Trade Estates REIC (TRESTATES) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Constantinos, your Chorus Call operator. Welcome, and thank you for joining the Trade Estates Real Estate Investment Company Conference Call and webcast to present and discuss the first half 2024 financial results. We have with us today Mr. Vasileios Fourlis, Chairman of the Board of Directors; Mr. Dimitrios Papoulis, Chief Executive Officer; and Mr. Andreas Skyrlas, Chief Financial Officer. At this time, I would like to turn the conference over to Mr. Fourlis. Mr. Fourlis, you may now proceed.

Thank you very much. Good evening, everyone. On behalf of our Board and the management, I would like to welcome you all to our first half results conference call. 2024 is a milestone year for Trade Estates as it is the first full year post IPO. In addition to this significance, 2024 is proving to be an excellent year, both in terms of financial results as well as in terms of new project developments. Our CEO, Mr. Papoulis, will elaborate on all the above later on. The real estate activity in Greece and the region is on an upward trend, reinforced by strong macro data. Also, the expected deceleration of interest rates will hopefully improve the valuation of real estate assets. On our part, we remain strongly committed to our strategic focus and the advantages it creates for our shareholders. And now, I would like to pass the floor to Mr. Papoulis, CEO of Trade Estates. Dimitri?

Thank you very much, Vasileios. I want to welcome everybody from our side too. And we are very excited to share a very strong set of results for H1 2024. So we would like to begin with a short presentation of our company for those that haven't attended in the previous time, our webcast. Trade Estates is a real estate investment company licensed in 2019 under the provision of the laws of real estate companies of Greece. It was established in July 2021 and began operating in the field of real estate investment with a portfolio of real estate assets worth of EUR 185 million. At present, our gross asset value as on June 30, 2024, that 3 years after our inception is EUR 499 million. Our portfolio comprises of 13 income-producing assets, 11 located in Greece, 1 in Cyprus and 1 in Bulgaria, 3 assets under development and 4 projects in maturation states. Our specialization is on quality retail parks and omnichannel logistics centers, serving physical and online sales. Our model is based on the early recognition of the lack of organized commercial parks and modern new generation logistics centers in the market of Greece and the region. We are focused on providing integrated end-to-end services to establish domestic and international retailers. For your information, we have a short description of the retail park concept and the omnichannel logistics in the 2 following pages. Also, we have a short description of our differential business model that specializes on the retail park and omnichannel logistics and specific information about the rental income structure and the operating model. In continuation, for those that want more detailed information, we have a list of our portfolio of our tenant mix and the projects that are under construction and on maturity stage of their planning and licensing design. It is important to mention at this point our commitment to sustainability. Through a strategic relationship with a major energy provider of Greece, we have developed the concept of supercharging EV hubs throughout all our retail parks. We have a plan to develop solar panels on our roofs throughout our portfolio and the gradual greenification of our open spaces and plots. Year 2024, the key milestones. The signing of head of terms with [ Inter IKEA ] Group for the development of international distribution center that will serve 7 countries out of Greece. The completion of a negotiation of financial terms with cooperating banks to reduce interest costs with a spread target of 1.7% to 1.7% and secured new credit lines of approximately EUR 161 million for the financing on new development projects through the resilience and recovery fund. The opening of the new top parks in Patra by November 2024 and our group consolidation project that will merge with absorption 2 out of our 10 subsidiaries until the end of the year. Our half year 2024 results at a glance. Our total gross income at EUR 20.19 million, an increase of EUR 8.4 million or 71% versus H1 2023. Our EBITDA at EUR 20.30 million, an increase of EUR 2.9 million or 16.6% versus H1 2023. Our adjusted EBITDA at EUR 14.06 million, an increase of EUR 5.4 million or 62.6% versus H1 2023. Our adjusted profit after tax at EUR 6.87 million, an increase of EUR 2.5 million or 57% versus H1 2023. Our funds from operation at EUR 7.25 million, an increase of EUR 2.7 million or 60.1% increase versus H1 2023. Our gross asset value at EUR 499 million, an increase of EUR 15 million or 3.1% versus year-end 2023. And finally, our net asset value at EUR 303 million or an increase of EUR 5.2 million or plus 1.8% versus year-end 2023. In continuation, we have the group metrics of our group for half 1 year. And the gross asset value evolution, including the H1 2024 increase at EUR 491.699 million. In continuation, a very strong and important slide that I would like to draw your attention on. At the end of H1 2024, the dependency from our dominant tenant, IKEA has dropped to 32.7% of our total incomes from rental versus 48.9% 1 year before. So that justifies our strategy for moderating the dominant tenant rental risk by decreasing the exposure of incomes from the IKEA brand from 48.9% in H1 2023 to 32.7% of total incomes in H1 2024. Our gross asset value at the end of H1 2024 has increased to EUR 499 million. Our cost of investment plan for the 5-year period between 2024 to 2028 is at EUR 219.5 million and our projected gross asset value at the end of year 2028 will range between EUR 720 million to EUR 740 million. In continuation, we provide you with an analysis of our investment plan financing needs per year and per project for the years 2024 to years 2028. So if you compare the total year 2024 to year 2028 sum at EUR 219.5 million. It verifies the investment plan presented right in the previous slide. Also, this is a very important slide that justifies -- that presents the justification of our results of the guidance that we have issued for year 2024 back in the first general assembly of our company after our listing in the Athens Stock Exchange market. So we have announced a guidance for gross rental income that will range between EUR 33 million to EUR 35 million for the full year 2024. At half year, we have 52.35% achievement or EUR 17.8 million. For our adjusted EBITDA, we have announced a guidance for year 2024 at EUR 25 million to EUR 26 million. And at half year, we have achieved 57.25% of this or EUR 14.6 million. And finally, our funds from operation, we have announced a guidance for year 2024 for EUR 11 million to EUR 12 million. And we have -- at half year 2024, we have achieved 63.47% or EUR 7.3 million. In continuation, we have our net debt at EUR 203 million, and net LTV of 41.28% and the weighted average of our cost of financing at half year has dropped from 3.99% at year-end 2023 to 3.81% at half year 2024. We have a solid cash position of EUR 20.8 million and the loan maturity at 9.1 years. In continuation, for those of you that require more detail, we present the cash flows between 2024 to 2028, where our net debt will increase to EUR 411 million, out of which 15.9% will be a recovery in resilience loan total debt. Our share price at 30th of August 2024 at EUR 1.63 our net asset value at EUR 303 million, our market capitalization at EUR 197 million. That's a 35% discount for our stock price. And finally, our shareholder base at half year 2024 comprises of 63.6% from Fourlis Group, 10.4% from Autohellas, the mother company of AEGEAN Airlines in Greece, 3.1% from Latsco Hellenic Holdings, that's the family office of Ms. Marianna Latsis, 22.2% at free float, at 0.8% for the management. More detail is provided in the appendix of our presentation, which is uploaded on our website. I would like to thank you, and I would like to pass to Mr. Fourlis for the closing of our presentation.

Thank you very much. Can we go back to the slide of the shareholding structure, please? Thank you very much. As you all know, we have -- as Fourlis Group has declared that it intends to place around 13% to 14% of its holding in order to have below 50%, thus nonconsolidating Trade Estates. The placement will indeed take place within this year. It will be on a private placement basis. And as I said, it will be finalized before the end of the year. Now a few words about the discount. As we all know, most, if not all, real estate companies in Greece and abroad have strong discounts at this point. Our discount, which is about 35% to NAV is similar to the rest of the market REITs in Greece. Now what can we do about that? First of all, and foremost, our target is to improve our results. The better results we have, the more efficient we operate, the more focused we are on our strategic initiatives, the more the possibility of reducing the discount. Second, we are now embarking on a very strong Investor Relations activity, which will culminate this year with Morgan Stanley London roadshow. And we believe that the combination of the 2 will definitely help show the real value of the company. However, what is necessary is the macro condition and that is, of course, the reduction of the interest rate and the spreads, et cetera, in the financing market. We believe that the combination of all of these will bring our market cap closer and closer to our net asset value. We have had questions regarding repurchasing of own shares. At this point, until we finalize the increase of the free float and the planning of our Investor Relations, there are no plans presently for repurchasing own stock. And with that, I would like to pass the floor to whoever has any questions.

The first question comes from the line of Caithaml Jakub with Wood & Co.

This is Jakub. Three questions from my side, please. First, I wanted to ask if the presentation will be available on the website, the slide deck that you have been referring to because I couldn't see it there or where else we can find it? Second question, I saw that in the first half of '24 the investing cash flow, the CapEx has been relatively contained. Maybe this is laid out in the slide deck, but I just wanted to ask if you could remind us about the base of the spending on investments, on land plots, on developments that we could expect in the second half of '24 and throughout 2025? And related to that, my third question, if you could remind us what is the timing of completions of some of the major developments in the second half of '24 and throughout 2025 when we should expect to start to see...

Okay. Thank you, Jakub. And always, your questions are very targeted and to the point. So as I said in the opening stage of our presentation, the presentation will be uploaded on our website, and it will be available for you to go into the details. To your second question, we have a detailed presentation of our CapEx plan. Andreas, can you please go...

He cannot see because I think he's on the audio.

So Jakub, you're on the audio, right? You cannot see the...

I understand now. Yes, that's correct.

Okay. So you have a full presentation in the detail that you want included in the presentation. And as described before, this is listed both in time and per project. So you have a very clear visibility of the evolution of investment financing needs up until year 2028. And in fact, your -- our year 2024 investment evolution, indeed is centralized in the second half of year 2024, where out of the total of approximately EUR 100 million financial requirements for the investment plan, EUR 91.7 million of this will be consumed in the second half of year 2024. Now in terms of the aging of our development plans, the retail park of Patras will -- has gone in successfully into the initially posted time line and will open its doors by the end of year 2024. And as we have discussed in the past, we are extremely optimistic about the specific project as it provides for us a best practice, both in terms of tenant mix and in terms of location within the city network. Our second project of the retail park of Heraklion is currently at 50% completion construction rate and will open its doors on the third half of year 2025. Our Sparta retail project, as we have announced, is currently at full permitting issuance stage, but we have put it on a short-term hold as we are very careful in maturing its commercialization plan in relation with the neighboring Smart Park project that is performing on an exceptional pace, both in terms of visitorship, in terms of tenant revenues and of course, in terms of rental income. Our Elefsina Logistics Center project is on finalization of maturation of the permitting process and is planned to break ground the latest by first quarter of year 2025. Our Aspropyrgos Inter IKEA Logistics Center, the iconic project that we have signed at the beginning of the year is currently on -- has broken ground and is on the completion phase of its preliminary works project that is also under special permitting process before the building permit completion. I'm sorry, the Ellinikon project that, as you all know, has a target of opening at the end of year 2027 is currently on a signing phase of the preliminary contract of sale and purchase agreement and is planned to begin its breaking ground by the end of half year 2025.

Okay. First question?

How is the [indiscernible] evolving at your real retail parks?

Okay. So the first -- yes, sorry.

Have you identified any opportunities in markets other than...

So the first question is regarding the evolution of turnover rent in our portfolio. So for H1 2024, turnover rent has represented 6.5% of our total incomes, while for H1 2023, it has represented 4.2% of our incomes. Now as regards the market of -- as regard the Balkans, we have announced in the past that our main focus is on Bulgaria. A, because of our presence there for many years, we know the market very well. And b, it's a market that has very, very strong activity in terms of private development of retail parks, where we see an opportunity in the next 2 to 3 years for direct purchase of operating units that could be enhanced commercially and operationally under the portfolio of Trade Estates. For the rest of the Balkan market, I would like to say that the only market that would be of interest to Trade Estates would be the market of Romania. But this will happen on a very targeted and very specific portfolio logic purchase after year 2027. Okay. So there is a question whether we consider diversifying the portfolio -- the property portfolio by adding assets related to tourism sector. So the answer here is that directly, we are not interested in investing directly into hotel business, but we follow very closely the so-called tourist markets of Greece for the opportunity of developing related commercial retail projects. Okay. So the second question asks whether after the posting of our results for H1 for a half year rental income at EUR 17.8 million or an annualized income at approximately EUR 35 million versus our guidelines -- our guidance of EUR 33 million to EUR 35 million and whether there is a risk for the achievement of this figure. We think there is absolutely no risk in achieving this figure. And in fact, we are optimistic about opportunities to achieve even higher results.

I would like to comment -- to add to the comment that Dimitri has made regarding diversifying possibly in the tourist business, which, of course, we said there's no such intention. I would like to add that if we decide to diversify into a third sector, it will be a sector in which we will definitely have a competitive advantage like we do in retail parks and logistics. We believe that the market is too small just to be a player, one of the many players in the market. That's why we are focusing on retail parks and retail logistics where we can play a dominant role.

And of course, that innovation is extremely important for us. And if we enter into a new sector, it will definitely be of the kind that reflects the new age real estate business. So we would like to thank you very much for your presence and your participation. We look forward to the closing of the year in very good terms. And we also look forward to the improving of the macro data that, of course, go along with the performance of our business. So thank you very much.

Thank you very much from my side, too. And of course, we strongly urge you to connect directly with our company for more questions or more insights on the information we have provided you with. And for those of you that will be attending the Morgan Stanley meeting in London on the 2nd and 3rd or the Wood conference on the 4th and 5th of December, we would look forward -- very much look forward to meeting you in person.

Thank you.