GuruFocus - Release Date: November 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Grand City Properties SA (ETR:GYC) (GRNNF) reported a 3% year-over-year increase in net rental income and a 5% rise in adjusted EBITDA, indicating strong operational performance.
- The company successfully launched exchange offers for its perpetual notes with a high acceptance rate of 85%, improving its balance sheet and credit rating metrics.
- The vacancy rate remains low at 3.9%, with in-place rent increasing to EUR9 per square meter, reflecting strong demand in key metropolitan areas.
- Grand City Properties SA (GRNNF) maintains a robust liquidity position with EUR1.5 billion in cash and liquid assets, comfortably covering debt maturities.
- The company has a diversified portfolio with significant presence in Berlin, North West (TSX:NWC) Germany, and London, allowing it to capitalize on favorable market dynamics.
- Despite strong operational performance, Grand City Properties SA (GRNNF) reported a moderate loss of EUR17 million for the nine months of 2024, primarily due to negative revaluations.
- The company's leverage remains a concern, with a net debt to EBITDA ratio of 9.1 times, although it has improved from 10 times at the end of 2023.
- There is uncertainty regarding the continuation of existing regulatory frameworks in Germany, which could impact future rental growth.
- The company has not yet decided on dividend payments for 2024, pending market conditions and further evaluation.
- Grand City Properties SA (GRNNF) remains cautious about potential acquisitions, focusing instead on maintaining a strong liquidity position and reducing leverage.
A: As highlighted in the presentation, the fundamentals driving the widening supply and demand gap continue to support our strong operational achievements. We expect a persistent supply and demand gap over the long term, which is likely to drive market rent growth and maintain low vacancy rates. Inflationary pressures have decreased across Europe, supporting rent affordability and the overall rental market. Our portfolio in Germany and London is benefiting from these favorable market trends, with accelerated like-for-like rental growth and substantial upside potential relative to market rent.
Q: Could you give a more detailed breakdown of your like-for-like rental growth? What was the growth rate in London? Which regions were the main contributors?
A: The total like-for-like rental growth was 3.5% as of September 2024, with 3.6% in-place rental growth. The main contributor was strong reversionary potential, contributing 2.1%, while indexation was 1.5%. Growth was strongest in London at around 5%, as rents there are not restricted. In Germany, regions like Dresden, Leipzig, and Munich showed strong growth. We expect continued strong like-for-like rental growth, driven by the gap between in-place and market rents.
Q: Given your strong liquidity position, what are your views on financing? Do you continue to obtain secured financing or do you expect to shift back to the bond market entirely?
A: We view our diverse financing sources as a strong advantage, providing access to funding in all market environments. We raised EUR100 million in bank loans and continue discussions with banks for further funding. We maintain strong relationships with local and regional banks, which offer stable and competitive margins. In the bond market, we raised EUR500 million in July at an attractive coupon. We will maintain a balanced financing sources mix and currently see full access to all sources of financing.
Q: Do you expect to continue to deleverage or has your view on leverage changed?
A: Despite negative valuations since mid-2022, our LTV remains stable at 36% as of September. We have offset negative revaluations through disposals, strong operational results, and dividend suspension. We remain committed to maintaining a strong balance sheet with conservative leverage. With evaluation dynamics shifting to positive, we feel comfortable with our current leverage and will continue to sell properties around book values.
Q: Could you provide some more details on your disposal progress? How do you see the transaction market? Are you looking at buying again?
A: Year-to-date, we signed EUR230 million in disposals, with EUR100 million expected to complete in December 2024. We have become more selective as market momentum shifts positively. We completed EUR170 million in disposals, including over 650 units mostly in London. We see the transaction market improving, with a consensus that valuations have bottomed. We expect to remain a net seller in the first half of 2025, redeploying capital more accurately.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.