Warimpex Finanz und Beteiligungs AG

VSE:WXF

Earnings Call Transcript

[Operator]

Good afternoon, ladies and gentlemen, and welcome to our conference call regarding the release of the Warimpex report on the first half of 2022.

[Operator Instructions]

Let me now hand over to the CEO of Warimpex, Mr. Franz Jurkowitsch, who is joined today by his colleague and Warimpex's CFO, Daniel Folian.

[Franz Jurkowitsch, executive]

Good afternoon. And I came to report about the quite good first half year '22. We sold successfully an office building in Budapest. We acquired and we closed the transaction in June in office buildings in Lódz and we got the valid building permit for the Chopin office in Krakow, which we would like to develop in the next couple of months.

Furthermore, we finished also the technical finish of the Avior Tower in St. Petersburg. So we got the confirmation for technical finishes and the registration into the [indiscernible] for the building. And on top of it, construction works in both in the Krakow for the Mogilska Phase III going according to plan. We are quite successful with our flexible office development. We started last year in Krakow. We see it on the slide, some focus on highlights from it. We've fully let it and we have even a small rate increase for interesting parties, which would like to join more or less the team of tenants in it.

And we started with the same concept in Lódz, the Ogrodowa office, the big office buildings we are having, and we are also quite successful there. We started in June, and it's already 40% leased, and there is some strong interest also for -- from further interested tenants in it. So we are quite successful with it and we would like to launch when Lódz one is fully -- we really extend it into the neighboring spaces.

Now Daniel will walk us through the key figures.

[Daniel Folian, executive]

Yes. So we could significantly increase the revenues from investment properties as well from hotels. The increase in revenues from investment properties was primarily due to the inclusion of revenues from the Jupiter tower in St. Petersburg that we now fully consolidate as we acquired a stake end of last year as well as the substantial increase in the ruble FX rate.

We got an office building in Budapest and it could realize a profit of more than EUR 2 million from this sale. And so the EBIT improved from EUR 5.9 million to EUR 16.7 million. And also due to a positive revaluation result and the positive financial results we could a profit of around EUR 30 million. Also the net asset value per share increased by around 40% to EUR 3.69 as of end of June.

[Franz Jurkowitsch, executive]

Thank you. So when you walk through the list of our assets. I think I don't have to go to more detail. You have it on your screen. You see here the net of our current office portfolio. We have more or less all these assets 100% owned by us and the occupancy rate is, with the exception of Ogrodowa office, more or less 100% or very close. The Red Tower, which we acquired, is not significant because we closed the transaction in June. So we have to do some research and then we will go with it into the market.

The hotel portfolio since we sold our hotels in 2017, it is short. One is Darmstadt, but it's not only a hotel development, it's also a real estate development. So commercial real estate we own there 3 hectares of land and we can -- we have applied for a so-called state plan, the [indiscernible] plan according to the German rules. And we applied for -- we do expect that we get the [indiscernible] plan by end of this year for a space of 70,000 to 80,000 square meters. The airport plaza St. Petersburg is our second hotel. It is despite the situation in this COVID and despite the war, is still relatively well performing. So we never had negative [indiscernible].

InterContinental, it's not a property. It's just an operational lease, but we did very well this year. And the Palais Hansen Kempinski, we've not very significant pick. I can only say after we suffered there a lot during COVID, the business is now picking up quite well.

Let us jump to the development side. I mentioned already. Please go to Slide page 9. Avior Tower is a tower of about 16,900 square meters. It's twin tower to the existing one. We have already a lot of interest from a tenant for the full tower, and we are entering into concrete negotiations. Since we got the permit that the building is finished, these are without the tenants -- without -- and we are ready -- we could register the building into the [indiscernible]. So we are now ready for finalization of the tenancy agreements.

The Mogilska 35 is the neighbor of our Mogilska 43 building. It's about 12,000 square meters and we are now on the ground floor. There is 3 underground floors, and we expect to finish handing over to ready for letting it out by September, October next year.

The Chopin office, we got building permit in the first half, so we are preparing for a tender for construction. And Bialystok, we got the building permit for about 40,000 square meters, but it is in new market. It's a smaller city, a university city with about 300,000 habitants, but we will stage our development progress starting with the first block with 10,000 square meters.

Darmstadt, I already mentioned before, so there also -- we can go to 70,000, but we don't want to go with 70,000 into the market. So we staged it in the applied parallel -- so the B plan also for construction permit in the -- for the 11,400 square meters.

The Bialystok next in line is the second phase out of the 40,000 in Darmstadt, this is also for the second phase out of the total 70,000. We see on Page 10, this is the main building, the existing building that was under construction. Bialystok is also, and as you can see her, we can stage it by block. You see here 3 on this stage and there is still behind that one, another possibility.

The AIRPORTCITY Avior Tower is the right tower. On your slide, the left one is building, which is already extinguished since a couple of years and which is fully let. And there is a kind of a connection between the 2 towers. So they can go in each when it is cold outside. This drive takes from one tower to the other.

Chopin office is the slide on Page 13, which is very well located on the junction -- on the main public transport junction that each [indiscernible] are on the underground [indiscernible], but it is not covered. You see here in the [indiscernible]. It is a very good location. It's 1 station to the to train station, 2 stations to the technical university. If you walk to town, it's about 10 minutes into the city center.

On Page 14, you see the rendering for the office building Darmstadt. There, what you see here is the trees and the green and the [indiscernible] rendering. What you see in the background where there is hotels is in the 15 building. That's the product what we bought. 1/3 of this relatively big building, which we bought. We invested into a full renovation [indiscernible].

Now maybe, Daniel, you go through the sectors and how we split our [indiscernible].

[Daniel Folian, executive]

Due to the construction in Krakow and St. Petersburg, the stake of development projects increased to around EUR 100 million. So in total, we have around now EUR 500 million of properties. And as the value of our Russian properties increase due to the increase in the FX rate of Russian ruble, we now have more than 50% of our assets in Russia and followed by Poland.

Yes. If I summarize our strategy, we would like to develop ourself. So we are not a trade developer who is intending to sell during construction period. We developed for our own investments on the projects which we have you walked through, and we have a special focus. One focus is on sustainable buildings with LEED Gold or higher standards. And the other focus is that we try to integrate flexible offices. We see there is a very good dialogue with the tenants. On the one hand, we got tenants in Krakow and Mogilska 43, which started as a flexible office building and later on decided to stay there. They like the location, they like the services, and we would like to be entering to traditional office. On the other hand, we saw that the flexible space is also a service for our traditional office tenants if they have a special project for some time. So in the future, we will always make about 15% to 20% of newly-built space in this flexible office or co-working style, which you have seen also some focus from our existing ones.

Can you go to our green building. Yes. So around half of our office stock has now Green labels and we decided for a new certificates, which has to be renewed every 2 years. So that we also received feedback when we apply for a new certificate. And under construction, we also have 2 Green buildings, the one in St. Petersburg and the one in Krakow.

[Franz Jurkowitsch, executive]

Let us jump in because the other history of Warimpex, if you're interested, you can find on our slides. Let us jump to Page 23, the income statement from the finance and from the finance and Daniel will walk you through.

[Daniel Folian, executive]

Yes. So as mentioned before, we could significantly increase revenues and also EBITDA in the reporting period as well as our equity ratio and the total equity and liabilities as we increase our portfolio value. And also, I would like to mention that we also more than tripled the cash flow from our operating activity in the first half of this year.

And we're quite confident that the second half will be similar to the second quarter, assuming that the ruble FX rate will stay where it is now.

[Franz Jurkowitsch, executive]

Yes. So I think everything else is self explanatory, which you can analyze from our slide, and we are now open for questions.

[Operator]

[Operator Instructions]

[Christoph Schultes, analyst]

This is Christoph from Erste Group. I will ask some questions. The first is regarding your revaluation results. I think apart from that comes from Russia, but I think you mentioned also that there is something coming from your newly acquired asset in Lódz. So can you maybe give us some details on the revaluation results?

[Daniel Folian, executive]

Yes. So we have revaluation gains and revaluation losses that due to Russian properties, the car park and Jupiter Tower -- that's Zeppelin, sorry, and Zeppelin. And due to the assumption of lower rents in the future. And the increases in -- so the revaluation gains were due to the Avior Tower in Russia, where we have a building under construction and realizing development profits as well as the newly acquired office building in Lódz as we acquired it below market value. And it's more or less equally split between these properties.

[Christoph Schultes, analyst]

And regarding the Red Tower. So I think you mentioned that there is an occupancy of 40% at the moment. And what are your plans there? Are you confident that you can raise this occupancy ratio already in the course of this year? Or do you have to do some work? Or maybe you elaborate it and the plans on that.

[Franz Jurkowitsch, executive]

It will be 2 or 3 step development. The building was rather poorly managed by the old owners and they were also not familiar with the Lódz market because they were sitting in Warsaw. So we have a relatively successful development in more or less walking distance from this newly acquired Red Tower.

With Ogrodowa, we have now an occupancy by end of June of 85%. But as it looks now, over the summer, we got some new tenants where we are in the finalization of tenancy agreements and I think the end of September, it looks like we will have more than 90% of occupancy. And we see also a relatively strong demand for the flexible office spaces.

So in light of that and in light that we made a relatively -- we could buy the Red Tower at a good price, our step 1 is to refurbish 2 floors for -- adjusted for flexible office. And the rest we are now preparing for traditional tenants. So some parts, there was a Scandinavian bank in it. They had -- they kept their floors in a very good shape. So it has only to be cleaned and there is not much CapEx necessary to rerent it.

For flexible space, you have to do something like I showed during the slides, we'll do the same concept. And the ground floor and maybe the first floor, we will also adjust for maybe some retail or some -- like LUX MED in Poland, it's a medical kind of clinic, which is also a tenant in our ground floor in Ogrodowa in Lódz. So I think over the next 6 months, we prepare the building for rerenting it and it will be definitely in stages. The location is very good. You can even look it on Google Maps. It is in -- there is a very long pedestrian street. It's called [indiscernible], which goes in North. It's in our backyard of our Ogrodowa building, and it goes south, it's couple of kilometers. And we are in the middle of it next to a junction of [indiscernible].

So Lódz is a big city, about 700,000 inhabitants, but they don't have a subway. And on top of it, there are 2 train stations. It has a historical reason. And there's one in the East with the train to Warsaw and there's one in the West with the train to Wladyslaw.

And these 2 are now under -- there's an EU finance program to connect these 2 train stations, making 2 kind of [indiscernible], we would say in Austria, stations in between. There will be also train stations in about 7 minutes walking distance from us, which is connected, more or less, to the suburbs from both sides of Lódz and also to the train to Warsaw.

So we see a big potential not only for short-term, but also for the long term as we have the location in the pedestrian zone. We have a relatively good location to the [ train ] system, which is -- it's like [indiscernible] by function. And it is -- in about 2 years, this new city train system will start. So -- and you should not forget, Poland has decided to make a new Warsaw Airport exactly halfway between Lódz and Warsaw. And the train and the motorway will connect this airport. So that means we can, in the future once these airport will be built, I hope it will not take too long like we seen with construction. But in about 4, 5 years, you can go from us in 7 minutes walk to the train connecting you directly to the airport. So big potential.

[Oliver Simkovic, analyst]

This is Oliver from RBI speaking. A couple as well from my side. The first one, you mentioned that you're preparing for tender for the construction of Chopin, I believe. When we look at the construction plans that are still the same as they happen in the past. I mean, how likely do you see that you would get construction prices in the vendor are still attractive enough to start building? And how would you -- how likely would you see a postponement of those developments?

[Franz Jurkowitsch, executive]

Look, we have now the Chopin and the Mogilska 43 and the Mogilska 35. They're all in about 2, 3, 5 minutes walking distance. So we have quite good and recent experience with the prices we can expect from this. So we call it Phase 3, but it is the number, so Mogilska 35. So we are assuming the prices we expect for the same, let's say, price levels as we do it for 35 as we see that the demand for construction in Poland is going back because of the high interest rates in [indiscernible]. And this is primarily hitting the residential developer, but they are very strong for the high-rise buildings in the market. And they slowed down now. So the construction companies are looking for new contracts. And we are not pushing too much for it because our focus is now to finalize Mogilska 35.

But in the marketing of Mogilska 35, we see sometimes demand which is exceeding what we can offer. We can offer maximum 12,000 square meters. And that's why we keep also an eye on the development of the Chopin office space. And it will depend if we get the rental rate, which we want in the light of the higher construction growth.

[Oliver Simkovic, analyst]

Clear. Then on any potential refinancing of project loans. Do you have anything coming up here that is significant and still upcoming this year? Also, what interest rate do you think you could have now on the refinancings?

[Franz Jurkowitsch, executive]

Look, we have -- what is under construction is fully financed. It is the Mogilska 35, the project finance for the full debt part and the equity is already spent. And on the Avior Tower, we also have a local finance for this -- for the building, and we have already invested equity first.

So there is -- for project, there is no need. And question, where would be an interest rate, I would say, in the -- but this is now a guess because we haven't asked, they are not in negotiations in the last 2 months. But before summer, I would assume around 3%, 3.25% for Poland.

[Oliver Simkovic, analyst]

And then my last one on Russia and on the operations there. I believe the last time we talked, you mentioned that you can repatriate part of the earnings that you generate in the country. Now that the sanctions seem to be staying at least for the foreseeable future. What do you plan to do with the remaining cash that you generate there. Do you consider start reinvesting it or keep it on hand there? Any insight on this would be great.

[Franz Jurkowitsch, executive]

So questions to answer first. We can repatriate RUB 10 million per month versus the company. So on the level of our building, we have shareholder loans and then repay each month RUB 10 million. And in fact, we even do it with your subsidiary in Russia. And concerning the parking, so the multifunctional billing, there are no further shareholder loans, but there is a profit. So we pay dividends. We can pay every quarter a dividend of [ RUB 20 million ] which we have to spend -- which we have to distribute within 10 days after issuing the fact that we pay a dividend. And when we split it for 2 months, we can do [ RUB 20 million ] per quarter.

That's what we are doing. But on the other hand, we still have to spend money for the fit-out for the Avior because, as I mentioned before, we have it finished, the building shell in core. And the fit out is depending on the negotiations with the tenant. So we have some -- we make some reserves for the fit out and we would use surplus cash for servicing the fit out without taking additional loans.

[Operator]

[Operator Instructions]

[Franz Jurkowitsch, executive]

So if there are no further questions, I thank you for your interest in Warimpex. I hope that the second quarter will have no further negative surprises on the macroeconomic side. So then we will talk in November for the results of Q3. Thank you very much. We wish you a good start into the fall.

[Operator]

We have reached the end of our call. A PDF of the presentation you've seen today and financial report are available for download from our website, warimpex.com. Thank you for joining our call today, and we wish you a pleasant evening.