RomReal Ltd

OSE:ROM

Earnings Call Transcript 2020-Q3

[Harris Palaondas, Head of Investor Relations]

Good morning, everyone, and welcome to RomReal's Third Quarter 2020 Results Webcast. My name is Harris Palaondas, and I'm the Investor Relations of RomReal, and I will be guiding you through the highlights of the presentation today.The Q3 report and investor presentation can be found on our homepage at www.romreal.com, or alternatively, on www.newsweb.no. Chairman of RomReal, Kjetil Grønskag, and I will be available for questions by e-mail or phone. This webcast will be placed online on www.romreal.com.Now If you can please turn to Page 3 of the investor presentation that was distributed together with the Third Quarter 2020 Report. Here are the highlights of the third quarter 2020 results. The net asset value was EUR 0.44 or NOK 4.73 per share, which is about 1% lower compared to the end of the second quarter of 2020. There were no further changes to the value of the investment properties during the quarter and an investment portfolio evaluation is expected to take place early next year.The operational highlights now where the company continued investments in infrastructure in order to add more value to the plots. By the end of the third quarter, the amount invested was around EUR 2.4 million without VAT. The company has plans to continue investing some further amounts into the infrastructure. However, we are very close to the end of our investments.During the fourth quarter, of this -- of 2020, the company entered into a sale agreement for one more Lakeside plot, that was for a total of EUR 55,130. And we have received this money all in one installment. The great success that we want to share with you is that after 8 years in the courts, the company successfully obtained a final and irrevocable order from the Constanta Court of Appeal that decided that a full restitution of the 1,453 square meter plots in Mamaia North. The piece of land is already agreed to sold and when all formalities are finalized, which is -- this is expected to take place in the first quarter of '21, the company will have a gross income of about EUR 390,000.Now the pandemic, as with the rest of the world, is negatively affecting the company's ongoing permitting as well as its sales and marketing processes. The company is taking all efforts with the management being very hands-on in this period to address the needs of the very few clients, which are requesting to discuss about land opportunities.Please turn to the next page. The net result for the quarter was EUR 13,000 loss compared to EUR 196,000 loss during the same quarter last year. The net change in the cash flow for the quarter was minus EUR 254,000 compared to minus EUR 62,000 in the same period last year. The cash position of EUR 2.5 million plus a total of EUR 739,000 in unsettled receivables related to binding sales agreements gives us a total of about EUR 3.2 million or about EUR 0.1 per share. After the end of the period, the company has paid the EUR 1.05 million tax claim being therefore exempted from payment of penalties, irrespective of the outcome of the final court decision to be issued in this case. We are still chasing this case, and we feel that there is a high probability to take this amount back plus interest.Now Romania's GDP has decreased during the first 9 months of 2020 by 5.1% compared to the same period in the previous year, this according to the flash data released by the National Statistical Institute. This is mainly due to the COVID pandemic as the crisis affected all markets within the country.During the third quarter, the average residential price in Romania declined by 2.2% at the end of September and have gained a 2.4% increase at the end of October, thus remaining relatively flat. At the end of October, prices are still 3% higher compared with the same period last year, averaging the euro of EUR 1,335 per square meter.Please turn to the next page. This is a table showing the net asset value movement during the third quarter of 2020 according to the International Financial Reporting Standards or IFRS. Investment property health is at EUR 4.242 million, with assets held for sale plus inventories and cash and some other assets, keeping us a total net asset value of EUR 18.381 million. This represents an NAV of EUR 0.44 per share.This is a small increase compared with the same quarter last year of about EUR 0.02 per share with regards to the NAV. This difference, also the change between the third quarter and the second quarter of 2020, is mainly due to the foreign exchange differences. The average number of shares used in the NAV calculation has not changed since the last quarter.Please turn to the next page for the financial highlights. These are the financial highlights for this period. Operating revenue during the third quarter was EUR 32,000 compared with a total of EUR 43,000 reported in Q3 2019. This consists of the revenue resulting out of the rent earned by the company in respect of some of the plots. Total operating expenses amounted to a negative EUR 186,000 in Q3 compared to a total negative of EUR 153,000 during the same quarter last year. The cost split almost evenly across the general and administrative expenses of about EUR 47,000, payroll cost of EUR 39,000 and management fees of about EUR 53,000.The other operating income or expense during the quarter was a gain of EUR 135,000, reflecting mainly the movement in the EUR-RON exchange rate. During the third quarter, RomReal generated an operating loss of EUR 19,000 compared to loss of EUR 63,000 in the same period last year. Now foreign exchange results for the third quarter was a net gain of EUR 9,000 compared to a net foreign exchange gain of EUR 171,000 during the same quarter last year.During the quarter, the RON gained and 0.57% to the euro. The company's policy is to hedge these effects as much as possible by retaining most of its cash in euro and also by denominating all receivables in euro. The result before tax in Q3 was a loss of EUR 10,000 compared to a loss before tax of EUR 235,000 during the same period of last year. Cash remained at EUR 2.5 million compared to almost about the same level in the same quarter last year.Please turn to the next page. This is a page showing the RomReal properties land bank during the end of the third quarter 2020. As you can see, we mainly have property in Constanta and Ovidiu of a total of about 270,000 square meters. For further information, please visit our website at www.romreal.com.Please turn to the next page. These are the operational highlights. Our Lakeside plot and during the fourth quarter, the company sold one more plot for a total amount of EUR 55,000 received in full. This totals of about 15 plots sold until now with all values sold significantly higher than the cost or the most recent evaluation. Even during the present lockdown, there is some interest for RomReal plots. However, prospective buyers are taking more time than usual in making a purchase decision.The management is following closely, the developments and it's also preparing a number of marketing activities as well as a marketing booth on the plot to boost sales. The company's following the developments with the Municipality authorization on the Oasis plot with the most important permit missing being the environmental approval. This is required because of the proximity of the plot and the buildings to the lake. The company expects more specific sales to develop when the pending regulation and utility issues are granted.Industrial Park, the company is discussing a sale of about 15,000 to 20,000 square meters to international group. The discussions are still ongoing, and we expect the results to take place somewhere next year. The company also is in an ongoing dialogue with local authorities regarding the necessary permits. Gaining the necessary permits will also speed up the discussions with the international group.And with regards to the Balada Market, the entire market area is now open, and the company has had no loss of income since May 2020. If you recall, during the first COVID wave, there were restrictions in opening any agricultural markets.The Badulescu plot, even during the present lock down, there is some interest for the plots on this project. However, buyers are still skeptical due to the current crisis.Please turn to the next page. With regards to the contestation against the tax authority claim, the company has made a payment of EUR 1.05 million following advice from our consultants Ernst & Young. So we made this during the fourth quarter of 2020. By doing this, we are being expected -- exempted from payment of penalties, irrespective of the outcome of the final court decision, which will be issued.By forwarding this tax claim, the company's worst-case loss has been reduced by EUR 65,000 compared to the previously reported EUR 1.7 million. The company is continuing the legal process in the court and the next phase of the case will be in the Court of Appeal agenda on 30th of January 2021. Therefore, this is the next landmark date, which we are considering.Great news with regards to the restitution claim of a plot on the Mamaia North plot. The company successfully obtained a final and irrevocable order from the Constanta Court of Appeal, which decided the restitution of the land in full. After pursuing this in court for almost 8 years, our management has managed to obtain this positive decision. And the piece of land is expected to be cashed from the or the agreed buyer of the plot somewhere during the first quarter of '21.Please turn to the next page. Romanian macro development. Romania recorded an economic decline of 6% in the third quarter of 2020 compared to a similar period of 2019. But compared to the previous quarter, it recorded actually an increase of 5.6% according to flash data from the National Institute of Statistics. Accordingly to the National institute of Statistics, between the 1st of January and the 30th of September of this year, the GDP decreased compared with the similar period of 2019 by 5.1% of the growth series and by 4.6% of the seasonally adjusted series.The GDP was higher in real terms by 5.6% in the third quarter compared to the previous quarter. On a seasonally adjusted basis in the third quarter of 2020 compared to the previous quarter, the GDP increased by 5.6% compared with the same quarter of 2019, the GDP decreased by 6%. There have been about 400,000 confirmed cases of coronavirus in Romania so far and the country's currently under a state of alert. As in most European countries, Romania is facing a second wave, which has resulted in closed schools from early November, and the health care system is struggling with a number of cases. From 20th of November, in most cities, including Constanta, opening hours of all shops are reduced and strict travel restrictions are implemented.Please turn to the next page. According to a flash report by CRB, the residential sector is fueling the demand followed by the retail and industrial ones. Significant land transactions have been registered also during the third quarter of 2020 despite the COVID-19 pandemic both in Bucharest and in the rest of the country. Investors have focused almost exclusively on office projects that reflect about 93% of the transaction volume and have been active mainly in the Bucharest market that being 85% of the total transaction volume.The residential market during the third quarter of 2020, the apartment prices decreased by 2.2%. However, if we take a consideration of the end of October 2020, which are the most recent data we have from imobiliare.ro, during this period, the average price of Romania apartments actually increased by 2.4% compared to the end of the third quarter and these are 3% higher compared with the same period last year. Average prices are at EUR 1,335 per square meter.Now in Costanta, average prices remained relatively flat during the third quarter. Current averaging at EUR 1,244 per square meter. Compared with October last year, prices are 6% higher.Total investment volume in the first 9 months of 2020 was around EUR 731 million, a 31% increase compared with the same period of 2019. Investors have focused almost exclusively on office projects, as I mentioned, that reflect a very high percentage focused in Bucharest.This is a table of their on RomReal shareholders as of 20 of November 2020. This is placed here for your convenience and is taken directly from the VPS.Please turn to the next page. RomReal is focusing on land-value-enhancing activities in order to improve the shareholder value and exit. Romania has been badly affected by the coronavirus pandemic with many areas, including Costanta County, being under strict lockdown stats. The pandemic is slowing down the company's ongoing permitting as well as its sales and marketing process. Combined with the ongoing tax dispute case, it creates a short-term uncertainty, reducing our financial flexibility. Therefore, the company's management is focused in maintaining a solid cash position until an improvement of the business condition appears. Only then, a return of capital may be considered.Thank you for participating to our webcast. This webcast will be uploaded to our homepage, www.romreal.com, for your convenience. Chairman of RomReal, Kjetil Grønskag; and I will be available for questions by e-mail or phone whenever this is required. We wish you a good day.