Earnings Call: Q3 2024

Nov 26, 2024

I'm joined today by the Management Board being represented by Gyula Nagy [Foreign language] Balázs Gosztonyi, the CFO, György Stoffa, the Chief Operating Officer, and Zsolt Farkas, the Chief Strategy Officer, who will hold the formal presentation, which will be followed by Q&A session. Let me pass the floor over to Gyula Nagy. Thank you very much, Malgosia. Good morning, everyone. Thank you for the opportunity to have this presentation about the Q3 financials of 2024 of GTC. GTC closed a very pretty solid nine months ending September 30th, 2024. Yes. Revenues. You must say what? Excuse me. Revenues from rental activity and gross margin increased by 3% and 2% respectively to EUR 139 million and EUR 97 million respectively, also due to, mainly due to the completion of three assets recently, specifically the Belgrade asset called GTC X, an asset located in Budapest called Rose Hill Business Campus and Matrix C in Zagreb, plus, followed by indexation, validated for 2024 compared to 2023. This was offset by an optimized level and optimized trend in G&A costs. FFO rose to EUR 55 million for the nine months of 2024 compared to EUR 52 million in the same period last year, concluding an FFO per share amount to EUR 0.10 per share. The EPRA, the net asset value of the company amounted to EUR 1.248 billion as of 30th September, compared to a slight increase due to valuations of the portfolio. The Net Loan-to-Value dropped to 48.8% from 49.3% as of last year. If we take into consideration all the cash put on Escrow Account for developments and bond buyback, the so-called adjusted loan to value would be 48%. We managed to reach good achievements in the occupancy. In this market, we can say that we managed to maintain the occupancy level at 87%, seeing a kind of improving trend, especially in the Polish office market. Our cash dropped to EUR 49 million, plus the amount of cash put on the Escrow Account amounts to EUR 21 million. As one of the key element of the strategy of GTC, presented and validated in 2023 was the disposal strategy and in order for the execution, we would like to highlight 2 disposals here. One is the Matrix C office building in Zagreb, Croatia, which is a 10,500 sq m premium office space. And we could negotiate the sale price of EUR 27 million there, concluding a net proceed of EUR 13 million. This is to be expected, this is expected to be closed this year, and the net proceeds will be realized as expected this year as well. The second one is GTC X. GTC has already concluded and signed and executed the SPA for the disposal of this asset. GTC X is a Belgrade office building, a premium office space of 17.7 sq m. We could negotiate the sale price of EUR 52 million, concluding in a net proceed of EUR 24.2 million. Again, the closing is expected to be taken place in Q4 this year. The CPs are, the fulfillment of CPs are in progress in advanced status. If we move forward, Malgosia, please. Another key element of GTC's new strategy adopted last year was the exit from our non-core and non-cash generating asset to new asset classes and new higher rated Western European countries penetration. As one of the first step to execute this strategy was the sale of so-called Hotel Landshut, which was a non-cash generating and non-core asset of GTC. From this sale taken place in January this year, GTC realized a profit of EUR 3 million. From the cash proceeds, we would like to highlight that as a first step, as a first, smaller step for execution of the portfolio diversification strategy was the acquisition of Elibre, which is a senior living project located in Berlin, Köpenick, Germany, with 15 apartments on more than 4,000 sq m and to be expected to be completed in 2026. Here in the next slide, we would like to highlight that GTC, as presented last year, managed to acquire, sorry, a residential portfolio in Germany with a significant ticket size comprising of almost 5,200 residential units. This portfolio is located in 3 cities in Germany, specifically Kaiserslautern, Helmstedt and Heidenheim, with a comfortable occupancy rate of EUR 87.4 million. With this transaction, GTC will increase its portfolio by almost 24% based on the gross asset value of the income generating asset portfolio and strengthening our position as one of the leading European real estate developer and investor. The acquisition of portfolio leads us to significant increase in asset class diversification as per the strategy adopted. GTC will diversify its well-balanced portfolio, comprising 53% office asset, 28% retail asset, and 19% residential, only with this portfolio based on the gross asset value of the income producing assets. If we move forward, Malgosia, please. With Paula transaction, GTC expands into higher AAA rated European real estate market in Germany, benefiting from a temporary disrupted market with a low transaction activity, high interest rates and thus resulting in low real estate values. GTC sees the German residential market fundamentals with favorable outlook. For example, increasing house deficits, deficit, lowering vacancy rates and decreasing interest rates, and sees a great opportunity for value creation by the planned modernization of the acquired properties and the partially disposal of the portfolio at higher prices in the next 12-18 months. With this transaction, GTC can quickly diversify its portfolio by 1/5 of the portfolio will be residential, in a higher AAA rated real estate market. With this acquisition, GTC can leverage its management expertise with a joint utilization of the sellers team to create local operating infrastructure to operate, to execute the disposal strategy and to operate the residential for rent portfolio as per the business model. We move forward in the summarization of our portfolio. Compared to the recent quarters, no significant change as of September 30th. No significant change happened in the composition of the portfolio. 86% of the total portfolio on Gross Asset Value base is recurring. Out of the recurring income producing and out of the income producing assets, 65% of that is office portfolio and 35% is retail portfolio. The active development projects comprises 7% out of the total portfolio. The 92% of the portfolio is still located in EU countries, we managed to slightly increase our green certified portion of our assets to 93%. For the following quarter, this presentation and this slide will be fundamentally changed just due to the acquisition, the contemplated acquisition of GTC Paula portfolio. Now I would like to give the word to Balázs to continue the presentation about the financials of Q3 of GTC. Thank you very much. Balázs, we cannot hear you. Sorry. Thank you, Gyula. Could you confirm, do you hear me? Yes, we can hear you. Perfect. Perfect. The financials will be presented in a regular order, P&L, cash flow, debt summary and a balance sheet. Thank you, Malgosia. GTC's quarter was strong, showing EUR 3 million revenue increase in line with the previous quarters, stemming from indexation and the rental rate indexation along the European Consumer Price Index. Increase compared to last year was also supported by introduction of new capacity in Budapest, Belgrade and Zagreb. Costs also slightly increased, maintaining in the gross margin level, 2% margin increase compared to same period last year, resulting EUR 97 million gross margin for the first 3 quarters of 2024. Admin expenses stabilized, decreasing to approximately 8.6% of the revenue from 11% in 2023, which is an improvement that was targeted before. Revaluation loss is a mild EUR 6 million in the first nine months of 2024. That is stemming from the decrease in value of completed office portfolio, mostly in Poland, which was offset partially by the asset value increase of under construction projects of GTC. This revaluation loss was due to the decreasing occupancy. As we reported in Q2, occupancy deceleration, meaning that we already saw in Q2 the slowing down of the decrease. We can report a slight increase in Poland that reassures us on moving forward. This resulted in a EUR 76 million of profit from the operations. Financial costs increased in the quarter by EUR 2 million compared to the same period last year, due to taking additional debt and the increase in weighted average interest rate that's reaching 2.89% in 2024. This takes us to EUR 41 million of profit, while EBITDA reached EUR 84 million in Q3. This is an 8% increase year on year, while also our EBITDA margin increased compared to 2023. On the cash flow. Cash flow from operating activities before interest payment remains strong. We have 7% increase year on year, backed by the previously mentioned revenue and controlled cost, resulting a EUR 76 million cash from operating activities. Investment activity cash flow reached negative EUR 56 million in Q3. That's an overall increase compared to last year's same period, which is underlined by the EUR 80 million investment into real estate and related, which is EUR 15 million decrease compared to last year, same period. The EUR 80 million investment can be split into EUR 63 million investment into the ongoing projects of GTC development and CapEx as well. The acquisition of investment property of Elibre, which takes up EUR 12 million, and financial asset acquisition is responsible for EUR 6.1 million on the investment side. GTC realized EUR 14 million euro return from escrow accounts, as well as EUR 11 million from disposal of Hotel Landshut project in Budapest. We look at the financing cash flow. The financing cash flow were boosted by two new or refinanced project loans drawn down in Poland and Bulgaria over the course of the first three quarters. These amounted 87 million EUR, which were offset by the 52 million EUR repayments that was due to expiring loans. By the end of Q3, GTC paid 28 million EUR interest and 30 million EUR dividends. That results on first three quarter, 31 million EUR negative cash flow from financing activities. On the overall level, GTC's cash position decreased by 11 million EUR to 49 million EUR by the end of Q3. The cash balance will be boosted by the transactions mentioned by Gyula. We expect net proceeds of around EUR 35 million from closing these transactions before the year end. Coming to the debt metrics. Total debt stands at EUR 1.3 billion. They are split 50/50 between unsecured and secured debt. Of which 92% is currently hedged or at fixed rate. Total net debt slightly increased compared to last quarter due to the decrease in cash levels that was detailed earlier. The weighted average debt maturity compared to last quarter hasn't changed. It's standing at 3.1 years. The maturity of Galeria Jurajska, which is ahead of us, it is expiring in Q1 next year. The loan refinancing is progressing as planned and will be closed early next year. We are targeting to close it before mid-February. Our LTV slightly increased compared to last quarter, it is still an improvement compared to end of last year. Mentioned earlier, the weighted average interest rate has risen to 2.89 million. Sorry, 2.89% due to the refinancing of expiring loans, the renewal of hedges, and the additional new loans that were taken on during the course of the first three quarters. Coming to the balance sheet, the investment property values grew by EUR 65 million compared to last year, end of last year, where the revaluation loss of EUR 9 million and the reclassification of the Matrix C unit of ours were offset by the increased value through investments into inter-investment properties and investment properties under construction. The later two took up EUR 63 million. This was the value was also boosted by the acquisition of the German senior housing project mentioned earlier. We reported also in previous quarters the increase in perpetual usufruct fees. On the cash and cash equivalents, the net effect has been detailed. As a summary, we took on 88 million additional new secured financing on a project level, and 14 million EUR from short-term deposits that were offset by the 63 million expenditures on the properties interest payment, dividend payment, and the repayment of borrowings. This takes us to the total assets amounting 2.723 billion EUR at the end of Q3. On the liability side, similar effects were recognized. What was not mentioned in the short and long term financial debt that we had, negative EUR 6 million effects the difference. We executed EUR 5 million of bond buybacks during the course of the first nine months. One thing to add on the short-term portion of the debt. Last time we reported EUR 140 million of short-term debt that were increased by refinancing of Polish loans by EUR 40 million. We have one outstanding project financing on a short-term portion that is Galeria Jurajska that I mentioned earlier, is progressing according to plan. That more or less concludes the financial summary that I intended to present. Thank you for your attention on my side. Thank you very much, Balázs. Thank you very much, Gyula. Ladies and gentlemen, we are open for a Q&A session. If you want to ask question, please unmute yourself and go ahead. I cannot hear you, Magosha. Sorry. Ladies and gentlemen, do you have any questions at that stage? We are open for Q&A session. It's Peter at Man Group. Just a question from my end. I mean, do you have any other additional asset sales in the pipeline planned? My second question is, you know, what is the minimum amount of cash that you require for the operations? Balázs, can you please answer. Sure. The question? We do have a disposal pipeline we are looking into. Obviously, we have the Irish project that we intend to dispose of. We do have negotiations or discussions in Poland as well as in the other countries, but mainly in Poland. We do have a disposal pipeline beyond the two transactions that we mentioned. We are expecting at least additional EUR 50 million to EUR 200 million of disposal revenue from net proceeds from disposals in the first quarter next year. When it comes to the minimum level of cash required for operation, we are. This is Q3 reporting period. Since then we improved our cash levels. To operate the minimum is about EUR 10 million-EUR 20 million below the currently reported levels. Got it. Thank you. I guess in terms of, like, the sequencing of the asset sales, is it, is it fair to say that the Polish asset sales will come first and, you know, the sale of the Irish project is probably like a medium term target? Well, you know, it depends on many things. I believe that the polish transactions would be simpler, therefore, potentially they would come first, yes. Coming to Kildare, we should consider the separated sale strategy than the real estate of GTC. The disposal of the real estate of GTC as they are. Still the disposal of Kildare is still on the disposal strategy. GTC still holds 25% minority stake in the project. They're still showing interest from certain investors and big market players for the potential and the interest for acquisition. Negotiations are ongoing, driven by the project manager. However, the disposal is still behind the initial planned schedule as we, as the GTC management set up early this year. GTC still sees the feasibility of the exit in the, let's say, next 6 to 9, 6 to 12 months of the project. We can confirm that the proceeds from disposal of the asset is not critical to execute the Eurobond financing refinancing, maturing in June 2026. Coming to the disposal of the asset, this is executed in an asset-by-asset basis or not a portfolio basis, and we see good signs in the market approaching us by investors and potential buyers for the assets. Still on the disposal strategy, there are still assets which we are in advanced negotiations with potential buyers. Gentlemen, do you have any additional questions to the management? As there are no additional questions, thank you very much for your time and for your interest in GTC. We'll be happy to answer any question you may have. Just give me a call or send me an email. Thank you very much for your participation. Goodbye. Thank you. Goodbye. Thank you. Goodbye. Thank you all.