Good afternoon, ladies and gentlemen. Welcome everybody on GTC's H1 2022 results call. It's my pleasure to introduce Zsolt Farkas, the CEO, and Ariel Ferstman, the CFO. As usual, we will start with a short presentation done by the management board members, followed by the Q&A session. The call is being recorded, and it will be placed on our website. We will follow the presentation that was also posted on our website. Thank you very much, and let me start the call, passing voice over to Zsolt.
Thank you, Małgorzata Czaplicka. Welcome everyone. Let's start with the presentation of the H1 results, after which we'll be very happy to answer questions. I'm happy to report strong financial results for the first half this year. Our revenues increased to EUR 84 million by 6%. Gross margin went up to EUR 62 million from EUR 59 million. EBITDA grew to EUR 53 million. FFO increased by 7% to EUR 34 million compared to the same period last year. Our EPRA NAV currently stands at PLN 10.8 per share, compared to our current share price of 6.9, which represents a 40% discount to NAV. LTV stays at the projected 42%. Our occupancy remains high at 89.4%.
We have a strong cash position, EUR 250 million, on our balance sheet. We also have available credit facilities in the amount of EUR 94 million. I can summarize that we continue to have a strong financial position with strong cash generating capability. If you turn the page, I can also report that we had a busy quarter in the second quarter of this year on the transaction side. We closed the disposal of an office building in Bucharest, Cascade, that has a value of EUR 10.1 million in Bucharest. This price is in line with book valuation. We signed an SPA for our office building in Debrecen, Hungary, slightly above book value.
We expect to close this transaction in third quarter this year, which should result in a cash revenue in the range of EUR 48 million. We also signed an SPA for Matrix A and B in Zagreb, 7% above book value. This is a EUR 52 million valuation. This valuation represents a return on cost of over 22%. I think it's important to mention here that first of all, these transactions demonstrate that we can trade our assets even in illiquid markets, even under difficult circumstances. In some cases, we sell aging assets like the Cascade building in Bucharest. With that, we improve our ESG profile.
On other occasions, in fact, on all occasions, we demonstrate that we are selling assets at book value or higher. Therefore, the discount to NAV on the share price is not justified. We intend to continue to do these deals, stay in touch with the market, and in some situations, even create liquidity in the market. I think it's very important. We also commenced in the second quarter this year the development in Zagreb Matrix C. As you will see later, the leasing activity on that building is going very well. We can also report a significant increase in leasing activity. We managed to lease 62,000 square metres in the first half this year, compared to 24,000 square metres in the first half of 2021.
If we turn the page to the retail side of our business, I can report that we are back to pre-COVID levels. We are seeing a positive trend in all shopping malls. Footfall is growing and turnover exceeded pre-COVID levels. Just to give you some numbers, in the second quarter 2022 compared to the same period in 2019, we have 13% higher turnover. If you compare the first half this year to the first half of last year, the increase is 40%. Just to give you the most recent data, for July this year, turnover exceeded the turnover of the same period in 2019 by 12%.
On the next page, we have some data specifically broken down at the bottom of the page, per month and per shopping malls that we have. We are comparing 2022 data to 2019 on a monthly basis. As you see, in Poland, the shopping malls are performing above, in some cases well above. In the case of Galeria Jurajska, 26% higher in July. In Serbia, other malls performing significantly higher compared to 2019. In Zagreb and Sofia, we are close to the levels of 2019. Moving on to the breakdown of our portfolio on the next slide. Our portfolio hasn't changed significantly. We have a gross asset value of EUR 2.3 billion. 88% of this is income generating. We are focused on offices.
They represent 65% of the income generating portfolio. We have active development and land bank that represents 12% of the entire portfolio, and 88% of the portfolio is green certified, and 93% of the portfolio is located in EU countries. There isn't much change. There is no change in this respect in this quarter. If we move on to the development side of our business, we have a moderate EUR 76 million in projects under construction, and 91% of this is in the office segment. Just looking at the actual projects on the next slide. Of the existing developments, which we expect to complete this year and up to 2024, we have 60,000 square meters of class A office space under development.
These developments are expected to generate additional revenues of EUR 10.2 million. Zooming in on the actual projects, GTC X in Belgrade will be completed in third quarter this year on schedule. This is a 17,000 square meter office building. The pre-lease level on this building is currently at 72%. So basically, by the time we complete, we'll be full, more or less fully leased. Sofia Tower it will be completed an office building in fourth quarter this year. This is an addition of 8,100 square meters. 31% of this building is pre-leased, and there's an additional 50% under advanced negotiations.
Matrix C in Zagreb that I mentioned, it's a 10,000 square meter office development, which we started earlier this year. Roughly 50% is already pre-leased, and we expect to complete this development in third quarter 2023. We also started the redevelopment of Center Point one and two in Budapest, and we are making progress on the leasing side as well. We are progressing with the redevelopment of Rose Hill Business Campus in Budapest. If we move on to further out in the future on the development side, we have plans for an additional 118,000 square meters office space and 22,000 square meters of residential space. These projects are in the preparatory phase. We obtained building permit for Center Point three in Budapest.
We are working on the building permit for ABC 3 in Sofia. We expect to receive the building permit for that building in the coming weeks. We are also working on the building permit for the residential component of a project in Bucharest. The project is called Spatio. We are continuing to work on the architectural concept on the Napred office development. It's a 72,000 square meter office space development in New Belgrade. As you probably remember, in January this year, we closed the sale of the entire office portfolio in Belgrade, and we intend to build and replace with new buildings and continue to invest in the Belgrade market. On that note, I would like to hand over to Ariel to discuss the financials in more detail.
Thank you. Thank you, Zsolt. Good afternoon, ladies and gentlemen. We, as mentioned by Zsolt previously, have a very successful operational first half of the year with very strong figures. As you can see it on the screen, we end up our first half of 2022 with EUR 62 million gross margin versus EUR 59 million like to like, which is an increase of around 5%. In spite of the disposal of our office portfolio in Serbia. We continue to grow our operational numbers. The growth is mainly driven by the acquisitions that we have done, the significant acquisitions done last year in the Hungarian assets such as Universum, Váci Greens, Váci 188, which are contributing around EUR 8.3 million. In addition to that, we completed early in first quarter.
Sorry, by the end of first quarter 2022, Pillar, which is contributing around EUR 700,000 for the first six months. However, on an annualized basis, this asset will contribute around EUR 6 million. You don't see it here, but you will see in the upcoming quarters the full amount. There are some incentives that are being basically booked at this moment. In addition to that, we have very strong results on the retail assets shown by Zoltan before with over 13% increase in turnovers across all of our, which is reflected also in our NOI as well, and that contribute to an increase on a like-for-like around EUR 3.3 million.
This was offset, as mentioned by the disposal of our entire office portfolio in Serbia early this year in the amount of EUR 9.5 million. In addition to that, we have a very strong quarter in terms of the revaluation of our assets. This was sixteen million euros posted in the first six months of the year versus EUR 1 million loss last year. If we zoom in on this line, basically, the profit from revaluation was driven by the very successful pre-lease that we have done in Serbia and the completion of the office building in Pillar. Just to remind you, Pillar is today 99% occupied, and GTC X shall be fully let by the time that we complete the asset in the course of the end of third quarter.
In addition to that, we have posted a EUR 3 million uplift on the value of Matrix A and B as a result of the signing of the sale and purchase agreement, 7% above book value. This transaction is expected to be closed by the end of third quarter or early fourth quarter this year. This was offset by a EUR 3 million loss related to the investment in CapEx and fit-out in our existing portfolio, which allow us to keep our high occupancy all across the portfolio as presented before. On the financing cost, I'm happy to report the decline in financing costs. Finally, we have seen the heavy work reflected over the last year switching financing policy from secured financing to unsecured financing.
15% down, although mainly attributed to one-off due to the refinance of those expensive loans for the Eurobond that we issue back in the summer of 2021. If we zoom in on that line, we have a 7% decrease on interest expenses, which is against the trend that is on the market today. Just to remind you that over 93% of our total debt is either hedged or fixed, and we have in a very good situation to basically mitigate any potential increase of interest rates that we've seen today in the market. Overall, we end up the first half of the year with a very strong profit of over EUR 41 million versus EUR 21 million as,
Driven mainly by the elements that I've discussed before. On the next slide on the balance sheet, as you can see, we have a very solid robust balance sheet. We end up with almost no changes on the investment property in spite of the disposal of an office portfolio in Serbia early this year. There was a lot of transaction activity also during the first half of this year with some acquisitions that were done, especially as Zoltan mentioned, acquisition of Napred, EUR 34 million. We heavily invest also in our developments, which are all on budget and on time, especially in Pillar, GTCX, in Sofia Tower and Matrix C, around EUR 30 million.
This was offset by the reclassification of four assets, which were reclassified by the end of June 30 to asset held for sale, Matrix A, Matrix B, Forest, Endeavor, Simon Cascade, which was already closed early in July. We have finished the first half of the year with a very strong cash position, EUR 272 million. In addition, we have also, you know, our available credit lines, EUR 94 million. We were at a very strong liquidity position. This was driven mainly by the successful disposal of our Serbian office portfolio and also the registration of the capital raise done last year. In the next slide, we can see our debt matrix. Total outstanding debt, EUR 1.3 billion. Very healthy weighted average debt maturity, 4.5 years.
We still have a very low record 2.6-16% weighted average interest rates and very conservative net LTV, 42.1%. Still with a healthy annualized consolidated coverage ratio increase versus December, 3.7x versus 3.6x . We have an increase in unencumbered properties from 45% at the end of December versus 52% back in June. As you can see on the right side of the slide, we have a very healthy debt maturity profile with almost no loans to be recycled. We have some bonds we are maturing by the end of this year, EUR 15 million, and early next year, another 156 million euros. We have the cash available for that repayment. It's on the balance sheet, and you see the numbers.
Moving into the next slide.
So basically just to point out, as I mentioned before, we ended the period with €250 million plus cash held for sale to 72. Very strong position at the end of the year. Now what we will do is basically open for Q&A session, and then we will move to regarding the results and the numbers we are presenting, and then we will continue our presentation regarding the strategy.
Ladies and gentlemen, do you have any questions regarding the re-presented results? Please, ask them now.
Hey, this is Jakub Caithaml from Wood & Company. Good afternoon, and thanks for the presentation. On the results, I wanted to ask on the vacancy in some of the office markets outside of Budapest, it is elevated. Can you talk about the leasing markets? How do the rent levels in new leases you are discussing compare to the levels which were in place before in those premises? To what extent do you think it may be possible to pass the indexation into the new and renewed contracts in during 2023 in the office markets that you operate in?
I think it's important to mention that all our leases are indexed, so indexation should go through automatically. Of course, when we see inflation levels at this level, it's we have to prepare ourselves. It's not gonna be easy. We in the past managed to cope with challenges during COVID, so I'm quite confident that we will be able to pass through those rates in the leases. As for the leasing activity, we have whilst the overall occupancy level remains high, the areas where we can identify challenges is City Gate.
We have to focus on, we see increased leasing activity interest, and I'm quite confident that we will be able to lease at the levels that we were realizing before. Also we have some challenging situations, some regional cities in Poland, and we're also working closely with potential tenants to fill those spaces. Of course, there are always challenges, but our track record shows that we are able to cope with these issues. But to give you an answer, in short, we are looking to maintain the lease levels as what we sold before.
Thank you for the answer. That's helpful. Maybe one additional question, even though this may be more appropriate in the strategy section. Can you briefly talk about how the tightening cycle by the ECB is affecting your thinking on leverage also in the context of the dividend? I mean, would you still see LTV at around 40% as an appropriate target to aim for? I mean, is there a certain level of LTV where you would see it as appropriate to maybe think about discontinuing or limiting dividend to try to bring the leverage down?
With the 42% LTV, I think we are in a comfortable position. Of course, 42.40% would be even better, but I don't think that we are in the situation that you have to revisit or change the kind of the dividend expectations that we lately in the last AGM proposed and approved. I don't think that the LTV consideration have or will have any significant impact or any impact on the dividends. Mainly because our cash generation, as you see in the results, is actually we are growing, looking to grow FFO compared to last year, certainly maintain. Therefore, I don't see the reason why it would have an impact.
Thank you very much.
In general, by the way, I think it's important also to mention that our borrowing costs are almost 100% fixed at a very low level, actually historically low level of 2.16% fixed. So it gives us actually great comfort. Also considering the average maturity of our debt over five years, I think we will be able to benefit from this position in the coming years.
Thank you.
Are there any further questions regarding the results? As there are no questions, we will continue with the presentation.
On that front, I just would like to talk about some recent changes, developments addition to our strategy and which we published a few weeks ago. It's important to start with saying that we are not talking about changing our existing cash flow generating business, our traditional business, which obviously is retail. Basically, we intend to keep that, we intend to keep the strong cash flow generating capability that we have. On the other hand, the current macroeconomic environment will produce, we believe interesting opportunities.
Considering that we have significant amount of cash on the balance sheet, and we also believe that we can raise more, we are considering, or we have made some steps, to transition into a more exciting profile by adding some new investments that we managed to identify in the market and new areas. These new areas, as we previously mentioned, they are all real estate-based. These should produce higher sustainable growth for us compared to our existing traditional real estate portfolio. We also expect the returns should be at least the same or higher than the existing real estate portfolio that we operate. We also believe that these new segments will be resilient to turbulent market conditions.
We also believe that we can create structures where we can raise dedicated funds, for example, for third-party investors. We also believe that these new areas should be addressed through dedicated management teams who have experience in these sectors. The three areas we are looking at and we intend to complete transactions in the near future in all these areas is one is innovation and technology parks, innovation centers. The second is renewable energy, solar, wind, power generation, existing revenue-producing power generation capacities that we can actually sell to our existing tenants, and we can actually through our existing capacity, well, power generation capacity, we can lock in actually good prices that our tenants could benefit from.
We are looking at PRS development initially primarily in the Polish market. These are all new areas we intend to address and tackle through transactions. One transaction that we already announced a few weeks ago is an investment in an innovation campus in Dublin, outside Dublin, where we have a facility which has fantastic location, 15 minutes outside Dublin. It's a site sitting on top of the fiber optics network arriving from the Atlantic from the US. This is a 72-hectare site, 34 hectares of which is undeveloped. We intend to develop this campus into a life science and technology campus, which will elevate the revenue potential significantly for this property. Why Ireland?
It's a center for major tech firms. This location, for example, is just five minutes drive from Intel's largest production facility outside the U.S., which is a $33 billion investment. All the major technology firms are present there. That's really a center of technology, and we believe that there is long-term growth potential in that market. We are also, as mentioned, planning to make some transactions in the field of renewable energy these days. I think it's also obviously a real estate-based business. Returns on equity are actually higher than our existing business, and we believe it's a good addition to our core business.
If we add up but in PRS and on that front, we believe we can also raise dedicated funding from third-party investors. GTC would not have to invest cash, but at the same time, nor a significant amount of cash, but at the same time, we have some very exciting sites like Wilanów in Warsaw, or some other locations which can be suitable for ready-for-rent development. That way, we would also like to speed up our execution capability in this sector. Just one other step if we move to the next slide. Obviously, these new investment opportunities also require further capital. We believe that we can issue more equity in the coming weeks and months.
We completed one equity raise in December last year, EUR 130 million successfully. With our new strategy, we believe that we can create a platform for those investors who realize that we actually provide safe haven against inflation with the investment opportunities and the existing cash flow that we generate. Unfortunately, we have a low liquidity in our stock, so we also have to create the transaction so that those new investors can also participate. We believe we can generate demand despite the difficult market environment. Potentially, we could actually buy back bonds, so that's a potential another use of proceeds. Bonds are trading at low levels, so that's also a potential area we could invest.
The target size of the capital raise is EUR 150 million-EUR 250 million. Obviously, we also believe that that we can generate the same return on equity on the new capital that we raise as before or even higher. Thank you. Would be open to any questions on this topic.
Ladies and gentlemen, we are opening the call for the Q&A. If you have any questions regarding the strategy, this is a good time to ask them.
Hey, this is Jakub from Wood again. If there are no other questions, then I would have three more on the new strategy.
Sure.
First, on the investment in Ireland, can you maybe elaborate, at least in rough terms, the expected economics of the deal, including the rough level of the prospective future CapEx that you may commit to this project over the first 3-5 years? Because I understand that initially the yield is lower than what your current portfolio is yielding. The potential there is in the re-development, right?
That's correct. We are planning to implement a major redevelopment on that plot that requires some permits. At this point I wouldn't like to go too much into details. In terms of revenue potential, I think we could generate significantly higher revenues once it's completed. We will see in the next 12-18 months if we manage to achieve that. Of course, we'll report to you as soon as the milestones have been achieved. As you see, from the size of this plot, 72 hectares, it's a huge possibility, fantastic location.
We have great ideas, but obviously, to put a number on the future revenue uplift, I think it's a bit early to tell. Certainly, actually we are very confident that we will be able to achieve a significant upside. In terms of future capital investments, we are investing EUR 150 million. Our commitment or expected further investment is EUR 7 million in order to get to significant milestones. No major or significant further capital investment would be required at this point.
Thanks a lot. Maybe a follow-up on this. I understand that the permitting part is, I mean, inherently uncertain. If and once the permit to go ahead with the project which you envisage is granted, can you indicate what kind of timeframe could we be looking at? Again, just very roughly some initial estimate between the permit is granted and between the kind of redevelopment or the first phase of the redevelopment may be completed. How long could it take?
Well, we assume 12-18 months to get the permit. Actually, that will create a position where first of all we can put more precise numbers and projections. It will not be that long so that we can disclose more about that. The development phase after that would be five years. It's a long-term project. You can also conclude about the size of that plot. We expect that at that point, on the back of long-term lease agreement, we will be able to finance this development with third party funding. We would not require a significant amount of capital on our part. Obviously this is a long-term investment.
In terms of valuation uplift, I think once the permit is obtained, we can realize significant, so it will not take five o r seven years, or six years, to achieve that. It will be after the permit is granted, the large part would be recognized. In terms of lease agreements, I'd like just to share with you more details on that. I mean, in this segment, we are looking at 15-20 years. So the market is slightly different in terms of potential tenant. We are talking about the global players in the technology sector. It's a completely different dynamics.
Thank you for this color. That's helpful. On the resi front, you mentioned that you may also there work with third-party capital in some of your investments. Again, can you maybe expand on that? Would you be looking for that capital, or would you be considering some sort of redevelopment into some funds as other companies in Poland are doing?
So in the PRS platform that we are discussing now, it will be a new investment vehicle, which we at GTC will be part of it, and we'll co-invest. Like Zoltan mentioned, we have some exciting projects that could be perhaps allocated to the new investment vehicle. We might be looking to raise an amount of EUR 100 million on that investment platform equity at this point. The business model will work in a way that this will be a pure development platform that we can, you know, we believe that we have strong interest from third party investors, that they like the, you know, high returns, either it's forward funding or forward purchase. We see the market as very strong fundamentals.
There is a lack of, you know, housing in Poland, over three million units of the whole Poland. The investment platform that we're looking at, this will be, you know, fully dedicated. For now, we will be focused on mainly Warsaw, Kraków and Wrocław. We are in the position of making it. We are cooperating with the local developer. We also have the development engine to be able to execute this platform. We are foreseeing that through the 100 million EUR potential investment, we can generate a portfolio around 5,000-6,000 units, flats, with a, you know, with a big upside and a big capital value as well.
Perhaps to add to that, as the kind of you're looking to expand in this area through JV or dedicated fund with third-party investors, this is not to be mixed up with the capital raise we talked about before. Just one structural consideration, if you consider our 42% LTV and also the LTV is what you can get in these dedicated sectors much higher for a good reason, it doesn't make sense to mix up the two. On one hand, we can raise funding from third party investors who would want sole dedicated investment in this field, but at the same time, we can benefit from higher uplift on the LTV on the debt financing side.
This is the reason why we also consider to move in this area with this structure.
Thank you. A follow-up on this. Do you have a strong view as to whether you would have a preference to be the majority partner in the JV or whether you would again, potentially consider owning a minority stake?
It depends on the partner and investors. We would consider minority position and would like to have, first of all, dedicated team to develop our very exciting projects in Warsaw to start with and other potential PRS facilities. As you know, I mean, this is a very different sector. It requires dedicated teams, sizable teams and experience, so we don't wanna do it on our own. We would be satisfied with minority. In fact, that's the primary consideration.
By the way, just to comment on that, we've seen very strong interest from third-party investors. They know our track record. They know also our reputable local developer and a very strong dedicated management team also as well for this platform. I think.
We see a very strong demand, so we also want to allow the third-party investors to be part of it. Like Zsolt mentioned, we, you know, at the same time, we also want to keep, you know, our conservative LTV and not jeopardize on having a potential majority stake on this investment platform that will force us to have higher leverage on for this kind of schemes.
Thank you. Maybe a final follow-up on the residential for rent. Have you explored how the cost of funding on the debt side has evolved? What kind of levels would be available, I mean, I guess rather on the secured market, for either development funding or for funding of standing assets? Because this seems to be the major component which is now kind of changing the economics and the NPVs of these types of portfolio deals in Poland, because presumably the funding would be in zloty terms, right, to match the income stream.
We're in preliminary discussions with some friendly banks. We have different mixed views. There are some projects that are done on euro base. We're talking about long-term view here, you know, three, four years development lines. In the end, the exposure from potential buyers might would like to, you know, lock the price in zloty and convert it to euro on day one, and then it's easier to have a financing in euro. We are managing two different business models and in two different ways it could work. We're also big believers that also, you know, in the horizon of 3-4 years' time also, you know, this interest rates will also stabilize as well. The funding is available, which is the most important thing.
The financing also is available. There are different business models, but, I don't think we need to enter into the details right now.
Cool. Thanks a lot. A final question, which, I mean, you have actually touched on. Assuming that you go ahead with this capital increase which you indicated you planned as EUR 150 million-EUR 250 million, how much CapEx would we be looking at to spend on the new sectors in the next 12, 24 months? I mean, outside of this one innovation and technology park that you have already invested in. I'm not sure whether there are other innovation technology parks on the table, plus the additional spend for residential for rent and renewables.
Right now, apart from this Irish investment, I think we could allocate about EUR 60 million to renewable energy, 6- 12 months, as an indication. I think I can say that. For PRS, less than that, perhaps half. But by the way, we have the good assets in our land bank, so we may actually allocate only the assets to that goal. I think overall, if we add everything, including the technology park and all new areas, I think we should be in the range of no more than EUR 200 million. Now, it's obviously have to be considered in the context of our total asset value, EUR 2.3 billion, and it's still below 10%.
However, these are major new areas which meet the requirement, as I mentioned, long-term sustainable growth potential, same return or higher than in our existing business. We don't believe that we can do everything, so we need dedicated teams. We believe that if there is capital looking for safe haven in tangible assets, GTC is the platform for that. It's a transition from our previous profile. That is also a reason why we are contemplating and will launch this capital raise in the coming weeks, because we wanna see if there is real demand for this kind of proposition from the investor side.
Thank you very much.
Thank you.
Ladies and gentlemen, as there are no other questions, thank you very much for your participation and your time. In case you have any more questions later on, I'm more than happy to help you out. Thank you very much. Goodbye.
Thank you. Thank you.