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Edited Transcript of ATRS.VA earnings conference call or presentation 26-Feb-20 8:30am GMT

Full Year 2019 Atrium European Real Estate Ltd Earnings Call

SAINT HELIER Mar 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Atrium European Real Estate Ltd earnings conference call or presentation Wednesday, February 26, 2020 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Liad Barzilai

Atrium European Real Estate Limited - Group CEO

* Ryan Lee

Atrium European Real Estate Limited - Group CFO

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Conference Call Participants

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* Andre Remke

Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst

* Richard Sunderland

FTI Consulting LLC - Senior MD of Strategic Communications

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the FTI (sic) [Atrium] Full Year 2019 Results Call. (Operator Instructions) I must advise you that this conference is being recorded today, 26th of February 2020.

I would like now to hand the conference over to your speaker today, Richard Sunderland. Please go ahead.

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Richard Sunderland, FTI Consulting LLC - Senior MD of Strategic Communications [2]

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Good morning, ladies and gentlemen. Thank you for joining the Atrium European Real Estate Full Year 2019 Results Call.

With me on the call are Liad Barzilai, Atrium's Group Chief Executive Officer; and Ryan Lee, Atrium's Chief Financial Officer. You should all have the presentation in front of you. If not, one is available on the company's website.

As usual, before we start, I would like to address forward-looking statements that may be discussed on the call. These involve risk and uncertainty, and actual future performance, outcomes or results may differ materially from those expressed. Please refer to the documents filed by Atrium, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. I also refer you to the disclaimer on the back page of the presentation.

Once Liad and Ryan have spoken, we will open up the conference for questions and answers. So please follow the instructions given when you dialed into the call, if you wish to participate.

I'll now hand you over to Liad Barzilai. Liad?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [3]

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Thank you, Richard. Good morning, everyone. On today's call, we will run through Atrium's 2019 full year results as well as providing more clarity on the strategic review of the business that the Board and management have undertaken to identify further growth opportunities on behalf of our shareholders.

The result of the strategy review, we'll see the company further evolve and diversify its existing high-quality retail portfolio by moving into the residential for rent sector in major cities in our existing core geographies of Poland and Czech Republic.

Firstly, I will discuss the 2019 highlights. So please turn to Page 4 of the presentation. 2019 has been another successful year in terms of both the ongoing operational and financial performance of the business as well as the continued repositioning of the portfolio to ensure it delivers sustainable income growth over the long term in a rapidly evolving retail environment.

This slide summarizes the tangible benefits of the work we have undertaken since 2014 to ensure our portfolio comprises dominant urban centers focused on Warsaw and Prague. 54% of our portfolio is now located in these cities, driven by new acquisitions, including Wars Sawa Junior and King Cross in Warsaw, alongside approximately EUR 340 million of noncore disposals in 2019 and our redevelopment and extension program.

Furthermore, taking into account the assets that are classified as held for sale, which we expect to close in the next couple of months, this activity has resulted in a portfolio of 26 assets valued at EUR 2.6 billion. This is down from 34 at the start of the year but crucially gives us a portfolio with higher average property value of EUR 101 million and an increased average size of over 31,000 square meters.

We also have a redevelopment pipeline of EUR 400 million, which I will discuss in more detail later.

Finally, I'm pleased to say that occupancy remains high at 97%.

Turning to Slide 5. You'll see that we have a balance sheet and investment-grade rating that are optimal to be able to undertake our ambitious repositioning program and execute our evolved strategy with significant liquidity and firepower to allow agile investment when suitable opportunities arise.

I will now hand you over to Ryan for a more detailed look at the financials. And afterwards, I will walk you through the strategic review outcomes. Ryan?

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Ryan Lee, Atrium European Real Estate Limited - Group CFO [4]

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Thank you, Liad, and good morning, everybody. I'll now take you through some more of the details of our financial results for 2019 and the presentation, which we published this morning.

On Page 7, you'll find a set of charts reflecting the strong performance of our operating KPIs for 2019. Looking at a group like-for-like NRI, which gives an indication of the underlying performance of the portfolio, we delivered a 2.4% growth, excluding Russia and assets held for sale.

Our primary markets of Poland and Czech Republic performed well and achieved increases of 2% and 3%, respectively, both benefiting from the asset-rotation strategy that we have pursued over recent years. Whilst this strategy is completed in the Czech Republic, it is ongoing in Poland. And I'm sure you have noticed -- noted the transaction of 5 secondary assets in Poland in December '19 at around book value of EUR 36 million. This is expected to complete in Q2 2020 and is classified as held for sale in our financial reports.

Encouragingly, as we had previously indicated in trading updates during 2019, the performance of the Russia portfolio improved throughout the year. The asset management initiatives we discussed that included the retenanting of approximately 35,000 square meters of GLA following the exit of 2 large tenants from the country has been completed and are now starting to bear fruit.

We're also seeing a strong positive momentum in footfall and tenant sales in our Kazan and Yekaterinburg centers, which underwent refurbishments in 2019. Thanks to our management in Russia who did such an excellent job in 2019 managing these activities.

As always, we have to send a cautionary note that Russia is Russia and that there are many nonoperational factors, which are outside our control and which can cause volatility of earnings.

On total NRI, the positive impact of the higher-quality income from the assets we have acquired at the end of 2018 and the mid-2019, together with the redevelopments that we have completed in Warsaw in Q4 2018, was offset by the disposals we have made during the year, resulting in an NRI of EUR 176 million. This reflects the phasing of deploying the proceeds from disposals into income-producing assets as we work to define the group's future strategy, which Liad will address shortly.

Encouragingly, on the leasing front, occupancy rates remained very robust at 97% and the operating margin at 94%, reflecting the ongoing appeal and attractiveness of the group centers.

The leasing maturities laid out on the bottom right provides visibility regarding future cash flows over the coming years and shows that the lease maturities during 2020 and 2024 are well spread. The average lease length across the portfolio at the end of 2019 was 5.3 years, and over 60% of lease agreements expire in 2023 or beyond.

On Page 8, we have summarized the key earnings metrics. Here, you can see that our EBITDA decreased marginally by 1.8% to EUR 154 million, in line with revenue change, while EBITDA margin remained stable at 87%.

Similarly, company adjusted EPRA earnings per share decreased by 4% to EUR 0.28 from EUR 0.293 in 2018 due to the phasing of the implementation of our asset-rotation strategy.

The dividend approved for 2020 of EUR 0.27 per share was consistent with the prior year and reflects the Board's continued confidence in the group's prospects and its evolving strategy.

On Page 9, we have provided you with the geographical spread of our portfolio where you can see that 38% of the portfolio is in Warsaw with a yield of 5.2% and 16% of the portfolio in Prague with a 5.1% net equivalent yield. The impact of our asset rotation and redevelopments into prime assets, which reflected in the stable valuation results of the income-producing assets in 2019.

We draw to your attention that the company transacted disposals of EUR 340 million on standing investments in 2019 and approximately EUR 28 million of land, all above or around fair value.

We also signed, as I previously highlighted, an agreement to dispose of 5 small centers in Poland in December 2019.

On Page 10, you can see an overview of the capital structure and some further details on our debt positions.

We have significant liquidity to support growth, our redevelopment pipeline and the evolving company strategy. With a net LTV of 35%, an unutilized revolver of EUR 300 million and the current cash balance of approximately EUR 190 million, we are well placed in terms of our CapEx requirements and our ability to make acquisitions where we see an opportunity.

As previously communicated, we look proactively monitor and manage our capital structure. And with that in mind, I would like to close off my comments with a few words around our commitment to ESG and green financing.

Turning to Page 12. And green financing, this is not something new to Atrium. We've been focused on ESG since 2014, as you have seen in our previous reports. Our strategy is built around the pillars of our people, our places and our customers. It is an area that we take very seriously and believe it is essential in terms of both the environment as a whole and to future-proofing the business and driving returns.

With this in mind, we're evolving a number of new initiatives and making a commitment to further integrate our ESG strategy with our financing activities. We have developed a green financing framework, which has been approved by our Board. You will be able to find details on our website today of our ESG initiatives, and these are included in our sustainability report forming part of our annual report. Additionally, we have published our green financing framework on our website.

So with that, thank you. Liad will now share with you the outcome of the Atrium corporate strategy review. Liad?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [5]

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Thanks, Ryan. I'll now run through our corporate strategy review and go into a little more detail on where we see the company in 2024. I'll also explain how and why we will advance the evolution of both our retail portfolio and the opportunity that we see in the residential for rent sector, ultimately ensuring that we continue to deliver sustainable income growth with lower volatility for our shareholders.

On Slide 14, on the left-hand side, you will see a reminder of the market backdrop that Atrium operates in. The majority of our portfolio is now located in Poland and Czech Republic, which are both growing and stable economies with positive urbanization and demographic structural trends that align with our weighting towards Warsaw and Prague. These markets suffer from a lack of high-quality residential apartments for rent with growing demand and attractive yields. We believe there is a valuable opportunity here for us. Therefore, our vision is to become a leader in both retail and residential for rent in Warsaw, taking the advantage of our existing platform and on-the-ground expertise while making a valuable contribution to the local communities. This diversification will derisk cash flow volatility and create an opportunity for NAV growth.

On the next slide, we've laid out the pillars of how this strategy will be achieved and the vision of the portfolio 5 years from now. Firstly, we will continue with the rotation of our retail portfolio to focus on prime dominant centers in key urban locations. Secondly, we will continue to redevelop our main retail assets in order to increase both their dominance and at the same time, their resilience to the changes in the retail landscape.

In addition, we will now look for ways to identify them with nonretail elements such as resi for rent and office, creating self-sustained ecosystem. Thirdly, we will create a unique portfolio of modern purpose-built residential for rent in major cities in our core geographies with a heavy focus on Warsaw. This would be achieved by deploying the additional capital realized through further noncore retail disposals, alongside optimizing the balance sheet within our long-term net LTV target of 40%.

By 2024, we aim to have a balanced portfolio that generates a high-quality cash flow from a resilient prime retail portfolio that comprises 60% of the total assets and the residential portfolio of 5,000 units, which will make up the additional 40%. While this is a challenging target, we have every confidence in the strength of our platform and team to be able to deliver on it.

Slide 16 helps illustrate the evolution of our portfolio since 2014. We've reduced the number of countries and assets we operate in, while increasing the average asset value and centralizing in major cities with a focus of Warsaw and Prague. Looking to 2024, we will evolve into new income streams as we look to grow the portfolio. Retail value creation will be focused through redevelopment and densification on our existing assets, alongside which, we will add diversification to our residential for rent strategy with, as I mentioned, a target of around 5,000 units, primarily in the Warsaw area.

I will now go into our retail and residential strategies in more depth. Turning to Slide 18. In 2019, we continued to rotate our retail portfolio to focus on key retail assets in Prague and Warsaw where we now have 5 assets following the EUR 43 million purchase of King Cross last year. Urbanization, demographics and strong local macro indicators underpin our focus on these 2 capital cities.

On the next slide, we outlined how we intend to unlock further value by undertaking redevelopment and densification initiatives at our successful centers in Warsaw and Prague. We will look to utilize existing building rights and -- on and around our core assets while increasing the variety of complementary nonretail uses, including resi for rent, offices and even hotels to increase the value by driving footfall and income.

Through this diversification, we will future-proof our properties by ensuring they are able to adapt to the changing consumer behavior by offering work, live and play balance and retain a dominant position in their local markets.

Our strong presence in these 2 cities gives us a great platform for growth, and we have already identified more than 55,000 square meters of potential residential or office extensions at our assets there. We will provide more color on this as we progress the execution of strategy and this potential crystallizes.

On Slide 20, you will find an overview of our existing redevelopment pipeline of EUR 400 million, which we have discussed with you over recent years and of which we already spent approximately EUR 160 million. This pipeline will see up to 50,000 square meters of gross leasable area completed in phases by the end of 2023 as well as refurbishment, once again, primarily in Warsaw. This is in addition to the 20,000 square meters completed in 2018, and for the sake of clarity, it's over and above the 55,000 square meters of residential and office opportunities I mentioned on the previous slide.

Turning to Slide 22. We will look at our residential strategy in more depth. Our experience of the Warsaw retail market means that we understand the strong underlying demographic trends. We have an expert team already in place and are, therefore, in a good position to capitalize on our well-located urban portfolio to extract the value we believe is embedded in our assets and to diversify our sources of income by entering the growing residential for rent market. We look to focus on high-quality, income-producing product that is efficiently sized and managed with excellent client experience and on-site amenities.

In a relatively immature market, we also expect to benefit from a first-mover advantage, and at the outset, we will explore all options that are available for us to implement our strategy. This can include partnerships and joint ventures.

As you can see from the graph on the bottom right of the page, compared with other major European cities, Warsaw offers attractive entry yields of 5.5% to 6% while also offering opportunities for value uplift through robust price and rental growth.

So why Warsaw? On the next slide, we can see the growth engines that make the Warsaw market well suited for residential for rent investment. It has an underdeveloped rental market with a supportive supply/demand balance that favors investors, the majority of which are private and fragmented. The first key growth engine in Warsaw's position as the largest business service center in Central and Eastern Europe, employing some 56,000 people across 236 business service centers. Secondly, as touched earlier, demographics in Warsaw also support the residential market with a large growing population that has rising wages and a historically low unemployment rate of 1.3%. Final growth engine is education as Warsaw is home to 68 universities and colleges with 216,000 students in total, providing a young population and plenty of workforce supply.

Turning to Slide 24. It's our aim to have a portfolio of 5,000 rental units by 2024. We will achieve this target by -- we will achieve this by targeting middle-income, younger Warsaw residents with a product that helps meet the growing demand for high-quality rental accommodation.

Our initial pipeline includes an option to acquire 900 units in the heart of Warsaw's business district. We will also look to leverage existing building rights, as I mentioned, with our portfolio to add a further 700 units to our urban shopping centers.

So in conclusion, on Slide 26, you can see that our mission to invest high -- that our mission to invest in high-quality prime assets in strong urban locations remain unchanged. From a retail perspective, we will continue to rotate into prime assets while redeveloping and densifying our existing portfolio. Additionally, our evolving strategy will see us diversify into the residential for rent sector to build a residential for rent portfolio that meets our high-quality standards.

Ryan has mentioned the importance of our people to the company, and credit is due to all of our colleagues across the group, without whom we wouldn't have been able to achieve such positive results in 2019.

I would also like to express my thanks to the Board of Atrium who have supported us in the evolution of our strategy.

As we enter the new decade, we are moving towards another exciting period for the company.

I will now pass the call back to Richard.

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Richard Sunderland, FTI Consulting LLC - Senior MD of Strategic Communications [6]

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Thank you, Liad. We'd now like to open the floor up for questions. So please follow the instructions you will be given by the operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will now take our first question from the line of [Stephanie Rumanski].

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Unidentified Analyst, [2]

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I have one question to your new strategy regarding the portfolio of 5,000 residential units. Maybe can you give further details about your future plans? And will you develop units by your own? And maybe when will construction start?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [3]

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[Stephanie], thank you for the question. I think what we're planning to do is a mixture of, first of all, targeting, acquiring income-producing residential properties. These are currently available in the market. They are not many. They are available, and we are out there looking to acquire.

Secondly, as I mentioned, we have some densification possibilities on our existing assets. So we have building rights, which we will utilize while doing the redevelopment and extensions of our shopping centers. We will also add residential units on top.

And lastly, as I mentioned, we're looking -- we have an option to buy a -- we took an option to buy a building upon completion, and we will look to acquire or to JV with other potential parties in the geographies. So it's a combination of acquiring, developing on our site and potentially partnering up, if we could find the right product with other parties.

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Unidentified Analyst, [4]

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Okay. And my next question is, so I understood that, considering your residential market, you will focus only on Warsaw, so Poland and Czech Republic, but could you imagine to enter a new market regarding other asset types or including also residential?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [5]

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On the retail side, I think we have a clear strategy that focuses on Poland and Czech Republic, as we've been executing over the last few years and even more refining it and focusing on Warsaw and Prague. I think at this point, the residential opportunity that we see is focused on, again, on Warsaw or on Poland and Czech Republic with really a focus on where we see the opportunity mainly, which is Warsaw. We will consider other major cities in these countries, but they would need to be really major cities. But again, we see a huge opportunity at this point in Warsaw. And at this point, I wouldn't say that we will never go out, but at this point, the opportunity is in these markets, and we don't see a need for us to look to other countries.

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Unidentified Analyst, [6]

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Okay. And my last question is about the Russia portfolio. Would it be an option for you to sell the Russia portfolio in the long term?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [7]

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This has been a part of our target for the last few years. I think medium to long term, we would like to exit that strategy. We've been -- we've said this quite clearly. In the meanwhile, we are very comfortable with the operating performance of the portfolio and with the team on ground. We've done some very good work there in the past couple of years. But definitely, medium to long term, we expect to exit that market.

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Operator [8]

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We will now be taking our next question from the line of [Robert Rodeman].

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Unidentified Analyst, [9]

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This is [Robert]. Actually, only some nitty-gritty questions. So I do understand that the retail market is pretty challenging. But the part that you can control pretty well is obviously cost. EPRA cost ratio is up 2.7 percent points to 19.5%. Now I know that there is always -- it's a bit of an artificial number. But what is the reason for that EPRA cost ratio going up so steep? And what can we expect going forward?

The follow-up question and also cost related, and also, I was intrigued by your comment on ESG. If you look at your Board composition and the cost of that, that is extremely high. So we're talking EUR 1.7 million. If you compare that to Citycon, that's 1/3 of the price. If you compare that to Wereldhave, that's 1/9 of the price. So I was wondering if that is also on the table to be discussed and to lower the cost there. That was it from my side.

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Ryan Lee, Atrium European Real Estate Limited - Group CFO [10]

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[Robert], it's Ryan here. Good morning, and thank you for the questions. In terms of the EPRA cost ratio, I think, firstly, let me just say that 3 years ago, we undertook a general restructuring around SG&A. And we had a target that we communicated to the market, which was somewhere in the range of sort of EUR 21 million to EUR 22 million. And actually, in absolute terms, when you strip out the onetime items that we referred to in the press release this morning, that's where we are. So in absolute terms, we remain on target. You are correct that the ratio has risen, which is a combination of, as we've touched on the asset rotation structuring and also in the case of operating margin, which it is a case of 2 specific events where we lost about 100 basis points in 2019 through the redevelopment of Arkády Pankrác in Prague and approximately 110 basis points in Russia in '19 versus 2018, which, again, we touched on in the script, so around the situation of the retenanting. So I expect that those factors lead to the rise in 2019.

In terms of where we see it going forward, I think you're aware, we don't give forward-looking guidance, but we don't expect, in absolute terms that the selling and general admin will rise further.

In terms of the Board costs, I wouldn't -- I don't want to comment whether they are extremely high or not because those, I think, are sort of subjective use. But in '19, there were onetime items in the Board costs, which related to compensation received related to the transaction and the additional work that the directors undertook in relation to the Gazit offer for Atrium. So that has to be factored in, and that pushed those numbers up ahead of the 2018 numbers.

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Unidentified Analyst, [11]

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Okay. So we can expect the Board costs to come down then. Assuming that the...

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Ryan Lee, Atrium European Real Estate Limited - Group CFO [12]

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Once we're done and gave forward guidance, yes.

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Operator [13]

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(Operator Instructions) We will now be taking our next question from the line of [Oliver Skippsmooth].

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Unidentified Analyst, [14]

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So I have a question about the strategy and the expansion into residential. Regarding the financing, should this be financed like with the current portfolio rotation by selling other properties? Or would it also be financed through external financing?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [15]

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Thanks for the question. The strategy will be financed by both ways, actually. So we continue to recycle and to rotate our portfolio. So we will continue to sell out those assets and then to reinvest it into the new strategy. And the second is, as you've noticed, we have a low LTV. And we have LTV target of 40%, which is in line with our ratings. And we -- so we have firepower, both on the balance sheet, in terms of additional finance and then through asset rotations.

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Unidentified Analyst, [16]

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Okay. Understood. And then maybe one more question about the revaluation results in fiscal year '19. This was negative, I believe, together around EUR 13 million. Could you maybe elaborate on drivers behind this?

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Ryan Lee, Atrium European Real Estate Limited - Group CFO [17]

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Yes. Thank you for that. I think if we take that result that you just mentioned and split it into the 2 elements behind it, one was a standing income-producing assets, and the other was land. Actually on the standing-income assets, the result was basically stable. It was somewhere around EUR 1.9 million of devaluation on the portfolio of EUR 2.6 billion. And we continued to benefit from the strategy that Liad had laid out over the last 4 or 5 years of rotating into prime assets, high-quality assets in Warsaw and Prague, particularly where the like-for-like, the growth drivers, the occupancy had held up extremely well as had the yields. So on standing income, I would basically say there was no valuation movement at all.

The second element was land. And in that, there were basically 2 elements behind it. We have a land plot in Turkey, which, with the currency devaluation year-on-year, led mainly to the driver behind that result, and there was also a change in use on a plot in Lublin. Following the disposal of the shopping center, that land would no longer be used for extension, and the change in use led to a reappraisal of its value. So actually, I think the reassuring things for us is the context of no change basically in valuation of standing income. And that, I think, is further supported, as Liad mentioned, by the fact we disposed the EUR 340 million of standing income-producing assets during the period of 2019 at or above fair value. So hopefully, that sort of sets the plate for you.

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Operator [18]

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We will now take our next question from the line of Andre Remke.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [19]

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It's Andre from Baader. Also some follow-up questions on the residential strategy. What are the expected yields on costs for developing own residential? And what are the expected yield coming with the valuation at market yields? So what could be a spread-creating NAV? What is your best guess from today's perspective? This is the first question, please.

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [20]

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I think when you see the statistics, so it's not our estimate. When you see the statistics, which we mentioned from all the agencies, initially, in Warsaw today are 5.5% to 6%. And so that's where you see the market. Obviously, when we're developing and if we're looking to densify and to build on top of our shopping centers, we're expecting it to be at least as good, if not better, because part of the cost, the land is already embedded into our project. So we will give more clarity on that when we have -- when we come out with the -- when we started the development or the actual construction, but that is where we see it, at least as good as that.

I think looking at the market and the potential NAV growth, you should look at the difference between, for example, retail, prime retail or office in Warsaw compared to other capitals in the West -- in Western Europe where the gap is much narrower than the gap between residential, which is 5.5% to 6% compared to Western European countries where there is probably no capital that is above 4%. And really, a 4% would probably be a very, very good result. So Germany, Berlin under 3% and London, Paris, whatever. So I think you need to look at the gap between those sectors and then take your own assumption on where you see eventually the Polish market developing once it's institutionalized.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [21]

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Okay. Perfect. Also regarding that, the 900 units you have an option on to acquire, are these newly built? Or are they still under construction? So probably, could you also provide any indication on the potential acquisition yield?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [22]

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I tried to give as much color as I can. We don't give acquisition yields on any transaction, so I apologize for that. This -- we have an option on a building that is being developed. It will be developed in the next 3 years. So at the -- 3 to 4 years, at the end of 2023 is planned completion. It is -- it will be developed in the heart of Warsaw, in one of the best locations that we think possible. And we will buy it -- we have the option to buy it upon completion. So basically, development risk is not with us and only the option to buy it when it's done.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [23]

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Okay. Perfect. And also with regard to managing these new residential units, probably starting with 900 and then over the time, 5,000, will you manage this by your own, so own property management? And what could we expect in terms of outcome on the EBITDA yields or margin? I assume this will be lower than for the existing retail portfolio. Is that the right assumption?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [24]

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So we are -- have a team, a very experienced team on ground in Warsaw, some of which have already dealt in the past with residential. We are considering joint venturing with an experienced partner in the field with a European presence. So that is something that is under consideration. And in addition, setting up our own team. So it's a combination of setting up our own team and then potentially JV-ing with an external party.

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Ryan Lee, Atrium European Real Estate Limited - Group CFO [25]

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One comment, just I'll add to Liad's, specifically to address your EBITDA margin question. You are correct that EBITDA margin in residential is lower than in retail. We believe that if you look at residential-listed peers and their EBITDA margin, we would end up somewhere in between where they are in their current retail. The reason being all of the back-office transactional costs will be spread across the platforms that we already have, and they will not need any incremental cost. So I think that's as close as we can give you at this stage as sort of a view on the EBITDA.

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Andre Remke, Baader-Helvea Equity Research - Co-Head of Equity Research & Equity Analyst [26]

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Okay. That's fair enough. And very last question then on the profitability of this new strategy. Well, if you receive at first glance lower EBITDA, could we assume that this will be compensated by higher rental growth, like-for-like rental growth in this sector rather than in the retail sector? Is this part of the strategy?

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Liad Barzilai, Atrium European Real Estate Limited - Group CEO [27]

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We believe there is -- looking at the statistics going back and we believe looking forward, there is rental growth in the market. It is undeveloped. You see the urbanization trend is strong. Macroeconomic figures. So we believe there will be a strong growth in this sector, especially in Warsaw and in the main cities throughout Poland. So definitely, we think there will be a compensation for that in those markets.

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Operator [28]

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There are no further questions at this time. Please go ahead.

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Richard Sunderland, FTI Consulting LLC - Senior MD of Strategic Communications [29]

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Well, thank you, everyone, for joining the call. As usual, there will be a recording of the call available on the company's website. If you have anything else you wish to ask, then please contact me or Molly whose details are on today's announcement, and we will get back to you. Thank you.

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Operator [30]

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That does conclude our conference for today. Thank you for participating. You may all disconnect. Speakers, please standby.