One United Properties SA (ONE) Earnings Call Transcript & Summary

Good morning, and welcome to One United Properties conference call for presenting the Q1 2024 results. My name is Zuzanna Kurek, and I'm Investor Relations Manager at One United Properties. I am joined on this call by Victor Capitanu, Executive Board member and Co-Founder of One United Properties; and Cosmin Samoila, CFO at One United Properties. Before we begin, I would like to mention that this call is being recorded and that the recording of this call will be updated on One United Properties website later today. As stated in the call invite, by joining this video conference, you automatically and implicitly consented to being recorded. If you do not consent to being recorded, please leave this call. In terms of organizational aspects, let me present to you the setup of this call. Firstly, we'll share with you the financial and operational highlights of Q1 2024, which will be presented by our Co-Founder, Victor Capitanu; our CFO, Cosmin Samoila, as well as myself. [Operator Instructions] I will be moderating this session. And, therefore, for the sake of those who will be rewatching the replay of this conference, I will be reading all the questions out loud before addressing them. Your questions today will be answered by Victor Capitanu, Cosmin Samoila or myself. Finally, I would like to mention that we might be making forward-looking statements today during this call regarding the future performance of One United Properties and that actual results may differ materially. We encourage you to review the disclaimer that we have included in the presentation, which you can now see on your screen. This disclaimer applies equally to all the statements made in today's call. Thank you all for your patience, and I would like to now kick off this call and invite you to watch the highlights of One United Properties' performance in Q1 2024.

Good morning. I'm Victor Capitanu, Co-Founder of One United Properties. Today, I'm proud to discuss our achievements in the first quarter of 2024, a period marked by strong strategic management and solid financial performance. We continue to build on our strong foundation of innovation and excellence in real estate. In this year's first quarter, we posted a turnover of EUR 84.3 million and our gross results reached EUR 37 million. The revenues in the residential segment show an 8% decrease compared to the first quarter of 2023 to EUR 61.6 million. But what is more important is that the profits from our residential properties grew by 16% to EUR 24 million. This increase was primarily driven by the revenue recognition from our new developments initiated in 2023, where we saw substantial construction progress and continued strong sales and presales. Our net margin surge moving from 30.8% in the first quarter of last year to 39% this year. This improvement reflects not only an increase in sales prices as our developments advanced, but also our strategic focus on maintaining a minimum net margin of 35% across our developments. In the Commercial segment, revenues rose by 21% to EUR 7.7 million, generating stable earnings from our diversified asset portfolio. Turning to sales and product launches. We've had a vibrant start of the year. We successfully sold and presold 92 apartments covering a total area of 10,618 square meters along with 228 parking spaces. The sales generated EUR 57.1 million, reflecting the consistent demand for our properties, particularly in One Lake District, which remains our most sought-after development. As of the end of March, 73% of our available units were sold with EUR 310 million in amounts to be received by 2025 from contracts signed as of end of March. At One Capital Markets Day on April 4, we made an important announcement, our strategic expansion into the affordable premium housing segment. This quarter, we signed a memorandum of understanding for the acquisition of 21-hectare plot in Bucharest 5th District, where we plan to develop approximately 5,000 residential units that will form a self-sustainable neighborhood. This development underscores our commitment to innovation and sustainable urban growth and pushes forward our mission to reshape our home, Bucharest. Lastly, on the commercial side, we strengthened our office portfolio with multiple lease extensions covering a total area of 4,537 square meters within One Tower, enhancing our recurring revenue base on the long term. These accomplishments set a strong foundation for the rest of 2024, aligning with our strategic goals and financial targets. We remain focused on expanding our portfolio, enhancing shareholder value and maintaining our leadership in the local real estate market. Next, Cosmin Samoila, our Chief Financial Officer, will provide a detailed analysis of our financial performance for this quarter.

Good morning, and thank you for participating to our financial results presentation. We have closed another very good quarter for One United Properties, especially for our residential segment, where the net margin from sales of residential properties improved remarkably from 30.8% in Q1 2023 to 39% this quarter. This increase was anticipated and is driven by a strong development pipeline and according to our revenue recognition model, where the margin is recognized in line with the construction completion process. Consequently, in Q1 2024, there was a 16% increase recorded in net income from residential properties up to EUR 24 million. On the Commercial segment, the rental income also had a strong growth of 22% compared to the first quarter of last year, reaching EUR 6 million, a small and more leasable space is generating revenue. During Q1 2024, we recorded EUR 14.6 million gains from investment properties' fair value adjustment. Although this represents a slight decrease from the first quarter of previous year, it reflects the ongoing appreciation of our core assets including finalized the apartment for rental and capital appreciation purposes at One Verdi Park and One Floreasca Vista as well as the future Infineon campus in One Technology District. All in all, our consolidated turnover in Q1 2024 reached EUR 84.3 million, marking a slight decrease of 5% compared to Q1 2023. The administrative expenses decreased by 6% compared to the first quarter of last year to EUR 3.5 million, mainly due to lower stock option plan expense. The result from operating activities was particularly strong, showing an 8% increase, up to EUR 39.2 million, in line with the substantial growth in net income from the Residential segment and an increase in the rental income in the Commercial segment. The bottom line, net profit increased to 3% compared to Q1 of last year, reaching EUR 31.6 million. Turning to our balance sheet. Total assets consolidated the value over EUR 1 billion with noncurrent assets increasing 5% to EUR 599.1 million. This growth is primarily attributed to a 5% rise in investment properties, underscoring the successful incorporation of One Technology District into our land bank following finalization of the acquisition in this quarter. Current assets remained stable due to the strong sales and deliveries of completed units as well as a strategic decision not to introduce new developments in the sales portfolio during this period. This allowed us to maximize sales of the development currently under construction, therefore, driving the margin from residential sales significantly up. Our cash position remains an important indicator for our business, and it remained robust at EUR 16.3 million, although it saw a temporary 19% decrease due to the dividend payout and ongoing development activities across 9 developments in progress that have a total gross development value of over EUR 1.2 billion. Our liabilities decreased with 1%, improving the maturity structure with 9% increase in long-term liabilities and 15% reduction in current liabilities. Our gross loan-to-value ratio remained stable at 29%, showcasing our strong financial foundation and conservative leverage related to the European market average that is around 40%. Thank you for your attention. And to further expand the broader strategic integration of our company and key corporate events, I am pleased to introduce Zuzanna Kurek, our Investor Relations manager.

Good morning. It is my pleasure to share with you today not only our vision for the future, but also the tangible strides we've made towards our long-term goals in the first months of 2024. On April 4, during our Capital Markets Day, our management team laid out a strategic blueprint extending to 2030. This vision underpins our ambitious targets for growth, innovation product offerings and expansion into new market segments. For those of you who couldn't join us, I encourage you to rewatch the recording and review the detailed presentation available online, which outlines these initiatives and our roadmap to achieving them. As part of our commitment to delivering shareholder returns, we paid a half-year dividend for 2023 on January 31st of this year, amounting to RON 0.01 per share. Furthermore, in the recent General Shareholders Meeting held on April 25th, our shareholders approved the second tranche of the 2023 dividend totaling EUR 7.6 million scheduled for payment on July 15, 2024. Together, these dividends represent a total payout of EUR 15.2 million for fiscal year 2023, underlining our stable and reliable dividend policy. Looking ahead, we are preparing for a significant corporate event, a share capital increase during which we intend to raise up to EUR 70 million. This capital injection will be used to finance our strategic expansion and is presented during our Capital Markets Day, particularly our entry into the premium affordable housing market. This move will not only diversify our portfolio, but also cater to a broader demographic, ensuring long-term sustainability and growth of our business model. The proposed increase will be done at a nominal value of RON 0.2 per share. It is important to mention that more than half of the EUR 70 million has already been secured since it has been committed by our co-founders, Victor Capitanu and Andrei Diaconescu, together with the Chairman of the Board, Claudio Cisullo, and Board member, Marius Diaconu, underscoring the Board's and Founders' commitment to our long-term strategy. I invite you all to join our upcoming General Meeting of Shareholders scheduled for May 28th where the share capital increase will be voted. As always, you will be able to join us in person or cast your votes online. As we gear for the upcoming share capital increase, we remain dedicated to enhancing shareholder value through strategic growth initiatives, prudent financial management and transparent communication. With these strategies set and actions underway, I'll turn it back over to Victor, who will summarize today's insights and share our vision for the future of One United properties.

Thank you, Zuzanna. As we reflect on our achievements and challenges of this first quarter, we remain determined in our mission to deliver not only financial growth, but also quality to our customers. Our journey this quarter reaffirms our commitment to sustainability, innovation and strategic expansion. Looking ahead, we are prepared for exciting developments with several high-profile projects on the horizon. This includes further advances into new market segments, such as affordable premium housing, which represents a significant growth opportunity for us. We are confidently facing the future, dedicated to delivering outstanding projects and enhancing value for our shareholders, the One Community and for Bucharest, which is quickly becoming one of the most attractive destinations in Europe for both business and leisure. Thank you once again for your trust and support. We look forward to another quarter of growth, innovation and success.

This concludes the first part of our call. We will now open the floor for questions.

[Operator Instructions] Before we turn to chat, and I encourage you to put your questions there, we have received 1 question before starting this conference, and I will read it out loud and invite Victor to answer. The question is as follows. How much of the units built in One Cotroceni Park, One Lake District, One Mircea Eliade, One Mamaia Nord or other projects in your portfolio are owned by companies or foreign investment funds with which you are directly connected, such as CCT & One Properties SA from Switzerland, CCT & One from Luxembourg, ACC investments. Please specify what is the minimum and maximum transaction costs in relation to the square meter of the units sold. And what is the profit margin?

Good morning, everybody. Thank you for the question. Basically, we have only 1 fund like this, is CCT & One, and we made the 1 transaction 2 years ago in 2021. The transaction was done in market prices. It represents less than 8% of the gross development value of One Cotroceni Park and One Lake District and less than 5% of the turnover of the company. Also, in the press, it was reported that the transaction was 37 apartments, actually, it was more apartments. So it was more smaller apartments. In the case of One Cotroceni Park, what is important is that last year, we didn't have enough supply compared to demand, so we negotiated and we bought back a big part of those units, and we sold them to retail. So we made an excellent margin on those. And this year, we bought some of the others in the first quarter, and we'll be buying the rest of the units sold in One Cotroceni Park to this fund this quarter just because we don't have enough supply there compared to the demand. So basically, with this buyback, let's call it, we are making an extra margin for the company, which, of course, will be more than 30% return on equity per year. Otherwise, we wouldn't do it. Thank you for the question.

Thank you very much, Victor. I see we have now just received the first question for the good organization of the conference, I kindly invite you as soon as you have a question to type it so we can have a good flow going from a question to question. So the question is as following. Regarding the share capital increase, since it was announced, the price dropped somewhat. Could you comment on what impact will it have on the price since the share capital increase is done at a nominal value of RON 0.2 as compared to the market price? Also, if you wouldn't mind, with One's low LTV ratio, is there a specific reason why that wasn't used to finance the future operations? Thank you. I will invite Victor to address both of the questions, the share capital increase and also the debt.

Thank you. On the share market price, what happened is that we had significant demand from investors and we took this decision, which is very good for the long term, but not so good for the short term to instead of leaving them to buy from the market, and of course, to have an appreciation on the price of the company, we decided to take this money and to raise capital and to put it in the company. On the short term, it doesn't look good for the market price, but on the medium, long term, it will be much better for the strength of the company, for the balance sheet and for the value of the company. So this is regarding the capital increase. Now, we are doing it at nominal value, so will be done especially for existing shareholders. But the rights of subscription will be tradable. So in case an existing shareholder will not want to participate, they can sell the rights in the market price. Now, regarding the debt, we are -- as you know, from previous conferences, we are a bit more conservative as founders and as managers, so we don't try to overdo it with that. We think this level around 30%, what we have today, is a reasonable good amount of debt. Also, we don't have so much short-term debt. It's very important that we put all our debt on long term and is paid all the time from the rental income. So most of the debt is back-to-back with our leasing contracts with our tenants. So in this case, the actual debt is even less. Going forward, we'll be using that. We even approved in the last capital increase, a potential raise of bonds available for the next 3 years. But we'll never do it in too much big level or too risky for the company. So we'll always use debt, but at a reasonable level. Thank you for the question.

Thank you very, very much, Victor. We have another question related also to the ABB. And the question is the following. Why was ABB sale done at price of RON 0.9 and now SPO is done at RON 0.2, and 70% is already secured by Victor and Andrei? What is the reasoning behind this huge margin for them? And why is SPO not done at market price as usual? Again, I will invite Victor here to address the question.

Yes, of course. Thank you. So basically, when we did the ABB, we had demand in the market from local and international investors. In total, we had more than 60 investors that subscribed. And we had also from U.S., from U.K., from Europe and also a lot from Romania. And the price was determined by the demand and supply. So, unfortunately, the day -- just the night before Israel invaded Gaza. So this affected the closing price. Probably without that, the closing price would be higher. But that's like -- this is what happened. So this is how the price was set regarding the nominal value. This is not an advantage only for me and my partner, Andrei, but it's an advantage for all the shareholders of the company. So every shareholder -- every existing shareholder of the company will have the advantage to subscribe these preferential shares. So we did this for the advantage of the shareholders of the company. Thank you very much.

Thank you very much, Victor, for the answer. I now invite you to put your questions in the chat. We are going to wait for 2 minutes for the questions to come. Thank you very much.

We have a new question, Zuzanna.

We have received more of a comment, actually. It's a little odd that on one side, you ask the shareholders to put money in the firm and the share capital increase. And on the other hand, you pay a small amount of profits as dividends. Why not retain all the profits in the balance sheet and not distribute any of the dividends? I will ask here Victor to comment on our dividend strategy.

Yes. I think this is also a legitimate question because as long as the company reinvests the money with a compounded rate of return on equity of more than 30% a year, it makes sense to reinvest all the money and not to give dividends. So it makes sense. The question -- the comment or the question is very legitimate. On the other hand, historically, since we did our first capital raise in 2016-'17, our deal with the shareholders was to give a certain part of the profit as dividends, just for the more initial investors to have some yearly return even if it's lower compared to other dividend yields on the market. On top of this, the remuneration for myself and for Andrei, the fixed remuneration is 0. So basically, the dividends are also a source of payment for ourselves. So somehow we try to balance that. But our focus is to keep as much as possible in the company, not to miss the opportunities, at least as long as we have much more opportunities that we have equity available to implement it. As you know, Romania is growing quite fast these days. The potential is very significant for the upcoming 10 years or so, hopefully, 20 years. So I think we'll be focusing a lot to seize these opportunities and to reinvest well most of the money. Our constant focus all the time is to increase the value of the company for our shareholders. So this is the idea. This is where I have most of my money. This is where my partner, Andrei, has most of his money. So our medium, long-term goal is just to maximize the value of the business. Thank you very much for the question.

Thank you. We have a next question. When you said that 70% in the SPO is already secured, did you mean the existing shareholders or only Victor and Andrei? I would like to state here, it was clear in the video. It is more than 50% that is secured, and it's secured by Victor Capitanu; Andrei Diaconescu; Chairman of the Board, Claudio Cisullo; and Board member, Marius Diaconu. Victor, I don't know if you'd like to add -- also comment on this.

No, it is very good, Zuzanna. Thank you. I think what we can say is that 4 of us, we own 60% of the company. So basically, 60% of the money are committed. And I'm sure all the other shareholders will participate because it's done at nominal value. So for sure, everybody will want to participate to not want to miss this opportunity to reinvest in the company. Thank you.

The next question is also related to our dividend policy. Do you consider to increase the amount, the dividends paid annually at least to the inflation rates? Victor, I will invite you here to take this one.

I think maybe it makes sense. I didn't think about it before. I don't know if -- I will ask some more investors. Let's see, if this makes sense for investors, I think we could do it. I will even discuss it with -- I will discuss this question within our Board of Directors. And I will take feedback also from other investors to see if it makes sense. For me, personally, it seems like not material, but if market considers it material, we can -- we could do it, of course.

Thank you, Victor. I see we do not have any further questions, but I propose we wait 2 more minutes until 11:30. So if you have any remaining questions for Victor Capitanu or Cosmin Samoila or myself, please type them right now in the meeting chart. Thank you.

Zuzanna, we have a new question. Do you take it or shall I take it myself? 2 questions.

Yes. Let me read them out. So the first question goes, there have been a lot of complaints regarding timing of the ABB sale and the announcement of the trading update, lower apartment sales? How do you comment this?

Thank you for the question. It is very legitimate, and I will explain first on the trading update. The trading update was very strong. The sales of apartments that we did in the first quarter this year was almost the same as the one that we did in the first quarter last year, which is our historical high. So by far, the first quarter this year and the first quarter last year were our strongest first quarters ever. So I think personally ourselves, and the team, we feel very happy of how the first quarter this year went, and it shows good business activity for this year. So this is the first one, the trading update. Regarding the timing of the ABB sale, I have to say, indeed, this was not ideal. We were thinking initially to do it as a capital raise, maybe towards the end of the year or next year, but we had demand from funds and from investors from the market. So we decided it is better to take the money when it is available, not in the future when we don't know exactly how the market will be. So we think we have taken a good decision for the company and the shareholders of the company for the medium, long term, that we took the money from the table, how they say it, right away. So this way, we secured most of the capital increase. So we think, okay, the timing on the short term is not ideal, I'm aware of that, but I think for the medium, long term, and for the well of the company, the decision is extremely good.

Thank you, Victor. The following question. Do you consider to use the money from the share capital increase for any M&A to achieve faster growth?

This is also a good question, but we still have a lot of organic opportunities. And I think we can bring more value for our shareholders with organic growth. So I think for the time being, the money that we are raising this year will go straight into developments, probably mostly or all in Bucharest for the medium income and medium and upper income. So we think on this segment, we have significant growth potential, and we should just invest the equity directly in developments to achieve a higher return on equity for the shareholders. Thank you.

And another question, hi, if you could also comment on the mechanism of the preferential rights trading? Is there a market liquidity that would allow easy trading? I will take this. At the beginning from the -- from our -- we don't have experience in the trading of preference rights. This is going to be for the first time because some of you probably remember, we did have share capital increase already, SPO done in 2022. But at the time, the preferential rights were not traded. Recently, in the recent history, and I mean here 1.5 years, there hasn't been a company on the main market that has had a share capital increase with the rights traded. Therefore, it is difficult for us to comment from the experience from the past from what I saw in the market, usually. Naturally, the liquidity is higher in the first days, and it eases as closer we get to the subscription period. But of course, we don't know how it's going to be in this case. Victor, would you like to comment further on this?