GLOBE TRADE CENTRE S.A. - H1 2018 results for the six-month period ended 30 June 2018

Release Date: 23/08/2018 07:05
Code(s): GTC
 
Wrap Text
H1 2018 results for the six-month period ended 30 June 2018

GLOBE TRADE CENTRE SA
(Incorporated and registered in Poland with KRS No. 61500)
(Share code on the WSE: GTC)
(Share code on the JSE: GTC ISIN: PLGTC0000037)
("GTC" or "the Company")

H1 2018 RESULTS
FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018

HIGHLIGHTS   
                                                              
GROSS MARGIN FROM
RENTAL ACITIVITY         FFO I         EPRA NAV/SHARE         NET LTV   
EUR 54M                  EUR 29M       EUR 2.32               45%       
+26%                     +35%          +2%                    +3%       


FINANCIAL HIGHLIGHTS                                 PORTFOLIO HIGHLIGHTS                 
                                                     - Refurbishment of the two buildings   
- Gross margin from rental activity up by 26% to       in Green Heart project (formerly     
  EUR 54m (EUR 43m in H1 2017)                         GTC Square)                          
- Profit after tax at EUR 46m (EUR 60m in H1 2017)   - Completion of White House            
- Profit after tax without revaluation increased     - Acquisition of Mall of Sofia and     
  49% to EUR 25m (EUR 17m in H1 2017)                  Sofia Tower                          
- Earnings per share at EUR 0.10                     - 4 projects under construction with   
- FFO I increased 35% to EUR 29m (EUR 21m in           85,000 sq. m GLA to be completed     
  H1 2017), FFO I/share up to EUR 0.06                 in 2019                              
- In-place rent up 14% to EUR 125m                   - 3 projects with 90,000 sq. m to be   
- EPRA NAV increased 4% to EUR 1,120m (EUR             commenced still in 2018              
  1,073m as of 31 December 2017); EPRA NAV/          - Strong asset management              
  share up to EUR 2.32                                 -   Occupancy at 93% (94% as         
- Average interest rate down to 2.6% p.a. from             at 31 December 2017)                 
  2.8% p.a. as of 31 December 2017                     -   85,000 sq. m of office and       
- Interest cover at 4.0x                                   retail space newly leased            
- Net LTV at 45%                                           and renewed in H1 2018               


OPERATING PERFORMANCE   
                                    
H1 2018                                  Reported         Variance %   
Gross margin from rental activity        EUR 54m          +26%         
Profit before tax                        EUR 57m          -17%         
Earnings per share                       EUR 0.10         -23%         
FFO I                                    EUR 29m          +35%         
Net debt                                 EUR 953m         +15%         
Net LTV                                  45%              +3%          
EPRA NAV/share                           EUR 2.32         +2%          
           

CORPORATE OVERVIEW

NATURE OF BUSINESS

The GTC Group is a leading real estate investor and developer focusing on Poland and four capital cities in
Eastern and Southern Europe - Belgrade, Budapest, Bucharest, Zagreb and Sofia. The Group was established
in 1994.

The Group's portfolio comprises: (i) completed commercial properties; (ii) commercial properties under
construction; (iii) a commercial landbank intended for future development and (iv) residential project and landbank.

Since its establishment and as at 30 June 2018 the Group has: (i) developed 1.1 million sq. m of gross
commercial space and over 300 thousand sq. m of residential space; (ii) sold over 500 thousand sq. m of gross
commercial space in completed commercial properties and approximately 300 thousand sq. m of residential
space; and (iii) acquired approximately 145 thousand sq. m of commercial space in completed commercial
properties. Additionally GTC Group developed and sold over 100 thousand sq. m of commercial space and
approximately 76 thousand sq. m of residential space through its associates in Czech Republic.

As of 30 June 2018, the Group`s property portfolio comprised the following properties:

  -  42 completed commercial buildings, including 38 office buildings and four retail properties with a
     total combined commercial space of approximately 697 thousand sq. m of GLA, of which the
     Group's proportional interest amounts to approximately 676 thousand sq. m of GLA;

  -  four commercial projects under construction, including three office projects and one retail
     project with total GLA of approximately 85 thousand sq. m, of which the Group's proportional
     interest amounts to 85 thousand sq. m of GLA;

  -  commercial landbank designated for future development; and

  -  residential landbank.

As of 30 June 2018, the book value of the Group's portfolio amounts to EUR 2,114.3m with: (i) the Group's
completed commercial properties account for 88% thereof; (ii) commercial properties under construction - 5%;
(iii) a commercial landbank intended for future development - 6%; (iv) residential projects and landbank account
for 1%. Based on the Group's assessment approximately 98% of the portfolio is core and remaining 2% is non-
core assets, including non-core landplots and residential projects.

Additionally, the Group manages third party assets in Warsaw and Katowice.

The Company's shares are listed on the WSE and inward listed on the Johannesburg Stock Exchange. The
Company's shares are included in mWIG 40.

The Group's headquarters are located in Warsaw, at 17 Stycznia 45A.

STRATEGY AND DIVIDEND POLICY

GTC's objective is to create value from active management of a growing commercial real estate portfolio in CEE
and SEE, supplemented by selected development activities; and enhancing deal flow, mitigating risks and
optimising performance through its regional platform, by investing its own funds, the proceeds from share capital
increases and reinvesting potential proceeds from the sale of real properties. This leads to accretive funds from
operations and provides for growing dividend potential.

On 17 May 2018, the Annual General Meeting of GTC S.A. passed Resolution no 5 on the division of profits for
the 2017 financial year and dividend payment. The Annual General Meeting resolved, after due consideration of
the Management Board's proposal concerning allocation of GTC S.A.'s net profit for 2017, to distribute the
amount of PLN 155,200,156.32 as dividends to the Company's shareholders. The General Meeting resolved to
pay dividends of PLN 0.33 per share. The dividends was distributed from the Company's net profit for 2017.
Under the Resolution, the dividend record date was set for 25 May 2018, and the dividend payment date was 14
June 2018. Shareholders were given a choice to elect dividend in cash or in shares. Some of the shareholders
decided to choose shares and as a result in June 2018, the Company issued 13,233,492 series M Shares to
some of the Company's shareholders. The dividend was paid in cash (EUR 9.7m) or in shares (EUR 26.5m) on
all 470,303,504 GTC S.A. shares.

COMMENTARY

The management board presents unaudited interim condensed consolidated results for the 6 months ended 
30 June 2018.

KEY OPERATING ACHIEVEMENTS IN 2017

Completions, acquisitions and asset management boost in place rent and profit:
  -  Completion of the two buildings in Green Heart project (formerly GTC Square)
            -   Refurbishment of 21,600 sq. m of office space
            -   85% leased as of 30 June 2018
            -   EUR 3.2m of additional in-place rent p.a.
  -  Completion of White House
            -   21,500 sq. m of newly developed office space
            -   59% leased as of 30 June 2018 (the remaining space under negotiation)
            -   EUR 2.4m of additional in-place rent p.a.
  -  Acquisition of Mall of Sofia
            -   22,900 sq. m retail and 10,300 sq. m of office space
            -   96% leased
            -   65% acquisition price financed by the bank's loan
            -   EUR 7.55m of in-place rent p.a.
            -   Yield on equity invested 19.5%
   -  In-place rent of EUR 125m annually (+14% vs. Dec. 2017)

Expected NAV and FFO growth from development activity:
   -  4 projects under construction with 85,000 sq. m GLA to be completed in 2019:
            -   Ada Mall (Belgrade)
            -   part of Green Heart (Belgrade)
            -   Advance Business Centre I (Sofia)
            -   Matrix A (Zagreb)

  -  3 projects with 90,000 sq. m to be commenced still in 2018:
            -   Advance Business Centre II (Sofia)
            -   City Rose Park 1&2 (Bucharest)
            -   The Twist (Budapest)
  -  2 projects with over 39,000 sq. m of office space to start in next 12 months
            -   Matrix B (Zagreb)
            -   The Pillar (Budapest)
  -  Another 6 projects in the planning stage with over 175,000 sq. m GLA


KEY FINANCIAL HIGHLIGHTS IN H1 2018

Rental and service revenues

 -   Increased to EUR 73m from EUR 58m in H1 2017

     Reflects improvement in the rental revenue through completion and leasing of FortyOne III, Galeria
     P�lnocna, Artico, which were opened to the public during the year 2017 and contributed EUR 12m to the
     recurring rental income. Additionally, the acquired Cascade Office Building, Belgrade Business Centre
     and Mall of Sofia contributed EUR 4m to the recurring rental income. These increases were partially offset
     by lost revenues of EUR 3m following disposal of Galleria Stara Zagora and Galleria Burgas.

Gross margin from operations

 -   Increased EUR 55m from EUR 43m in H1 2017
 
     Reflects mostly newly completed and acquired properties partially offset by sale of non-core assets.

Net profit from development revaluation and impairment

 -   Amounted to EUR 23m as compared to EUR 51m in H1 2017

     Reflects mainly valuation gain on assets under construction: Ada Mall, White House and Green
     Heart.

Financial expenses

 -   Almost unchanged at EUR 14m as compared to EUR 13m in H1 2017

     Cost of finance down to 2.6% (from 3.1%) due to decrease in average interest rate and change in hedging
     strategy

Taxation

 -   Amounted to EUR 11m as compared to EUR 8m tax benefit in Q1 2017
     Taxation consist of EUR 4m of current tax expenses and EUR 7m of deferred tax expenses.

Net profit

 -   Amounted to EUR 46m compared to EUR 60m in H1 2017. The profit without revaluation increased 49%
     to EUR 25m.

     Reflects strong operating performance and operational excellence.

 -   Earnings per share at EUR 0.10 compare to EUR 0.13 in H1 2017.

Funds From Operations (FFO I)

 -   At EUR 29m compared to EUR 21m in H1 2017

Total property value

 -   At EUR 2,117m as of 30 June 2018 (EUR 1,955m as of 31 December 2017) due to an investment in
     assets under construction and revaluation gain those assets

EPRA NAV / share

 -   Up by 2% to EUR 2.32 from EUR 2.28 on 31 December 2017
     Corresponding to EPRA NAV of EUR 1,120m compared to EUR 1,073m as of 31 December 2017

Total bank debt and financial liabilities

  -  At EUR 1,135m compared to EUR 1,031m as of 31 December 2017
  -  Weighted average debt maturity of 4.25 years and average cost of debt of 2.6% p.a.
  -  LTV at 45% (42% on 31 December 2017)
  -  Interest coverage at 4.0x (3.5x on 31 December 2017)
  -  EUR 20.5m of bonds and corporate loan issued
  -  EUR 39m bonds repaid

Cash and cash equivalents

  -  Cash position of EUR 140m as of 30 June 2018 from EUR 149m as of 31 December 2017



Basis of preparation
The Interim Condensed Consolidated Financial Statements for the six-month period ended
30 June 2018 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by EU.

At the date of authorisation of these consolidated financial statements, taking into account the EU's ongoing
process of IFRS endorsement and the nature of the Group's activities, there is a difference between
International Financial Reporting Standards and International Financial Reporting Standards endorsed by the
European Union. The Group is aware of the fact that IFRS 16 which is effective for financial years beginning on
or after 1 January 2019, has been already endorsed by the European Union. The Group is currently in the
process of analysis of quantitative and qualitative impact of these standard on the Group's consolidated
financial statements.

The Interim Condensed Consolidated Financial Statements do not include all the information and disclosures
required in the annual financial statements, and should be read in conjunction with the Group's consolidated
financial statements and the notes thereto for the year ended 31 December 2017, which were authorized for
issue on 21 March 2018. The interim financial results are not necessarily indicative of the full year results.

The Group's Interim Condensed Consolidated Financial Statements are presented in Euro, which is also GTC's
functional currency. For each entity, the Group determines the functional currency and items included in the
financial statements of each entity are measured using the functional currency.

The financial statements of those entities prepared in their functional currencies are included in the Interim
Condensed Consolidated Financial Statements by translation into Euro using appropriate exchange rates
outlined in IAS 21. Assets and liabilities are translated at the period end exchange rate, while income and

expenses are translated at average exchange rates for the period. All resulting exchange differences are
classified in equity as "Foreign currency translation" without affecting earnings for the period.

These Interim Condensed Consolidated Financial statements have been prepared on the assumption that the
Group will continue as a going concern in the foreseeable future. As at the date of approval of these financial
statements, no circumstances were identified which would indicate any threat to the Group' continuing as a
going concern.

Annex 1   Consolidated Statement of Financial Position as at 30 June 2018
          (in thousands of euro)

                                                                                30 June 2018      31 December 2017   
                                                                                 (unaudited)             (audited)   
ASSETS                                                                                                               
 Non-current assets                                                                                                  
 Investment property                                                               1,964,653             1,797,583   
 Investment property landbank                                                        133,383               139,258   
 Residential landbank                                                                 12,698                12,698   
 Investment in joint ventures                                                            407                 1,303   
 Property, plant and equipment                                                         6,657                 6,847   
 Other non-current assets                                                                101                    86   
                                                                                   2,117,899             1,957,775   
 Loan granted to non-controlling interest partner                                      9,511                     -   
Total non-current assets                                                           2,127,410             1,957,775   
          
Assets held for sale                                                                   3,566                 4,336   
Current assets                                                                                                       
          
 Residential inventory                                                                     -                 3,755   
 Accounts receivables                                                                  6,743                 4,367   
 Accrued income                                                                        1,466                 1,093   
 VAT receivable                                                                        5,253                 6,618   
 Income tax receivable                                                                   782                   619   
 Prepayments and deferred expenses                                                     2,718                 1,767   
 Escrow account                                                                          316                   777   
 Short-term deposits                                                                  41,148                52,756   
 Cash and cash equivalents                                                           140,280               148,746   
                                                                                     198,706               220,498  
                                                                                      
TOTAL ASSETS                                                                       2,329,682             2,182,609   


Annex 1   Consolidated Statement of Financial Position as at 30 June 2018 (cont.)
          (in thousands of euro)

                                                                                30 June 2018      31 December 2017   
                                                                                 (unaudited)             (audited)   
EQUITY AND LIABILITIES                                                                                               
Equity attributable to equity holders of the Company                                                                 
 Share capital                                                                        10,960                10,651   
 Share premium                                                                       546,711               520,504   
 Capital reserve                                                                    (36,054)              (36,054)   
 Hedge reserve                                                                       (3,492)               (2,365)   
 Foreign currency translation                                                            738                 2,323   
 Accumulated profit                                                                  451,385               441,977   
                                                                                     970,248               937,036   
                             
 Non-controlling interest                                                              4,707                 4,226   
Total Equity                                                                         974,955               941,262   
                            
Non-current liabilities                                                                                              
 Long-term portion of long-term borrowing                                          1,021,623               907,704   
 Deposits from tenants                                                                 9,558                 8,960   
 Long term payable                                                                     2,654                 2,621   
 Provision for share based payment                                                     4,371                 5,744   
 Derivatives                                                                           2,071                 1,360   
 Provision for deferred tax liability                                                138,788               125,827   
                                                                                   1,179,065             1,052,216   
                            
Current liabilities                                                                                                  
 Trade and other payables                                                             48,031                50,505   
 Current portion of long-term borrowing                                              116,164               126,381   
 VAT and other taxes payable                                                           1,626                 1,516   
 Income tax payable                                                                      816                 1,843   
 Derivatives                                                                           2,279                 2,035   
 Advances received                                                                     6,746                 6,851   
                                                                                     175,662               189,131   
                                                                                        
TOTAL EQUITY AND LIABILITIES                                                       2,329,682             2,182,609   
            

Annex 2   Consolidated Income Statement for the six month period ended 30 June 2018
          (in thousands of euro)

                                           Six-month period   Six-month period       Three-month       Three-month   
                                              ended 30 June      ended 30 June   period ended 30   period ended 30   
                                                       2018               2017         June 2018         June 2017   

                                                (unaudited)        (unaudited)       (unaudited)       (unaudited)   

 Rental revenue                                      53,360             43,465            27,380            21,393   

 Service revenue                                     19,202             14,516             9,327             6,800   

 Residential revenue                                  4,578                442               963                 -   

 Service costs                                     (18,521)           (15,052)           (9,514)           (7,106)   
 Residential costs                                  (3,868)              (379)             (889)                 -   
Gross margin from operations                         54,751             42,992            27,267            21,087   

 Selling expenses                                   (1,195)              (964)             (720)             (511)   
 Administration expenses                            (4,099)            (7,654)           (2,701)           (5,012)   
 Profit from revaluation/impairment of                                                                               
 assets                                              23,368             51,094            10,834            26,670   
 Other income                                           407                864               244               518   
 Other expenses                                     (2,757)            (1,351)           (1,377)             (899) 
   
Profit (loss) from continuing operations                                                                             
before tax and finance income/(expense)              70,475             84,981            33,547            41,853   
                                                                                                           

 Foreign exchange differences gain/                                                                                  
 (loss), net                                            294            (4,158)               188             (406)   
 Finance income                                         158                 92                85                40   
 Finance cost                                      (14,311)           (13,013)           (7,150)           (6,471)   
 Share of gain (loss) of associates and                                                                              
 joint ventures                                           -                184                 -                 -   
Profit before tax                                    56,616             68,086            26,670            35,016   

 Taxation                                          (10,544)            (8,487)           (4,907)           (7,512)   
Profit (loss) for the period                         46,072             59,599            21,763            27,504   

Attributable to:                                                                                                     
 Equity holders of  the Company                      45,591             59,634            21,533            27,454   
 Non-controlling interest                               481               (35)               230                50   

 Basic earnings per share (in Euro)                    0.10               0.13              0.05              0.06   


Annex 3   Consolidated Statement of Cash Flow for the six month period ended 30 June 2018
          (in thousands of euro)

                                                                               Six-month period   Six-month period   
                                                                                          ended              ended   
                                                                                   30 June 2018       30 June 2017   
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                
Profit before tax                                                                        56,616             68,086   
Adjustments for:                                                                                                     
Loss/(profit) from revaluation/impairment of assets                                    (23,368)           (51,094)   
Share of loss (profit) of associates and joint ventures                                       -              (184)   
Profit on disposal of assets                                                                                     -   
Foreign exchange differences loss/(gain), net                                             (294)              4,158   
Finance income                                                                            (158)               (92)   
Finance cost                                                                             14,311             13,013   
Share based payment (income)/expenses                                                   (1,373)              2,215   
Depreciation and amortization                                                               266                216   
Operating cash before working capital changes                                            46,000             36,318   
Increase in trade receivables, prepayments and other current assets                     (1,158)               (85)   
Decrease/(increase) in inventory and residential land bank                                3,755            (1,801)   
Increase/(decrease) in advances received                                                (1,567)              2,947   
Increase in deposits from tenants                                                          (92)              1,439   
Increase/(decrease) in trade and other payables                                           (693)              (477)   
Cash generated from operations                                                           46,245             38,341   
Tax paid in the period                                                                  (4,623)            (2,101)   
Net cash flows from operating activities                                                 41,622             36,240   
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                
Expenditure on investment property                                                     (59,337)           (69,199)   
Decrease in short term deposits                                                          15,515                  -   
Purchase of subsidiary                                                                 (37,846)           (12,500)   
Purchase of completed assets and land                                                         -           (10,525)   
Decrease/(Increase) in Escrow accounts for purchase of assets                               461            (7,444)   
Sale of investment property                                                              13,613              1,731   
Sale of subsidiaries                                                                          -             37,545   
Sale of shares in associate                                                                   -              1,250   
VAT on purchase/sale of investment property                                               1,067            (3,498)   
Interest received                                                                            40                 71   
Loans repayments                                                                            813                812   
Net cash flows from/(used in) investing activities                                     (65,674)           (61,757)   
CASH FLOWS FROM FINANCING ACTIVITIES                                                                                 
Proceeds from long-term borrowings                                                      135,967            106,035   
Repayment of long-term borrowings                                                      (82,752)           (48,075)   
Dividends paid                                                                          (9,752)            (8,061)   
Interest paid                                                                          (13,525)           (12,440)   
Loans origination cost                                                                  (1,180)            (1,474)   
Loan granted to non-controlling interest                                                (9,393)                  -   
Decrease/(increase) in blocked deposits                                                 (1,967)                794   
Net cash from/(used in) financing activities                                             17,398             36,779   
Effect of foreign currency translation                                                  (1,812)              1,232   
Net increase/(decrease) in cash and cash equivalents                                    (8,466)             12,494   
Cash and cash equivalents at the beginning of the period                                148,746            149,812   
Cash and cash equivalents at the end of the period                                      140,280            162,306   


Management Board                                                 Supervisory Board            
Thomas Kurzmann (Chief Executive Officer)                        Alexander Hesse (Chairman)   
Erez Boniel (Chief Financial Officer)                            Olivier Brahin               
                                                                 Jan-Christoph Dudden         
                                                                 Mariusz Grendowicz           
                                                                 Ryszard Koper                
                                                                 Marcin Murawski              
                                                                 Katharina Schade             


Registered office of the Company
17 Stycznia 45A,
02-146
Warsaw
Poland


Warsaw, Poland
Date: 23 August 2018
Sponsor: Investec Bank Limited



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