EUR 10 million came to our accounts in the first days of this first quarter. We also disposed GTC X at the book value, and we disposed Wilanów land with a significant premium to the book value. Altogether, we consolidated around EUR 88 million from the disposals in the first quarter of this year only. That proves that the asset base is really high quality and the disposal plan that we are implementing is well-accepted by the market. There is a number of buyers for each of our assets designated for disposal. Talking about the strength of the portfolio. Our assets are today well diversified. They are diversified over 3 sectors, 3 main sectors, which is the commercial being office and retail and residential. If we look at the income-producing portfolio, around 51% are offices, then retail is around 30% and the residential is around 19%. That makes the portfolio very well-diversified, but also diversified not only sector-wise, but also geographically. Around 32% of the portfolio is in Poland, then another 26 portfolio -- 26% of the portfolio is in Hungary and around 19% of the portfolio is in Germany. When we look into the credit ratings, around 51% of our property portfolio is located in A-rated countries, which works in our benefit whenever we are talking to the creditors. The weighted average lease terms remains unchanged. That's a proof of very active and very dynamic trends on the letting side. And let me take you through the segments of the portfolio. So office portfolio, as you see, there is -- that is moving well. I mean, first of all, occupancy remains the same. And I can say that that's probably second quarter in a row when we do have proper occupancy improvement vis-a-vis the previous quarter. That shows that working from home alternative is a little bit in a decline. I would say we see more and more companies supporting their employees in coming back to the offices. Pretty recently, it was MOL that asked their employees to come back to the offices. We have those examples across the market. What is very important to say that also the Polish market, which seems to be the softest, and that's not because Poland is the softest, but because the Polish portfolio is spread across the regional cities. We see improvements vis-a-vis the previous quarter and vis-a-vis the third quarter of 2025 -- of 2024. We do have very high-quality assets. If you look in each -- if you look at the pictures below the graph, you will see that each of our assets is attracting very big tenants, very big international blue-chip tenants, and we are very proud of the portfolio that we hold. If we move to the retail portfolio, definitely, that's a very strong component of our total portfolio. The occupancy is very strong. The leasing activity is also very strong. And again, the retail portfolio shows significant improvement in the tenant turnovers, but also in the footfall of the shopping malls. And they are quite busy, whenever you go there, each of the shopping malls seems to be an attraction for the -- not only for the local community, but also regionally like, for example, Galeria Jurajska, which is a regional shopping mall. Talking about the third part of the portfolio, as I said, residential portfolio is around 19% of our total portfolio. And here, what is important to say is that we are improving the occupancy. It -- with around 100 units being flat in the first 3 months of us owning the portfolio at an improved rate compared to what we have in the overall portfolio, we are quite optimistic that this portfolio will contribute to the further growth of GTC. With that, let me get the floor -- let me give the floor to Balazs Gosztonyi, who will take you through the financial results. But again, let me just stress that we have very high-quality assets that's been validated by the disposals that we conducted. Our strategy in terms of the Germany seems to be on the right track, and we will deliver on the strategy in the following quarters. Balazs, the floor is yours.

Thank you very much, Malgosia. As usually, we have a walk-through on the profit-and-loss statement, cash flow and the balance sheet of the company. Finally, we will conclude on the credit metrics. Our Q1 results on the profit and loss side showed stability. Our revenue has grown by 9%, as Malgosia mentioned earlier. Our gross margin stayed very stable. Stability is underlined also by our EBITDA. EBITDA has been EUR 27 million in Q1, where on the EBITDA we have 2 slightly negative effects. One is loss from revaluation of assets that's due to capitalized expenditures on completed properties. However, these are improving, these properties. So we'll see the return on these revaluations if -- up on Q2. And the finance cost has been increased from last quarter -- sorry, last year same quarter. That's due to the additional senior facilities taken in Bulgaria as well as the acquisition financing and senior facilities taken over with the acquisition in Germany. The increased financing costs or the interest cost has been expected, also due to the increased weighted average interest rate across GTC facilities. We do consider these to be temporary as we are executing our strategy through disposals and deleveraging the company to manage these risks in the short as well as in the long term. Moving on to the cash flow. As mentioned earlier, the cash flow of the company, the position of the company has improved. The operational cash is stable. It was mainly affected by the tax effect of the disposals that we basically connect to the execution of the strategy. Our investment in real estate and related has been EUR 38 million. That's underlining the improvement of the value of the portfolio as well as underlining the long-term stability of cash generation. The disposals we mentioned earlier showed EUR 88 million cash inflow from sale of assets. And that's underlined -- actually the value of those disposals underlining that the quality of our operations and the assets are very good. We set aside -- okay? Maybe -- can you go still to the cash flow? Sorry, Malgosia. One more? So we did set aside EUR 45 million from the proceeds from disposals to decide prudently at a later stage on various opportunities to deleverage the company. In this way, we intend to manage the rising interest costs that we mentioned earlier. Now we can move on. Okay. On the balance sheet, our assets base is steady, but due to the transactions, more cash generative. We have -- beyond the announced disposals, we have a good pipeline, but through internal regulation, GTC is only showing assets held for sale with a stricter sort of internal regulation compared to IFRS standards. We do classify assets held for sale upon signed PSPAs. As of today, the decrease of this amount or this line from last December to the first quarter because at that point, we had less signed PSPAs. However, the strategy is focusing on certain asset disposals. And therefore, upon we reach this level of disposal process, we'll include additional assets in the assets held for sale line. The cash and cash equivalents were also affected by the proceeds from disposals. And we were, in general, successful to maintain the portfolio value along with executing on the book value or above the book value transactions. When it comes to the liability side of our balance sheet, we did reclassify certain long-term facilities into short term. Specifically, 3 loans have been reclassified. But we are already in the process to prolong or renew or refinance these facilities due to the strong bank relations that we utilized in the past as well. Trade and other payables have been slightly decreased due to settlement of certain outstanding invoices. And on liabilities referred to asset held for sale, on that line, you see the effects of the disposals on the liability side where we down-paid EUR 25 million loan that was related to GTC X, and also de-recognized certain right-of-use elements related to the assets. This shows that, through the transactions, we further strengthened our balance sheet for 2025 Q1. That leads us to the debt metrics of GTC. Our credit metrics are good, and we continue to improve them. Net debt was down, reflecting on the disposals mentioned earlier. And that resulted on an overall net LTV improvement of 0.6% over the course of the quarter. We managed to refinance senior debt across several markets. That's also underlining our good bank relations, and we intend to build on these relations in the further upcoming maturities. As you see, we have EUR 140 million short-term facilities that we are addressing as we speak, and we feel strongly about refinancing these facilities in 2025 as well as with the facilities in -- scheduled for 2026 renewal. We are aware of the increasement of the weighted average interest rates, it currently stands at 3.63%. And as mentioned earlier, GTC management has a plan to further strengthen the credit metrics of GTC, thanks to GTC being a very good financial platform showing -- shown in the results in the past quarters and years as well. Management is very well aware of the big upcoming maturity of the bond. And we are actively working on addressing the bond ahead of its maturity. I believe that concludes that building our continued success on the financial and financing markets. We as GTC management are focusing on deleveraging the company through disposals and refinancing upcoming maturities that we've already been able to present partial success steps in Q1. And that concludes the presentation itself.

Ladies and gentlemen, at this point, we will be happy to take any questions you may have.

This is Jakub from Wood. There are no questions yet. Maybe I can kick off. Congratulations, Malgosia. Best of luck in the new role. Could you guys please talk a little bit more, I think Balazs, you mentioned it, but I didn't really understand, the short-term blocked deposits. What are they attributable to? And what exactly drove the increase in the first quarter?

The increase was due to -- well, previously, we didn't have blocked deposits, but due to our execution of strategy, we intend to dedicate funds for deleveraging the company. And as a first step, we dedicated EUR 45 million for that deleveraging. We'll see how and in what form and for what facilities we would be able to utilize them.

I see. So essentially, it was like a voluntary pledge that you will use this money to maybe repay certain bank loans and now you cannot use the money for anything else?

It was a voluntary dedication. And we will see which facility to be used or applied for the best.

And does it mean that this money could potentially be also used for the bond or not?

Potentially, it could be used for the bond. Potentially, it could be used for senior facilities. We have not concluded on this. But as we see the increasement of the financing costs, we intend to get GTC prepared, and also targeting to manage the credit metrics further. And this sort of dedication will help us in execution.

Got you. I also saw there was this EUR 37 million, EUR 38 million of CapEx spend on the investment property in the first quarter. Again, you touched on it. You said it's improvement of portfolio. Can you be a little bit more specific what this money went on? What were the sources? How much of this was financed through bank loans? And help us understand what is the CapEx run rate for the following quarters.

The spending was -- I mean, as we showed that as development, so it's a combination of developments, fit-out spending and CapEx spending to maintain the buildings. And the amount we showed is a combination of these. We have spent approximately a little bit below EUR 20 million on development. That's including some renovations as well as we classify them as development. And the remaining was related to fit-outs due to new prolongations and new tenants moving in as well as improvements of the buildings in various locations. Majority of it, I believe, was financed through cash and minority was financed through some facilities dedicated through finance entities committed before.

And should we expect this rate of spend to continue in the coming quarters of the year?

No. Actually, that rate of spending is definitely -- we believe will be lower due to several factors. One is that GTC is focusing on development projects in terms of meeting criteria of not being speculative. These criteria are available financing, proper level of pre-lease and basically technical parameters being ready, meaning having the right permitting. And this is the point where we intend to further use funds for developments. That also limits GTC's exposure to equity portions to be put in various projects. On the other hand, we did review the status of the buildings. So maintenance CapEx has been reevaluated. So I believe the maintenance CapEx spending will be also decreasing over the course of the quarters. And the third element is fit-outs. Fit-outs are developing along the success of the leasing teams. So technically speaking, I'm hopeful that we will have fit-out spending coming up in the coming quarters that will show the successful execution of leasing or prolongation in the portfolio.

Got it. If I may continue, if there are no other questions yet. Outside of the CapEx for developments, could you help us understand what are the other, if any, major cash outflows that we should expect in the coming quarters leading up until June next year?

You mean the -- what are the commitment -- what is the portion of committed CapEx for 2025 second, let's say, part of the year up to 2026?

I mean if you can share that, that would be helpful, but I was also thinking if there are some other commitments that GTC may have maybe also in relation to the German portfolio, which would translate into cash out.

Look, as I mentioned, through our more and more prudent investment strategy, we intend to make sure that developments will be financed through senior facilities or development facilities. Therefore, we are working on to decrease the equity need for such spending as much as it's possible. We don't have excessive amount of -- or excessive level of committed CapEx as of today. We are reviewing it on a quarterly basis to make sure that the strategic focus of the management of deleveraging the company can be maintained. As of now, I don't have an exact figure for the next 7 quarters -- no, 5 quarters, until end of Q2.

I think that on the top, we have to -- that there is interest cost, of course, which you've already seen in the first quarter, which seems to be significantly higher than it was. And we will spend around EUR 42 million on the option to buy 10% of the German portfolio from the minority investor. That was announced that has been executed, and we are structuring the payments for that option as well. So those are the only cash outflows -- significant cash outflows that we see. We hope to have them financed from -- at least from external sources, the call option.

Got it. If I may continue, I wanted to ask on the FFO impact of the German portfolio where, on one hand, we have seen the rental income, on the other hand, we have seen the increase in interest costs, which seems even slightly greater. But there were also, I think, around EUR 4 million booked in other finance costs that I wanted to ask about. What is this? Where is this coming from? And also, we have seen some increase in admin expenses. And again, I was wondering to what extent this is attributable to Germany and maybe what other factors were included here.

We do not present separate accounts for Germany or other entities or other countries as of now. The effect on, actually, both on admin and service charge costs are all shared between the various countries. I wouldn't say it's 100% one or the other. When it comes to the German portfolio performance, I believe that we took over with the mentioned 83% of occupancy. And that showed the expected lower contribution to the gross margin at the beginning that was expected. And as we were -- we have been working heavily on improving the occupancy and improving the operational effectiveness in Germany, we already started to see the fruits of it with improving occupancy and improving rental rates. So technically speaking, Germany is performing as expected, but we have a lot of work to invest and take -- to reach the levels that were strategically planned. For that, we need to entertain further improvement in the rental rates, further improvement in the occupancy. And I believe, as it was shown as strategic direction, we intend to execute certain disposals as well as CapEx -- finance CapEx spending that will all grow GTC's Germany portfolio into the more and more cash-generative assets of ours.

If I may only add, of course, a significant part of the increase in admin cost is coming from the Germany. We have additional employees starting from the beginning of the year. So that's definitely a part of it, which relates to it. Also the other finance expense, I would also say that a significant portion of it comes from the German market.

And sorry, on the last point, the other finance expense, is this recurring or is this one-off?

Other finance expense, I believe -- let me just -- I believe other finance expense was one-off. Yes, I believe that was one-off item.

I see. Okay. If I may still continue, you commented on several post-balance sheet date events or transactions related to the German portfolio. As this all looks quite complex, could you please help us understand what's the gist of these?

Sure. During the signing of the initial contract in, let's say, end of 2024, beginning of 2025, there was a 10% -- 10.1% stake on which we had an option. On the 31st of March, we decided to exercise the option, that was the deadline to exercise the option. The deadline for payment for that option was expiring on 15th of April. We decided to extend it until the end of April and then further extend it until end of May.

I see. And now essentially, you will actually do it, probably.

We are still working on structuring, especially on the tax side. So it may happen, and I cannot really say it with the full kind of assurance that we may work on further extension. But that is still not decided.

Got it. Could you also share what kind of net inflow roughly could we expect from the Artico sale that you announced?

We'd rather not disclose the selling price at this point. The negotiations are still going on. So I wouldn't like to disclose it at this point.

Understood. And then while I have the mic, 2 more, and then I'll shut up. These are broader, I mean, in the context of the changes, the Hungarian Central Bank level and now with the change of leadership of GTC, if you feel -- you could share with us maybe about the mandate that you feel that you have from the controlling shareholder, mainly in the context of the 2026 June maturity? I mean, what are the key goals now for the team?

I think that it's fair to say that 2026 maturity is a key goal for the company. We definitely want to address it earlier than that. And we are looking at the capital markets. We cannot share any exact information, but we are assessing our options and we are finalizing our transaction plan. Capital market condition seems to considerably improve. So we believe that our relationships with the banks remain supportive, and we are confident that we will be able to address the maturity significantly earlier than initial maturity. That's the main and the most important element of the mandate. The second important element of the mandate is realization of the GTC strategy on the German residential market. That's also a very important part of our existing plan. And of course, proper management and improving significantly the CEE portfolio and the result of the portfolio is the third element that we are focusing on.

That's clear and helpful. Last one then for me, and thanks very much for taking the time with all of these. If you feel that there is anything that you could share with us, which is understandably difficult, but just trying my luck here, regarding the liquidity situation of your controlling shareholder, both in the context of the potential shortage alluded to by the audit report, but also related to this potential capacity and our willingness to support GTC in case either the transaction market and/or capital markets remain more difficult than currently expected?

We -- I don't think I can comment on their financial position and their liquidity position. That's not related to GTC. We don't discuss it with the majority shareholder. I mean, I would say that's the -- that's something which, if at all, you should discuss with Optima rather than with GTC at this stage. Ladies and gentlemen, do you have any additional question to the management at this stage?

You've got Adam here from Bank of America. If I could jump in, if that's all right?

Sure.

Just to start with a quick follow-up on what was previously asked on the call option, just to make sure I get it right. Did you say it was EUR 48 million that the exercise option would cost?

No. It was EUR 46 million, out of which EUR 4 million was already paid. That information is described in the financial statement.

Okay. Great. That's helpful. And then also on the Artico sale that was already touched on, I understand you can't disclose any current negotiations. But just can you give us a point as to what the book value of that asset is currently?

That's not a significant asset. You have to keep in mind, it's around 7,000 square meters. The book value is around EUR 20 million.

Okay. Great. That's helpful. My next question would just be on the cash balance. In your presentation, you reported EUR 150 million cash plus additional escrow balance, versus EUR 63 million in the balance sheet. I mean you already mentioned the EUR 45 million of short-term deposits that you've voluntarily put aside. But how should we bridge the EUR 150 million to the EUR 63 million and how much of that is really available versus how much is sort of restricted for future CapEx?

You can bridge it with the EUR 63 million plus the EUR 45 million plus the escrow on EUR 20 million for -- and the EUR 20 million is for developments. And in between what we have between the EUR 150 million and the combination of the 3 before mentioned is basically tenant deposits. And that bridges the cash position to EUR 150 million.

Tenant deposits are, of course, restricted cash. They belong to the tenants. They are securing the leases.

Okay. So EUR 63 million cash plus EUR 45 million of voluntary short-term deposits, so to say, that's available to use. And then the rest would be blocked deposits for tenants?

As of today, yes.

Okay. That's helpful. And then probably my last one, could you please comment on whether you've had any new discussions with specifically the German banks around the upcoming maturities that you're showing in the next 12 months? And just looking at the chart that you're showing in the presentation, it looks like the first bar has sort of gone down from just over EUR 200 million to EUR 160 million. So have you been able to address any needed maturities? And how do you plan to tackle the maturities, specifically the 30th of June one in Germany?

Yes. We have preliminary, let's say -- no, I would say, the negotiations are ongoing. We are actively engaged with the banks where the maturity is coming up in June. Extremely positive that we see good opportunity to extend. What we have on the short term is actually, in Germany, one facility on which we are focusing as of today. And the other elements, the 3 loans I mentioned that has been reclassified as short term, they are ahead of us in Q1 2026. So technically speaking, we need to focus on one as of today. And we are in continuous conversation with the current providers as well as active banks on the German market to get the best terms for GTC.

Okay. And just to follow up there. You mentioned you're confident to extend that to June. Is that you're confident to find a long-term solution? Or are you potentially exploring another short-term extension conscious that facility was moved previously from March to June.

Yes, understood. Actually, we are sort of facilitating the approach within GTC to have as many options on the table as possible to make sure that we can pick the right solution. When it comes to Germany, we have a strategic direction which requires us to be considerate of the disposals as well. So I'm not -- as of today, I'm not closing off any of the short or long-term solution because of the fact that we need to make sure that any sort of extension or prolongation or refinancing will not limit our ability to dispose at a later stage. So altogether, I believe both of them are on the table. And we'll make a decision in the coming weeks which one is the best for GTC.

I don't see any additional questions. Thank you very much for your time. It was a pleasure to speak to you and to -- thank you very much for joining us for this call. The call is recorded and will be posted on the website, so you can access it from the website. Have a very nice day and speak to you soon.

Thank you very much. Have a great day.