Quarterly business update for three months to 30th September 2022
Peter Pecník, Group CFO, comments on the financial results for the six months ended on 30th June 2022 and quarterly business update for three months to 30th September 2022:
We all have seen unprecedented turbulences across markets in the first half of the year 2022 that continued throughout the third quarter of 2022. War in the Ukraine, accelerating inflation in Europe and the US, rising interest rate and depreciation of foreign currencies in countries where we operate were the most critical events having impact on the economy and our operations.
Despite these macroeconomic challenges we have achieved construction progress on all our development sites, particularly Forest Tower, which has reached its completion in March 2022, as well as projects Nove Apollo and Varso Tower, the latter one having been completed in July 2022.
Thanks to construction accomplishments as well as commercialisation of previously completed projects we were able to generate revaluation gain on our investment property of almost €90 million. Fair value of our income producing portfolio has more than doubled as five projects have been finalised since June 2021. As such, net operating income from investment property increased considerably to €35.6 million and contributed positively, along with revaluation gain, to achieving net profit for the period of €36.2 million. Moreover, leasing contracts with annual passing rent over €15 million have been signed in the first half of the year 2022 which shall reflect in future rental income.
On the other hand, interest expense and foreign exchange losses caused a decrease in net profit. Interest expense for the first half of 2022 increased by €8.6 million compared to prior half year, however the increase was in line with the growth of total indebtedness. Weakening of currencies of the countries where we operate (mainly GBP, HUF and PLN against EUR) led to foreign exchange rate loss of EUR 63 million.
In terms of the balance sheet strength, the company ended the first half of the year 2022 with almost €200 million cash balance, total assets of €4.12 billion and NAV of €1,883 million. HB Reavis increased its level of debt to €2.04 billion with gross debt leverage of 49.6% which was below group’s covenant levels. Temporarily increased debt leverage was expected due to increased share of income producing assets (with higher leverage) on total assets and their intended separation into a new structure which was announced earlier this year.
Quarterly business update for three months to 30th September 2022
Executive Management changes
Marcel Sedlak and Steven Skinner have been appointed to the Executive Management. Prior to the promotion Marcel has held the position of the country CEO in Germany and in his new role will oversee primarily our commercialization activities. Marcel’s previous role has been taken over by Robert Kubinsky who will be country CEO in Germany and is transiting to Berlin from Hungary. Steven will supervise the area of product development and design for all the countries where HB Reavis operates and will continue with his responsibilities as CEO for the UK market.
The current composition of the Executive Management and Senior Management will allow us to deliver ambitious goals thanks to the expertise and knowledge of its members, who bring direct experience from Poland, Germany and the UK, where the company focuses its efforts.
We have expanded our presence in Berlin, Germany by having successfully completed the two acquisitions. We have also managed to strengthen our pipeline in Warsaw, Poland as we have entered into a joint venture arrangement to develop a new project Port Praski.
Our buildings continued to attract interest from various tenants. During the third quarter of 2022 we have managed to lease more than 14 400 sq m of GLA. Overall, we have signed close to 74 500 sq m of GLA in the first three quarters of 2022 with annual passing rent of over €18 million.
Completions and development progress
HB Reavis has reached a big milestone in July 2022, when Varso Tower, the tallest building in the EU, has been completed with its first tenants moving in in September 2022. Its quality was recognised by independent BREEAM and WELL auditors, who certified the building as Outstanding and Gold, respectively. Varso Tower is the final showpiece of our award-winning Varso Place, a mixed-use development offering offices, a hotel, an innovation hub and retail options. For more information on Varso Tower completion click here.
The construction works on Nove Apollo project in Bratislava, Slovakia and Worship in London, UK are continuing at a quick pace, with first of the mentioned buildings expecting to be opened in March 2023. Construction works on our PLTFRM project in Berlin has begun in the fourth quarter of 2022.
During the third quarter of 2022, HB Reavis has drawn down total of €132.6 million of external bank loan financing, of which €81.5 million was linked to acquisition of the two projects in Berlin.
Regarding capital markets presence, we have been active especially on Slovak capital markets as we have managed to issue a new tranche of €46.16 million bonds maturing in 2027.
Our bonds buyback programmes in Slovakia and Czechia continued during the third quarter and should continue in the fourth quarter as well.
At the end of the quarter, the Group had €1.835 billion of outstanding bank financing along with €362.8 million of bond financing.
As previously announced, we have decided to divest Lodz plot in Poland. The transaction is still pending and is expected to be finalised later this year.
HB Reavis portfolio
Income producing portfolio
As of the end of the third quarter, the Group held an income producing portfolio of 11 office and 1 retail properties with a total GLA of 547 thousand sq m across five countries with annual operating income at full occupancy of €137 million. The portfolio includes the following projects:
- Bloom Clerkenwell in London, United Kingdom
- DSTRCT in Berlin, Germany
- Agora Tower and Agora Hub in Budapest, Hungary
- Nivy Mall, Nivy Tower, Apollo BC II in Bratislava, Slovakia
- Varso Tower, Varso 1, Varso 2, Forest Campus and Forest Tower in Warsaw, Poland
The market value of the portfolio reached €2.55 billion as of 30 June 2022 based on independent valuations.
Projects under construction
Projects currently in the phase of construction account for 69 thousand sq m of future GLA in two buildings and estimated future gross development value of around €459 million spread across two capital cities:
We are proud to announce, that we have received the award for the Office Developer of the Year in Central and Eastern Europe at Eurobuild CEE Awards gala in Warsaw, Poland. We are proud to be at the forefront of the evolution of work spaces and services that make office work better, healthier and more efficient, which was appreciated by the Eurobuild Awards jury.
Our staple projects have achieved some awards for us, too. Varso Tower has won the Office building of the year in Prime Property Prize gala in Warsaw and we have been recognised as ASB developer of the year in the retail segment for our Nivy Mall project in Bratislava.
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