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

Good morning, and welcome to One United Properties conference call for presenting the Q3 2024 results. My name is Zuzanna Kurek, and I'm Investor Relations Manager at One United Properties. I am joined in 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 uploaded on One United Properties' website later today. As stated in the call invite, by joining the 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 today's call. Firstly, we will share with you the financial and operational highlights of the third quarter of 2024, which will be presented by our Co-Founders, Victor Capitanu and Andrei Diaconescu; and our CFO, Cosmin Samoila. During the presentation, feel free to type any of the questions you have for the management in the chat window, and we'll answer them during the Q&A. After the presentation is over, we will start the Q&A session. Please know that all the participants shall remain on mute. If you want to ask a question, please type it in the chat window. I will be moderating this session, and therefore, for the sake of those who will be watching the replay of the teleconference, I will be reading out loud all the questions before addressing them. Your questions today will be answered by Victor Capitanu, Cosmin Samoila or by 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 the actual results may differ materially. We encourage you to review the disclaimer that we have included in the presentation, which you can see right now on the screen. This disclaimer applies equally to all the statements made in today's call. So thank you for your patience. We will now be kicking off the -- we'll be kicking off this call. And I would like to invite you to watch the highlights of our performance in the first 3 quarters of 2024 as presented by our management team.

Welcome to our presentation of the third quarter 2024 results, marking another strong period for One United Properties. Thank you for joining us today. As we all know, 2024 has been a turbulent year, and we'd like to use this time to review our performance over the first 9 months and address some key questions we've encountered recently. We recognize that our decision to increase share capital at nominal value raised questions among investors. This approach, however, was chosen to secure the equity essential for our long-term ambitions. Issuing shares at nominal value ensured the full amount required for the company was obtained. We acknowledge that this decision was not fully understood by the market, which contributed to an unexpected decline in our share price, compounded by administrative hesitation on real estate development and increased public scrutiny of the sector.

Indeed, 2024 has presented a challenging environment for real estate. At our April Capital Markets Day, we introduced the ONE 2030 strategy, a comprehensive plan to guide us through the next 6 years. This strategy was met with strong support from shareholders and a favorable market reaction. Our vision includes completing 11,000 residential units by 2030, supported by a land bank for an additional 20,000, most of which will be under development or planning by then. We are also targeting the development of 275,000 square meters of commercial assets and expanding our hotel portfolio with 3 properties to be operational by 2030 and 3 more under construction. This strategy underscores our commitment to doubling our business by 2030 and quadrupling it by 2035. To accelerate this growth, securing capital was essential. The strong investor interest in our vision demonstrated immediately after our Capital Markets Day created a timely opportunity. In late April, together with our Chairman, Claudio Cisullo and Board Member, Marius Diaconu, we sold a share package to investors, including both local and international investors. We committed to reinvest those proceeds into the company's next capital increase, and we delivered on this commitment. Of the EUR 68.5 million raised in the share capital increase, we personally contributed EUR 42.6 million.

We understand that issuing shares at nominal value was unconventional. And while some market reaction was expected, the broader context amplified its effect. Our goal was straightforward: to attract long-term investors who share our vision. Issuing shares at nominal value offered existing shareholders an opportunity to increase their stake by contributing approximately 10% of their existing holdings. Additionally, we provided shareholders unable to contribute fresh capital an option to sell their rights in the market. With the operation now complete, we successfully raised over EUR 68 million, part of a total of over EUR 173 million raised from the Bucharest Stock Exchange between 2021 and 2024. This recent increase saw over 97% of rights subscribed, a testament to market confidence in our strategy and attracted over 2,000 new shareholders, strengthening trust in our growth plans. To prevent further dilution and market pressure, we opted not to proceed with a private placement, canceling the remaining 3% of the offering.

The funds raised in September are directly powering our development pipeline and strengthening our financial position. You will see the impact of this capital on our balance sheet as of September 2024. Since the beginning of the year, our equity has increased 7%, and our cash position has grown by 47%. Taking a step back and looking at our evolution over medium term, our assets have expanded significantly over the past 4 years, from EUR 350 million at the end of 2020 to EUR 1.1 billion at the end of September 2024. Equity has risen from EUR 169 million in 2020 to EUR 640 million as of September 2024. Our real estate assets have grown from EUR 260 million in 2020 to EUR 775 million at the end of September 2024, and we've kept our loan-to-value ratio stable at 30% since 2020, proving our capacity to pursue projects with minimal leverage. Looking ahead, if we identify new market opportunities, our preference is to fund them through reinvested proceeds from sale of commercial portfolio, refinancing of pending assets or, if favorable, issuing corporate bonds. Earlier this year, the General Meeting of Shareholders approved a EUR 300 million bond issuance available until April 2027. With low leverage and robust financial health, we retain flexibility to pursue this route if necessary.

At One United Properties, our management decisions are always guided by a long-term perspective, and we believe the recent capital increase will yield substantial benefits over time. The Romanian real estate market, particularly in Bucharest, holds tremendous potential, and we are dedicated to exploring these opportunities to deliver shareholder value.

We cannot ignore the fact that recent events in Romania's real estate sector, particularly the insolvency of a known developer, have intensified public scrutiny, obviously, temporarily affecting our share price. In response, we reaffirm our commitment to transparent and fair regulation, fostering a secure environment for both clients and shareholders. Discussions on potential down payment limits could reshape the market, raising costs and potentially limiting access to real estate. We advocate for alternatives like a provisional land registry for properties under construction, which would prevent multiple sales of the same unit, and policies ensuring that advanced payments are strictly allocated to project finance. Such measures would build trust, benefiting both buyers and shareholders. We also support prioritizing preferred creditors in insolvency scenarios in order to protect buyers' investment. These steps will enhance market stability aligning with the interest of our shareholders and the wider community.

Before I hand over to our CFO for the financial overview, I want to address media coverage. We support quality journalism, but we draw the line at articles misrepresenting facts for extortion. We encourage reliance on credible sources. And if in doubt, please cross-check with our official communications. As a public company, we prioritize transparency. This year alone, we published over 100 current reports. Our financial results and stock market updates are available on the Bucharest Stock Exchange website, and press releases are at www.one.ro. For specific inquiries, please reach out to our Investor Relations team at investors.one.ro. Now I'll hand over to our CFO, Cosmin Samoila, for a detailed review of our third quarter 2024 financial performance.

Welcome, and thank you for joining us today for the presentation of our financial results for the first 9 months of 2023. Over the next few minutes, I'll present the highlights of our financial performance, focusing on the key figures shaping our business this year. To begin, in the first 9 months of 2024, One United Properties achieved a consolidated turnover of EUR 208.5 million. This marks the second time in our history that we have surpassed EUR 200 million turnover threshold within the first 3 quarters. The previous time was last year. This underscores the robust position One United Properties holds in the Romanian real estate market. Our residential segment remains the main contributor to our business. By the end of September, revenues from residential property sales reached EUR 164.2 million, reflecting a 7% decrease year-over-year. However, the profit of the residential segment had a strong growth. Net income from residential properties increasing 12% to EUR 56.9 million. This positive trend is largely due to the revenue recognition from development started in 2022 and 2023. We also achieved a notable improvement in our net margin from residential sales, rising from 28.7% in the first 9 months of 2023 to 34.6% this year. This increase is driven by ongoing progress in our developments, which generate greater value as we advance through each phase and construction is getting closer to finalization. Moving to our rental segment. We recorded solid growth in the first 9 months of 2024. Rental income, including tenant services, increased with 14%, totaling EUR 22.8 million, with net rental income up with 18%. This growth reflects the strength of our commercial portfolio, especially as new tenants continue moving into One Cotroceni Park office buildings. In terms of gains from investment property fair value adjustments, the group recorded EUR 20.3 million, a decrease of 42% from the previous year due to last year having more commercial assets reaching advanced completion and rental stages, while this year, One Technology District, the future campus for Infineon Technologies; Mondrian Hotel; and One Gallery Floreasca are in the first phases of development and do not generate yet rental income. On the expense side, administrative costs remained stable at EUR 11 million, underscoring our careful cost management even as we scale operations. The result from operating activity was EUR 78.6 million, decreasing 10% year-over-year. This was primarily due to the reduced gains from fair value adjustments as pointed out earlier. If we normalize this result by excluding, in both years, the gains from fair value adjustments, our operating activity result actually increased with 12%, both our residential and commercial segment marking double-digit increase in profitability, 12% increase in net income from residential properties and 18% rise in net rental income from commercial properties. We ended the first 9 months of 2024 with a gross result of EUR 70.8 million, reflecting a 15% year-over-year decrease, while net profit was of EUR 60 million, a moderate 13% decrease, demonstrating the resilience and scale of our business even amid challenging market conditions. Turning to our balance sheet. By the end of September 2024, total assets grew with 13% to reach EUR 1.13 billion. Noncurrent assets rose 8%, driven by growth in investment properties, which totaled EUR 590.9 million as of the end of Q3 2024. Current assets increased with 18%, reaching EUR 510.5 million, mainly due to the cash position that increased significantly, up 47% from EUR 84.6 million to EUR 124.1 million by the end of third quarter, increase generated by our share capital increase. Thanks to robust sales, One United Properties achieved cash inflows from sale and presale of residential units of EUR 121 million in the first 9 months of 2024. Additionally, contractual cash flows from presales agreements as of September 2024 amount to EUR 353 million to be received until the end of 2026. These agreements cover only units presold as of the end of third quarter. At 30 September, we closed the period with a strong balance sheet. Our gross loan-to-value ratio held steady at 30%, reflecting our solid financial structure. Net debt improved and decreased to EUR 111.4 million, representing only 10% of total assets. In summary, One United Properties remains focused on building value and maintaining financial stability even in a challenging market. Thank you for your attention. And for more detailed information, please refer to the full report available on our website.

In closing, thank you for your continued trust and support. We are in a transformative phase. And while there are challenges, our direction is clear. This quarter, we began construction on One Technology District and the Mondrian Hotel with permits granted in August. As of the end of September, we had 4,041 residential units and 43,000 square meters of commercial spaces under construction, representing a gross development value of over EUR 1.5 billion. We remain focused on executing our vision and building a company that delivers value over the long term. Thank you for being part of this journey with us.

Thank you all for your attention. This concludes the first part of our call, and we will now open the floor for the questions.

As I mentioned at the beginning of the call, please type your questions in the chat box, and we will address the questions one by one. So we already received the first questions. I'm going to read them out loud, and then we will address them. Thanks for the presentation Can you remind us how much cash proceeds has One received from customers buying its apartments? And what were the cash outflows for residential development and land acquisitions in 2022, 2023 and 9 months of 2024? I will invite Cosmin Samoila to answer this first question.

Thank you for the question. Basically, on the inflows from sales, as we reported in the trading update, we collected, this year, EUR 121 million from clients. And we have estimated from contracts that already signed, presale contracts to collect another EUR 353 million by the end of 2026. Related to the cash outflows and land acquisitions here, I would direct to the financial statements. I can come back also later. I don't have these figures at hand. But we have the cash flow in the financial statements. And for the previous years, especially, we have all this amount presented there.

Thank you, Cosmin. The next question is, in the report, you highlighted the cash proceeds One is yet to receive in coming periods from the apartments that has already sold and presold. Can you remind us how much construction CapEx remains to be spent to complete and deliver these projects? Again, this will be a question for Cosmin.

Okay. We are currently updating the budget for next year and for the future years. So what I can say very clear is that we anticipate less cash to invest in the current construction projects compared to what we have to receive from sales already contracted. We cannot disclose yet the exact amount, but this -- what I can say is that it is below this EUR 353 million that we will cash in, in the next 2 years. Thank you.

Thank you, Cosmin. The next question. Thank you for the presentation. Looking at note 18 of the financial statements, I see that no revenues were recognized in relation to One Lake District Phase 2 sales. I understand that construction of the development commenced in Q3. Is there another condition that must be met before revenues can be recognized? Thank you. Again, I will invite Cosmin to address this question.

No, there is no other condition to be met. We will start recognizing revenues. But currently, the stage of completion is very low. We just started construction. So the revenues recognized are immaterial at this moment. But because we have very good sales in this Phase 2 development, we -- our expectation is that in the next period as the construction will start to advance, we will start recognizing more and more revenues and profit from this development also. Thank you.

Thank you, Cosmin. The next question, thank you for the presentation. What were the residential sales for One Peninsula development so far this year? What I can say is that indeed, we changed the way we are reporting in the sense that we only report the significant sales from 10 units up that have generated. So what you can assume is that there was a single-digit sale in terms of units at One Peninsula, but this is a smaller development of approximately 160 units. I don't know, Cosmin, if you would like to add something more precise. But yes, we will -- we decided not to disclose the precise number there. Victor, I don't know if you'd like to add something on this.

Yes. I can say that One Peninsula, it is and it will be the most exclusive compound in Bucharest and in the country. So it is highly, highly desirable. It had some delays on the former administration, which we are now catching up, and hopefully, we deliver everything by the end of next year. The demand there is strong. And I think it's just a fantastic community where I would like to sell as late as possible. So it's a bit different than maybe other developments where we have volume. This is more exclusive, smaller. And the later you sell, the better it gets. Thank you.

Thank you, Victor. We -- I would like to mention if you have questions for the management, please type them in the chat box. And to give you some time to type those questions, I would like to address one of the topics that we've also had in the previous call, and we received a lot of e-mails related to the share capital increase registration. What I wanted to let you know as an update is that the share capital increase has been finally registered with the trade registries. There were unfortunately delays as of summer of this year across the Romanian trade registry due to the process of digitalization that this institution went over the summer. Following the closing of the share capital increase mid-September, we have submitted all the documentation without any delays. Unfortunately, there were -- there was a big backlog of requests that the registry had to deal with first. This is why this process lasted longer than we wished it had lasted. But the good news is that it has been registered with the trade registry. Now we still have 2 more steps, registration with the Financial Supervisory Authority and, after that, registration of the shares with the central depository. But here, we do not expect any further delays. These are the institutions that we are in close contact with. And we expect that in the coming period this month, the process will be finally finalized. Again, we're not committing to a date because, unfortunately, these are the steps that do not depend on us, but I just wanted to give you an update because I know this has been a topic of interest for many of you. And in the meantime, I saw -- we did receive another question that we will address right now. Thank you for the presentation. In the Q3 report, you mentioned that construction works are progressing slower than anticipated. Can you please give us more details about the delays? Here, I will ask Victor to address the question.

Yes, it is very good question. We had a slower progress on the construction sites between April and July 2024. Mainly, this was due to delays in approving bank finance for some of our developments, One Lake Club, One High District, One Lake District. In the meantime, we decided to advance on equity and to accelerate some sales. What I can say is that today, everything is progressing at full speed. So we are trying to catch up as fast as possible. And any not registration in turnover or profit due to the slower registration of construction works will be recovered in the coming year. Thank you.

Thank you, Victor. The next question, thank you for the answer. One more question from my side. What was the impact of the change in taxation for new homes on client demand? I will invite Victor to address that.

I didn't see any -- thank you for the question. Actually, I don't know. Cosmin, do you know better this topic maybe than me? Because I mean, I didn't see any impact on the sales and on demand. I didn't hear about any impact on demand from change in taxation. So I don't know, Cosmin, maybe you are aware of what change in taxation, or Mr. Alex Dodoi can give us more background. I'm not aware, to be honest.

Probably it's about the VAT -- reduced VAT quota that increased from this year from 5% to 9%. And I can confirm also that we haven't seen an impact in the taxation from this aspect because if you look on the statistics and on the macroeconomics, anyway, the salary level increased more than this tax and also more than the price of the apartments in the last year.

Thank you. We will -- I see we have answered all of the questions. Let us wait 5 more minutes. If you have any other questions, please type them in the chat. If not, we will be concluding the call.

The gentleman, I mean, we have some more background on the change. I'm referring to the 19% VAT, but I really don't know where is the change in taxation. I mean 19% VAT was always -- can you give us more background for the question, please?

I see we got -- while we get more update on that question, I see we have a question. Are you considering the sale of one or more commercial office buildings? In the media, there were rumors about One Tower and One Victoriei Plaza. I will invite Victor to address this question.

Look, we are always looking to opportunities to dispose rental assets and recycle the equity in new developments. Why is that? Because the rental assets typically generate, with the current financing place, 11%, maybe 12% IRR on the equity deployed there, while if we reinvest this money in new development, maybe return on equity would be 30%, 35%. So the only thing for which we are looking is that always we want to make sure the equity is deployed in the most efficient way. If you look in the last 18 months, we've sold 6 rental assets, with yields between 6% and 7%, which, I think, was good for the company, and the money, we reinvested, of course. And we have other rented assets. We don't have only One Tower and One Victoriei Plaza. We also have One Cotroceni Park. We have Bucur Obor. We have One Gallery, former Ford warehouse. We have Infineon Technologies. So there is a number of rental properties, which some of them we might sell in the future. It is not any rush. Maybe it will happen in 2025, maybe in 2026, maybe later on. We only do it if there will be a good moment in the market and if we think the deal is good for the company and for the shareholders. Thank you.

So we have received the clarification. To clarify, I was referring to reduced VAT rates of 5%, 9% compared to 19%. So this is what Cosmin addressed in his answer already. So regarding the minimal impact. Now we got a new question. In case of new law that limits to 10%, the cash advance will apply to all customers, retail and firms.

Look, thank you for the question. This is just speculative for the time being. It looked more like political, let's say, declaration. We didn't see any draft of this law. We are not aware if it is advanced or not. We are involved together with the real estate association and the other players in the market to -- in order to see that whatever changes are done will help protect the clients and the developers. It's difficult to know and to speculate now exactly how this law will look, to be honest. We put public some of our ideas even in our call earlier this morning. Maybe some of them will be considered, maybe some not. But what is important is that any change that is done is important to protect better the clients but to protect also the developers because without protection for developers, the clients will never be protected. So I think this is important. Thank you.

Thank you, Victor. The next question, what percentage of the current development costs are financed by clients that are prepurchasing apartments or make advanced payments? I will invite Cosmin to address this question.

Thank you for the question. It's different percent from development to development, depending on the type of development, depending on the -- how strong the sales work. But I can tell you that in average, it's 40% to 50% of the construction cost that is financed by advances from clients. Thank you.

Thank you. The next question, do you accept payments with cryptocurrencies such as Bitcoin? I will invite Victor to...

Look, we didn't sell anything up to now with any type of cryptocurrency or Bitcoin or whatever. But I think it is possible to be done. So let's say, if you are a client and you would like to pay with Bitcoin, as long as you notarize the contract and -- when you pay, you can pay through an exchange and One United Properties can just get lay. So I think it's not complicated for a client to pay with Bitcoin and the company to get lay as long as you notarize the contract and the transaction is transparent. I don't see any issue in not be able to doing that. Up to now, we never had any case. If you are interested yourself, we can try to make it happen.

I see there is a further comment that in the U.S., there are some companies that hold Bitcoin in the balance sheet. Yes.

Yes. I mean we are not holding any Bitcoin in balance sheet, and we don't intend to do, especially that now crypto and Bitcoin is at historical high. Plus, I think this is a speculative investment, and our purpose as a company is to develop and to invest in real estate and to make money from real estate. So basically, if somebody wants to get exposure on Bitcoin, they should just buy directly Bitcoin. If they want to get exposure on real estate, I think this is a good moment, a great moment to get exposure on One United Properties. Thank you.

Thank you, Victor. If there are no further questions, we will conclude this call. Thank you all very much for joining us. This was the last call of 2024. Next time we are going to hear each other is going to be at the end of February 2025 after we publish the preliminary results for 2024. We will be publishing the financial calendar for 2025 in January next year. So you will have a clearer idea about our reporting, when this will be due, both the trading updates and the financial results. And in the meantime, as Victor mentioned, in the results presentation, we remain very active in terms of keeping the market up to date on our activities. So you can always follow on BVB website, our financial and current reports on our website, the press releases. And of course, if you have any other follow-up questions, you can always reach out to us at [email protected], and we'll gladly answer any of your questions. Thank you all for your presence today, and we look forward to engaging with you next in 2025. Thank you.