Earnings Call: Q2 2021

Aug 24, 2021

Good afternoon, ladies and gentlemen. It's my pleasure to welcome you to GCC's conference call, which is dedicated to its H1 2020 1 financial results, which were published today in the morning. The call is being recorded. The call is being conducted by Yovav Carmi, the CEO of the company and Ariel Firstman, the CFO of the company. The call will be conducted in a way that we will have a short presentation of the financial results. The presentation will be shown on the screen. It's also available on the website. The presentation will be followed by Q and A session, so please keep your questions to the end of the meeting. I will strongly advise to stay muted for the call that will allow us to go smoothly to the call. Joao Pfaff, Ariel, the floor is yours. Thank you, Marcosha. Good afternoon to everybody. Can we please put the presentation on the screen? Thank you. So we can start from this Page number 3. H1 was characterized by strong earnings, solid performance of the company, while we were intensively working on transformation to unsecured debt and had the intensive investment activity. We completed H1 one with €59,000,000 of gross margin, very similar to H1 last year. FFO of €31,000,000 as well very similar to H1 2020. We ended up H1 with EUR 246,000,000 of cash. That's a strong liquidity position. We have been, as I said, very intensively working on the acquisition of income generating and some land bank for future developments. Occupancy. The occupancy was kept at 91%, similar to the year end. Moving to the next page, please. Thank you. As I said, we were intensively working and transitioning from secure to predominantly unsecured debt. We have been working with 2 rating agencies, securing investment grade with Fitch and very close to investment grade with Moody's. We issued in the beginning of the year a small bond on the local market €50,000,000 and completed with another €500,000,000 of green bond in June in the international markets. This was almost 3 times oversubscribed, which is a very good result. As we announced before this process that The majority of the funds will be designated to refinance existing current loans while transforming into That we by the end of June, taking advantage of the interest payment dates. We have managed to refinance €369,000,000 and post H1 another 82,000,000 of loans. We ended up with Historically low interest average interest rate of the group was 2.18% versus 2.3% as of December. Can we move to the next page, please? Yes. Thank you. As we've seen in the office sector, we've been intensively working on acquisitions. This volume of acquisitions of cash generating assets of EUR 264,000,000 Added contributed €15,000,000 of in place rent to our portfolio. We have announced disposal of our office portfolio in Serbia. This is a business to be completed and closed by the end of the third quarter. It demonstrates the liquidity that we can we were able to generate in the Serbian market for the first time and it demonstrates our book evaluation. We also felt comfortable enough since we are not leaving Serbia. We are dwelling on our experience and our capacity in Serbia. So we have been comfortable enough to start GTCX, our new office project in Belgrade, 16,800 square meters. We have seen a demand for a couple of international blue chip potential tenants in order to be able to fit into the timetable that they require, we That's comfortable enough to start the project. Overall, our leasing activity resulted with 53,000 Per meters of leases comparing to 70,000 in the whole of 2020. And as I mentioned, we kept the occupancy rate at 90%. Moving to the next page. So this is a snapshot of the recent acquisitions, fully occupied or very close to be fully occupied in either having a green certification or in the process of the green certification, adding €15,000,000 of in place rents. Let's go to the next page, please. Thank you. Looking at the retail sector, currently 100% of our retail space is open for The customer is open for work. And we have to bear in mind that up until 1st week of May, Poland and Bulgaria was closed under lockdown. And still in May, we were under restrictions For cinemas, fitness centers, food retailers, yet The malls in the Avenue Mall and Ada in Belgrade shown increase in the gross margin, but Polish and Bulgarian We're negatively because of that. However, what we have seen that post lockdown in May, June, July. We will see it in a minute in the next page. The recovery was very good with very good turnovers. Maybe we can move to the next page to show this performance. Yes. So you can see here that June, July, we experienced very good pickup of shopping centers with turnovers that are exceeding even the levels of 2019 before COVID. Galleria Polnotsna and Galleria Luwiska were standing out exceptionally well performance in those months. So that's To give a flavor about the retail side of the business and how things were looking post lockdown. If we can move to the next page, please. Thank you. This is a snapshot that we show a lot. Shows the composition of our portfolio in geographical terms, the split between cash generating and development. We are at 90% cash producing assets and 10% land bank and development. Due to the recent acquisition, the proportion between office and retail went towards 66% offices, 34% retail. And as I mentioned, 83% of our assets enjoy from a green certification. We can then move to the next page. This is a snapshot showing again the green certification that we have here, occupancy rate that was kept in H1 and focus in capital cities CE and more so. Moving to the next page. This snapshot is of our retail sector 85% with green certification. Occupancy was kept high at 94%. And you can see here how we are geographically spread across the region. Moving to the next page. Here you see our development ongoing development projects. Pillar is about to be completed by the end of the year, ongoing in time and budget. Sofia Tower, we have launched. Now the construction is moving ahead recordings to the budget and plan. We were there a couple of weeks ago. It looks very impressive. GTC X is the project that we have launched very recently, sensing the or feeling demand that we see in Belgrade from international and other tenants. So far, 2,500 of square meters have been committed and NOIs. And the center point is a redevelopment of an existing older assets that we are working on. We see 2 very large one is a current tenant that is We're working on a propagation of the lease and another one is a new very large tenant that is expressing a strong interest. So this is moving to the next page. Sorry, our going forward pipeline for the next 24 months, it. Those assets here that you see are the highlights of such a pipeline with CenterPoint III very close to obtaining a permits, building permits, which we expect in the Q3. The Twins is an asset that we hold on the Vatsy Street, at the corner of the Vatsy Street and the inner ring road in Budapest next to the police headquarters and on top of the metro station. This is a 40,000 square meter development that we are working on the permitting of it. Matrix C in Zagreb is the 3rd phase of our office part that we are developing with good progress with Matrix 2. We felt comfortable enough to start the planning of Matrix 3, which will be very similar, 10,000 square meters next to Matrix 2. We plan to apply for the permit in the next month or 2. And ABC 3 is a land plot that we secured earlier this year adjacent to APC 1 and 2 in Sofia in Bulgaria. It's about 9,500 parameters where we started the planning. Given the results that we saw in ADC 1 and 2, we think that It's a good idea to start the planning of this. Moving to the next page, I will hand over to Ariel to talk about our financials. Thank you very much, Joao. Good afternoon, ladies and gentlemen. As Joao pointed out before, I think we end up the 1st 6 months of 2021 with strong, very strong numbers. As we shifting our financing policy from secured financing to unsecured financing, We see also certain transitional numbers or one off numbers on our P and L, and I'll explain it in a few minutes. But taking a look over our P and L for the 1st 6 months of 2021, we end up with the June with €21,000,000 profit very strongly. Our line on gross margin from operation remains stable. However, if we zoom out a little bit to explain that the main difference between 2020 2021, We sold Spira office building that impact negatively on the gross margin from operations, euros 2,000,000 down. However, we add new completions and including the recent acquisitions, ABC2 in Bulgaria, the MaxxB In Zagreb, plus the acquisition, recent acquisition of Batsea Greens and Universal contributed positively €2,500,000 The COVID line, which says here EUR 600,000 negatively, we have to split it in 2 sides. One side is that on a like to like basis for the last 6 months, we have shown an improvement on our retail numbers in Zagreb and in Belgrade, which contributed positively to this line €500,000 and then was offset negatively by the Polish shopping centers and the Sofia shopping center by €1,100,000 The main difference were that in Poland and in Sofia, there were extensive lockdowns, which basically spillover in April May. So recently, the shopping center was in 100% activity just by the end of May early of June. On the as you can see, on the Also a strong line that we have shown in the last 6 months is the revaluation from investment property with a very minor loss of €1,000,000 If we zoom out a little bit, this is €6,000,000 profit from revaluation from the recent acquisitions done in Budapest plus existing portfolio in Budapest, which contributed strongly to profit revaluation in our office buildings, Which was offset by capital expenditure on existing portfolio as CapEx that was done there in the course of 6 months. That end up with EUR 1,000,000 versus EUR 68,000,000 losses in 6 months on the previous year. Overall, we have also that I mentioned that this will be a transitional P and L in terms of one off. We have basically a one off €4,000,000 on the financial expense line. This was as a result of the refinancing that you have pointed out properly before. We successfully refinanced almost 80% Of the original plan, €369,000,000 of loan already refinanced 2 weeks after we placed successfully the first euro bond of the company. And that was translated into some early repayment fees, breaking costs in the amount of €4,000,000 This is a one amount, which was asked to be expensed on the P and L. So overall, as I mentioned before, we end up the 1st 6 months very strong. So moving on the balance sheet on Slide 18, you don't see the big difference on our investment property line, And I will explain. We have a very extensive activity on the transactional side With over €270,000,000 of investment activity from acquisitions, as we pointed out before, Batsi Greens, Universoom and also the latest recent acquisitions, one office building in Budapest called Baxi 188 and a mixed use asset, Hedbidec, also by the end of June. So Aplus investments on development that end up with €300,000,000 However, this line was offset by the reclassification of all the office portfolio in Serbia asset held for sale as a result of the signing of the sale and purchase agreement. This transaction is basically about to close in the course of the end of this quarter or early Q4. We expect to basically complete the transaction. On the cash and cash equivalents, We as I mentioned, it was impacted by a lot of activity on the financing side. We as I mentioned before, we refinance and finally repay bonds €437,000,000 and also acquisition of assets and investment in property, asset under construction, net of loans From our equity, €151,000,000 offset by the raising of the bonds. We finally did the last round in the Hungarian bonds In the first the end of the Q1 of 2021, euros 52,000,000 and the €500,000,000 placement Eurobond done in the end of Q2. So that contributed to a large extensive activity on the cash movements. And as you mentioned before also, as we reclassify all the assets Since it's a share deal, the Serbian deal, we reclassify all the assets as held for sale. We reclassify also the liabilities related to those assets at liabilities related to held for sale, which is related mainly the bank financing, which will be Expected to be fully repaid as a result of the completion of this transaction. So moving on to Slide 19. Here we're showing a snapshot of our debt metrics. We have a total debt of €1,500,000,000 but this will be reduced towards €1,400,000,000 As Joao mentioned before, we are in the process of refinancing the last batch of identified loans, around €82,000,000 ADA, Shopping Center and Mod of Sofia. As Joergal pointed out properly, we have a low record and weighted average interest rate, driven by the successful placement of the bonds and subsequently refinance of more expensive debt on our balance sheet. We I remind you, we placed our bonds on a yield of 2.375 percent With a fixed coupon of 2.25 percent and we replaced majority of those loans were on above that yield. So that contributes also to a decrease on this parameter as well. We end up with a very strong interest coverage ratio of 3.3x. We managed to increase our encumbered properties from 9% to 35% over almost above €800,000,000 in assets, which were freed up as a result of the refinance. And there's no more encumbrance, no security on those and free cash flow is also free. And we also will be able to release around €4,000,000 €5,000,000 of heavy cash reserves, which were linked to that kind of financing. We'll show you here a very healthy debt maturity profile, which Allows the company the flexibility to do those investments with not heavy loan recycles in the upcoming 12 months, merely small repayment of the bonds in the next 12 months plus the regular amortization. One thing that we are doing regarding the financing as a result of the switching of the financing policy is to basically any new secure financing that we are approaching the banks. We try to mirror the bonds that we issue, meaning in the terms of full payout loans with fixed interest. And we've been very successful. And as a result of that, you see on the results, the debt split, 95% of our debt is either fixed interest Or hedge. On the net LTV, we end up with the margin slightly higher LTV than expected, 51.6%, which will grow a little bit higher as a result of the latest acquisition done recently after balance sheet. But this will be offset and decreasingly gradually as a result of the disposal of the Serbian portfolio and further on as a result of the planned capital increase, which will bring our LTV ratio in levels below what we posted last year. Moving into this last slide and the cash flow statement. I think in spite of the COVID Under lockdowns, we end up with relatively stable cash flow from operating activities, €25,000,000 versus €26,000,000 heavy, as I mentioned before, heavy investment activity in the 1st 6 months in comparison to last year as a result of the acquisitions and developments. Overall, we end up with a strong cash position, which is, as you see here, €253,000,000 but if we this includes also asset held for sale related to the Serbian deal, which overall, if you net it, that is €246,000,000 Just to point out before the end of the presentation, we posted an FFO of €31,000,000 for the last 6 months. But if we analyze the last quarter on quarter basis, basically Q2 versus Q2 2020, We have an improvement on our FFO around 12%. And as long as we see the easier and no further lockdowns in the near future, we should expect the next quarter to remain even stronger as we move ahead in time. I think Malgorze will conclude our presentation, and we're ready to open the floor for questions. Questions whenever you're ready with the questions. Thank you. Ladies and gentlemen, are there any questions from you guys? Please do remember about unmuting yourself before you ask the question. Hello. This is Petter Brezal from Avaron Asset Management. If I'm not mistaken, you approved plan to 2 additional new shares. Can you give an update what is the timeline and what are the plans in this regard? Thank you. Yes, thank you. We indeed in the recent Annual General Meeting that was held in July, We had a voting on the capital increase. It was approved with a very big majority of the shareholders to authorize the management to execute capital net increase Just to recap for everyone to know, the Polish regulator allows up to 20% of the shares to be issued in a kind of a fast track program that does not require prospectus. If you do the math on the current share price, give or take, this is a volume of around €140,000,000 €150,000,000 €1,000,000,000 We wanted to and this Something we announced, we wanted to give visibility given the questions that we have from the various investors. We wanted to give visibility on H1 figures and evaluations, which we are now providing. So And the plan is in the next month or 2 to gear up towards the capital raise. Assuming that that question has been answered, it's Andrew Edmonson here from Ashmore. Yevap, could you just talk to us about the yields that you achieved on those Budapest acquisitions. If I just look at what's happened to the yield for Budapest office, it's come down quite a lot as a result of the acquisitions. It seems to me that you've been buying the new assets that you've acquired are yielding relatively lower compared with most of the rest of the portfolio and just what you were seeing there in terms of Why those were attractive to you and what the outlook is for them? As a policy, We announced that we're going to focus on Hungary and Poland. And this is what you have seen from us in H1, quite an intensive acquisition mode in the past pending. In terms of yields in the market, we actually have not seen yields moving out in the market, in Budapest especially. We demonstrated last year the disposal of Spial office building, which was in the course of, let's call it, the darkest period of the COVID and Then we were able to execute at a decent yield. This is a bit Asset that was a bit outside the Vasi corridor with a tenant in local currency. So bearing that in mind that the yield that we achieved For that transaction, it was supported and actually represented a EUR 10,000,000 uplift in value compared to its year end valuation the year before. So that shows demonstrate our book valuations. Those assets that we bought are green certified new buildings. Vazsi Green is on the Vazsi Street in Budapest. Universal assets are with long term leases next to the university. So This is why they attract the pricing that they have been attracting. So we're comfortable with those leads. I don't yields? I don't think they represent any difference comparing to other acquisitions that we made. I understand that there are no more questions. So thank you very much, ladies and gentlemen, for being with us today and listening to our financial results. Have a very nice rest of the day, and see you next time. Thank you. Thank you.