Good morning, ladies and gentlemen. My name is Malgorzata Czaplicka. It's my pleasure to welcome you to our Q1 2023 financial results call. Today with me is Zoltán Fekete, the CEO; Barbara Sikora, the CFO; and János Gárdai, the COO. They will be presenting the financial results and the achievements in the first quarter of 2023, based on the presentation that is available on our website. The call is being recorded. The recording will be posted on the website in the evening as well. Let me move to Zoltán to conduct the presentation.
Thank you, Malgorzata . Welcome, everyone. I would like to start the presentation with a summary of the main numbers, if we could present it, please, on the screen. So our results for the first quarter this year are in line with the same period last year. If you could turn the page, Malgorzata , please.
It's, do you see the pages? I'm sorry.
Actually.
Yes.
We see also, Malgorzata , a preview of the next slide, so maybe.
Yeah, I'm trying to solve it, so.
Sure. Take your time.
It looks like it's impossible, we have to stay with this one for a moment, and I will be solving. Zoltán, if you can continue, and I will try to solve it in the meantime.
Sure. Thank you. Our revenues from rental activity came to EUR 43 million compared to EUR 42 million year before. Gross margin, EUR 30 million, same as last year. FFO, EUR 16 million, same as last year. Our EPRA NTA stands at EUR 1,276 million in line with the numbers last year. These results show that we are keeping the performance of last year. I think needless to say, that we are going through a very difficult period in the general macro situation. I consider this as a great achievement so that we can maintain the performance. Our LTV stands at 45.2%, which is an increase from 44.5%.
I would mention here that two main reasons behind this. One is that we have some Hungarian forint and zloty-denominated debt, during the first quarter, both currencies strengthened. Obviously, it has an impact, approximately EUR 5 million on our debt position. At the same time, the increased LTV is a reflection of the fit-out and maintenance expenses that we are spending on our assets, but at the same time, these are not generating higher valuations. Occupancy across the portfolio stands at 87%, same as a year ago, we continue to have maintain strong cash position, which is, at the end of the quarter, was EUR 147 million.
Since then, I would like to mention that we signed two financing agreements, one related to GTC X, our new office building in Belgrade, through which we raised EUR 25 million. We also signed financing on Matrix C, which adds EUR 14 million to our cash flow. Although on Matrix C, we are spending that on CapEx, that's a property in Zagreb that are being developed. If we turn the page, I would like to highlight here the supervising board resolution and the management's recommendation to the general meeting to keep the profit of 2022 in the company. Also, we are proposing the authorization for a share buyback.
we currently don't have that possibility at GTC, in line with current market practice, we believe it would be an useful tool for for potentially buying back shares, returning capital to some investors. Instead of paying dividend, we are considering this as a better use of cash. the reasons behind not proposing a dividend, of course, we had some revaluation losses, EUR 29 million at the end of last year, net. we also consider that we need to preserve the cash, partly for developments, partly for maintenance of the assets, improving, keeping ESG, complying ESG requirements. we see interesting acquisition opportunities also in the market.
With regards to the potential share buyback authorization, we are asking for authorization or proposing to the AGM to have the possibility to buy back up to 15% of the share capital. It's just a theoretical cap. Of course, we just would like the price range for the buyback we believe is reasonable to be in the range of 5-7 per share, and we are asking for an authorization for a 12-months period, starting at the AGM in June. Again, this is just an authorization. The option we are asking for doesn't mean that we actually definitely gonna do it. We turn to the next slide. I would like to give you the highlights for our OPI office portfolio.
I would like to mention here that leasing activity reached 20,700 square meters in Q1 2023. When we compare this to 25,600 square meters in Q1 2022, I would like to mention that in the previous year, last year, 16,000 actually came through one client, which is a Hungarian procurement office, Hungarian government. This year, if we look at the leasing activity, I think it's a much healthier balance because as we highlight here, the biggest achievements and leasing results, you will see that we have UPS, we have Ford, KPMG, STRABAG, Aon, all good international names.
5-year extensions to existing leases, and from this list, only Ford gave, handed back 400 square meters, so about 20% of the entire space, which is really the challenge, and we are trying to address this issue, and this is a great result that we managed to prolong these leases. Our occupancy on the office side stands at 84%, same as the first quarter same as end of last year. During this quarter, we also closed the disposal of the Forest Office building in Debrecen. This is a deal which was signed last year. We closed the deal in January, and the selling price was EUR 49 million.
The book value of this asset was EUR 46 million, so we realized a nice profit on this asset as well. And this is all cash to the balance sheet because we did not have financing on this asset. We move on. Just the highlights of the retail business. The retail side of the business continued to perform very well. Occupancy stands at 96%, same as three months before. Positive trends in retail continue. Footfall is growing. If I compare the current year's April numbers to April last year, both turnover and footfall increased by a healthy margin.
Although I have to mention that less than 5% of our leases in retail are on turnover rent, so we are not really dependent on, directly speaking, on the turnover of our tenants. On the next slide, just to give you a snapshot of our current portfolio composition, no major changes. 89% of our gross asset value is recurring income producing. 64% is in the office space. The rest is mostly retail. We have 3% are in development phase, 3% of the gross asset portfolio. 92% of our assets are in EU countries, and 86% are green certified, and the rest of the portfolio is going under the certification process. We remain strong on the ESG front as well.
Just a few points on our development projects. Thank you. As I mentioned, 3% of our portfolio is in development projects. It has a current valuation. Such projects have current valuation of EUR 59 million. These assets expected to generate, once on completion, EUR 14 million revenue, and we're talking about three office buildings in Budapest and Zagreb. Just a few words on these developments. Here we highlight four projects. One of them is a refurbishment. This is Center Point I and II in Budapest, Center Point. Matrix C in Zagreb will be completed in Q2 this year. It's 92% pre-leased.
We intend to complete the refurbishment of Center Point I and II in Q1 2024, and we are also progressing with the redevelopment of a business campus in center Budapest, and also with the development of Centre Point III in Budapest. These, these assets combined represent 61,200 square meters, plus eight office buildings. With that, I would like to hand over to Barbara to present the financials.
Thank you, Zoltan, and good morning, ladies and gentlemen. Let's start from the income statement, and a short summary of transactions that Zoltan has already mentioned, but which, of course, have influence on the current quarter and the comparable quarter of last year for income statement and for balance sheet and P&L, and cash flow, it will be, of course, the end of the year.
Even if gross margin, this will be our number one in the income statement, remained flat, and similar as for the comparable quarter, there were some movements related to the transactions that has already been, to the transaction that has been mentioned by Zoltan, which took place this year, meanings or was completed this year because the transaction is itself, started last year. In Q1, we closed Forest Offices sale with a net inflow of approximately EUR 48 million. This sale resulted in a decrease of gross margin of approximately EUR 1 million.
On top, and I would like to draw your attention here to the chart on the right side of the income statement, where we show the where the differences come from. The first one, exactly the sale and the EUR 2.7 million decrease in gross margin, not only includes the sale of Forest Offices, but also last year, over last year, as you remember, we sold a couple of properties. This includes a Serbian portfolio, Cascade Building and Matrix Buildings A and B. The net decrease in the gross margin for the last year's sale amounts to approximately EUR 1.7 million. In total, the decrease on, in, the gross margin on the sold buildings amounts to EUR 2.7 million, as you can see.
Another or further transactions executed last year, meaning completion of the development projects, this was our Pillar Property and GTC X, resulted in an increase of current quarter's gross margin by EUR 1.4 million. Of course, everybody expects some increase related to inflation. We recognize in Q1 such an increase amounting to EUR 2.4 million. This will be the indexation influence will grow due to the fact that for office rents, we index them in line with the or maybe not in line, but on each anniversary of the agreement signing. The indexation influence will be more significant over the next quarters.
Last, slight decrease in the results, coming from the fact that for some of the new leases, there is a delay between the signing date and when the transaction, when the lease comes into force. For two buildings in Poland, we have a decrease in occupancy. The overall influence is EUR 1.8 million decrease as compared to Q1 2022. As we presented on the net, the net result is flat, meaning results for the two quarters are comparable. Going down the income statement, there is actually the biggest difference because the financials are comparable. The biggest difference is comes from the revaluation on investment properties.
Last in the comparable period, meaning Q1 2022, we recognize an increase on the valuation of the Pillar property amounting to EUR 6 million. If we excluded it, the decrease in the or the loss recognized on the revaluation amounting to approximately EUR 3 million results from new CapEx expanded, or I should say, capitalized on the properties, and then subsequently at the period end, expanded to the or charged to the P&L. As we keep the value of the properties at the end of Q1, as at the year-end, of course, assuming there is no premises to change the value.
This of course, also relates only to the operating assets, because for the developments, not of course, we increase the value. The impact resulting from such write-offs is similar as for Q1 2022. The net profit for the periods is similar, with EUR 3 million smaller or lower net profit for Q1 2023. As I said, this is mainly the valuation. There is also small impact of change in the taxation.
It was lower this quarter, and it is due to the fact that in the comparable quarter, we recognized deferred tax on the Pillar valuation, profit, as well as we improved in terms of amortization of the investment properties. Meaning it can be currently properly charged to the P&L with some adjustments in the previous year. If we could move then now to the balance sheet, again, there is no significant changes as compared to the end of last year. Two key differences that I would like to describe is the decrease in the assets held for sale.
This is, of course, the sale of the Forest Offices property, as well as the cash flow, cash and cash equivalents, plus deposits. If you try to compare it to the cash flow statements, there is differences resulting from including in this position of the deposits ground in or paid in. The main difference in the cash and cash equivalent results from the sale of forest, plus our CapEx activity, which is. Well, let's maybe jump to the cash flow statement directly. We will discuss the result there. Sorry, so I'm sorry. Sorry, Malgorzata, I missed this one.
I will come back to the investment activity in the cash flow. For the debt metrics, they remain strong, pretty unchanged as compared to the comparable periods again, with total debt amounting to EUR 1.24 billion. Same figure for the year-end. Weighted average debt maturity also remained at the level of comparable period. Looking at the chart at the right side, you will see that in the next 12 months, there is EUR 52 million planned payments. They result mainly from the repayment of the Polish bonds and standard or planned amortization of our financial liabilities. The next significant repayments or refinancing will hit in 2025.
Net LTV, I won't be describing the changes as Zoltan has already explained everything. Weighted average interest rates, very low as compared to current current interest rates in the market, from jumping or currently to 0.25% versus 2.21%, which is a really minor increase. This is why, or, you can see how well we are hedged or or financed, meaning, there is a number of loans and financial liabilities with fixed interest rate. This you can see on the debt split chart on the right bottom.
95% of our liabilities, and this remained, of course, also unchanged as compared to last, to the previous period, is fixed or hedged. Coming also to the secured versus unsecured, the figures didn't change as compared to last year. Basically, quite flat, strong position when it comes to the debt. Malgorzata, let's jump to the last, to the last slide that I'm going to present. Investments in real estate, EUR 27 million expanded. This is our current developments, meaning Matrix C, Rose Hill Business Campus, and Center Point III, versus last year's similar, more or less similar level of activity for developments.
On top, a couple of acquisitions, executed last year. In this quarter, we haven't executed any major acquisition. Again, the sale of investments this week, we have already discussed, forest property sold in this quarter, and in Q1, it was mainly. Last year, it was mainly Serbian portfolio, sold. As for the financial statements, financial data, it is all from my side. Unless you have any questions, I will be, of course, pleased to answer them.
Ladies and gentlemen, that concludes our formal presentation. I'm opening the floor to Q&A now. If you have any questions, just unmute yourself and ask the question.
Hello, this is Peter Priisalm from Avaron Asset Management. Can you hear me?
Yes, of course, Peter. Go on.
Can you share a bit the light on the indexation of rents? Did you do most of the indexation in Q1 for the year, or is there anything coming also in other quarters? Was it from the very beginning of the year? Maybe also the principles of indexation. I guess mostly it's euro or Eurozone inflation driven, or maybe you can just describe it a bit. Thank you.
Yes.
Yes, sure.
Yes, Zoltán, you would like to, or maybe János, or should I? Because of course, I'm ready to answer the questions.
Please go ahead, Barbara.
Yes, yes. Okay, perfect.
We're all ready.
For the retail portfolio, the indexation of rents hits from the beginning of the year. As I mentioned, for the office portfolio, this will be executed over the year in line with the anniversary of the agreement signing. In terms of what is the level of the indexation, yes, this is of course, related to all the European inflation, European indexes in place. When it comes to the actual figures, or levels of the indexation applied, on average, I would say it was around 10%.
Depending on the tenant, on the agreement, if there is anything more, János, you would like to add, please do, but, like the overview of the indexation, would be, or the average of the indexation would be approximately 10%.
Good. Yes, just to mention, all our leases are euro-based, and we use the European Union indexation. In some countries, beginning of the year, we put it through. It's, by the way, everything that was initiated this year was put through the leases, so no tenants were debating. So far, we don't see the signs that there would be an issue in terms of realizing inflation through the rents this year.
Thank you.
Hi, Cezary Bernatek from Erste Group. I would like to have a couple of questions, please. First of all, you mentioned that some of your existing projects require some CapEx to upgrade it to green certify it. I was just wondering what kind of level this CapEx could be this year and maybe next year, just roughly. Whether you expect the valuations of these projects after this extra CapEx to pick up somehow versus the current levels. That's one thing. Maybe, like, just two more quite specific questions. First one concerning ABC 3 project, is it still scheduled for kickoff this year? The last.
Sorry, which project? Excuse me, which project?
ABC 3.
Oh, ABC 3. Okay.
Yep. Concerning the occupancy at the office part of the portfolio at the end of Q1 2022, if you could just, you know, remind us what was the level? It's now, like, 87%, right? Just to have the base figure. Yeah.
Yes. That's correct. ABC 3, I think, the commencement of that project will probably slip over to next year. The small office development project in Sofia.
This is because of the market fundamentals there, or.
Yes. Yes.
All right.
ABC 1 and 2 operate, uh, well, but, uh, right now we don't see. I think, uh, the developments that we have in the pipeline are, uh, sufficient, uh, and we do not intend to add, uh, further ones. By the way, I would like to mention here that we have, we are progressing with the pre-development phase of NAPRED in Belgrade, which is a project that, a much bigger one, uh, that would, uh, generate additional GLA of 74,000 square meters. With that, over the next couple of years, we are actually rebuilding the portfolio in Belgrade.
If I had to choose between Sofia or Belgrade, where it makes, right now as it stands, more sense to develop, we would probably increase the exposure in Belgrade. The leasing market remains, and I think the also the prospects for that market are more positive than Sofia. On the first question, I would like to ask János about the CapEx on maintenance.
Yes. First of all, you know, not all of the CapEx, what we have in the budget and what we spend on the buildings is strictly and only related to green certification and the ESG profile. It's also normal parental CapEx to keep the buildings quality up to date. Roughly on annual basis, we spend between EUR 10-12 million on the whole portfolio. The impact on the valuation, well, that's a tricky question because valuation is not only driven by the CapEx, what you spend on the building, as well as the rents, what you collect from the tenants, but also on general market sentiment and how investors look at investing in the portfolio.
If I approach it from a different angle, for sure, you know, this CapEx is definitely needed to maintain the quality of the buildings. As ESG profile is becoming more and more important for the international investors, I would say that these days this is a must to have green certificates and bring the quality of the buildings up to date. I don't know whether that answers your question or not, but if you have any further question, more than happy to answer.
János, if you don't mind, I will add, there is very negative sentiment in the market. Very is, I exaggerate, but there is negative sentiment in the market when it comes to investments. The level of investments dropped significantly over the Eurozone as compared to the Q1 last year. It's, like, 50% less, let's say, on average. And with the cost of financing growing, everybody of everybody is talking about the decreases, increases in the cap rates and which results in the decreases in the valuation. We will be discussing, we will be reviewing, the, our portfolio with our valuers shortly, but the expectation of general market is that the valuations will go down.
Sure. Got your point. Great. Thanks for this answer, and maybe, like, taking opportunity, just one more question. How do you feel about the rental rates in the region, when it comes to the office segment? Is there any chance that there could be, like, an upward movement, in case of this supply gap, or, you rather see it stable, going into 2023, 2024?
Yeah.
On a comparable basis, right?
Yeah. I think, you know, at the moment, especially this year, we don't expect any increase. Companies are still, you know, looking at the impact of utility prices, service charge, costs, indexation, and all the other element of the cost. With that said, as also already mentioned, we put through wherever it was possible, all the indexation, all tenants accepted the index increased rents, as well as we went through all the service charge reconciliation for last year. 95% of those are already accepted. The remainder will be accepted probably in one month's time. It seems that tenants already got used to this different era. But with that said, I don't see any further room for increasing rents this year.
First they have to accommodate to this new era. I would call it stable.
Okay, thank you.
Ladies and gentlemen, do you have any more questions to the management of GTC at that stage?
Maybe one more from my side, if nobody else wants to ask the question now. Do you consider this buyback to conclude in the form of, like, a tender offer, potentially?
Sorry, can you repeat, please?
Is the tender offer when it comes to the buyback a possible option?
Yes. In terms of execution of share buybacks, obviously it includes this possibility, but it also includes straightforward buybacks on the stock exchange. All the legal possible avenues will be possible. There is no decision further than right now, other than just asking for the authorization.
Okay, thank you. That will be it from my side. Thanks.
Ladies and gentlemen, as there are no more questions, thank you very much for your participation and your time and your interest in GTC, and I remain available for any further questions you may have. Thank you very much. Have a lovely evening, a lovely day. Bye-bye.
Thank you very much.
Thank you. Bye. Bye-bye.
Bye-bye.