Strategy: Progress of the 3 year strategic plan (2012-2014)

  • GTC finalized sale of Platinium Business Park (buildings I-IV); €44m of free cash was generated;
  • Finalization of sale of Platinium Business Park V is expected in the first quarter of 2013; once achieved, will generate additional €16m and allow for realization of 30% of the three-year assets disposal program;
  • GTC extended maturity of €50m bonds until 2017-2018 and €17m  bonds were repaid;
  • GTC entered into binding agreement to sell three loss making small shopping centres in Romania (“NCC”) to further improve operating results;
  • GTC acquired remaining 50% of Galeria Wilanów project.

Q3 Highlights

  • Rental revenues improved 3% q-on-q to €34m (€33m in Q2’2012);
  • Gross profit remained stable at €24m;
  • Profit before tax and devaluations of €6m (loss of €10m in corresponding period of 2011) due to improvement in selling and administrative expenses and financial expenses;
  • Devaluation of investment properties of €29m; mainly related to the sale of NCC and devaluation of some assets due to changes in market conditions.

 9M Highlights

  • Gross profit from operations at €71m; stable compared to the corresponding period of 2011 despite small decline in revenues resulting from sale of Galeria Mokotów;
  • Gross margin on rental activities at 73% (same as in corresponding period of 2011); gross margin on residential activities at 3% (5% in corresponding period of 2011);
  • Average occupancy rate up to 90% (87% in corresponding period of 2011);
  • Profit before tax and devaluations of €7m (loss of €15m in corresponding period of 2011) due to improvement in selling and administrative expenses as well as financial expenses;
  • Devaluation of investment properties of €39m; mainly due to the weak economic environment in Romania;
  • Completion of Platinium V and Corius, as well as the sale of Platinium I-IV contributed to €17m revaluation gain.

 “It was a very important period for us. Following the successful rights issue, GTC took further steps to improve its balance sheet and operating results. At the end of October the Company finalized the sale of Platinium Business Park in Warsaw, and it also managed to extend maturity of €50m of its bonds until 2017-2018,”  said Alain Ickovics, Chairman of the Supervisory Board of GTC S.A. “This step helps us reduce pressure on selling assets, which we will continue now at a more gradual pace. Additionally, the Company took a very important decision and entered into a biding agreement to sell control in three non-core assets in Romania.  Exiting small-retail division shall improve both, the cash flow and profit and loss statement by €3 to €4m on an annual basis since the properties were loss making. In this difficult case, GTC decided to choose immediate operational improvement over longer term value preservation due to current market conditions,” – added Alain Ickovics.

 Financial overview

Rental and service revenues were stable y-on-y and increased by 3% q-on-q to €34m in the third quarter of 2012. Rental and service revenues increased by 1% to €98m in the nine months of 2012 compared to the corresponding period of 2011. The increase was mainly due to increased occupancy to 90% (2011: 87%) and completion of new office and retail space that includes Corius, Platinium Business Park V and Galleria Burgas. As of September 2012, some of GTC’s completed buildings were still not fully occupied or rents were not paid yet due to rent free periods, therefore, further rental revenue growth is probable. The margin on rental revenues was 71% in the third quarter of 2012 and 73% in the nine months of 2012.

Revenues from the sale of residential properties amounted to €6m in the third quarter of 2012 and €16m in the nine months of the same year. The profitmargin on the sale of residential properties was 3% in the nine months of 2012, mostly due to the sale of houses in Osiedle Konstancja, which contributed to the profits, compared to negative margins with respect to other projects.

Gross profit from operations was €24m in the third quarter of 2012 and at €71m in the nine months of 2012.

Selling expenses decreased by 30% y-o-y and by 9% q-o-q to €1m in the third quarter of 2012. Selling expenses decreased by 15% to €4m in the nine months of 2012. The decrease in selling expenses was mainly due to completion of leasing activities in newly completed assets.

Net loss on revaluations of investment property and impairments of residential projects was €28m in the third quarter of 2012 and €39m in the nine months of 2012, and is attributable mostly to the tree assets in Romania that the Company decided to sell below its book value in order to improve the operating performance of the Group as well as a decline in value of certain assets due to a change in market condition.

Net loss amounted to €24m in the third quarter of 2012 and €43m in the nine months of 2012. This is attributable mainly to a loss on revaluation of investment properties and taxation charges.

The value of the property portfolio was at the level of €2,030m as at 30 September 2012 (including €185m of assets held for sale). The next review of the value of completed assets and the land bank will be conducted as of 31 December 2012 by the external valuers.

NAV per share stood at €3.2 as at 30 September 2012 compared to €3.9 as at 31 December 2011, mostly due to a rights issue (100,000,000 shares) at a price below book value.

Key achievements of Q3 2012

Strategy progress – focus on improving cash position and deleveraging

Maturity of aprox. 50m of the existing bonds prolonged to 2017-2018 and 17m were repaid

 GTC had offered investors to prolong the maturity of some of the existing bonds by way of acquiring new bonds in exchange for existing ones. The offer was directed to selected institutional investors who were the bondholders of the bonds issued by GTC in 2007 and 2008. As a result of the acceptance of the offer, GTC issued bearer, unsecured bonds in the total nominal value of approximately €50m. The bonds will be amortized over 2017 and2018 in3 equal tranches with the final maturity 30 April 2018. GTC plans to introduce these bonds for trading on Catalyst by the end of January 2013.

The interest on the new bonds is based on the 6M WIBOR and a 4% p.a. margin set forth in the terms and conditions of the bonds. With the aim of further deleveraging GTC has decided to purchase for redemption purposes additional bonds with a value of approximately €17m at an average price approximately 98% of its nominal value.

 Platinium Business Park I-IV (Warsaw) sold

Subsidiaries of GTC and Allianz Real Estate Group concluded a final agreement on the sale of four office buildings inPlatiniumBusinessParkinWarsaw.

 The preliminary agreement on the sale of five buildings inPlatiniumBusinessPark(I-V) was signed by GTC and Allianz in June. The companies finalized the sale of the Platinium I-IV buildings on 31 October 2012, after satisfying all conditions set forth in the preliminary agreement. The final price of the four buildings inPlatiniumBusinessParkis €139m and reflects an investment yield of 6.7%. The transaction will bring GTC approx. €44m of free cash which will allow the company to continue deleveraging and developing new projects.

The sale of the Platinium V building is expected in the first quarter of 2013 and will generate another approximately €16m of free cash flow.

 GTC has entered into an agreement to sell three non-core assets in Romania

 The transaction provides an estimated value of approximately €6-7m for three small-size shopping centers comprising between 10,000 and 14,000 sq m of net rentable area, located inBuzau,Piatra Neamtand Suceava which are second-tier and third tier cities inRomania. The transaction will improve both, the cash flow and profit and loss statement by €3 to €4 m on an annual basis since the properties were loss making.

GTC decided to exit small-retail division and focus on its large scale shopping centers due to the change in market conditions, relatively high operational costs for smaller assets, and their different tenant mix which results in lack of synergies with the larger retail assets in the Group.

 The buyer is an international private investor. The transaction is subject to buyer due diligence and customary approvals. The sale purchase agreement is expected to be finalized in the first quarter of 2013.

GTC became a sole owner of the Galeria Wilanow project

GTC has purchased from Polnord the remaining 50% of the Galeria Wilanów shopping center project inWarsaw. As a result, GTC will be now developing and managing the Galeria Wilanow project by itself.

The modern shopping and entertainment centre in Wilanow will comprise of up to approx. 80,000 sqm of net rentable retail space. The first phase of the project will comprise of approx. 60,000 sqm of net rentable area and the cost of that phase is estimated at160 meuro. The project is under advanced preparations and will be started as soon as all permits will be obtained. The construction of Galeria Wilanów will last about 18 months.

Simultaneously, GTC plans to develop another modern shopping and entertainment centre in the Northern part ofWarsaw. The mall will be constructed on a4,9 hectaresite in the Białołęka area.

 Important leases to improve occupancy

 GTC’s continues to benefit from its ability to deliver high quality space and from its track record of providing tailor-made solutions for companies from various business sectors.

 In the third quarter of 2012, GTC signed a significant number of lease agreements for office and retail space, which will improve its overall occupancy and, as a result, have a positive impact on cash flow and the valuation of certain assets in its portfolio:

 New lease agreements:

–         New tenant in Francuska Office Centre in Katowice: Rockwell (2,100 sq m).

–         New tenant in UniversityBusinessParkin Łódź: Hewlett-Packard (1,500 sq m).

–         New lease agreements signed with leading local and international brands (e.g. Bershka, DIY, Benetton Kids, and Atlantic) for retail space located in GTC malls throughout the region.

 

Significant renewals and extensions

–         Hewlett-Packard has extended the lease agreement for 6,600 sq m of class A space in the Globis office building inWrocław.

–         Warta has leased additional 1,600 sq m inUniversityBusinessPark in Łódź

–         Lux Med has extended the lease agreement for 1,500 sq m office space in Globis office building inPoznań

–         Eaton (1,200 sq m) and Mitsubishi (1,000 sq m) extended the lease agreement in Nothus office building (OkęcieBusinessPark inWarsaw)

–         Raiffeisen Bank (1,000 sq m), City Handlowy (700 sq m) and Ergomed (300 sq m) extended the lease agreement in GTC Office Centre inKrakow

 

Awards & certificates

 GTC won the global Euromoney Real Estate Survey

For the 4th time, GTC won recognition in the prestigious Real Estate Survey organized by the international finance magazine Euromoney. GTC has been named Best Overall Developer inRomania andSerbia, and Best Mixed Developer inPoland.

This year’s awards process canvassed the opinions of more than 1,900 senior real estate bankers, developers, investment managers, corporate end-users and advisory firms in over 70 countries. The panel of specialists singled out GTC for the quality and scale of its development projects, its skilful assessment, innovations and effective management.

 LEED Gold certificate for Platinium 5 building

U.S. Green Building Council (USGBC) granted LEED® Gold for Core and Shell certificate to Platinium V building inWarsaw. It is the second office facility of GTC with LEED for Cover and Shell, after Corius building. The certificate covers all stages of development process, including choice of location, design and construction works, as well as implementation of planned solutions. GTC fulfilled a number of USGBC requirements both during design and construction works. The result is a tenant-friendly building that was raised with full respect for the environment

Platinium V is part of one of the most popular business parks inWarsawand was put into use in June this year. The building comprises approx.11,000 sq m of modern office space. The area of a typical floor is 1,024 sq m, and each floor can be efficiently arranged into separate offices or open space. Tenants also have 180 parking spaces at their disposal. The building is over 90% let.

GTC with the first LEED-distinguished project in Bulgaria

GTC set new standards onBulgaria’s real estate market in the area of sustainability and pro-ecological solutions. Galleria Burgas is the first real estate project and the first shopping mall in the country that meets the harsh criteria of U.S. Green Building Council (USGBC). LEED Gold for Core and Shell certificate that has just been granted to Galleria Burgas, covers all stages of development process, including choice of location, design and construction works, as well as implementation of planned solutions.

GTC fulfilled a number of USGBC requirements both during design and construction works. The result is a building raised with full respect for the environment. Galleria Burgas was constructed from materials that increase energy efficiency and enable maximum effectiveness of heating, air conditioning and lighting systems. USGBC also valued the location of the facility, easy access to public transport, effectiveness of waste segregation and quality of the internal environment.

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