Earnings Call: Q4 2020

Mar 23, 2021

Good afternoon, ladies and gentlemen. I believe we can start the meeting. My name is Mogo Jeta Czaplicka. I'm the Investor Relations Director of GTC S. A. And it's my pleasure to welcome you to today's call. We will be discussing our 2020 results. And as traditionally, There will be a presentation conducted by the management, Joao Fermi, the CEO and Ariel Firstman, the CFO. And after the presentation, there will be a Q and A session. Please note that today's call is being recorded and it will be placed on the GTC's SA. This website after the call. Iovav, the floor is yours. Thank you, everybody. SA. Should we yes. Okay. So thank you for joining us. SA. I would like to start with a few some general words. 2020 SA. It had been a challenging year for us in 2 different dimensions. SA. The first I mentioned is, of course, having to handle the challenges that were brought by the COVID pandemic. SA. This has been an experience for all companies across the region, across the world actually. SA. And we had one additional challenge in the course of 2020. SA. GTC changed hands. The majority shareholder previous majority shareholder Lone Star sold SA. There is state to Optima and SA. Can you please Margotcha, can we put the Everyone are on mute, yes. Yes, and accept us, please. SA. SA. Okay. I will continue. So in addition to the COVID challenges, as I SA. The Lone Star, the majority shareholder sold its stake to Optima and there's no majority shareholder. SA. As a result, there was a handover from the previous management Board to the current management Board that SA. Has been appointed in the summer in the course of the summer last year. And Since we took over, we are now bringing to you the results of the year, SA, which I think I would say carefully say that those are very good results bearing in mind the SA. In this first slide, what we can see is that GTC SA. He was able to maintain a healthy gross margin of €119,000,000 SA. Versus 128 in the previous year, we've maintained a strong FFO of R66 1,000,000 comparing to SA. Very healthy and solid financial metrics with LTV of 45% and a record low interest SA. Average interest rate of 2.3%. The COVID pandemic SA. Had an impact on our income of EUR 15,000,000 SA. Loss of income that was a result of several lockdowns that SA. Accord during the year plus rent discounts that we have given to tenants SA. In the course of the year, the effect of this started in the Q2 until the 4th one. So On average, this is roughly €5,000,000 per quarter. I think we will come to that a bit later. But within this context of things, I think it's important to mention that SA. Now today as of today, with full lockdown in Poland and in Bulgaria, SA. About 30% of our retail GLA is allowed to trade. And of course, this will SA. Roll into this the effect of the COVID will roll into 2021. SA. I think coming back to this slide, we have been able to SA. Preserve our cash and accumulate cash. And at the end of the year, we have a strong liquidity position with SA. €272,000,000 A big portion of it SA. Thanks to a bond raising exercise that we have conducted in Q4. Last year, we have obtained an investment grade SA. Can you please mute yourself? SA. We will get later to the Q and A session. Thank you. CHF 110,000,000 which was SA. 33% oversubscribed. We have complemented this with a subsequent exercise similar SA. In March this year, 2021, which was 25% oversubscribed. I think this oversubscription element shows the confidence of the banks and the strength of the SA. Company to attract investors. Moving to the next slide. If we look at SA. If you look at the office performance, I think SA. Actually, the most important point here is that we were not facing JTC S. A. Rate of over 90% as of the end of the year. However, given the COVID pandemic, SA. The whole activity slowed down. So occupiers are slower in making SA. Nevertheless, we have been able to secure 70,000 square meters SA. Of leases during the year, most important of them are mentioned on this table. If we move to the retail sector, what we see here is the SA. Evolution of the footfall throughout the year. Of course, the 1st 2 months is Before COVID, which we can which we show that our performance exceeded the period in SA. 2019 before the COVID and then since March to May, this was the first wave, the first SA. Full lockdown and this, of course, severely affected our footfall in the malls. SA. Post the lockdown, we saw the pickup of the footfall up until September, SA, where we have managed to get almost to 80% of previous year in terms of the footfall. SA. And since second half of October, we've been seeing a second wave of COVID, SA. Which is visible on the decline of the footfall with full lockdowns in November December January. I think whenever we reopen, you see a sharp jump in the footfall, meaning that people SA. Wanted to get back to the mall to shop. And I think the next slide even emphasizes more SA. The performance because you see that the ratio between the footfall and the turnover SA. Shows a high conversion rate. So people were coming back and really shopping with SA. If you compare to previous year, we're in sometime during the summer in August, September, we're almost at 90% performance of SA. Again, if you look at February when things reopened after the closure in January, again, it jumped almost to 85%. So this, SA. I think it's an encouraging signal that the impact of COVID is temporary due to the closures and restrictions. And once people are free to go, SA. And restrictions and once people are free to go, immediately you see the turnover is normalized. SA. Another signal that is important here is that we've been able to maintain a high occupancy rate of 95%. SA. Please go back one second. And another one is the confidence of retailers. During the COVID, we were able to attract SA. The flagship store in Polnotsna, since IKEA and Bershka were willing to commit in Mall of Sofia. So It shows that the larger retailers are still confident in our centers and willing to commit to long term leases. SA. If we move to the next one, those are measures that we have taken on the retail sector in order SA. To minimize the impact of the COVID. So the first one is SA. Renegotiating the contracts with the retailers, especially after the lockdowns, all of them knocked on our door and asked for help. SA. We've been negotiating with them temporary discounts SA. For a limited period of time and against that, we asked them to prolong the leases. This SA. Helped us in maintaining a long worth of 3.6 years. We SA. Thanks to being able to renegotiate and settle with them and support them. I think this is SA, mirrored by a very good collection rate of 97%. So we have a strong collection ratio here. SA. As I mentioned previously, unfortunately, all those other items that I mentioned SA. Resulted in a €15,000,000 loss of income in the 9 months in the yes, SA. In the whole year, but the COVID started in Q2. So it's a 9% impact. And then in the next slide, SA. I think what we did as management across the board and the whole company is we were looking for SA. Means in order to take defensive measures or means to preserve the cash SA. And ensure that we have sufficient liquidity for the very volatile times. I think SA. One important measure is that we suspended the dividend distribution in 2019. SA. Another one is towards the end of the year, we have issued green bonds in the amount of SEK 110,000,000 SA. By another round in March of SEK 54,000,000. In the course of the year, we Sold one office building in Budapest generating €41,000,000 free cash. SA. It's not this 41, it's another 41 that is not appearing on the slide. The 41 that you see here SA. It's active asset management that we conducted. One important element is SA. We're scheduling development projects that were planned to start in the course of 2020 being SA. Prudent, we listening to the demand on the market, we decided some of those SA. Projects should be rescheduled for a later stage. And by doing that, we saved $32,000,000 SA. Other items are on the operational level, reducing some operating expenses in the amount of CHF 2,000,000 SA. And postponing some CapEx investments that are not time critical, SA. We'll not hinder the daily operation of our buildings and could be carried out at a later stage. So that SA. Help us preserve $7,000,000 in cash, altogether $41,000,000 Moving to the next slide. SA. I think what we can see here is the intensive JTCSA. We've been undertaking during this time in reshaping and working on our portfolio. SA. We concluded the sale of the Spirol office building that I just mentioned in the course of 2020. SA. At the beginning of the year, we completed the last phase of Green Heart. This is 4,500 square meters of SA. Offices in Belgrade. We completed by the end of the year ABC2 in Sofia and METRICS SA. To him and Zagreb. And we towards the end of the year with the success of the leasing on the back of the SA. Since the leasing of ABC 2, we were comfortable enough to launch the construction of Sofia Tower. This is SA. An office tower of 8,000 square meters on top of Molof Sofia. This intensive activity continued into SA. 2021 Q1, we have signed an agreement to acquire an office building in Budapest, 15,000 square meters on the SA. It's called Vatsy Green, fully led, generating €2,900,000,000 SA. And we acquired a land plot just next to Greenheart SA. In Belgrade, for further development, this has SA. Potential development rights of 7,85,000 square meters. I think the next slide SA. It's a picture of how our portfolio looks like. It looks like a diversification towards SA. The various markets, the split between retail and office, So what we can see here is not very different to what we've seen in previous presentations. About 90% is cash generating, SA. Income producing versus 10% development. Out of the income producing, about 60% is office SA. And 40% retail. Let's move on to the next slide. SA. And I think what we would like to say here is a few words about the tenant base. We have high proportion of blue chip tenants. We have no dependency on certain tenants or no tenant has SA. Any major impact on our activity, we have been able To maintain the high occupancy and high level of retention of our tenants, post disposal of Spiro, SA. All our income is in euro or linked to euro as of October when we completed the sale of SA. Spiro, one more thing to mention on this slide. We have been achieving a SA. Very high ratio of green certification for our assets. 84% of our assets SA. I have obtained green certification. We've just announced a couple of weeks ago, we completed The whole portfolio in Poland, everything has green certification in Poland. We're working on the rest of the Portfolio, in the long run, our aim is to have as high as possible ratio of green certified assets. SA. In a month or so, you will also see the first ESG SA. Report coming out from us as we have decided as management SA to adopt such reporting obligation on a voluntary basis. SA. Moving on. I always prefer the next one with the pictures. Yes. So SA. Here, what we can see is our development pipeline, the quite immediate milestone. SA. We have here a pillar office development, which is currently under development. We have not SA. Encountered any restrictions due to the COVID lockdowns, and it's SA. Moving ahead as planned in terms of time and budget to be completed by the end of this year, 2021. It's fully led as per previous presentations we mentioned. We launched towards the end of the year Sofia Tower to be completed by mid next year. Total investment is €13,500,000 So we are taking advantage of the fact that the shopping center is closed and We're moving ahead with the development with as minimum disruption to the mall as possible due to the fact that it's SA. And I thought that it's worth mentioning here that part of our SA. Asset Management ongoing task is to upkeep the older assets on our balance sheet. Here, we can see Centerpoint 12. This is an asset that was completed some 15 years ago. SA. And now with some relocation tenants, we are taking the opportunity to renovate it to SA. We have are planning an investment of €10,000,000 that will help re let it and reposition it. SA. If we look at going forward, what is on the menu for commencement in the very near future, We have 2 assets. 1 is Central Point 3 that building permit is imminent and we expect it very soon. And we have the GTC X in Belgrade that already has obtained the building permits. SA. The 2 of those assets launching are really subject to market demand. SA. So, I think I finished this part of the presentation. If Any questions, I'm happy to answer. Or otherwise, I will hand over to Ariel to talk about the financials. So thank you, Joao. SA. So like Joao had mentioned, it's been a challenging year. In spite of the loss that we posted for the SA. Last year, I think we ended our operational numbers are remained strong. And I'll explain in a few seconds why. SA. But if we zoom in, in the numbers, we posted a loss of €71,000,000 for the last year, SA, mainly driven by the losses under revaluation, €143,000,000 If we saw meaning the €143,000,000, my question, if we go on to Slide SA. You can see the breakdown of these losses. This is split 70% on the retail assets, 30% on the office. SA. We have done 2 valuation exercise, 1 in the first half of the year and then the second half of the year. SA. As you see, Poland with minus €55,000,000 on the retail side, Polnostla and Juleska, SA. The reason was mainly driven by the slight expansion on the yields, decline on expected rental values. SA. And of course, overall, with the microeconomic environment of the COVID-nineteen, Belgrade, we post minus €30,000,000 on the other shopping center SA. And also in the Avenue Mall, dollars 6,000,000 and Sofia Mall, dollars minus €10,000,000 In the Office sector, we had also some SA. Slight adjustment on values also as a result of certain slight expansion on the yields and certain degree of negative sentiment on the office sector, which was SA. Posted by the end of the year on the Q4 valuations in our portfolio in Poland, euros 22,000,000 and mainly in Belgrade, SA. Minus €13,000,000 Just to point out that our Budapest market remained very strong. And as you have mentioned, Al, We posted €13,000,000 profit. This is without counting our profit from projects under construction, which is mainly Pilar, which SA. We book around €5,000,000 during the year. But in Budapest, we booked €10,000,000 as an uplift profit as a result of the Cello Spirel SA. And some positive revaluation on our office. The market the office market in Budapest remains very strong. SA. So going back into the income statement on Slide 17. We as Joao had mentioned, we took some measures SA. We also tried to minimize as much as we extend the operating expenses and as well also the G and A and the selling expenses. So we posted a decline of €5,000,000 SA. On a like to like basis between 2019 2020, euros 17,000,000 in 2019 versus €12,000,000 in 2020. And if we zoom in regarding the gross margin of operations, we have a decline of 8%, driven mainly by the €15,000,000 SA. Losses from the lockdown, the rent reductions and the COVID influence. However, if we need to explain the difference SA. On the bridge on the gross margin on Slide 18, we see we post a gross margin of around €128,000,000 in 2019 SA. And versus €119,000,000 The main reasons, minus €15,000,000 to COVID-nineteen. This was offset by €9,000,000 SA. Contribution increase on the income as a result of the largest and extended activity we had on the development side in 2019 with the completions SA. Of Green Heart, Ademol, ABC1 and Matrix A, which contribute during the course of this year to offset that impact of the COVID. Of course, It's remaining to see also that also the new completions that Johan mentioned will contribute positively in the next coming quarters to offset any SA. Potential losses on the COVID for the Q1 as well. Minus €4,000,000 decline in the gross margin as a result of the sales SA. Net to White House and Spiro. And we remain strong with a very strong operating margin of 74 SA. 5% versus 2019. So we're still in light in spite of the COVID, we remain very strong and very efficient as a platform. And this was one of the major points that was praised by our rating agency when we was rating our bonds also in December. SA. Going on Slide 20, Magosha, on the balance sheet. As I mentioned before, we had a decline around 6% of our SA. The asset value as a result of the losses from the revaluation, we end up with investment property of around €2,100,000,000 versus €2,200,000,000 last year, SA. The main driven by the losses, euros 143,000,000 the sale of SPIT at minus €63,000,000 This was partially offset by our development activity mainly in Pilau, the completion of ABC2 and Matrix B, SA. €68,000,000 and the recent acquisition of a land plot next to the Budapest, which will secure the future pipeline SA in for €22,000,000 for a potential 60 I think 65,000 square meters office space in the future. As Joao pointed out, we remain very strong cash position at the end of the year, euros 310,000,000 including our restricted cash, euros 272,000,000 free cash. This was driven mainly as a result of the successful placement of the bonds at the end of the year, €110,000,000 plus the top up SA. That we took out at the beginning of the year from the refinance of Valeria Juraiska, euros 46,000,000 partially offset by the repayment of the bond, euros 69,000,000 An investment in different development projects around €31,000,000 It's important to stress that this strong liquidity position will allow us To prepare the company for further growth and potential acquisitions in the future and also to weather any eventualities that we might come regarding the COVID-nineteen in the next few months. SA. Going into the strength of the debt metrics. As Joao pointed out before, SA. We remain on our long commitment of low loan to value. In spite of the decline of our asset values, we remain with 45 SA. Send loan to value, which is a great achievement. We are very careful on any potential development or potential SA. Refinancing not to overleverage our assets. One more pointed out that you have mentioned is that SA. The record on the minimum average interest rate, which was driven by the fact of the successful placing of the bonds, which was placed at the end of December, 2.25 percent fixed coupon, which was swapped fully euro SA at the rate below 1%. Regarding the debt maturity, as you mentioned as you see, SA. You have €135,000,000 loans to be recycled in the next 12 months. Out of the €135,000,000 We have already successfully signed and prolonged €112,000,000 and we are in the course of signing the next €25,000,000 SA in the course of the next few months, which that will end up with the activity and all basically all that you see, those EUR 135,000,000 SA. Will be prolonged at least for 5 or plus years. Regarding on our financing activity, it was a very SA. Intensive year in terms of the financing activity. We really work very hard. We try to basically secure SA. Our very strong liquidity position and that was as a result the successful green bonds that was placed at the end of the year, SA, which continue in the course of the in the last few weeks with the last one of EUR 54,000,000, SA. Both oversubscribed about 30%. Both, as I mentioned before and is published also in our financial statements, were fully swapped. The first one SA. To the Europe below 1% and the last one was swapped by 0.93% for the full term of the 10 years. SA. Regarding the cash flow statements in slide next slide, this is, I think, SA. In spite of the minus €15,000,000 that we lost on the operationals, we had remained steady on our cash flow from operating activities, SA. €69,000,000 versus €68,000,000 almost no change. And this is as a result, as mentioned by Joao before. SA. We really focus our efforts on collection. And of course, we did support our tenants. We tried to renegotiate those leases very quickly, But we remain with the focus on collection, collection and collection. So I think overall, it was a very challenging year. We're looking for more challenging years SA. In a different way, more positive. And I think, Malgoszka, we are ready to open the floor for a Q and A. SA. Ladies and gentlemen, we are very happy to answer any questions you may have. SA. So please raise your hand whoever would like to ask a question. Or just unmute yourself. SA. Hello. This is Peter Bresen. Can you hear me? Yes, we can, Peter. SA. Can you please share some light what was behind the revaluations or devaluations of office, SA. Especially in Poland, Belgrade and Bucharest. Thank you. Yes. Thanks, Peter. SA. I think, as I mentioned before, when we did the exercise with the evaluators at the year end, I think the COVID indeed impact significantly on our retail portfolio. However, we couldn't we are not We cannot avoid the fact that also had certain degree of impact in our office in terms of the investment activity decline in comparison to previous years. So the valuers were a little bit more conservative on their valuations. So there was especially on the portfolio in Poland, there was a slight change expansion on the yields. In our portfolio in Belgrade, there was a decline also on the expected rental value as well. Regarding the Romania, I think that the main driven was the fact that SA. The Romanian office market slightly changed. It's becoming a little much more competitive. And in fact, in light of the COVID, it SA. Remained much more competitive than it was before. There was too many completions and too many developments at the same time and that also affected the expected rental values SA. On our valuations, plus the fact that certain assumptions such as vacancy SA. Also the downturn of the tenants were prolonged also as well as a conservative method as well. I hope that answers your question. SA. Yes. Thank you. Thank you very much. And maybe there was a recent acquisition that you made, I SA. Cannot recall the number the name of this project. Can you also maybe give more color on this one? SA. I think we mentioned 2 acquisitions. 1 is a land plot SA. In Belgrade for development, just next to Greenheart office project in Belgrade. SA. The success in development and leasing activity in Belgrade SA. Resulted in our confidence to continue our development mode in Belgrade. So we secured this land plot for another SA. 75,000 altogether, of course, in phases, but altogether, 75,000 square meters of potentially SA offices in Belgrade. So this is one acquisition that was highlighted in the presentation. SA. And another one is an office building on the Vatsy Ut SA Street, 2 blocks away from Center Point 3 up the road. Vatsy Street is the main office corridor in Bozda Pest. SA. There is a metro along that street. And we have acquired 15,500 square meters SA. Office called Vatsy Green B. It has green certificate. We signed the contract just a few weeks ago. SA. And this is a relatively new building, 3 or 4 years old. SA. So that's the 2nd acquisition that we mentioned. And what kind of yield SA. Do you get on the acquisition price on this one? And is it fully occupied? It is fully occupied SA. By tenants like E. ON and Ford, and it is generating Unilever. Unilever, SA. And it's generating just below €3,000,000 per annum. The acquisition SA. I'm not sure if this is something we publish. The acquisition price is €51,000,000 You can do the math. SA. And what is the net operating income? €3,000,000 roughly. SA. Thank you. I have one question from Pavel Goe in SA. Could you please comment on green bonds? It seems that those green bonds hasn't been offered publicly. Is it true that the final buyer was Hungarian Central Bank? SA. Well, the green bonds were issued by the SA. We issued 2 series of green bonds. There is a program which is sponsored By the National Hungarian Bank, it's called the bond growth program. It's a program that any company can apply in SA. Which is an Hungarian company, has operation of Hungarian company on certain parameters such as volume and asset base SA. So on. And rating. And rating as well. And in order to participate on this program, we had to achieve certain rating, which is SA. A minimum B plus so we were investment grade triple B- As a part of the program, the National Bank of Hungary SA, purchased at least 50% of the proceeds of the bonds and 50% of the proceeds of the bonds has to be purchased by private investors. SA. So that was offered to the public or private investors who can basically apply to those kind of bonds. SA. Who are those private investors? Mainly, we're talking about financial institutions, banks, insurance companies, asset management companies. SA. Of course, those loans were oversubscribed, won by 30% 25%, so you can give you the flavor of How much was the demand from the private investors also as well? It's also worth adding that the bonds were issued in Hungarian foreign. So as a result, the distribution was limited mostly to the Hungarian Financial Institutions. SA. Hi. So maybe one question from my side, if you can hear me first maybe. We can hear you fine, Tarek. SA. Great. Okay. So it's Zuzari Bernatak, Ester Group. So like a follow-up on the green bonds because from what I understand, the coupon is like around 1%. So it's SA. Like significantly below what you got on average on your balance sheet for the moment, which is like 2.3 as far as SA. I'm concerned. So the question is, are you planning more issues? I think it's like a rhetoric question. SA. But in a way that you can exchange the project financing with the bonds. I know that some of the companies are doing it, are planning it. SA. And the question in another way around is whether you will see some upside potential when it comes to the average SA. Cost of debt due to these potential issuances? That's a good question. First of all, the coupon was not 1%. The coupon for the first bond was 2.25%. It's in Forint. SA. It's okay. Foreign, okay. You will swap when you convert that fixed coupon from foreign to euro, you basically benefit from the difference of interest. So we managed to swap that to a euro full euro bond below 1%. The second coupon was issued recently by SA. 2.6%. So that's give you the flavor. That was the coupon in forint again. And we managed to swap also that for a rate below SA. 1%, 0.93%. So it's not that we issue fixed eurobonds SA. In below 1% because that will probably will not be something which we could achieve. So In respect of what we believe, how we see the debt structure, I think there is certain potential. We have proved the market that we can raise unsecured financing and there is a demand and the trust from these private investors. And I think we will strongly consider in the future perhaps new issues, not necessarily in Hungary, but probably in other markets SA. And subject to the demand, something that we're certainly exploring. Okay, great. SA. And one more question, just technical one. Just wanted to ask who was the valuer of the portfolio at the end of 2020, which valuer? SA. I don't think this is something we published, Malgosha or? SA. It was a number of different valuers, right, Ariel? It's a number of different valuers, or at least 3 different valuers. SA. So these are reputable valuers, let's put it this way. Okay, okay. Fair enough. Thank you. SA. Hello. My name is Karol Domushevskiy, and I'd like to ask SA. For a comment about transaction markets, are the investor willing to buy the buildings? Or Is it a problem? And what's the activity on the market right now after the coronavirus? SA. I think investors are the same sentiment that I mentioned SA. On the tenancy side, on the occupier side, I think investors are also slower, much slower in taking decisions, SA. Much slower and traveling restrictions are SA. Making an impression because it's very difficult to handle transactions SA. If you cannot physically come in and visit and inspect the assets from the side of the investors, the SA. Physical traveling restrictions are not helping the investment markets. There is a limit to what you can do on Zoom. SA. And therefore, we see the activity much slower, much SA. Less active. However, we do see some SA. Transactions pulling through on a selected basis. We have not seen SA. Significant movement on pricing of transactions. SA. And I'm talking mainly about offices because on the retail side, I think SA. We do not see any transactions taking place at all. I hope that answer your question. SA. Yes. Thank you. SA. So maybe one more question from my side. This is Arben Notakonce again. When it comes to the new projects, the acquisitions you are thinking about, You mentioned you got like pretty strong balance sheet and there's space to do it. Are you considering entering any like SA. Any, let's say, old new segments like residential, for example, like part of the company is part of the competitors is actually mauling the entrance SA. Terezi more than they used to be. We've been on the Polish residential market for a while, pretty successful. SA. And are you considering it? Thank you. I think in the overall context SA. Things are expertise line with office assets and retail assets. SA. And this is where we have been focusing our activity in the course of the last several years. SA. And I think this is where we will continue to have the vast majority of our activity. SA. Whether you will see from us here and there some, let's call it, SA. Opportunistic kind of projects that are a bit outside on a very small scale, SA. Immaterial to the whole context, you might see something like that. But again, this SA. It might be on a small scale opportunistic kind of basis and where we see ourselves SA. Focusing our activities really on the office and retail sectors. SA. Okay. Thank you. SA. Ladies and gentlemen, do you have any more questions at that point? SA. Okay. As I see no more questions, thank you very much for the participation in today's call. If you have any more questions, I will be more than happy to SA, give you any answers I can give you or if you need a meeting personal or online with me or the management, we are available as SA, much as the restrictions allows. Thank you very much and have a lovely day. Thank you. Thank you. Thank you. Bye.