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Hello, everybody, and welcome to the GTC H1 2025 Results Call. My name is Charlie and I'll be your coordinator today. [Operator Instructions].
I'd now like to turn the call over to Malgosia Czaplicka, CEO of GTC to begin. Malgosia, please go ahead.
Thank you very much, Charlie. Good afternoon, ladies and gentlemen. It's my pleasure to welcome you today on the GTC's call related to the first half of 2025 results. Today, I'm joined by Balazs Gosztonyi, who is the CFO of GTC, but it's also my pleasure to introduce our new IR person who will remain your contact person for the future, it's [indiscernible].
Thank you, Malgorzata, and good afternoon, everybody. I'm very pleased to join GTC as the new Head of Investor Relations and Corporate Governance, and I look forward to working with all of you and keep the open and transparent dialogue with the market as well as support the management team in executing the strategic goals. Thank you.
Thanks, [indiscernible]. I think we can now move to the presentation. So I will put the presentation on the screen. Of course, the presentation is available on the website. But let me start with a short summary of what happened during the first half of 2025.
So the rental revenues from -- went up by around 9%. We crossed EUR 101 million in the first half of 2025. This is mostly due to the addition of the German residential portfolio to the overall portfolio. The gross margin from rental activity were at EUR 66.1 million. This is a little bit above what we achieved in the first half of 2024. Our FFO was at the level of EUR 22.6 million. This is mostly due to higher financial costs and Balazs will tell you a bit more in detail how the financial costs increased and what were the reasons for that increase. If you look at the EPRA NTA, we are more or less flat compared to the year-end. EPRA NTA per share stands at EUR 2.23 or PLN 9.63.
If you look at the net LTV, we went down to 51.8%. Occupancy, we are very proud to say that the occupancy of the commercial portfolio stays unchanged from the year-end. We do believe that the bottom in terms of the occupancy is behind us. We do believe it was in the first half of 2024. I will tell you a little bit more on the occupancy of different sectors in a minute. If you look at our cash position at the end of second quarter, it was around EUR 80 million of unrestricted cash. We had around EUR 22 million on the escrow account, and we have deposits of around EUR 45 million. And this is all before the new senior loan for Galeria Jurajska was fully drawn in July 2025. This is the loan of around EUR 84 million. And this is before the exercise of the option to acquire noncontrolling stake in the German residential portfolio which we exercised in mid of July, and we paid the remaining purchase price of around EUR 42 million.
Moving forward, talking a little bit about the portfolio. I think that the portfolio structure has not changed significantly. We are still holding around EUR 2.9 million of total investment portfolio, out of which the income or the -- real estate portfolio is EUR 2.7 million, and the income generating portfolio is around EUR 2.4 million.
For me, the most important for the time being, would be the income-generating portfolio. As you see, we again are having around 51% in offices, around 30% in retail and around 19% in residential. Around 88% of the portfolio is income generating from the total investment portfolio. We have active development of around 6%. That is roughly a few products that we have up and running, few -- 3 projects in Budapest, 1 project in Zagreb. We have around 95% of our portfolio in EU countries, out of which 51% is in A-rated countries.
In terms of the green certification for the portfolio, 93% of our commercial income generating portfolio is green certified. Another 5% is under the certification. And of course, we are working very hard to uplift the energy efficiency of the German residential portfolio. This is our main task, and that's what we are focusing on. You saw the communication of the cooperation with PAUL Tech earlier this year, [ we leased ] earlier this year. This is the route that we are taking of this portfolio.
Talking a little bit more into details about the office portfolio and the occupancy stabilized. The occupancy is at the level of 82%. The average weighted lease term is around 3.6 years. We had robust activity -- leasing activity we leased during the first half of this year, around 40,000 square meters. We had some big leases. We did some big leases across all the markets, as you see in the icons below, it's from Warsaw to Zagreb, all the leases are bigger ones and visible. We are pretty satisfied. We do still see some weakness or some softness in the Polish regional cities, that's where our occupancy is the lowest. That's mostly 2 cities. It's the city of [indiscernible] and the city of [ Katowice ] where our portfolio are characterized by the lowest occupancy in the portfolio.
If we switch to the retail portfolio, here, I mean, not significant changes. We are still almost fully occupied at the 96% of occupancy. You'll see that some of the assets are almost at its full capacity. The average weighted lease term is of around 3.5 years. We do have some leasing activity. We leased around 16,000 square meters. And again, that's throughout the whole portfolio. We don't have any assets that would show any weaknesses in that portfolio, none of the cities, none of the markets, none of the assets.
To kind of confirm that you will see on the slide, the footfall and the tenant turnover, we are comparing it Q2 to Q2 2025, but also on a semiannual basis. So you see that all the properties are having a footfall at a very stable and increasing trends. And of course, the tenants turnovers are extremely -- on an extremely positive trends across the market. Even if you see that there is a small footfall decline like in Croatia, coming mostly from the fact that there is Sunday trade ban introduced last year, you see that, that actually translated into much better sales.
A few words about the residential portfolio. We are working, as I said, on the energy efficiency of this portfolio. We are bringing the portfolio from the energy efficiency of the [ D or E ] to energy efficiency of A&B. We are doing that together with a company called PAUL Tech, it will be CapEx neutral. There will be no CapEx investment as initially set at the acquisition announcement. We will invest CapEx on -- in the part of the portfolio that we plan to keep longer term. We did have some good progress with the occupancy. As you see, we acquired the portfolio, it was around 83% occupied. At the end of Q2, it was already 86% occupied. We do see that the average headline rental rate is going up slowly, and we do see that the annualized in-place rent is also slowly going up.
Our strategy towards this portfolio has not changed. As you probably realized, with the recent announcements, we are -- we decided to enlarge and to strengthen the management Board with an additional personnel. Sebastian joined GTC's Management Board as of today and his main focus and his main responsibility will be the exercise of the strategy in the German residential market.
With that, I will be happy to give the floor to Balazs to take you through the financial results.
Thank you, Malgosia. In line with what Malgosia said, let me present you the P&L of GTC first. So we do have an improvement on the revenue side compared to last year, which giving you a little bit more detail on the like-for-like level, we managed to increase our rent of the core portfolio by EUR 0.6 million in the first half of the year. And as the residential occupancy improved, we managed to increase the annualized residential revenue expectation by approximately 5%, that's resulted the EUR 101 million of revenue from rental activity. The cost of rental operations increased as well, which is partially due to -- at the later stage of the year scheduled reconciliation of the service charges which altogether gave us a 1.5% increase in the gross margin from operations.
We recognized an increased administration expenses that are partially due to the new operations in Germany and in Luxembourg as well as inflation effect on the core operations. The profit -- actually the loss that you can see on the revaluation of assets are standing at EUR 14 million at the end of H1 2025, that's mainly due corrective values in the Hungarian portfolio, partially offset by improvements in Bulgaria, Germany and Croatia.
This leads to our major operations profit to slightly decrease to EUR 40 million from operation before finance income and tax. And as we are recognizing EUR 36 million of finance cost in the first half of the year, that's a significant increase compared to last year. That is due to the acquisition we closed at the end of December in Germany and also the refinancing that we secured specifically in Jurajska at a little bit higher rate than the previous financing that was taken 5 years ago when they -- when the market conditions were much lower. We are focusing on managing these finance costs. We are aware of the increase of the weighted average interest rate as well, and the management intends to keep that at bay even after the refinancing of the upcoming maturities. Mistakes are profit for the period for close to EUR 0, EUR 0.5 million for the first half of the year, but we can show a stable EBITDA standing at 45 -- sorry, EUR 54 million at the end of H1.
So moving on -- so moving on to the cash flow. The previously mentioned effects are reflected in our cash flow as well. As Malgosia mentioned, we have stable operating performance. Currently, the cash flow from operating activities resulted in EUR 45 million of the first half of the year. On the investment activities, we had significant movements due to the investment that are ongoing as well as the sale of assets in the portfolio that were closed in Q1 2025, and you see the combined effect.
As you see, we slightly decreased our year-to-year comparison, the investment in real estate and related slightly decreased, that's due to the fact that the started developments are nearing completion. And due to the newly signed leases, we spend a larger portion of the investment on fit-outs that are basically matching the improvement in the occupancy of the portfolio. The sale of investments of EUR 88 million, that's covering the 3 transactions that we announced selling of the plot in Warsaw, the Matrix C building in Croatia and the GTC X office building in Serbia.
Besides the investments, the financing cash flow is in line with what I mentioned before the interest payments are increasing, that's in line with the pre-lease expectations as the refinancing and the additional financing are taken on by the residential acquisition in Germany are increasing compared to H1 2024. We also managed to close a little bit higher repayment of long-term borrowings. There was a one-off repayment in Hungary, where we repaid EUR 6 million additional to the scheduled refinancing to improve GTC's position on the long-term borrowings. This gives us on the year-end -- or sorry, the period end EUR 80 million of cash available for the company.
Coming to the balance sheet. Our investment properties slightly changed. That's due to the developments I mentioned earlier, constructions as well as the CapEx and fit-out investments, realized in the first half of 2025. The previously mentioned disposals had an effect of the line assets held for sale. Basically, these are the 3 transactions I mentioned earlier. And obviously, these disposals offset by the investments had a positive effect on cash and cash equivalents in 2025 H1. All in all, the balance sheet is stable and shows that we are continuing the strategy management intends to implement.
The same events show the effects in the liability side of the balance sheet. So basically, we managed to close the transaction that had a positive effect on the liabilities related to assets held for sale and also, we reclassified along with certain financial facilities we reclassified from short term to -- sorry, from long term to short term a significant amount of facilities. We have a detailed slide in the coming slide to explain how this has been changed. Obviously, the short term that has increased due to the reclassification of the EUR 500 million outstanding bond of GTC, and as certain loan financings are coming to maturity reclassification had an effect on top of the bond and the EUR 500 million bond.
If we jump to the, let's say credit metrics of GTC, you see that because of the reclassification that actually the maturity dates are coming, our weighted average debt maturity decreased from 3.3 years from year-end to 2.7 years in H1. This is obviously underlines the focus of the management to refinance or extend the facilities that we have on hand.
Before jumping into details of the outstanding debt, I would like to mention that overall, the net LTV of the group decreased to 51.8%. And the before mentioned weighted average interest rate is on a positive -- on an increasing trend in H1 2025, it was reaching 3.68%, that's still although negative trend, but it's still very nice compared to, let's say, market averages.
And as I mentioned regarding the refinancing focus, the EUR 500 million bond is outstanding at the end of June 2026. GTC has selected JPMorgan to lead that refinancing and the process has started as per our announcement. Beyond the euro bond, we have several senior facilities, project financings that are maturing in the next 12 months. Specifically, there is a bit more than EUR 100 million related to Hungarian assets, there's about EUR 100 million related to the German portfolio, and there's EUR 80 million related to the Polish portfolio.
As all of these financing facilities are under scrutiny, and we are in discussion with the banks and investors to refinance, all of these are being attended and we are positive that the refinancings will be closed or extended ahead of their maturities. Of course, these numbers, as mentioned earlier, are not including the facility that we secured on Galeria Polnocna. They will be reported in detail and will be part of the key metrics in the Q3 reporting.
To be just kind of conclusive besides the upcoming debt maturities, I believe that all of these facilities are being attended, the business performance has been strong. We managed to improve on the rental rate and that shows the strength of the portfolio and with the upcoming maturities being addressed, we are positive that the financial position of GTC will be improved.
And from my end, thank you. Thank you for your attention. Over to you, Malgosia.
Charlie, we are ready for the Q&A session.
[Operator Instructions]. Our first question comes from Jakub Caithaml.
[indiscernible].
We cannot hear you.
[indiscernible].
I cannot hear you.
[Operator Instructions]. Our next question comes from [ Alexander Rodonski ] of [indiscernible].
I have like 2 or 3 questions. First question is about the time line for selling assets ahead of the coming bond refinancing. Is there some kind of -- is there some kind of time line for that, that you can share?
As you see, we already sold 3 assets this year. We have 2 more assets under the final, let's say, agreement. I can confirm that one of the assets was closed today. We have a number of assets that we are planning to dispose. At this stage, I would rather not comment on the disposal time line.
Okay. Okay. And another question is about the EBIT margin on the residential portfolio. If you can share that maybe or not?
Balazs, this is a question for you.
We do not publish subsegment EBITDA margins to my -- so far. Therefore, I'm unfortunately not able to provide you EBITDA margin on the German portfolio, the separate, let's say, subsection of our portfolio. We do provide group level EBITDA margins only.
Okay. Okay. I understood. So maybe can you elaborate about the renovations in the newly acquired apartments? Have they already begun? And what impact will they have or do they have on the rental activity and revenue?
It's a little bit -- I would say differently. What we've done on the German portfolio so far, we split the portfolio into the assets that we are planning to keep and we split this -- and we selected those assets that we are planning to dispose. We are not planning to do any significant CapEx on the part that we are planning to dispose. We have a very strict plan for the assets that we are planning to keep. We will start renovation at the end of this year. This year, you should see some small CapEx spend on those assets towards the end of the year. The majority of CapEx spend will be in 2026 and 2027, that's due to the fact that this will -- this will be financed by the subsidized financing.
We are under consideration for the 2 different options is either the subsidized loans, which are called [indiscernible] or the [ BAFA ] program, which -- where the subsidy is on the money spent. There is no subsidized loan, but you are being reimbursed for 1/4 of the cost spend on the improvement of the property. That's how the German market works in this respect. And for that, we need to properly prepare all the documentation to be able to apply for any of those programs.
For the remaining -- for the whole portfolio, what we are doing is we are doing certain improvements or change of some systems in a way to allow these properties to be energy efficiency. We acquired [indiscernible] energy efficiency of around D or E depends on the property and with special technology that is invented by PAUL Tech and is being provided by them, we will improve those assets to the energy efficiency of B or A, that will not have an impact on the revenue stream. Only the improvement in -- where the CapEx is spent can be translated into improvement in the rental rates based on the German regulations. So I would say that probably you should see some improvement in the rental rates coming from CapEx spend only in 2026, let's say, second part of 2026, beginning of '27.
[Operator Instructions],. And we do have a follow-up from Jakub Caithaml.
Again is the line better now?
No, it's not.
Okay. Sorry. I'll [indiscernible].
Might be a little bit better, Jakub, but it's not fully clear. So you can try...
Let me try. I wanted to ask about maintenance CapEx outlook for the upcoming 12 months because we have seen a significant deceleration between first and second quarter.
But you're looking at the development costs, right? The investment in real estate when you had a significant amount in the first half and much less in the second half -- significant amount in Q1 and much less in Q2?
Exactly. I was -- one thing to ask how do you see this CapEx item developing in the coming 6 to 12 months?
Jakub, this is not really the maintenance CapEx. This is the development CapEx that we decided to cut back as one of the measures to improve our cash position. So as you know, we decided to -- we had few properties under construction, we decided to slow down certain developments and bring them up to speed with the leasing before we continue spending money on them, that's relevant for all 3 properties in the Hungarian market.
And the only property that we are developing right now is [ Matrix D in ] developing in the normal speed is [ Matrix D ] in Croatia. The maintenance CapEx on a regular annual basis for the commercial real estate portfolio is between EUR 10 million to EUR 15 million and that's what we will be -- we will be spending anyway on that part of the CapEx, we are not cutting back.
I see. And this EUR 10 million to EUR 15 million includes the capitalized expenses for new leasing or that would be coming on top?
That would be coming on top, that will be from the fit-out line.
Understood. My second question was on the talks with the creditors, both on the bond side and on the other liabilities coming due in the next 12 months? I mean could you give us any color on how these talks are proceeding? Or if you think that you will be able to meet the time line indicated in the last picture?
Sure. I will take over the bonds part and then let Balazs to speak about the senior debt. So the bonds, as Balazs mentioned in his speech, we mandated JPMorgan to work with us on the capital markets transaction. We do believe that we can deliver the transaction and the time line, which is in the [ Fitch ] report. We remain in a close dialogue with both -- with the majority of our bondholders. And those negotiations are progressing, and they are moving forward. We do believe that -- at the end of the day, the capital market transaction will be of our focus and will be the final outcome of the exercise.
And regarding the upcoming maturities on the loan side, we have very strong relations with all around the portfolio. We have more than 20 banks with whom we are continuously working to acquire new loans or extend the current ones. And these strong regulations and the conversations, we are continuously keeping taps on gives us confidence that the roll forward or refinancing of the upcoming maturities will be handled. I believe the strength of the portfolio is also underlined by the fact that we were able to sort of onboard the new bank in our network that's underlined by the [ J&T ] facility, we were able to secure post balance sheet date.
I think that so far -- or maybe beyond that, so far, we were very successful in rolling forward. So we do have a high expectation to be successful in this regard in the coming quarters.
And lastly, I understand that with the German minorities buyout completed? The office building Bookers has again become unencumbered? Could you give us a rough update on the current state of the standing unencumbered portfolio, please?
Jakub, this is correct. We never encumbered at the end of the day, City Gate, It was always unencumbered. We repaid the loan before we managed to encumber the asset. As this is a longer exercise, we will be happy to share the list of encumbered assets, but you have to give us time. We don't have it handy. If you look at the presentation, around 40% of our assets, [ 39% ] are unencumbered. So that gives you more or less the pool -- of the unencumbered assets, but to be honest, I don't remember asset by asset out of the portfolio, which are unencumbered and which are encumbered.
Our next question comes from David Sharma of Trigon.
Just a few questions from my side. Maybe the first one being -- could you please clarify which of the assets are about to be sold in the second part of the year? I believe it's going to be the Artico [indiscernible] and the plot in [ Katowice ] and how much of the proceeds are you expecting from those 2 transactions?
David, I can confirm that the plot in Katowice has been already sold. The plot in Warsaw has been already sold. I don't want to comment on the transactions which were not closed.
Right. Thank you. So maybe my second question would be the -- okay, we now see the top line expansion due to the consolidation of the resi in Germany. That being said, the biggest financial burden is basically in a way, your FFO. So where do you expect the FFO pickup to happen over the next 3 to 4 quarters? And do you expect the FFO to pick up prior to the [indiscernible] of the bonds and loans?
The FFO will pick up upon the realization of the disposal strategy in the German residential market and repayment of certain debt related to that acquisition. So I wouldn't say it's going to be this quarter or the next quarter, I would rather say that it should start improving [indiscernible] of next year.
Right. And do you -- where can we expect this first transaction to happen? So where do you expect this sub-portfolio of resi assets to get sold?
We are preparing them for sale as we speak. And we do believe that the first transaction if all goes well, can be still, let's say, in the first quarter of next year, but most probably towards third and fourth quarter of next year.
Right. So the last question would be anything about the Kildare campus, and I think about you sharing your sale in the JV?
Can you say again? I couldn't...
Yes. Yes, sure. What about your participation in the Kildare Innovation Campus in Ireland? What about your share in the project and where can we expect this disposal to take place?
Again, let the management to analyze whether this disposal is the best possible outcome for GTC. There are certain changes in this project which are extremely positive, and we have to evaluate the project again and to decide whether we would like to keep the project or sell the project. We, at this stage are at the analytical level of those assumptions. So you have to give us a little bit more time to come back to the market and tell you exactly what will be the plans of the company towards this project.
Right. And maybe -- well, last question, I promise. It would be about the overhead expansion. We can see that the G&A costs rose over 50% this quarter. Do you expect this pace to continue over the next 2 quarters or over the next 4 to 4 quarters? Or that was only, I would say, one-off transaction related to the redevelopment of the resi assets in Germany?
Balazs, if you can answer that question.
Certainly, I believe this is a one-off. The -- there is an element of the increase that will stay with us as we have additional operations now in Germany and in Luxembourg. However, this current reported figure already includes certain one-off items. So if operational efficiency and sort of the management of the new portfolio is taking on the GTC standards. We do not expect it to be growing significantly ideally, it will -- a worst case stay on that level.
Our next question comes from [ Alexander Rodonski ] of [indiscernible].
I was actually about to ask a question about SG&A and margins. So David asked it for me. So no more questions from my side.
Thank you very much. At this time, we have no further questions registered on the call. So I hand back over to the management team for any further or final remarks.
Thank you very much. Ladies and gentlemen, it was a pleasure to speak to you. As we announced at the very beginning, [ Mihaly and Baginski ] is at your disposal. If you have any additional questions, we will be happy to answer them offline. Thank you very much for your time. Goodbye.
Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.