Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Grand City Properties SA (GRNNF, Financial) reported a 3% increase in net rental income and a 4% increase in adjusted EBITDA year-over-year, demonstrating strong operational performance.
- The company successfully returned to the capital markets with a perpetual exchange and a bond issuance, which were both well-received by investors, indicating strong market confidence.
- Liquidity remains robust with EUR1.4 billion in cash and liquid assets, fully covering debt maturities through 2027, showcasing a strong financial position.
- The company has maintained a low loan-to-value (LTV) ratio of 37%, stable from the previous year, reflecting conservative financial management.
- Grand City Properties SA (GRNNF) has enhanced its corporate governance by adding two new independent directors, increasing the board's independence and diversity.
Negative Points
- The company recorded a 2% like-for-like devaluation in property values, indicating some negative momentum in asset valuations.
- Despite strong operational growth, the FFO I remained stable due to the negative impact of perpetual note resets and higher finance expenses.
- The cost of debt has increased to 2.2% from 1.9% due to the issuance of a higher coupon bond, which could impact future financial flexibility.
- There is a significant reliance on vendor loans in recent disposals, which may indicate challenges in the transaction market.
- The company has suspended dividends, and while there is optimism for future distributions, it remains contingent on market conditions.
Q & A Highlights
Q: Please provide an update on your operating markets. How do you see the developments going forward?
A: Christian Windfuhr, Executive Chairman of the Board, explained that strong and sustainable trends continue in Germany and London, driven by increased immigration and urbanization. High construction costs and bureaucratic challenges limit new supply, leading to a persistent supply-demand gap. This results in rising rental prices and low vacancy rates, benefiting Grand City Properties' portfolio.
Q: Could you provide some more details on the property revaluations, which regions were impacted the most? What are your expectations going forward?
A: Refael Zamir, CEO, noted a 2% like-for-like devaluation in H1 2024, with a significant slowdown in negative momentum. While it's early to predict future values, they expect potential yield expansion driven by operational growth. They believe values have bottomed out or may see a minor decline, with stable interest rates and improved transaction market activities.
Q: Could you provide further breakdown of your like-for-like rental growth? How much was the like-for-like in London, which regions contributed most? What is your outlook?
A: Refael Zamir stated that like-for-like rental growth was 3.4%, driven by in-place rent growth. London saw over 5% growth, with strong contributions from Dresden, Leipzig, Hamburg, Bremen, and Munich. They expect continued strong growth, with inflation of recent deals reflecting in future rent increases.
Q: You already maintain a strong liquidity position. What was the motivation behind the bond issuance? What are the results of the liability management?
A: Idan Hadad, CFO, explained that improved capital market sentiment led to a successful EUR500 million bond issuance, which was seven times oversubscribed. This reduced refinancing risk and increased their liquidity position, covering debt maturities through 2027. The cost of debt increased slightly to 2.2% due to the issuance.
Q: Could you provide an update on your financing strategy? Did anything change after your bond issuance, do you expect to raise further secured or unsecured financing?
A: Idan Hadad stated that their strategy remains to maintain a diverse mix of financing sources. They raised EUR100 million in new bank loans in H1 2024 and may consider more bank financing if attractive. However, they are not in urgent need of new debt issuance, having addressed 2027 maturities with the recent bond issuance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
