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GLOBE TRADE CENTRE S.A. - 2018 Results for the year ended 31 December 2018

Release Date: 22/03/2019 07:05
Code(s): GTC     PDF:  
 
Wrap Text
2018 Results for the year ended 31 December 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")

2018 RESULTS
FOR THE YEAR ENDED 31 DECEMBER 2018

HIGHLIGHTS

GROSS MARGIN FROM
RENTAL ACITIVITY
EUR 111M
+22%

PROFIT BEFORE TAX
AND FAIR VALUE
ADJUSTMENTS
EUR 65M
+47%

FFO I
EUR 61M
+29%

EPRA NAV
EUR 1,170M
+9%


2018 FINANCIAL HIGHLIGHTS

 - In-place rent increased by 18% to EUR 130m
 - Gross margin from rental activity up by 22% to EUR 111m
 - FFO I increased 29% to EUR 61m, FFO per share at EUR 0.13
 - Operating profit: 47% increase in profit before tax and fair value adjustments, to EUR 65m
 - Profit after tax of EUR 92m, earnings per share of EUR 0.19
 - EPRA NAV up by 9% to EUR 1,170m as at 31 December 2018, EPRA NAV per share at EUR 2.42 (PLN 10.4)
 - Proposed dividend from 2018 profits increased by 12% to PLN 0.37
 - Solid financial performance
         -   13 loans were raised or refinanced, totaling approx. EUR 400m
         -   LTV at 45%
         -   Weighted Average Interest Rate at historic low- 2.7%
         -   Investment grade rating (A2.il) for new bonds

2018 PORTFOLIO HIGHLIGHTS
 
 -  Completion of Green Heart office buildings, Belgrade (21,600 sq m) and GTC White House office building, Budapest (21,500 sq m)
 -  Acquisition of Mall of Sofia (32,700 sq m )
 -  188,700 sq m of newly leased or released space (43% more than in 2017)
 -  Occupancy kept high at 94% (including GTC White House)
 -  Construction of 8 office and retail properties (113,000 sq m) commenced in 2018 and will be completed in 2019-2020. 
    Upon completion and stabilization they shall increase the in-place rent by almost EUR 25m
 -  Another 7 properties planned to commence construction during 2019-2020

OPERATING PERFORMANCE                                        
2018                                Reported       Variance %   
Gross margin from rental activity   EUR 111m       +22%         
Profit for the period               EUR 92         -42%         
Earnings per share                  EUR 0.19       -44%         
FFO I                               EUR 61m        +29%         
Total portfolio                     EUR 2,202      +12%         
Net debt                            EUR 992m       +20%         
Net LTV                             45%            +6%          
EPRA NAV/share                      EUR 2.42       +6%          


CORPORATE OVERVIEW

NATURE OF BUSINESS

The GTC Group is a leading real estate investor and developer focusing on Poland and five 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 31 December 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 31 December 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 682 thousand sq m of GLA, of which the Group's
        proportional interest amounts to approximately 672 thousand sq m of GLA;

    -   eight commercial buildings under construction, including seven office buildings and one shopping mall
        with total GLA of approximately 113 thousand sq m, of which the Group's proportional interest amounts
        to 113 thousand sq m of GLA;

    -   one completed asset held for sale with a total office space of approximately 21.5 thousand sq m of GLA;

    -   commercial landbank designated for future development; and

    -   residential landbank designated for sale.

As of 31 December 2018, the book value of the Group's portfolio amounts to EUR2,201,962 with: (i) the Group's
completed commercial properties account for 81% thereof; (ii) commercial properties under construction - 9%;
(iii) a commercial landbank intended for future development - 6%; (iv) assets held for sale - 3%, and (v) residential
projects and landbank account for 1%. Based on the Group's assessment approximately 99% of the portfolio is
core and remaining 1% is non-core assets, including non-core landplots and residential projects.

Additionally, the Group manages third party asset in 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
optimizing 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.

Following the growth and results achieved in 2018, GTC plans to distribute (upon approval of Annual Shareholder
Meeting) PLN 0.37 / share from 2018 profits in the form of dividend subject to Annual Shareholder Meeting
decision. The dividend is guided by, among others things, the availability of cash, the funds from operations growth
plans, the Company's capital expenditure requirements and planned acquisitions as well as the share of external
financing in the Company's overall equity.

COMMENTARY
The management board presents annual condensed consolidated results for the 12 months ended 31 December
2018.

KEY OPERATING ACHIEVEMENTS IN 2018

Offices: Completions and strong leasing activity:

 -   Completion and lease of new offices
            -    Green Heart, Belgrade (21,600 sq m) redevelopment completed in March 2018, 81% leased
            -    GTC White House, Budapest (21,500 sq m) completed in June 2018, now 100% leased
 -   157,300 sq m of lettings and renewals
            -    62% more than in 2017
            -    Strong leasing activity in each country
            -    Occupancy at 93% despite new completions
 -   Sustainability as priority
            -    Platinum LEED for GTC White House
            -    BREEAM excellent for Francuska Office Centre
            -    69% offices with green certificates
            -    19% offices under certification
 -   Committed supply of high quality space in 2019
            -    Green Heart (2 buildings), Belgrade
            -    Advance Business Centre I, Sofia


Retail: Operational outperformance:

 -   Acquisition of Mall of Sofia
            -    22,400 sq m of retail and 10,300 of office space
            -    In-place rent of EUR 8m
 -   Leasing activity of 31,400 sq m
            -    Driven by pre-lease of Ada Mall to 91%
 -   Operational outperformance
            -    Mall of Sofia: in only 5 months since acquisition improved turnover by 12%, investment in
                 repositioning in combination with reinforced and focused marketing activities will increase further
                 the turnover and open room for increased rents
            -    Avenue Mall Zagreb: active renewal negotiations with major anchor tenants prove the
                 sustainability of the mall
            -    Galeria Jurajska: increased footfall despite more closed Sundays and strong increase in
                 turnover paired with full occupancy will result in further rent increase in 2019
            -    Galeria Po nocna: steadily increasing loyal customer base triggers a strong average year on
                 year turnover increase of 20% for the last 3 months to February 2019. New openings will further
                 increase the attractiveness of the mall
 -   Well positioned in current markets
            -    Occupancy of 95%
 -   Committed supply of high quality space in 2019
            -    Ada Mall, Belgrade



KEY FINANCIAL HIGHLIGHTS IN 2018

Rental and service revenues

 -   Increased strongly to EUR 149m from EUR 123m in 2017
     Reflects improvement in rental revenue through completion and leasing of FortyOne III, Galeria Po nocna,
     Artico, which were completed in the second half of 2017 as well as GTC White House which was
     completed in Q2 2018. These buildings contributed EUR 16m to the recurring rental income. Additionally,
     the acquired in Q3 2017, Cascade Office Building, Belgrade Business Center and Mall of Sofia, which was
     acquired in Q2 2018, contributed EUR 9m to the recurring rental income. 2018, contributed EUR 6.9m to
     the recurring rental income.

Gross margin from operations

 -   Increased EUR 112m from EUR 92m in 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 40m as compared to EUR 149m in 2017
     Main contributors to the revaluation gain were assets under construction: Ada Mall, White House, Green
     Heart and Advance Business Center as well as Galeria Jurajska.

Financial expenses

 -   Average interest rate down to 2.7% thanks to refinancing activity and hedging strategy.
 -   Financial expenses remain stable at EUR 30m despite an increase in loan portfolio

Provision for Tax

 -   Provision for tax amounted to EUR 14m as compared to EUR 32m of tax benefit in 2017
     Taxation consist of EUR6m of current tax expenses and EUR 7m of deferred tax expenses.

Net profit

 -   Profit before tax and fair value adjustments improved significantly by 47% to EUR 65m reflecting
     strong operating performance and operational excellence. The net profit amounted to EUR 92m.  
 -   Earnings per share at EUR 0.19 compare to EUR 0.34 in 2017.

Funds From Operations (FFO I)

 -   At EUR 61m compared to EUR 47m in 2017, supporting proposed dividend of PLN 0.37 per share which
     is ca. 67% of the FFO

GAV*

 -   At EUR2,201m as of 31 December 2018 (EUR1,955m as of 31 December 2017) thanks to acquisition of assets,
     investment in assets under construction and revaluation gains

EPRA NAV / share

 -   Up by 6% to EUR 2.42 from EUR2.28 on 31 December 2017
     Corresponding to EPRA NAV of EUR1,170m compared to EUR 1,073m as of 31 December 2017.

Total bank debt and financial liabilities**

 -   At EUR 1,112m compared to EUR 1,031m as of 31 December 2017
 -   Weighted average debt maturity of 3.9 years and average cost of debt of 2.7% p.a.
 -   LTV at 45% (42% on 31 December 2017)
 -   Interest coverage ratio at 4.0x (3.5x on 31 December 2017)

Cash and cash equivalents

 -   Cash balance of EUR 80m as of 31 December 2018

*Including investment properties, landbank, completed assets held for sale and building for own use.
** Excluding loans from non-controlling interest and deferred issuance debt expenses.


The full consolidated financial statements for the year ended 31 December 2018 are posted on the Company's
website www.ir.gtc.com.pl

Basis of preparation
The Company maintains its books of account in accordance with accounting principles and practices employed
by enterprises in Poland as required by the Polish accounting regulations. The companies outside Poland
maintain their books of account in accordance with local GAAP. The consolidated financial statements include a
number of adjustments not included in the books of account of the Group entities, which were made in order to
bring the financial statements of those entities to conformity with IFRS.

These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards ("IFRS") as adopted by the EU ("EU IFRS"). 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 no difference between International Financial Reporting Standards applying to these
consolidated financial statements and International Financial Reporting Standards endorsed by the European Union.

Annex 1   Consolidated Statement of Financial Position as at 31 December 2018
          (in thousands of euro)

                                                   31 December 2018   31 December 2017   
ASSETS                                                                                   
Non-current assets                                                                       
Investment property                                       1,981,961          1,797,583   
Investment property landbank                                131,107            139,258   
Residential landbank                                         12,698             12,698   
Investment in associates and joint ventures                       -              1,303   
Property, plant and equipment                                 6,712              6,847   
Deferred tax asset                                               52                  -   
Other non-current assets                                        129                 86   
                                                          2,132,659          1,957,775   
Loan granted to non-controlling interest partner             10,282                  -   
Total non-current assets                                  2,142,941          1,957,775   

Assets held for sale                                         76,196              4,336   

Current assets                                                                           
Residential inventory                                             -              3,755   
Accounts receivables                                          4,449              4,367   
Receivables related to expropriation of land                  4,917                  -   
Accrued income                                                1,066              1,093   
VAT receivable                                                5,156              6,618   
Income tax receivable                                         1,233                619   
Prepayments and deferred expenses                             1,401              1,767   
Escrow account                                                    -                777   
Short-term deposits                                          39,109             52,756   
Cash and cash equivalents                                    80,456            148,746   
                                                            137,787            220,498   
TOTAL ASSETS                                              2,356,924          2,182,609   


                                                       31 December 2018   31 December 2017   
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                                                   (4,542)            (2,365)   
Foreign currency translation                                      1,680              2,323   
Accumulated profit                                              496,996            441,977   
                                                              1,015,751            937,036   
Non-controlling interest                                          5,044              4,226   

Total Equity                                                  1,020,795            941,262   

Non-current liabilities                                                                      
Long-term portion of long-term borrowing                        993,453            907,704   
Deposits from tenants                                            10,375              8,960   
Long term payable                                                 3,045              2,621   
Provision for share based payment                                 4,533              5,744   
Derivatives                                                       3,736              1,360   
Provision for deferred tax liability                            139,120            125,827   
                                                              1,154,262          1,052,216   
Current liabilities                                                                          
Investment and trade payables and provisions                     50,499             50,505   
Current portion of long-term borrowing                          121,894            126,381   
VAT and other taxes payable                                       1,636              1,516   
Income tax payable                                                1,114              1,843   
Derivatives                                                       1,887              2,035   
Advances received                                                 4,837              6,851   
                                                                181,867            189,131   
TOTAL EQUITY AND LIABILITIES                                  2,356,924          2,182,609   


Annex 2   Consolidated Income Statement for the year ended 31 December 2018
          (in thousands of euro)

                                                                Year ended         Year ended   
                                                          31 December 2018   31 December 2017   
Rental revenue                                                     110,530             91,084   
Service charge revenue                                              38,853             31,525   
Residential revenue                                                  4,578              6,128   
Service charge costs                                              (38,510)           (32,081)   
Residential costs                                                  (3,868)            (4,515)   

Gross margin from operations                                       111,583             92,141   

Selling expenses                                                   (2,148)            (2,111)   
Administration expenses                                           (10,236)           (15,242)   
Profit from revaluation/ impairment of assets                       40,125            148,562   
Other income                                                         1,567              1,484   
Other expenses                                                     (4,885)            (2,806)   

Profit/(Loss) from continuing operations before tax and                                         
finance income / expense                                           136,006            222,028   

Foreign exchange differences gain/(loss), net                        (240)            (4,906)   
Finance income                                                         376                234   
Finance cost                                                      (30,184)           (28,848)   
Share of profit/(loss) of associates and joint ventures                  -                184   

Profit/(loss) before tax                                           105,958            188,692   

Taxation                                                          (13,938)           (32,094)   

Profit/(Loss) for the year                                          92,020            156,598   

Attributable to:                                                                                
Equity holders of the Company                                       91,202            156,300   
Non-controlling interest                                               818                298   
Basic earnings per share (in Euro)                                    0.19               0.34   


Annex 3   Consolidated Statement of Cash Flow for the year ended 31 December 2018
          (in thousands of euro)

                                                                                Year ended         Year ended   
                                                                               31 December   31 December 2017   
                                                                                      2018                      
CASH FLOWS FROM OPERATING ACTIVITIES:                                                                           
Profit before tax                                                                  105,958            188,692   
Adjustments for:                                                                                                
Loss/(profit) from revaluation/impairment of assets and residential projects      (40,125)          (148,562)   
Share of loss / (profit) of associates and joint ventures                                               (184)   
Loss / (profit) on disposal of asset                                                                        -   
Foreign exchange differences loss/(gain), net                                          240              4,906   
Finance income                                                                       (376)              (234)   
Finance cost                                                                        30,184             28,848   
Provision for share based payment loss/(profit)                                    (1,211)              3,698   
Depreciation                                                                           558                529   
Operating cash before working capital changes                                       95,228             77,693   
Decrease in accounts receivables and prepayments and other current assets              674                594   
Decrease in residential inventory                                                    3,755              1,737   
Increase in advances received                                                      (2,788)              2,578   
Increase in deposits from tenants                                                      725              1,486   
Increase (decrease) in trade payables                                              (1,399)                505   
Cash generated from operations                                                      96,195             84,593   
Tax paid in the period                                                             (7,897)            (3,915)   
Net cash from operating activities                                                  88,298             80,678   
CASH FLOWS FROM INVESTING ACTIVITIES:                                                                           
Expenditure on investment property                                               (112,462)          (155,204)   
Purchase of completed assets and land                                             (16,450)           (62,108)   
Decrease in short term deposits                                                     17,944                  -   
Increase (decrease) in escrow accounts for purchase of assets                          777              (777)   
Sale (including advances) of investment property                                    13,613              4,499   
VAT/tax on purchase/sale of investment property                                      1,303             10,953   
Sale of subsidiary                                                                       -             37,545   
Purchase of subsidiary                                                            (37,846)           (15,896)   
Purchase of non-controlling interest                                                     -              (352)   
Sale of shares in associates                                                             1              1,250   
Interest received                                                                      130                161   
Loans repayments from associates                                                     1,300              1,625   
Net cash used in investing activities                                            (131,690)          (178,304)   
CASH FLOWS FROM FINANCING ACTIVITIES                                                                            
Distribution of dividend                                                           (9,752)            (8,061)   
Proceeds from long-term borrowings                                                 191,224            258,268   
Repayment of long-term borrowings                                                (162,104)          (100,343)   
Interest paid                                                                     (28,093)           (26,241)   
Loans origination payment                                                          (2,132)            (3,573)   
Loans granted to non-controlling interest                                         (10,036)                  -   
Decrease/(Increase) in short term deposits                                         (2,276)           (24,831)   
Net cash from /(used) in financing activities                                     (23,169)             95,219   
Net foreign exchange difference                                                    (1,729)              1,341   
Net increase/ (Decrease) in cash and cash equivalents                             (68,290)            (1,066)   
Cash and cash equivalents at the beginning of the period                           148,746            149,812   
Cash and cash equivalents at the end of the period                                  80,456            148,746   


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

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

Warsaw, Poland

Date: 21 March 2019

Sponsor: Investec Bank Limited



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