Earnings Call: Q1 2022

May 30, 2022

Hello, ladies and gentlemen, and welcome to our conference call regarding the release of the Warimpex report on the first quarter of 2022. At this time, all participants have been placed on listen-only mode. There will be an opportunity to ask some questions following the presentation. Let me now hand over to the CEO of Warimpex, Mr. Franz Jurkowitsch. Good morning, everybody. We had a quite good result of Q1 because we improved our operating results, and quite significantly. We had a very good increase of revenues by 41% to EUR 8.5 million. We had an increase of the EBITDA to EUR 2.9 million compared to EUR 1.6 million last year. But we incurred a loss, but the loss is primarily a revaluation of our Russian investments and also the FX exchange rate to the ruble, which was in Q1, as you take the weighted average of the full Q1, lower than by end of the last year. But this is more or less not an operating issue. It is more or less a financial result. We are very proud that we could increase revenues and EBITDA, and we are on a very good, let's say, road. Concerning the operational highlights, we are working on the building permit because we got building permit for Chopin, which is the picture you see here. We are in negotiations for a development into a direction of, let's say, kind of co-living scheme together with co-working shops. We are very successful with the flexible office concept, which we reported as co-working. You see on the left-hand side our co-working unit in Kraków, and on the right-hand side, you see one in Łódź, which we opened last week. Kraków is 100%, it's fully let. We already extended it at the expense of a canteen, where we got the canteen never opened. They paid their rent, but due to COVID, they hadn't enough customers. So we asked them to terminate, and to extend it for co-working, and it was successful. We are also full there. Now we started in Łódź with a unit of 450 sq m. 40% is already let and the tenant is moved in. We are in negotiations for the other 60%, where there is one interested party to take it over. The next step will be that we also enlarge it by another 400 sq m. So what we learn is that the new tenants, they look for flexibility. So the flexibility that they can, on the one hand, move in in a fully furnished environment, and that they can terminate by pre-agreed termination dates. That's the flexibility which they really enjoy, and they are willing to pay also for the full environment. We have free coffee, we have a bar. Please hold the line. Is somebody. Yeah, so now it's doing well again. Yeah. So that's a concept which we are going to put into our new developments as well and into our new acquisition. I think most of you already attended 2 weeks ago when we had our 2021 results. So I walk you through fast. You see our key objectives for 2022, it's new developments, and there is under construction for the new developments, Kraków, the so-called phase 3, and we are in negotiations to buy an existing office building in Łódź. This is a rendering of Kraków. Phase 3, we have now finished with the 3 underground, so kind of garage stories. And we are starting now to come out of the ground for the above ground. For the acquisition in Łódź, we have not yet a rendering because we would like to close the transaction before we show it. We made significant steps. We have secured financing, and we do now the technical steps, and hope that we can close the transaction by end of June. The other buildings, maybe on the development side, is more of flexible offices. We have Białystok, where we would like to have a mixture of, we start with one of the 3 blocks because it's not such a strong market. We don't know how a Class A building will really perform. So we will start with a mixture of, on the ground floor, of retail with some flexible office space and with traditional office space. The second tower of the AIRPORTCITY. It's the third tower of the AIRPORTCITY. We asked now for the so-called Finishing permits. That means in German, it's from the authorities, because all the key elements that from a technical point of view, the building is ready for handover, have been met. The future works which have to be done will be depending on the fit-out requirements of the tenant. Or concerning negotiations with a potential tenant. Continue. Just a second. We will continue negotiations, and we will meet prospective tenants middle of June, during the Saint Petersburg Economic Forum. We are quite optimistic that we will make progress there on the renting side. Daniel, you can go ahead. In Darmstadt, we are expecting the so-called B-plan for the whole development. This is only one part of it. For this part, we have parallel to the B-plan, also asked for a building permit, which will get valid once the B-plan will get valid. For this building, we have an interested party as a tenant for about 60% of it, and we are now in ongoing negotiations. Let's go on our second objective. It is sustainable buildings. As you saw in the last two renderings, we all are planning buildings which are conformed to taxonomy, and we will go for BREEAM use or Excellent certificates or higher, or a LEED Gold. That's our hurdle for our future developments. Daniel, let's go forward. The green buildings we are already having in operation. We have for the Zeppelin Tower, a LEED Gold certificate. For the Mogilska in Kraków, a BREEAM. That's the building where also the co-working is part of it. The Ogrodowa office in Łódź. It's also a BREEAM where we also started with the co-working. For the two under construction, Avior and Mogilska, which I have presented before, it is in one case a LEED Gold, and the other one a BREEAM Excellent. So much about the results of Q1, and I'm open for questions from your side. Thank you. If you would like to ask a question, please press star and six on your phone to unmute yourself, or for our online participants, please click on the microphone icon at the bottom of your screen. If you would prefer, you could type your questions in the chat, which you can usually find by clicking on the speech bubble icon on the right of your screen. Hi, this is Oliver Schimke from RBI. Thank you very much for the presentation. A quick question on the valuation effect. I believe that you have not done external valuations as of now. Could you give us some more insight into where those 4 million came from? Is this translation effect of the valuations in rubles? Or yeah, what is the source of this? This is Daniel. Hi, Oliver. Here is Daniel Folian speaking. I am in Budapest today. That is why I am sitting not close to Mr. Jokovic. We mandated an external valuation by CBRE Russia for all our Russian office buildings. The reason for the lower valuation are higher discount rates. Because the interest rate in Russia was very high. End of March, it was at 20%. In the meantime, it was decreased to 11%. The main effect was this higher discount rate. We are looking forward for an updated external valuation as of June, and hope that the discount rate will be lowered again, and that we will see more transactions in Russia. Mm-hmm. This was all done already externally. Not only at half year this year, but also at the first quarter, you did the external valuation for the Russian portfolio, right? Yes. Right. Because we saw a triggering event with the war in Ukraine, and so we decided to have everything externally evaluated in Russia. Mm-hmm. Thank you very much. On revenues, you consolidated the Jupiter Towers. How much of the increase is actually attributed to the towers? The full 1.5 million? Or yeah, how much of the revenues are accounted for by the Jupiter Towers? Yeah, most of it. But as the ruble rate was very weak in the first quarter, you will see even a steeper increase in the coming quarters if the ruble stays where it is now. Mm-hmm. Thank you. Lastly, you mentioned that the negotiations are ongoing in Saint Petersburg for a prospective tenant for the Avior Tower. How do you manage operations currently there? Are you able to travel there? I think you mentioned that you will be traveling to a conference in Saint Petersburg. Maybe also, as you indicated you are not starting any new investments in Saint Petersburg. So far you have always, I understand, reinvested the proceeds from the properties there into development activities. Are you going to be able to repatriate those earnings now that you do not reinvest them, or yeah. Any indication on that would be helpful. There are many questions. First, traveling is possible through, let us say, Istanbul. Turkish Airlines even doubled or tripled the connections to some destinations in Russia. So you lose a day, but you can travel there. That is the one thing. The second one is we have a team of about 20 people in Russia, which are doing the whole construction control. Also, part of the negotiations concerning the relationship with the tenant and the normal property and asset management. So that means it is not so much depending on us in Vienna. Naturally, for the final negotiations on Avior, we will take part in it because the personal momentum is always an issue, which is for such a big transaction or negotiation important. So that is why we have already planned to do it during the Saint Petersburg Economic Forum. Furthermore, your question concerning the market situation in general, I would say, is not so significantly changed to the year before. If you are in rubles and we have ruble income, and we have part of it, debt service in rubles with the exception for the hotel. We have a surplus in ruble, and we are allowed to transfer per company. If it is a profit, you can transfer 10 million RUB per quarter because profit you cannot transfer per month. Where you have shareholder loans in it, and that is one company, we can transfer 10 million RUB per month for interest on shareholder loans or for redemption of shareholder loans. That is what we are using. The remaining part of free cash flow we use, we have to do the tenant fit-out for Avior. So we need some money depending on the negotiations, where is the better limit, how much is the tenant taking over, how much do we have to do? So we will need some part of the free cash flow, which remains from this year, from 2022, to service this necessity of financing the tenant fit-out. But we can do it without transfer from money from Austria. Mm-hmm. Thank you very much. Just maybe one more sentence. Future, we think that the capital controls of transferring only 10 million RUB per month will be sooner or later, maybe not fully lifted, but they will be maybe eased so that there will be a higher amount possible, and that will fit well for the year 2023 in my view, also for us. Mm-hmm. Okay. Thank you very much. Again, if you would like to ask a question, please press star six on your phone to unmute yourself or click on the microphone icon at the bottom of your screen. Hi, this is Christopher Kurz from Meritz Group. Can you hear me? Yes. We hear you well. Oh, okay. Great. Thanks. I would also have a question regarding Russia. We have now a very interesting situation regarding their FX rate. Would it be theoretically possible that you also sell your assets to your tenant? This could create a kind of win-win situation, and would it then also be possible to transfer the money? Look, for the time being, I think there is not yet. To sell it to the market, I think those transactions which are taking place are transactions with a very steep discount to previous market value. I think that's something we wouldn't do. We don't want really to hurt our cash flow or our values. But on the other hand, if the tenant would be coming with a proposition to buy at, let's say, a value which was before the war, it's something we definitely would consider to be an issue for a negotiation. But naturally, we don't want to have money blocked on a ruble account in Russia. So it must be, if such a situation would happen, we have to find a situation where the money is paid in Austria, in EUR, and where we are not hurting any sanctions. Yeah. There are sanctions on both sides, not only on the Russian side, but also on the European side. Yeah. We wouldn't do any step which would put us in an awkward situation. We have to very carefully proceed. What we are doing to rent out, everything, the old contracts, old financing, we have legal opinion by an international law firm, which we are updating because sanctions regime is also from month to month changing. Is something which is we are operating in the legally correct sphere, and our tenants are not on the sanction list. It's understood. Thank you. Thank you very much. Well, if there are no further questions, then I thank you very much for the interest in Warimpex. I wish you a nice day, and we talk at the latest in three months from now. Thank you. Bye-bye. We have reached the end of our call. A PDF of the presentation and the financial report are available for download from our website, warimpex.com. We thank you for joining our call today and wish you a pleasant day.