Improving operating results but still with devaluation adjustments
Globe Trade Centre S.A. (GTC) released its third quarter and nine months 2013 results today. The results have been prepared in accordance with International Financial Reporting Standards (IFRS) and are presented in Euro.
Q3 2013 Financial Highlights
- Earnings before taxes, share based provision, revaluations and share of associates stable at €7m (€7m in Q3 2012). These were improved on quarter on quarter basis since the beginning of the year (Q1: 3m; Q2: 4m and Q3: 7m). The improvement is attributed to increased efficiency in asset management, decrease in financial expenses and cost cutting initiatives
- Gross margin from rental activity up to 74% (71% in Q3 2012)
- Rental and service revenues at €30m (€34m in Q3 2012) reflecting sale of Platinium Business Park (€2m) and softening of rental rates in office segment in Poland and Hungary
- Net loss on revaluation of investment properties and impairment of €10m, mainly related to softening of rental rates on new leases in office segment in Poland and Hungary, partially offset by positive revaluation of Galeria Kazimierz following conclusion of preliminary sale agreement
- Financial expenses down to €10m (€13m in Q3 2012) mainly due to a decrease in debt level following the repayment of bonds and project loans
9M 2013 Financial Highlights
- Earnings before taxes, share based provision, revaluations and share of associates up to €14m (€10m in 9M 2012) from increased efficiency in asset management, decrease in financial expenses and cost cutting initiatives
- Rental and service revenues at €89m (€98m in 9M 2012) reflecting primarily the sale of Platinium Business Park (€8m) and rent softening in the office market in Poland and Hungary
- Administrative expenses, after eliminating the impact of stock based program provision, decreased by 15% to €9m (€10m in 9M 2012) due to cost cutting initiatives
- Net loss on revaluation of investment properties and impairment of €80m mainly related to change of zoning of Galleria Bucharest land site following changes in national law and a decrease in expected rental rates in retail sector in Romania, Bulgaria and Croatia as well as softening of rental rates on new leases in office segment in Poland and Hungary and a moderate shift in yields in Poland
- Loan to value down to 55% (57% in 9M 2012) following deleveraging
- Cash flow from operations after interest payment at €23m (€28m in 9M 2012) due to sale of Platinium Business Park which generated €5m in H1 2012
- Cash and cash equivalents and deposits of €103m
“Third quarter went according to expectations. We further improved operating results and continued our asset disposal strategy. GTC’s operating results showed improvement in all aspects compared to last year and the sale of Galeria Kazimierz is in line with our policy to refresh our portfolio by selling regional maturing assets and replacing them with new development that offers attractive return, on top of the deleveraging aspect of the sale. The deleveraging is happening, and as of end of September we brought the LTV down to 55% despite the write offs that we recognized. We are pleased with our achievements so far, but we still see a lot to do. On the development side we are working on 3 large scale retail projects which are our priority now. On the financial side we are preparing ourselves for the repayment of bonds that is coming next year.” – said Alain Ickovics, GTC Chairman of the Management Board.
Rental and service revenues decreased to €30m in Q3 2013 and €89m in 9M 2013 from €34m in Q3 2012 and €98m in 9M 2012, as a result of disposal of Platinium Business Park project in Warsaw and softening of rental rates especially in the office segment in Poland and Hungary. Margin on rental activities was at 74% in Q3 2013 (71% in Q3 2012) and 72% in 9M 2013 (73% in 9M 2012). As of September 2013, GTC’s completed buildings were leased in 91%, therefore further rental revenue growth is probable.
Revenues from sale of residential properties decreased to €3m in Q3 2013 and €9m in 9M 2013 from €6m in Q3 2012 and €16m in 9M 2012, respectively, mostly due to a decrease in available inventory and softer demand in various markets.
Gross profit from operations was €22m in Q3 2013 and €64m in 9M 2013 compared to €24m in Q3 2012 and €71m in 9M 2012 mostly due to the disposal of Platinium Business Park.
Selling expenses decreased to €1m in Q3 2013 and €2m in 9M 2013 mainly due to a decrease in sale and leasing activities.
Administrative expenses decreased by €2m to €2m in Q3 2013, due to a decrease in provision for mark-to-market of phantom shares program. Administrative expenses decreased by €7m to €6m in 9M 2013 mainly due to reversal of provision for mark-to-market of phantom shares program and cost cutting initiatives. On a like-for-like basis, after eliminating the stock based program provision, administrative expenses decreased by 15% to €9m in 9M 2013.
Net loss on revaluations of investment property and impairments
of residential projects was €10m in Q3 2013 and €80m in 9M 2013 and
is attributable to a change of designation of Galleria Bucharest land following a change of law in Romania and expansion of yield in office sector in Bucharest as well
as a decrease in expected rental rates in retail sector in Romania, Bulgaria and Croatia as well as a decrease in rental rates on new leases in office segment in Poland and Hungary and a moderate shift in yields in Poland. Loss on revaluation of investment property and impairments of residential projects of €19m in Q3 2013 and €91m in 9M 2013 was partially offset by an increase in value of Galeria Kazimierz by €6m and Galleria Pietra Neamt by €2m.
Financial expenses decreased to €12m in Q3 2013 and €37m in 9M 2013, which was mainly due to a decrease in interest on financial liabilities following a decrease
in the debt level due to repayment of bonds and loans.
Net loss amounted to €2m in Q3 2013 and €77m in 9M 2013. This is attributable mainly to a loss on revaluation of investment properties and impairment of residential projects coupled with tax charge.
The value of the property portfolio was at the level of €1,709m (including €89m
of assets held for sale) and loan to value was at the level of 55% as at 30 September 2013. NAV per share stood at €2.2 as at 30 September 2013 compared to €2.4as at 31 December 2012.
Sale of Galeria Kazimierz
GTC signed preliminary sale agreement with Nellia Sp. z o.o., part of the Invesco Group, regarding terms of sale of Galeria Kazimierz shopping mall located in Krakow, Poland. GTC’s decision to sell its stake in Galeria Kazimierz is in line with the Company’s strategy to sell mature assets, as well as in accordance with the Company’s plan to generate net cash from disposal of assets, as announced last year. The transaction price of 180 million euro for the 100% stake in Galeria Kazimierz reflects the demand for such prime asset. Finalization of the transaction is subject to regulatory and other customary conditions precedent and will generate approximately €50m of net cash for GTC.
Commencement of construction of Pascal building in Kraków
Pascal office building is the culmination of GTC’s flagship project in Krakow – the Korona Office Complex. The building offers 5,500 square meters of modern office space located on seven floors, providing its users with the ultimate work comfort and convenience. Large office space allows unlimited interior arrangement, accommodating every need of the prospective tenants. Its excellent location, in the city centre, close to the: Armii Krajowej, Przybyszewskiego, Juliusza Lea and Kołowa streets, enables quick and easy connection to the strategic points of Krakow. Pascal’s design reflects direct needs of the future tenants, latest technologies were applied during the design phase of the building and highest quality materials were used during the construction process, which will not only make Pascal cost-effective to operate, but also environmentally friendly.
New leases and renewals
GTC continues to benefit from company’s ability to deliver high quality office space and to provide tailored solutions for companies representing variety of business sectors. In the third quarter of 2013, GTC signed a number of new lease agreements and extensions of existing leases for almost 16 ,000 sq m which brought the year to date result to almost 60,000 sq m of office and retail space leased/prolonged.
New lease agreements
– IBM leased 1,650 sq m in Pascal building in Korona Office Complex (Kraków) – building to be completed in Q1 2014
– DFDS has become a new tenant in in Globis Poznań. The company has leased 1,600 sq m office space for five years
– 1,100 sq m leased by various tenants in offices in Poland
– 1,230 sq m leased by various tenants in offices in Serbia
– 3,000 sq m leased by various retailers in shopping malls in Bulgaria and Croatia
Renewals and extensions
– Pandora has extended the lease agreement for approximately 1,100 sq m of office space in Zephirus building in Okęcie Business Park (Warsaw)
– Samsung Electronics has extended its lease of over 1,850 sq m in University Business Park
– 1,450 sq m extended by various tenants in offices in Poland
– 1,500 sq m extended by various tenants in offices in Serbia
– 1,500 sq m extended by various retailers in shopping malls in Croatia
Reserved and LPP brands along with Cinema City cinemas in planned Wilanów and Białołęka malls
GTC has signed letters of intent with LPP S.A. and Cinema City International on leasing in total over 16,700 sq m of retail space in the new shopping malls expected to be built in Warsaw.
Both projects, Galeria Wilanów and Galeria Białołęka, have been increasingly attracting interest of prospective tenants. Cinema City International, the largest cinema operator in Central and Eastern Europe and Israel, as well as the third biggest cinema network in Europe, has reached an initial agreement with GTC on renting more than 4,000 sq m in Galeria Wilanów and more than 3,300 sq m in the Galeria Białołęka.
The company has also reached an agreement with LPP S.A. (LPP), Poland’s biggest fashion retailer and owner of popular brands and chain stores such as: Reserved, House, Cropp, Mohito, a newly introduced and successful brand Sinsay as well as Home&You, a brand of house decoration stores. LPP will rent over 4,600 sq m in Galeria Wilanów and over 4,700 sq m in Galeria Białołęka. Reserved’s flag stores will be located in both of the shopping malls.
Both projects, Galeria Wilanów and Galeria Białołęka are at the final stage of the conceptual work prior to commencing construction works. GTC estimates that Galeria Białołęka will open its doors in 2015, and Galeria Wilanów in 2016.