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GLOBE TRADE CENTRE S.A. - Q3&9M 2018 Results for the three and nine-month periods ended 30 September 2018

Release Date: 14/11/2018 08:00
Code(s): GTC     PDF:  
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Q3&9M 2018 Results for the three and nine-month periods ended 30 September 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")

Q3&9M 2018 RESULTS
FOR THE THREE AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2018

HIGHLIGHTS
                   
GROSS MARGIN FROM   PROFIT BEFORE TAX                   
 RENTAL ACITIVITY    AND FAIR VALUE          FFO I         EPRA NAV/SHARE
                       ADJUSTMENTS

      EUR83M                EUR48M           EUR46M        EUR2.37
      +27%                  +57%             +37%          +4%

9M 2018 FINANCIAL HIGHLIGHTS

    - In-place rent went up 15% to EUR127m
      - 11 quarters of continuous increase, cumulative
        increase in excess of 60% since Q4 2015
    - Gross margin from rental activity up by 27% to EUR83m
    - Occupancy kept high at 93%
      - 117,000 sq. m of newly leased space (32,000 sq. m in
       Q3'18)
    - FFO I increased 37% to EUR46m
      - 11 quarters of continuous increase, cumulative
        increase in excess of 60% (annualized)
        since Q4 2015
    - Operating profit: 57% increase in profit before tax and
      fair value adjustments to EUR48m
    - Profit after tax at EUR69m, earnings per share of EUR0.14
    - EPRA NAV increased 7% to EUR1,145m as at 30
      September 2018, EPRA NAV per share at EUR2.37m
      - 11 quarters of continuous increase, cumulative
       increase of 47% since Q4 2015
    - Net LTV at 45%
    - Securing investment loans in the amount of EUR316 m

Q3 2018 PORTFOLIO HIGHLIGHTS
     - Acquisition in Budapest
       designated for development
       of 35,500 sq. m office
       building Center Point 3
     - Commencement of
       construction of 17,900 sq. m
       office building Advance
       Business Center II in Sofia
     - Gold LEED Certificate for
       Galeria Polnocna
     - Additional anchor tenants in
       Galeria Poonocna: Mango and
       Media Expert
     - Galeria Jurajska 100% leased

OPERATING PERFORMANCE                                       
9M 2018                             Reported   Variance %   
Gross margin from rental activity   EUR 83m    +27%         
Profit before tax                   EUR 82m    -39%         
Earnings per share                  EUR 0.14   -42%         
FFO I                               EUR 46m    +37%         
Net debt                            EUR 979m   +18%         
Net LTV                             45%        +7%          
EPRA NAV/share                      EUR 2.37   +4%          

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 September 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 151 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 September 2018, the Group`s property portfolio comprised the following properties:

            -   43 completed commercial buildings, including 39 office buildings and four retail properties with a
                total combined commercial space of approximately 703 thousand sq. m of GLA, of which the
                Group's proportional interest amounts to approximately 693 thousand sq. m of GLA;

            -   seven commercial buildings under construction, including six office buildings and one shopping
                mall with total GLA of approximately 103 thousand sq. m, of which the Group's proportional
                interest amounts to 103 thousand sq. m of GLA;

            -   commercial landbank designated for future development; and

            -   residential landbank.

As of 30 September 2018, the book value of the Group's portfolio amounts to EUR2,164.3m with: (i) the Group's
completed commercial properties account for 86% thereof; (ii) commercial properties under construction - 7%;
(iii) a commercial landbank intended for future development - 6%; (iv) residential projects and landbank account
for 1% and assets held for sale. 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 9 months ended 30
September 2018.

KEY OPERATING ACHIEVEMENTS IN 9M 2018

Completions, acquisitions and asset management boost in-place rent and profit:
  - Acquisition of land plot in Budapest designated for Center Point 3 office building of 35,500 sq. m
    GLA
  - In-place rent of EUR127m annually (+15% vs. Dec. 2017)
           -   11 quarters of continuous increase, cumulative increase in excess of 60% since Q4 2015
  - Gross margin from rental activity up by 27% to EUR83m
  - Occupancy kept high at 93%
           -   117,000 sq. m of newly leased space (32,000 sq. m in Q3'18)

Expected NAV and FFO growth from development activity:
  - Commencement of construction of 17,900 sq. m office building Advance Business Center II in Sofia
  - 7 buildings under construction with 103,000 sq. m GLA that are scheduled for completion in 2019
    will further increase the In-place rent by EUR23m:
           -   Ada Mall (Belgrade)
           -   Green Heart (3 buildings)(Belgrade)
           -   Advance Business Centre (2 buildings) (Sofia)
           -   Matrix A (Zagreb)
  - 5 buildings with 112,000 sq. m are planned to be commenced in 2019:
           -   City Rose Park (2 buildings) (Bucharest)
           -   The Twist (Budapest)
           -   Matrix B (Zagreb)
           -   Pillar (Budapest)
  - Another 7 projects in the planning stage with over 210,000 sq. m GLA

KEY FINANCIAL HIGHLIGHTS IN 9M 2018

Rental and service revenues

  - Increased strongly to EUR111m from EUR88m in 9M 2017
    Reflects improvement in rental revenue through completion and leasing of FortyOne III, Galeria Polnocna,
    Artico, which were completed in the second half of 2017 as well as White House which was completed in
    Q2 2018. These buildings contributed EUR17.5m to the recurring rental income. Additionally, the acquired in
    Q3 2017, Cascade Office Building, Belgrade Business Centre and Mall of Sofia, which was acquired in Q2
    2018, contributed EUR6.9m to the recurring rental income.

Gross margin from operations

  - Increased EUR83m from EUR65m in 9M 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 EUR31m as compared to EUR105m in 9M 2017

    Reflects mainly valuation gain on assets under construction: Ada Mall, White House, Green Heart
    and Advance Business Center as well as Galeria Jurajska.

Financial expenses

  - Almost unchanged at EUR22m as compared to EUR21m in 9M 2017
    Cost of finance down to 2.6% due to decrease in average interest rate and change in hedging strategy

Taxation

  - Amounted to EUR13m as compared to EUR22m tax benefit in 9M 2017
    Taxation consist of EUR5m of current tax expenses and EUR8m of deferred tax expenses.

Net profit

  - Amounted to EUR69m compared to EUR112m in 9M 2017. Profit before fair value adjustments improved
    significantly by 57% to EUR48m.
  - Reflects strong operating performance and operational excellence.
  - Earnings per share at EUR 0.14 compare to EUR 0.24 in 9M 2017.

Funds From Operations (FFO I)

    - At EUR46m compared to EUR34m in 9M 2017

Total property value

    - At EUR2,166m as of 30 September 2018 (EUR1,955m as of 31 December 2017) due to acquisition of assets, an
      investment in assets under construction and revaluation gain those assets

EPRA NAV / share

    - Up by 4% to EUR2.37 from EUR2.28 on 31 December 2017
      Corresponding to EPRA NAV of EUR1,145m compared to EUR1,073m as of 31 December 2017

Total bank debt and financial liabilities

    - At EUR1,125m compared to EUR1,031m as of 31 December 2017

  -  Weighted average debt maturity of 4.4 years and average cost of debt of 2.6% p.a.
  -  LTV at 45% (42% on 31 December 2017)
  - Interest coverage at 4.1x (3.5x on 31 December 2017

Cash and cash equivalents

  -  Cash position of EUR105m as of 30 September 2018 from EUR149m as of 31 December 2017

Basis of preparation
The Interim Condensed Consolidated Financial Statements for the nine-month period ended 30 September 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 September 2018
          (in thousands of euro)

                                                                                         30 September 2018   31 December 2017   
                                                                                               (unaudited)          (audited)   
ASSETS                                                                                                                          
Non-current assets                                                                                                              
Investment property                                                                              2,009,596          1,797,583   
Investment property landbank                                                                       138,418            139,258   
Residential landbank                                                                                12,698             12,698   
Investment in joint ventures                                                                             -              1,303   
Property, plant and equipment                                                                        6,736              6,847   
Other non-current assets                                                                               123                 86   
                                                                                                 2,167,571          1,957,775   
Loan granted to non-controlling interest partner                                                     9,573                  -   
Total non-current assets                                                                         2,177,144          1,957,775   
Assets held for sale                                                                                 3,566              4,336   
Current assets                                                                                                                  
Residential inventory                                                                                    -              3,755   
Accounts receivables                                                                                 7,440              4,367   
Accrued income                                                                                       1,543              1,093   
VAT receivable                                                                                       4,710              6,618   
Income tax receivable                                                                                  947                619   
Prepayments and deferred expenses                                                                    2,462              1,767   
Escrow account                                                                                         322                777   
Short-term deposits                                                                                 40,992             52,756   
Cash and cash equivalents                                                                          104,504            148,746   
                                                                                                   162,920            220,498   
TOTAL ASSETS                                                                                     2,343,630          2,182,609   


                                                                                         30 September 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                                                                                      (3,240)            (2,365)   
Foreign currency translation                                                                         1,112              2,323   
Accumulated profit                                                                                 474,169            441,977   
                                                                                                   993,658            937,036   
Non-controlling interest                                                                             4,885              4,226   
Total Equity                                                                                       998,543            941,262   
Non-current liabilities                                                                                                         
Long-term portion of long-term borrowing                                                         1,039,052            907,704   
Deposits from tenants                                                                                9,776              8,960   
Long term payable                                                                                    3,039              2,621   
Provision for share based payment                                                                    3,508              5,744   
Derivatives                                                                                          2,116              1,360   
Provision for deferred tax liability                                                               139,686            125,827   
                                                                                                 1,197,177          1,052,216   
Current liabilities                                                                                                             
Current portion of long-term borrowing                                                              88,186            126,381   
Trade and other payables                                                                            49,152             50,505   
VAT and other taxes payable                                                                          2,099              1,516   
Income tax payable                                                                                     937              1,843   
Derivatives                                                                                          1,956              2,035   
Advances received                                                                                    5,580              6,851   
                                                                                                   147,910            189,131   
TOTAL EQUITY AND LIABILITIES                                                                     2,343,630          2,182,609   


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

                                                            Nine-month        Nine-month       Three-month       Three-month   
                                                       period ended 30   period ended 30   period ended 30   period ended 30   
                                                        September 2018    September 2017    September 2018    September 2017   
                                                           (unaudited)       (unaudited)       (unaudited)       (unaudited)   
Rental revenue                                                  81,735            65,613            28,375            22,148   
Service revenue                                                 28,988            22,016             9,786             7,500   
Residential revenue                                              4,578               442                 -                 -   
Service costs                                                 (27,937)          (22,592)           (9,416)           (7,540)   
Residential costs                                              (3,868)             (379)                 -                 -   
Gross margin from operations                                    83,496            65,100            28,745            22,108   
Selling expenses                                               (1,566)           (1,558)             (371)             (594)   
Administration expenses                                        (5,753)          (10,320)           (1,654)           (2,666)   
Profit from revaluation/impairment of                                                                                          
assets                                                          31,331           105,314             7,963            54,220   
Other income                                                       530             1,153               123               289   
Other expenses                                                 (4,414)           (2,501)           (1,657)           (1,150)   
Profit (loss) from continuing                                                                                                  
operations before tax and finance
income / (expense)                                             103,624           157,188            33,149            72,207   
Foreign exchange differences gain/                                                                                             
(loss), net                                                         93           (2,819)             (201)             1,339   
Finance income                                                     238               121                80                29   
Finance cost                                                  (22,126)          (20,707)           (7,815)           (7,694)   
Share of gain (loss) of associates and                                                                                         
joint ventures                                                       -               184                 -                 -   
Profit before tax                                               81,829           133,967            25,213            65,881   
Taxation                                                      (12,795)          (22,272)           (2,251)          (13,785)   
Profit (loss) for the period                                    69,034           111,695            22,962            52,096   
Attributable to:                                                                                                               
Equity holders of  the Company                                  68,375           111,510            22,784            51,876   
Non-controlling interest                                           659               185               178               220   
Basic earnings per share (in Euro)                                0.14              0.24              0.05              0.13   


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

                                                                                       Nine-month period   Nine-month period   
                                                                                                   ended               ended   
                                                                                       30 September 2018   30 September 2017   
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                                          
Profit before tax                                                                                 81,829             133,967   
Adjustments for:                                                                                                               
Loss/(profit) from revaluation/impairment of assets                                             (31,331)           (105,314)   
Share of loss (profit) of associates and joint ventures                                                -               (184)   
Profit on disposal of assets                                                                                               -   
Foreign exchange differences loss/(gain), net                                                       (92)               2,819   
Finance income                                                                                     (238)               (121)   
Finance cost                                                                                      22,126              20,707   
Share based payment (income) / expenses                                                          (2,236)               1,993   
Depreciation and amortization                                                                        405                 308   
Operating cash before working capital changes                                                     70,463              54,175   
Decrease in accounts receivables, prepayments and other current assets                           (1,047)                 388   
(Increase)/Decrease in inventory and residential land bank                                         3,755             (2,359)   
Increase/(decrease) in advances received                                                         (2,733)               5,274   
Increase in deposits from tenants                                                                    125               1,495   
Increase/(decrease) in trade and other payables                                                  (1,279)               (506)   
Cash generated from operations                                                                    69,284              58,467   
Tax paid in the period                                                                           (6,160)             (2,751)   
Net cash flows from operating activities                                                          63,124              55,716   
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                                          
Expenditure on investment property                                                              (83,265)           (106,354)   
Decrease in short term deposits                                                                   15,645                   -   
Purchase of land and completed assets                                                           (16,450)            (51,064)   
Purchase of subsidiary                                                                          (37,846)            (15,896)   
Increase in Escrow accounts for purchase of assets                                                   455             (1,504)   
Sale (including advances) of investment property                                                  13,613               3,067   
Sale of subsidiaries                                                                                   -              37,545   
Purchase of NCI                                                                                        -               (352)   
Sale of shares in associate                                                                            -               1,250   
VAT on purchase/sale of investment property                                                        1,749               2,046   
Interest received                                                                                     58                  87   
Loans repayments from associates                                                                   1,301               1,218   
Net cash flows from/(used in) investing activities                                             (104,740)           (129,957)   
CASH FLOWS FROM FINANCING ACTIVITIES                                                                                           
Proceeds from long-term borrowings                                                               171,871             123,346   
Repayment of long-term borrowings                                                              (130,373)            (68,965)   
Dividends paid                                                                                   (9,752)             (8,061)   
Interest paid                                                                                   (20,379)            (18,173)   
Loans origination cost                                                                           (1,933)             (1,537)   
Loan granted to non-controlling interest                                                         (9,393)                   -   
Decrease/(increase) in blocked deposits                                                          (1,859)                 100   
Net cash from/(used in) financing activities                                                     (1,818)              26,710   
Effect of foreign currency translation                                                             (808)                 172   
Net increase / (decrease) in cash and cash equivalents                                          (44,242)            (47,359)   
Cash and cash equivalents at the beginning of the period                                         148,746             149,812   
Cash and cash equivalents at the end of the period                                               104,504             102,453   


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


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

Warsaw, Poland
Date: 14 November 2018
Sponsor: Investec Bank Limited



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