First Property Group (LSE:FPO) — Annual General Meeting

0:02 Good morning, ladies and gentlemen, and welcome to the FIRST PROPERTY GROUP PLC Annual General Meeting. Throughout this presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type your question and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate to do so. These will be available via your Investor Meet company dashboard. I'd also like to remind you that the presentation is being recorded. I'd now like to

0:34 hand you over to Ben Habib, CEO George Bigby, CFO Jeremy Barques, Director of Business Development Laura James, Group Interim Group Finance Director and Jill Aubrey, Company Secretary, along with Peter Moon, NED. Ben, good morning. Good morning. Well, ladies and gentlemen, thank you very much for joining us today at our Annual General Meeting. I'd like to welcome all shareholders who are watching this Annual General Meeting via the live presentation. My name is Ben Habib, and I am the company's Chief Executive. I shall be chairing the meeting, and I would like to introduce you to my colleagues, George Ringfield Digby, who is currently Finance Director, but will be stepping down as FD at the end of this meeting Laura James, who will be taking over as Interim Finance Director with effect from the end of this meeting Jill Aubrey, who you've already heard is company secretary and Jeremy Barker, who is Director of Business Development.

1:35 The formal matters at this meeting relate to the report and accounts for the year the 03/31/2020. With the consent of those shareholders present, I would like to take the notice of the meeting as set out on Pages 65 to 68 of the report and accounts as read. Thank you. The company's shareholders have been able to submit questions in advance of this meeting and also have the opportunity to submit questions during the meeting via the live presentation. All questions and answers will be dealt with at the end of the meeting once the formal business is concluded. I declare that the quorum required by the articles of association of the company is present and that the meeting is therefore properly constituted. Thank you. Due to the somewhat constrained nature of the proceedings at this meeting and, first, to ensure that shareholder intentions are accurately reflected, each resolution put to the vote shall be decided by way of a poll vote.

2:29 Resolution number one, I now propose that the report of the directors and the audited accounts for the year ended 03/31/2020 now submitted to this meeting be approved and adopted. As indicated at the start of this meeting, proxy votes have already been collated. I therefore declare the poll closed. The results of the poll show 44,285,922 votes in favor, 16,500 votes against, and 661,700 abstentions. I can therefore declare the resolution carried as an ordinary resolution. I now propose resolution number two to declare and approve a final dividend of 1.22p per ordinary share for the financial year ending 03/31/2020.

3:17 I declare the poll closed on Resolution two. The results of the poll show 44,964,122 votes in favor, no votes against and no abstentions. I can therefore declare the resolution carried as an ordinary resolution. Resolution three, and I propose resolution number three that Laura James be appointed as the Director of the company. I declare the poll closed on resolution number three. The results of the poll showed 44,908,346 votes in favor, 3,219 votes against, and 52,557 abstentions. I can therefore declare the resolution carried as an ordinary resolution. I now propose resolution number four that Alzuloc be reappointed as a Director of the company.

4:04 I declare the poll closed on resolution number four. The results of the poll show 44,064,080 votes in favor, 651,719 votes against, and 248,323 abstentions. I can therefore declare the resolution carried as an ordinary resolution. Resolution number five. I now propose resolution number five that Haynes Watt be appointed auditors of the company to hold office from the conclusion of this meeting until the conclusion of the next Annual General Meeting of the company at which accounts are laid. I declare the poll closed on Resolution No. Five. The results of the poll show 44,958,281 votes in favor, no votes against and 5,841 abstentions.

4:54 I can therefore declare the resolution carried as an ordinary resolution. And I propose resolution number six, that the directors be authorized to fix the remuneration of the auditors. I declare the poll closed on resolution number six. The results of the poll show 44,315,622 votes in favor, 648,500 votes against and no abstentions. I can therefore declare resolution the resolution carried as an ordinary resolution. Resolution number seven, as set out in full in the notice of this meeting, is an ordinary resolution to authorize the directors to allot shares and or grant rights to subscribe for or to convert any security into shares in the amount set out in the resolution.

5:40 And I propose that the directors be authorized to allot shares and or grant rights to subscribe for or to convert securities in accordance with the terms of resolution number seven. I declare the poll closed on resolution number seven. The results of the poll show 44,753,074 votes in favor, 197,848 votes against and 13,200 abstentions. I can therefore declare the resolution carried as an ordinary resolution. Resolution number eight, as set out in full in the notice of this meeting, is a special resolution to authorize the directors to disapply statutory preemption rights in respect of new allotments of shares and the sale of treasury shares in the amount set out in the resolution.

6:26 And I propose that the directors be authorized in accordance with the terms of Resolution Number eight. I declare the poll closed on Resolution Number eight. The results of the poll show 41,033,569 votes in favor, 3,930,553 votes against and no abstentions. I can therefore declare the resolution carries a special resolution. Resolution number nine, as set out in full on the notice of this meeting, is a special resolution to authorize the directors to purchase on behalf of the company its own shares in accordance with the terms of Resolution number nine. I now propose that the directors be authorized in accordance with the terms of Resolution number nine. I declare the poll closed on Resolution number nine. The results of the poll show 44,890,766 votes in favor, 60,156 votes against and 13,200 abstentions.

7:19 I can therefore declare the resolution carried as a special resolution. Ladies and gentlemen, that concludes the formal business of the Annual General Meeting. And I would like to thank those who are present for attending and those who are watching this meeting via the live presentation. I will now read a statement that will be made public by way of a regulatory new service. Sorry, it already has been made public by way of a regulatory new service. And I'll just read it to you. So it goes as follows. FIRST PROPERTY GROUP PLC, the property fund manager and investor with operations in The United Kingdom and Central Europe will hold its Annual General Meeting today at twelve noon. The meeting will be closed be a closed meeting and will be chaired by Ben Habib, Chief Executive, who will make the following statement.

8:11 I am pleased to report that the group continues to perform in accordance with management's expectations. Group cash as at twenty first October twenty first September twenty twenty calculated post deduction of the final dividend of 1,350,000 amounted to £21,400,000 This equates to 19.4p per share. Third party funds under management stood at €564,000,000 as of 08/31/2020. At 03/31/2020, that was €567,000,000 Uninvested cash commitments to these funds amounted to some £80,000,000 Total funds under management including group properties amounted to $620,000,000 as at 08/31/2020. These were $623,000,000 as at 03/31/2019.

8:59 Average rent collection rates for the five months from the end of March twenty twenty after adjusting for concessions made to tenants which requested to pay rent monthly and for deferrals agreed are as follows: the eight direct owned properties in Poland 9693% in Romania Properties held in funds managed by FPOM,

9:20 94% in The UK, 96% in Poland and 95% in Romania. These collections rates bear testimony not just to our proactive approach to asset management, but also our collection our property selection. Interim results for the six months ending 09/30/2020 are scheduled to be announced on 11/26/2020. And with that, I end the formal business of the meeting. And I'm to hand over to Jeremy Barkis, who has done a small who has prepared a small presentation that follows really the presentation that we gave of the results were first announced back in June.

10:08 And we'll take questions and answers after Jeremy has made this short presentation. Over to you, Jeremy. Thank you, Ben. Yes. This presentation is simply an abridged version of the preliminary results presentation, and it really focuses on what the company does. So I'm hoping to drop through it quickly.

10:33 Page four on your screens now shows the two divisions of the company. The fund management division, which as at the March 31 had 567,000,000 of assets under management, as we've just, said in the AUM in the in the AGM statement now has 564,000,000 of assets, 12 funds, fee income running at 3,130,000 a year, excluding the profit share that we earned from FPOP offices, which we think is gonna be in the region of $800 this year, but we'll come to that. And, obviously, it's next year regulated and AIFMD approved company. And then there are the eight properties that we own directly of which six of those are in Poland, two are in Romania. They have a market value of 56,000,000. And if you deduct the debt of 42,000,000 secured against them, then we've got $4,014,300,000 of the group's equity invested in those eight properties.

11:25 In addition, we hold shares in 10 of the 12 funds that we manage, and the market value of those is 27,000,000.

11:35 The highlights as at now, we still have significant cash reserves, 21,400,000 after deducting the final dividend, which is due to be paid on the twenty fifth, of September. And uninvested cash commitments to our funds of a further of of of 80,000,000, meaning that we are extremely well positioned to not only weather the COVID crisis, but also make judicial investments as they appear. And we are waiting for those opportunities to emerge. Third party AUM, as already mentioned, 564,000,000, which has a corresponding waste average unexpired fund management contract term for four years and seven months.

12:22 And the final dividend has been maintained. It's worth reiterating that since we first paid a dividend in 2003, we have never reduced it. We have only ever either increased it or maintained it, a record we're proud of and we expect and hope to continue. In a similar vein, we're extremely proud of the growth in our net assets. And if you look at this slide six, you can see that we've grown the net assets from under 10p a share to, as at the March 31, 55p a share over the last, several years. And that net asset excludes any value at all for our fund management business, which has got 564,000,000 of third party funds under management.

13:14 Bit more of a detailed breakdown of how that number is calculated or net assets are calculated or really what the movement is from last time. So that 55p, you can see, has come down from 59.65 at the 09/30/2019. And you can see that the revaluation was the main reason for that 5,820,000 of, downwards revaluation is essentially the principal explanation for the NAV per share coming down.

13:52 I've already mentioned our dividend, and this just puts that puts them into the picture, the words I've already said. Returning first to our fund management business, the, the line shows the trajectory of our AUM growth. The slight reduction over the last year is mainly the result of the sale of some assets in The UK, but we would hope to resume our upward trend and that the fee income that is associated with that AUM is shown in the bars below of which the the gray bit represents performance fees and the orange bit represents the recurring contractual fund management fees, which is running at an annualized rate of 3,130,000 a year.

14:49 If and we're expecting around eight or certainly, we're studying at that time of our prelims. We were expecting that the contribution from FPO offices would run-in a region of about a further 800 for the year, and that would be categorized as, a performance fee because it's a variable fee based upon our share of the profits.

15:14 This gives a bit of a breakdown of where our third party funds are deployed. As you can see, the majority of it is in The UK, and the majority of it is in two funds, FPO offices and the shipbuilding industries pension scheme, and the majority of our clients are pension schemes. This gives a bit of a breakdown of the asset split, and you can see we've had a question actually that's come in about how much retail exposure we have. Well, there's retail and there's retail. So you can see that in terms of retail warehousing, we've got a 100 odd million of retail warehousing. In our view, this is the most resilient of, the retail assets. It's typically rents are low, 10 to 12 quarter square foot typically for the properties that we own, and they're good for selling bulky goods. They are less likely to be disintermediated by the Internet than other forms of retailing.

16:13 Supermarkets, obviously, food retailing, everybody's got a week, and we got a 72,000,000 in that category or 13%. And then shopping centers, is perhaps where this question is focused on, we have 10% of our third of our third party AUM in shopping centers.

16:37 And then the rent collection rate at the bottom, which has already been mentioned in the, AGM statement. 94% in The UK, 96% in Poland, and 95% in The Mainland, a record that we're proud of.

16:54 And then just finally, selection of our clients, Willis Towers Watson, Oxford and Cambridge college colleges and, a couple of family offices. And, typically, our management fees are typically 1% of gross assets. Typically charge a 20% performance fee over an IRR of 15%. The exception is Airport Phoenix, which has a fixed management fee of $360 $660,000 per annum. Moving on to the other side of our business, the group properties. There are this graph the bar chart on the left shows the two contributors to group properties. On the one hand, we have the eight direct prop eight properties that we own directly represented by the purple bar. And then on the other hand, we have the shares in 10 of the 12 funds that we manage represented by the gray bar.

17:48 And on the right hand side, you can see a pie chart which shows the corresponding equity that we have invested to generate those returns. This next slide shows you the split of just the eight properties that we own directly, which makes up, 14,300,000 of equity owned by the group. So it's all in Poland or Romania, but mostly in Poland, 88% in Poland. And actually, as you can see from the pie chart on the right, it's mostly 4532% respectively in two office buildings in Poland. This was the contribution that those properties, those eight properties contributed in the year ended March 31, 5,700,000.

18:45 We've since sold c h eight. And so if, you were to exclude c h eight from these numbers, the top row would not read 5,100,000. It would read 4,000,000. And our rent collection here is also high at 96 and 93 percent respectively in Poland and Romania. There's a picture of our two largest properties, the two offices in Ferdinand and one in Warsaw. And there's a picture of the remain of the other six properties that make up 22% by value of our eight group properties. And these are the, top 10 tenants associated with those eight properties.

19:34 And then finally, these are the shareholdings that we have in 10 of the 12 funds managed by FPOM, which have a current market value of 27,000,000 as of the March 31.

19:50 So that's a very quick drop through. A copy of this presentation will be saved in the investor meet company, login so you can peruse it at your leisure. But a reminder of why we think it's a good investment. It's an extremely experienced and nimble management team with a fantastic track record. 22.7% growth in net assets including dividends paid per annum over the last ten years.

20:22 Their earnings are reliable. They are diversified from income streams in both The UK and Poland and Romania. The cash generation is strong. We've got a progressive dividend policy, and we've only ever increased it or maintained the dividend. We've got a natural growth in net assets from the high return on equity from the eight directly owned group properties. But we should also be able to grow our fund management business because all of our clients have had good experiences. And we've got 20,000,000 of cash on the balance sheet, coupled with 80,000,000 of committed but as yet uninvested client funds with which to make new investments.

21:08 We're operation operationally geared. We've got plenty of capacity to grow the business. And finally, we are a diversified, as I've already mentioned, business with operations in The UK, Poland, and and Romania. All three, well, certainly, and Romania in particular, are performing well economically. Poland and Romania are both expected to resume levels of economic growth, 2019 levels of economic growth, Poland by the end of twenty twenty one and Romania very shortly thereafter. So that mix of jurisdictions provides a natural hedge. As I mentioned, we've got quite a full appendix, which is basically the other slides from the prelims presentation put into the back. But if anyone has got any questions, please do ask them. That's fantastic.

22:00 Ben, Jeremy, thank you very much. Therefore, obviously, through the AGM and providing investors the opportunity to attend virtually and also running through the presentation. Do please continue to submit your questions via the Q and A tab on the right hand corner of your screen. Just click on Q and A, type your question and press send, and that will come straight through to the management team. I'd like to remind you that recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your investor dashboard on the Investor Meet company platform post this presentation. But lastly, perhaps before I hand back to the FIRST PROPERTY team, I'd like to remind you that your feedback is important to the company. Do please take a couple of minutes to complete that. Immediately after the presentation has ended, you'll be redirected to the opportunity to provide your feedback in order the company can better understand your views and expectations.

22:49 As soon as the webinar finishes, just wait a couple of seconds, and it will be in front of you. Ben, Jeremy, and I guess the rest of the team, before we look at, some of the questions that are coming during the event, I wanted to pose a couple we had pre submitted by investors today. Perhaps I could address these to both of you. The first one we've had, and you have touched on it slightly, you have a considerable cash reserve. Will you be holding on to it during the current uncertainties? Or are you looking to invest now? Okay. So I will take the questions, if I may. We've got considerable cash reserve. We are going to hold on to them, not because we need them for any particular reason other than we think we can invest them extremely well in what is bound to be a volatile environment over the next few months. So we will be holding on to that cash. We won't be doing any special dividend and we should be seeking to invest it in property.

23:41 I've got another question here that was pre submitted, which was what are you seeing in the retail sector and how much exposure do we have? Well, Jeremy has just been through what we have in the retail sector. Most of it is retail warehousing and supermarkets. So, mean, supermarkets have actually done quite well in the recent pandemic. Retail warehousing sector hasn't been that badly affected. Shopping centers and high street retail are really in the eye of the storm. And finally, our centers have done all right as well. We have a yardstick of buying what we call kind of lowest common denominator properties. You know, low rent per square foot, low m and e, you know, simple m and e, not complex buildings, cost effective to run, simple to operate, keeping the cost for tenants down. And so we've been and we've we've been doing this for many years. You know, the Internet is not a new threat to our business. The pandemic has kind of, you know, put that into stark relief, but we've been aware of it, and we've been, catering for the ever increasing inexorable sort of, you know, move towards online retailing from physical retailing.

25:00 So we've done alright, and that's evidenced in the collection rates that Jeremy mentioned and I mentioned earlier on as well.

25:10 Turning to questions. There's one from Marwan, which is working from home becomes the new normal. How much adversely affected will FPOC be in The UK? Well, it remains to be determined to what extent, if any, working from home becomes the new normal. I don't like the word new normal. It suggests that we've been stuck in a status for the last god knows how many years. There's no such thing as normal. Life keeps changing. You know, we had a massive credit crunch in 2008. We managed to navigate that. We've had massive changes to the way people do business because of the Internet. We managed to circumnavigate that. We've obviously had the vote for Brexit, which put, you know, quite a large proportion of the population into a bit of a tiz. Those are people who didn't have faith in The United Kingdom. We circumnavigated that, and we've made profit out of it.

26:00 We have full faith in The UK going forward.

26:03 And whatever happens in the property market, I'm pretty confident we'll circumnavigate, you know, what's thrown at us. Nothing is ever wholly bleak. There are always opportunities in bleakness, and we will seek to find them out. The next question is with regards to fund management, what trends are you seeing inflow, outflow funds? Well, all our funds are closed ended funds. We raised them for specified periods. They're not open ended, so we don't have flows in the traditional sense. We have published the various expiry dates of our funds, and the first kind of major expiry that comes up is UK PPP, which is in February 2022. And we are taking steps already to reposition that fund either to extend its life with the new complexion of shareholders or if we're unable to do that to sell the properties during the course of 2021.

27:01 But I suspect we'll restructure that plan and it'll go on producing what has been a fantastic income stream for its shareholders ever since we set it up in 2010. We have a question from Stephen G. Do you think the UK government would allow planning changes for office blocks? Well, the UK government has already brought in, permitted development rights as I'm sure Stephen is aware, and they've expanded those now to include the knockdown of existing buildings and to include, adding two stories to existing buildings. Some of the conditions associated with the new regulations are not ideal in that they take you almost back to a kind of planning application position. But, you know, the pressure is clearly on for development. We need development now not just to house people, but we need development now to keep the economy going. You know? And I think it's not lost on the government that the best way to get the economy going is for construction to be on its front foot, and the best way to achieve that is not to have a ridiculously tight planning system, which, by the way, was a much more sensible planning permission in the early nineties and got progressively more turgid under Tony Blair.

28:17 In fact, I think if there's any government if there was a kind of trend in government policies that would see The United Kingdom right, what they need to do is just review everything Tony Blair did and reverse it, including, all all his moves on planning regulations. I've got one from David p. Good afternoon. The share price has been on a downward trajectory since early twenty eighteen. This is not just a result of Brexit or COVID-nineteen. So why do you think the market is assigning such a low valuation to the company's future prospects? I'm not aware of it having been on the down since early twenty eighteen. It probably peaked at about 64 p then, did it, Jeremy? And after the announcement of the purchase of Crackle Business Park or Eximius, which was July 2018.

29:07 '17, and then we restructured it and brought in the third party shareholders in July 2018. Well, I've always, I mean, as far as I'm concerned, as chief executive, it's not my job to really look at the share price. My job is to drive shareholder value, and we have driven shareholder value. It's also my job to make the market aware of our current status and our prospects, and I think we do that as transparently as any company, and we do it to the best of our ability. So why the share price is down is beyond me. I think there is a move away generally from smaller companies. You know, we've now got some mammoth companies in the world that just soak up institutional capital. So institutions are less and less interested in smaller companies.

29:57 Regulations have made it more difficult for companies to research for for brokers to research smaller companies. Our shares have therefore become less liquid. You know, one of the things that we should, I think, be injecting once we leave the European Union properly is some of the more constraining regulations that emanate from the EU. MiFID two, for example, people say that was drafted in The UK, but I think we should eject it. And, you know, that might free up the ability for research to be prepared, you know, the way that it used to be prepared so that people can actually get some info on companies. I don't think we still publish any report on our website, do we, for research? Do we print the do we put the Arden research report on our website? Far as I'm aware, we're not allowed to do We're still not allowed to do that.

30:46 And Arden produced a research report, you know, but actually, we're not allowed to disseminate it. So, we've been pushing Arden to allow us to put it on our website, but they've got some kind of regulatory hurdle which prevents them from doing it. Seems, utterly absurd to me. Any other questions? I think you've pretty much covered everything off there, Ben, actually. Just having a quick scan through. Yeah. It looks like you have actually covered covered everything off. Do please continue to submit your questions. If any further questions come through, the company have the ability to review those questions post the event and publish those answers where it's appropriate to do so. Ben, just before I redirect investors to to give you some feedback, perhaps I could just ask you just in a couple of words to wrap up, please.

31:35 Yeah. Well, sorry. We've got another question in, another set of questions. Do you think selling more property will help highlight the NAV? I mean, I we're not in the business of selling more property, but virtually, you know, if you look at the share price, which is 32 p today, I think $2.03. Yeah. So two thirds of nearly two thirds of our share price is accounted for by cash. I don't think selling more property is going to help our NAV. The the challenge for the management team now is to buy property and to buy it well. So I mean, comments. We have a very strong balance sheet as a result of the large amount of cash we carry. The properties that we own are doing what they said they would do on the TIN, which is produce a good sustainable high income return, and we're actually collecting that as a percentage level, which is markedly higher than the market average.

32:32 So I think we're set fair. What will determine how we perform over the next few months and years is the depth of the pandemic, and its economic consequences as well as the buoyancy given to the market, by ultra low interest rates and continued QE. We've got two sort of forces that are opposing each other. We've got economic the, you know, the gravitational pull of economic recession, but we've got the sort of buoyant effect of, ultra loose monetary policy fighting that. And where where that equation settles remains to be seen. We don't think the economic impact is in property prices yet because the furlough scheme and the bounce back loans and all of that sort of thing that the government's been doing is pumping money into the market.

33:24 Once that stimulus begins to be withdrawn, I think economic reality is going to hit. And as Marwin was kind of indicating, we'll probably see vacancy rates and offices rise. We'll probably see, rents drop across all sectors. And I mean, it's quite possible that values will go up anyway because of the ultra loose monetary policy, but I think there will be a buying opportunity sometime in the early part of next year when the worst effects of the pandemic are gone, fear of a massive second resurgence of of the pandemic dissipate, people get on their front foot again, they start, know, they start kick starting the economy, and I you know, we wanna get in just before we wanna get in and buy just before all of that good news happens.

34:18 And so I think, you know, I'm looking to the future with excitement. As ever, we're well positioned. We were well positioned going to the credit crunch in 2008 and we're well positioned again this time around. I can't say it's all brilliant foresight, but it just happens to have been the case. That's fantastic. Ben, Jeremy, thank you very much, and thank you also to the board of FIRST PROPERTY for hosting this event today for investors. Could I ask investors not to close the session as you will be automatically redirected for that opportunity to provide feedback? As soon as the webinar ends, if you just wait a couple of seconds, if you've accessed the meeting via our website, the feedback form will appear. If not and you've accessed it via the email link, you'll be asked just to log in. If you wouldn't mind just logging in, it just takes a couple of seconds to provide the company's feedback. It is very much appreciated indeed.

35:10 And I think on that basis, thank you very much to FIRST PROPERTY GROUP PLC, and thank you for attending today's presentation. That concludes today's event. Thank you.