Grand City Properties S.A. (Symbol:GYC) published its annual financial report for 2020 on the 15th of March 2021. The company recorded robust figures, which were impacted by high disposal activity during the year, as well as offset by acquisitions, primarily in the second half of the year. As acquisitions in the first half of 2020 were muted due to the uncertainties caused by the pandemic, the disposal effect on top line rental income was not fully offset by acquisitions. This resulted in a decrease of 3% in net rental income.
On a like-for-like basis, taking into account assets held throughout the whole year, net rent grew by 1.8%, which translated as 0.9% from in-place rental growth and 0.9% from occupancy growth. This figure underlines the strong growth potential of the portfolio. It was offset by GCP’s decision to delay rent increases in solidarity with its tenants during the height of the coronavirus lockdown, as well as by the Berlin rental cap.
While top-line rent decreased slightly the company was able to improve its efficiency, both operational and financial. It reported an adjusted EBITDA, a key operational performance metric, of €300 million, which was up 1% compared to the previous year. FFO I, which shows the recurring earnings of a real estate company, increased by 2%, to €182 million.
GCP also reported the new ERPA NAV metrics for the first time. These metrics represent the net asset value of the company in different scenarios. Grand City Properties considers the EPRA Net Tangible Assets, or NTA, to be the most representative of these for its going concern. The Company’s EPRA NTA at the end of 2020 amounted to €4.6 billion, or €26.5 per share, compared to €4.4 billion and €25.9 per share as at year’s end in 2019.
Throughout the year the company continued with its capital recycling, disposing of approx. €970 million worth of properties primarily in secondary cities, mainly in North-Rhine Westphalia, Saxony-Anhalt, Thüringen and Bavaria. The properties were disposed of at 6% above book value and generated a 45% profit margin over total cost. The funds from these disposals were channeled into high quality acquisitions amounting to approx. €600 million, primarily located in London and Berlin.
Some of the London acquisitions were in the pre-letting stage and will contribute to future rental growth once they are marketed. The portfolio grew to €8 billion in value and continues to be well diversified among diverse geographical regions with different economic drivers. The portfolio vacancy decreased to 6.2%, the lowest in the company’s history, while its in-place rent grew further to €7.4 per share. As a result of the strong operational development and capital recycling the value per sqm of the portfolio increased to €1,858, compared to €1,543 at the end of 2019, underlining the increase in portfolio quality over recent years.
GCP additionally repaid over €1 billion of debt, as well as the full €500 million of its 3.75% perpetual notes, including repayments after the end of 2020. This occurred while raising capital at record low rates, such as its €1 billion bond issuance at a coupon of 0.125% and €700 million of perpetual at a coupon of 1.5% in recent months. As a result, it was able to significantly reduce its cost of debt to 1% while maintaining a well-balanced debt maturity profile with an average maturity of 7 years.
As GCP’s shares have been trading at a discount to its intrinsic value, which is reflected in its EPRA NTA of €26.5 per share and an attractive dividend yield of 4% as at the date of publication of its financials, the company is providing further shareholder value through share repurchases. In January 2021 GCP announced a share buy-back tender offer, which was completed in February.
On March 15th, 2021, the company announced an additional share buy-back program of up to €200 million, or 10 million shares. The share buy-back, in addition to ongoing accretive acquisitions, of which €200 million were signed after the end of 2020. This, along with further optimization of its capital structure positions the company well for further shareholder value creation in the coming years.
Refael Zamir, the CEO of Grand City Properties noted that “Despite the challenges faced in 2020, GCP has emerged undeterred, delivering steady operational profitability and shareholder value creation in the year and fuels its liquidity balance as a preparation towards future potential opportunities. Looking ahead, we will continue to focus on enhancing the quality of our portfolio, thereby benefiting all stakeholders, including our shareholders and tenants along with the environment and communities around our portfolio locations. I am grateful for the invaluable efforts of each member of the organization and am confident of successfully facing all that the next year has to offer.”
Grand City Properties S.A. (symbol: GYC), is traded on the Prime Standard of the Frankfurt Stock Exchange, and is a specialist in residential real estate, as well as value-add opportunities in densely populated areas, primarily in Germany.
The successful property magnate YakirGabay founded Grand City Properties activity in 2004. Under Mr. Gabay’s oversight, the corporate strategy has always been to improve its’ properties by repositioning and intensive tenant management, and then create additional value by subsequently raising occupancy and rental levels. Grand City Properties’ largest shareholder is Aroundtown SA, Germany’s largest listed commercial real estate company, which holds 40% of the Company.
