First Property Group (LSE:FPO) — Interim Results

0:00 Good morning, and welcome to the FIRST PROPERTY GROUP PLC interim results investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged, they can be submitted at any time using the q and a tab situated in the right corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question that it received during the meeting itself. However, the company can review all the questions submitted today and publish responses to works appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to CEO, Ben Habib. Good morning to you,

0:30 sir. Hello?

0:38 Over to you, Ben. Yep. Thank you. Good morning, everyone. Thank you very much for joining this morning to hear our interim results for the six months to 09/30/2024. As people would have surmised, it's been a marginally better half than it has in recent years and certainly last year. We made a profit before tax of just over £1,000,000, having made a loss, of 650 odd thousand in the comparable period last year. The big, transaction, I suppose, that the group had during the first half of the year was the placing of 36,960,000 shares, raising £2,960,000 before, expenses.

1:28 That translated into about 2,770,000, pounds, after expenses. And the gratifying thing about that placing was that 83% of shares were taken up by shareholders. So only a very small number, didn't subscribe. Those who didn't subscribe had their shares bought in equal proportions by Alistair Locke, the chairman of the company, and myself. And so between Alistair and myself, we've made a and myself, a a bigger one, you know, considerable investment in the group during the year, which sends its own message, I hope, to shareholders. The other big transaction in the group was the continued progress that we made in leasing up Blue Tower, where we signed a new lease to a company called TV REPUBLICA.

2:22 It's a Polish equivalent of GB News, for about 3,100 square meters in Blue Tower, which should contribute once it starts paying once that lease starts producing rent, £800,000 per annum to our profit before tax. So that's a really good step, you know, in in in the fortunes of that property in Poland. We do have another 2,500 square meters or so to lease at that property, and we've got interest in that area. In fact, we've got more interest in the building than we have space to lease at the moment. Of course, that may not translate into leases, but it does mean that the office that we, FIRST PROPERTY GROUP, occupy in our own building, will probably need to be vacated by us, and we're going to, hopefully convert what at the moment is gas space, not really suitable for third party tenants into a space for ourselves so that we can, in fact, increase the overall leasable area in the building by doing that. And, you know, so with a bit of a fair win, we should see some good progress again, with Blue Tower.

3:41 The group ended the period, with £5,890,000 of cash. Obviously, a a good infusion from the, placing that we did. Up until the placing, you know, cash was constrained, but I think we're cashed up now for, you know, for the foreseeable to the extent that we can see the foreseeable, for all the needs that we see. Net debt at the end of the period was 18,650,000 versus 22,990,000 at 03/31/2024. So net debt was down. Assets under management, and I'll come back to this when I talk about prospects. Assets under management were down. A number of funds have been selling properties.

4:30 There are still property valuation pressures on property valuation. And the big challenge for the group is, you know, how it repositions itself in the new regulatory environment at least as far as large investors in property are concerned because the asset management model, doesn't really work in the way that it has done, previously. Total assets under management, so that includes the properties that we own ourselves, was 237,000,000 at the end of the period, versus 274,000,000 at 03/31/2024. The weighted average unexpired fund management contract term, which of course becomes less important as our AUM reduces, was three years, two months versus, one year, nine months at the end of 03/31/2024.

5:21 And I think that the the reason for that increase is because the waiting that goes towards contracts that were coming up, coming up the waiting that goes towards, contracts that were coming up to to to their conclusion and the sale of those properties combined with the extension of the life of FPOP opportunities PLC to 2030 has meant that our weighted average unexpired lease unexpired management contract term has gone up. And that really covers the p and l and key operational highlights. The next page, I suppose, we should just quickly look at in the presentation is page eight, which sets out the value of our properties at September 30 both at, versus what they were at March 31 versus, versus what they're their their book values versus what they're worth in the market.

6:29 So it's 09/30/2024. The book value was 45,000,000 versus just over 45,000,000 at March 31, and the market value of the of of of the properties was 50,500,000 versus 52,000,000 at March 31. Associates and investment at book value, where we have a considerable investment as you can see, was valued at 20,660,000 versus 19,900,000, and associates at investment market value was 20,900,000 versus 20,260,000. So not much difference between book value and market values there. I think largely driven by the fact that we have to mark FPOP opportunities PLC to market, in our books as well as obviously pursuant to this calculation.

7:17 Cash balances, as I mentioned, are up for the reasons described. Cash per share is down because, obviously, we issued new shares when we raised the cash. Page nine sets out our debt, which I've already touched on, and the net assets at book value, which were £43,000,000 versus £39,000,000 at March 31, obviously gone up again because we've raised cash. Net assets at market value, 47,000,000 versus 45,000,000 at 03/31/2024. Adjusted net assets per share down because of the new issue of shares principally at 32p a share versus 39p a share at March 31.

8:04 And we had some slight headwinds, as far as marking our properties at the period end to in sterling because sterling strengthened against the euro, and, obviously, we've got many more euro denominated properties as far as the group is concerned than we have sterling denominated properties. Though I don't think that makes the the movement wasn't of a material nature as far as we're concerned. Page 10 of our presentation sets out NAV per share over a protracted period since just before the credit crunch in March 2007 and shows our progress through that period.

8:49 And, obviously, we've been under pressure as interest rates went up after at the end of lockdowns, property values fell. We you know, our NAV has been under pressure. And then the significant drop in NAV per share at September 2024 was really not a function of pressures on property values, but pressure but a result of the new issue of shares, which I've already mentioned. Page 11 gives you what they call an adjusted NAV bridge, shows you how our NAV moved and what were the principal drivers of the change in NAV between March 2024 and September 2024, and I'll let you just have a look at that in your own time.

9:38 Dividend, sadly, you know, we used to be very proud of our dividend history. We had a progressive approach to the payment of dividends, But with the difficulties we've been facing over the last couple of years, we've had to cut our dividend, and we won't be paying a dividend until we can get sustainable profits up to a point where we feel comfortable that the group is back on the rise. So whilst I'm delighted by our swing back into profit, it's come from the trading of a few properties. It's not what you might say, you know, visible income that's going to repeat itself. I suspect that is going to be the mode of the group, more of a mode of the group, than it has been in the past because there's been a, dramatic withdrawal of institutional investors from the commercial property market, partly to do with regulations and partly to do with what's obviously been going on in the property market. But the regulatory environment has been bad for property investment pension funds that used to invest 70 to 80% of their funds in in UK shares with about five to 10% in property, now principally invested in corporate and government bonds with investment in shares down on average to

11:10 five to 10% at most or even lower. And property is, you know, a rounding error, frankly, nowadays in pension funds, and the same applies to insurance companies. So, you know, we're not expecting large mandates from pension schemes like we had in the past because of that change in attitude from, pension investors, you know, who were our large clients. So to the extent that we do deals to the extent that we do deals going for get new mandates in our asset management division, that's going to come, I think, by finding special property situations and then presenting those property situations to investors, with whom we do business, mostly high net worth individuals and family offices, I think, going forward, investing our own cash alongside them.

12:07 And we're looking at some interesting deals in The UK. I think I can't say for the first time, but, you know, it feels like for the first time in a long time, the market's beginning to look interesting. The debt market in The UK is still rubbish, as it is in Poland. I'd I'd say I think for many years, the Polish debt market was better than The UK one, and shareholders who've held shares for a long time would would would recall me having said that for many years that we could get better loan terms in Poland than we could in The UK. And the Polish banks did, you know, incredibly well after the credit crunch in 2008 because they had been insulated from it. But this time around, the rise in interest rates in The US, which doesn't look I know interest rates have come down a bit, but the basic, pull for capital back into The United States Of America because of its higher interest rate.

13:06 That pull, was dramatic for Polish, and indeed, I think all developing economies in the world. You know, there was a withdrawal of capital, a withdrawal of bank appetite to lend against commercial property together with all the other pressures that are on, banks anyway, you know, in the developed and developing world.

13:29 So Polish banks really not keen on lending. We've been able to refinance our positions in Poland when refinancings come up. You know, when loans mature, we've been able to hold our positions. But the holding of of our position is really literally just a a holding pattern. The banks don't really want to be in commercial property. They're rolling their positions because it's a sensible thing to do. And even though our LTVs, our loan to values are quite low, the combination of higher interest rates, higher margins, and higher debt amortization rates mean that it's very difficult to generate free cash of Polish investments, and the ones that we own.

14:15 So Poland, I think, still has a way to go compared to The UK. Though interestingly, and it's hot off the press, and it's entirely anecdotal, and I would not rely on it, but I'm gonna mention it anyway. We're beginning to see I saw some extraordinarily cheaply priced property in prime Warsaw, last week, and I was pinching myself when I was looking at the pricing because even without debt, given the quality of the assets that I was looking at, you know, one would need to consider whether we can raise equity entirely to invest in those assets. So I'm gonna be looking I'm off to Warsaw next week, and I'm gonna be looking, you know, very closely at what kind of deals are available in Poland again.

15:04 I'm hoping, and I've been hoping for a while, but I'm hoping that as interest rates in The US reduce and in Europe reduce, you see a resurgence of interest in investing in property in Poland. But we're traveling on the assumption that that doesn't happen doesn't happen, and we're making our investment decisions on that basis.

15:29 So I think that broadly covers the market and covers where, you know, we are as a company. So I think we'll go straight to questions, which is probably more interesting, I think, for shareholders than hearing me rabbit on. Perfect. Thank you very much for the presentation. Ladies and gentlemen, please do continue to submit your questions, and you can do so just by using the q and a tab, which is situated on the top right hand corner of your screen. Just for the company to take a few moments through the questions that have been submitted today, 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 in by your investor dashboards. As you can see, we have received a number of questions throughout today's presentation. Ben, if I could just hand over to you to read through those questions. I'll pick up at the end. So the first question is I'll just read it out. The IRR of anyone investing in FPO over the last ten years is bound to be negative, and the share price is now at a large discount to NAV. If the directors don't have a radical plan to bring matters to a conclusion, would they support a vote at an EGM or AGM to seek a means of liquidating the company's assets and making distribution to shareholders?

16:35 If we thought that it made sense to liquidate the assets and we could do so at values that, were close to and we could do so pretty instantly, and we could do so close to the values at which we hold these assets given that we would be putting a for sale sign on all our properties. We would have seriously considered it, but the reality of it is that given that we own properties, the the the the significant exposure that that FPOP has, even though AUM may be in The UK, the exposure that we have in terms of our ownership of properties is in Poland. And given that that market is so illiquid at the moment, it would be commercial suicide for us to basically put a for sale sign on ourselves and to exit the properties, particularly with the kind of vacancy that we have in Blue Tower and Gudinia at the moment, which we're still trying to work through.

17:36 So I don't see that as a viable option for the company at the moment. We wouldn't need shareholders to call an EGM or AGM. If we thought that was a sensible way to go, we would have done it ourselves. The sensible way to go is for us to tread water, hold our positions, make sure we're leasing up as best we can, and the real Polish economy is not that bad as you would have seen in the presentation. GDP growth is, you know, this year should be 2.9%. Unemployment is pretty low. Inflation is always a threat, but that should see through our ability to hold properties. And, and and the sensible approach is to tread water until the capital markets recover.

18:24 And when the capital markets recover, then hopefully, the gap between NAV and our share price will narrow anyway, and profits will increase and free cash will become easier to get out of our properties in Poland because lending terms will become less onerous, and things will improve generally. At that point, I don't suppose we'll get questions like the one we just had about winding up the company. But so, you know, that's my answer to that question.

18:54 Currently, FIRST PROPERTY is a very poor investment for me with very substantial losses compared to historic share prices. I think the MD's remuneration, I I I imagine you mean CEO, that's me, should reflect the poor performance of the company. I asked Ben Habib to explain when he will reduce his salary to reflect the poor state of the company's governance. Well, you may have picked up in the RNS statement that we made earlier in the year that we've reduced cost by £650,000 a year. A significant proportion of that reduction was me volunteering a salary reduction, which I 15% salary reduction, which I've taken. I've also, as I mentioned, invested significantly in the group as a result of the placing And and and, you know, we'll go and and, you know, I think that shows a commitment from me to the group.

19:49 How much of the fund's value is owned by FIRST PROPERTY? Well, that's all set out in our, interim announcement. The precise proportions that are owned by FIRST PROPERTY GROUP are all set out in our interim announcement. Sorry. There are a few questions coming in. Yeah. That's I've explained. Yep. That's that one. What is the central cost per square meter? I'll have to get back to you on that. I don't have that immediately in my head in my head. What is the forecast for central cost going forward? I assume you mean overhead cost for the group. Well, that's a forward looking statement. We would need to consider whether we're able to answer that.

20:37 The new lease is a fifteen year lease to TV REPUBLICA in in in Warsaw. Sorry. Question is, can you provide more details on the new lease in Warsaw? It's a fifteen year lease, and it aligns perfectly with our strategy, which is to lease up property as fast as possible. Next question. With no dividend declared, what is the company's approach to shareholder returns in the short to medium term? Well, the the the best we can do for shareholder returns is to build the company's earning streams up and for the share price to recognize that our earning streams are recovering, that value is recovering, and for this, you know, for that to then benefit shareholders. As the share price goes up, hopefully, shareholders will be, you know, pleased.

21:30 I think that's all the questions. Yes. Is. And thank you very much for answering those questions. Of course, company can review all the questions submitted today, and we will publish out the responses on the investor me company platform. Just before redirecting investors to provide you with their feedback, you know, it's particularly important to the company, Ben, could I just ask you for a few closing comments? Well, thank you very much everyone for listening in. I do think things are bottoming bottoming out from the awful few years we've had. We are fully committed to rebuilding the value of the company. I think we have the skill set to do it. Of course, we need a fair wind. Alpha can never make up completely for beta. Beta's been against us, but we are using as much alpha as we possibly can to get back to where we were, and we will continue to strive for the benefit of shareholders.

22:24 Thank you very much, everyone. Thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This then take a few moments complete, but I'm sure we're greatly valued by the company. On behalf of the management team of FIRST PROPERTY GROUP PLC, we'd like to thank you for attending today's presentation, and good morning to you all.