Globe Trade Centre SA

WSE:GTC

Earnings Call Analysis

Company Balances Growth, Debt, and Dividends

At quarter's end, the company reported EUR 91 million in cash, with a strategy to balance investing in projects, repaying debt, and paying dividends. They're pursuing EUR 30-40 million in new loans secured against Bulgarian assets. Pre-let rates for their City Gate project should hit 50% prior to completion. While CPI decreases are anticipated to ease investment conditions and potentially increase property values, the uncertain market prevents precise predictions. The emphasis will be on targeted CapEx to boost rental income and occupancy rates, maintaining investor dividends alongside.

Welcome to GTC's Third Quarter 2023 Results Call

The call was opened by management board members, welcoming shareholders to discuss GTC's financial performance in the first nine months of 2023. The focus was set on key highlights, portfolio analysis, and detailed financials.

Growth in Rental Income Amidst Challenges

GTC reported a 7% rise in rental income, achieving EUR 135 million compared to EUR 126 million in the previous year. This growth was partly offset by disposals which affected gross margins. FFO, a measure of recurring earnings, decreased to EUR 52 million from EUR 54 million, affected by increases in shortfall on service charges and administrative costs, part of which were one-off items.

Continued Leasing Strength but with Increased Costs

With strong leasing activities and completions of Rose Hill Business Campus and Matrix C office building, the office portfolio occupancy stood at 83%, whereas the retail portfolio maintained a robust 96% occupancy.

Well-Balanced Portfolio with a Development Pipeline

GTC maintains a well-balanced portfolio with a total gross asset value of EUR 2.39 billion, primarily constituted by 65% office and 35% retail. The company also highlights a promising development pipeline with a potential gross asset value of EUR 61 million, expected to generate annual in-place rent of EUR 13.5 million.

Net Loss Recognized, Driven by Increased Costs and Asset Devaluation

GTC recorded a net loss of EUR 6 million, contrasting with the EUR 49 million profit in the same period last year. Factors contributing to this include higher operating costs, asset devaluation, and impairment losses related to capital expenditures on existing properties.

Operational Efficiency with a Focus on Debt Management

The company's cash flow from operating activities rose by 12%, reaching EUR 46 million which underpins their investment capacity. Meanwhile, long-term financing and an increased total net debt of EUR 1.1 billion resulted in an LTV of more than 47 percentage points, a figure the company intends to reduce in alignment with their goal of 40%. Future refinancing strategies are being considered well in advance of their green bonds maturity in 2026.

Earnings Call Transcript 2023-Q3

[Malgorzata Czaplicka, executive]

Good afternoon, ladies and gentlemen. It is my pleasure to welcome you to our GTC Q3 2023 Results Call. The presentation today will be conducted by the Management Board members being: Gyula Nagy, the CEO of the company; Barbara Sikora being the CFO of the company; and Zsolt Farkas being the COO of the company.

The presentation will be followed by Q&A session, so please keep your questions until the end of the presentation. The presentation is posted on our website. So if you need to see the presentation, please download it from the website. Anyway, we will be showing the presentation on the screen.

Let me pass the voiceover to Gyula to make the introduction and start the presentation. Thank you.

[Gyula Nagy, executive]

Thank you, Malgosia. Good afternoon, ladies and gentlemen. Pleasure to me as well to have this meeting, this quarterly meeting about the financials of the company in terms of the first 9 months of 2023. So I will start with the Q3 key highlights and some deeper portfolio analysis before I give the word to Barbara and Zsolt to continue with the detailed financial presentation.

So GTC's Q3 revenues from rental activity -- just let me wait for the presentation, sorry.

[Malgorzata Czaplicka, executive]

[ Launch ] the presentation because I posted the -- I posted it.

[Gyula Nagy, executive]

I can't see it, Malgosia.

[Barbara Sikora, executive]

I don't see the presentation, Malgosia.

[Malgorzata Czaplicka, executive]

Any better now?

[Gyula Nagy, executive]

Now it's better. Thank you very much, Malgosia. So going to the next slide. So the revenues from rental activity rose by 7% to EUR 135 million in the first 9 months of 2023 compared to EUR 126 million for the same period last year. And the gross margin rose up to EUR 95 million in the first 9 months compared to the EUR 92 million for the same period last year.

So these -- the reasons of this increase is mainly due to the increase of gross -- the decrease of the gross margin due to disposals of three assets conducted in 2022 and one in 2023, offset pretty much the same amount of gross margin and rental revenue due to completions and new leases. I would mention four assets, two in 2022, which is a Pillar asset and the GTC X in Serbia, and in 2023, the completion of Rose Hill Campus in Budapest and Matrix C in [ Zagreb ].

So the gross margin -- sorry, the FFO dropped to EUR 52 million in the first 9 months compared to the EUR 54 million. This shows an increase. But whereas the EUR 5 million increase in rental income occurred, it was offset by an increase in shortfall on service charges by EUR 2 million and a EUR 6 million increase in our selling and administrative costs. The latter was mainly due to one-off items, which will be detailed by Barbara, when she shows the -- when she presents the financials in details.

The EPRA NAV dropped to EUR 1.22 billion as of 30th of September compared to EUR 1.27 billion, which is mainly due to the -- our devaluation of assets occurred in June and the sale of Forrest Offices in Debrecen, which occurred in January 2023.

The loan-to-value increased to 47.3% compared to 44.5% at the end of last year, mainly due to our lower cash balance, which -- and of course, the new loan granted -- new loan borrowed for a financing of GTC X and Matrix amounting to EUR 35 million altogether and the devaluation of assets.

We managed to keep our occupancy at 87% as of 30th of September, which was pretty much the same as in the end of last year. GTC still has strong cash position of EUR 95 million. So this is mainly because of the fact that dividends of almost EUR 30 million was paid to the shareholder in Q3 2023.

If we go further to the next slide, please, Malgosia. Yes, thank you. So we -- in terms of office portfolio, there is a strong performance as well. The occupancy rate, we managed to keep at 83% as of 30th of September compared to 84% at the end of last year. The average weighted lease term shortened a little bit slightly to 3.4 years.

GTC performed a strong leasing activity, reaching 71,000 square meter in the 9 months of this year and 15,600 square meter in the third quarter itself. There was a prolongation of a 3,400 square meter, and some new leases took place. I would mention here the disposal of our Forrest Offices in Debrecen in Hungary. We generated EUR 49 million net cash proceeds, which was reinvested in our development and in our real estate.

Going to the next slide. Here, I would mention that in terms of portfolio, there were two completions starting to generate revenue for the company. The first is Rose Hill Business Campus with two fully refurbished office buildings, modern office buildings amounting to 4,600 square meter with an occupancy of 100% at a rental rate of EUR 22 per square meter. And I will mention our Matrix C office, a newly completed Matrix C office in Zagreb with a 10,500 square meter new A-class office building with an occupancy of 92%.

Moving forward to the retail portfolio. There is still a robust progress that went on in the Q3 period and in the first 9 months as well. The occupancy, we managed to keep at 96% as of 30th of September, the same as the end of last year. The average retail lease term slightly dropped to 3.5 years.

And there was also a strong leasing activity, reaching 27,000 square meter in the first 9 months. And in the third quarter itself, the leasing activity amounted to 14,200 square meter. This constitutes a prolongation of almost -- of approximately 10,000 square meter in Belgrade, in our Ada Mall, and some other leasing took place as well.

Moving forward to the analysis of our portfolio. Here, I would mention that the company still have a robust, a well-balanced portfolio of total gross asset value of EUR 2.4 billion, EUR 2.39 billion. Out of this, the real estate constitutes EUR 2.26 billion. And out of this EUR 2.26 billion, 89% is cash-generating, income-producing single assets.

And out of the income-producing assets, 65% constitutes -- is constituted by office and the remaining 35% is retail. Now here, I will mention that we have a quite balanced portfolio between -- on our core assets between the split in office and retail, which diversificates the income stream and the portfolio risk for the company.

Moving forward to the development projects. Here, I will mention that compared to last quarter's presentation, Matrix C has been completed, as I mentioned -- as I just mentioned before. But the company still has a big development pipeline, moving forward with a GLA -- a potential GLA of 51,000 square meters, amounting to a gross asset value of EUR 61 million and expected in-place rent amount -- the annual in-place rent amounting to EUR 13.5 million.

And here, I would like to give the word to Barbara to lead us through the financials of the Q3 of the company. Thank you very much.

[Barbara Sikora, executive]

Thank you. Thank you, Gyula, and good afternoon, ladies and gentlemen. Let me start from the net profit/loss for the period for 9 months of 2023. The net loss recognized by the group amounted to EUR 6 million versus EUR 49 million profit for 9 months of 2022. This is a change of -- or an improvement in the net results by EUR 6 million as compared to the end of Q2 2023.

Why the situation? Let me go now through the profit and loss account from the top. So as Gyula already mentioned, our revenue increased from EUR 126 million to EUR 135 million. This is an increase of approximately 7%. And our gross margin moved from EUR 92 million to EUR 95 million for 9 months '23. In order to understand what was -- what is the difference comprising, please take a look at the bridge that we are presenting on the right side, number one.

It's important to mention that on the NOI -- on the operating margin level, there is still EUR 1 million different -- negative difference between the properties, the NOI from the properties sold versus the properties that have been completed. Which properties have been sold and completed, we can again -- Gyula has already mentioned that. But you can take a look at below. We are still making EUR 1 million out of that.

The positive, the increase is mainly -- effect is mainly resulting from the increase in our rents. On the revenue level, this would be approximately EUR 7 million increase, which is more than 8% increase resulting from the inflation. In the same moment, our cost increased by approximately 13%. And this also results in the -- this is also the result of the shortfall that we have on our properties.

The shortfall results from both offices and the shortfall on service charge, I should mention, sorry. This is a shortcut. So the shortfall on offices is resulting from two main reasons. One is our -- still, as Gyula explained, vacancy that we are observing. The biggest vacancy, you can see on the Hungarian project, Center Point 1 and 2. And this is the result of a move of one of our tenants from this property to a completely new building, Pillar.

Then another big difference is our local Polish -- sorry, on the Polish offices in the secondary cities. The market is not favorable for us. We lost some big tenants. And that is why the shortfall is observed there. Some of the shortfalls, some of the -- on the service charges that we see will be recovered by the end of the year in the service charges reconciliation process. We have full triple-net leases. So some of the shortfall resulting from the increasing costs will be recovered.

On the shopping malls, on the other hand, there is quite a vacancy in one of the Warsaw shopping malls. And this is on purpose, this is temporary because we are getting ready for one of the international brands to take the space. So this is one of the reasons. The second one is that, especially in Poland, as a result of the previous reasons, we do not reconcile service charges on the shopping malls. So this will be regrettably drawing down our results also in the future.

Coming back to the administration expenses. This question was asked also in the past, why our costs move that significantly upwards. As we explained, the difference is mainly resulting from one-off cost. An overall EUR 4 million difference is only related to the severance payments to the previous Board members as well as employees with whom we resolved to discontinue cooperation, which, however, were assumed in the previous year.

As I'm moving to profit and loss from revaluation of assets, so on point number three here, there is a further increase of approximately EUR 6 million impairment loss recognized in 9 months period of 2023. And this is resulting from the fact that we are further injecting money into CapEx and fit-out. And in accordance with our accounting policies, everything which is not a development is in Q2 -- Q1 and Q3 expanded versus P&L. And we recognize an increase in value of such redeveloped property only when there is external valuation proving that the value of the property increased. So out of the EUR 6 million expanded, that is the potential for an increase in Q4 2023.

Moving down, the last number that I would like to mention from this profit and loss that we have presented is taxation. There is a decrease -- a significant decrease from EUR 16 million to EUR 2 million for 9 months 2023. But if we consider the results, the profit before tax that we see and multiplied by the potential rate of approximately EUR 90 million, this is the Polish rate, of course. But more or less, this represents the group taxation. And if we apply to that, the permanent differences in the different taxation, we would arrive exactly at the figures that we see. So this is just the result of the profit and loss before tax that we observe here.

Malgo, let's move to the next slide. Okay, consolidated cash flow. As we have already seen in the first slide, our cash at the end of the period, at the end of September 2023, amounted to EUR 91 million. This is a decrease of EUR 24 million as compared to the end of the previous year. Maybe I will -- again, coming back to what Gyula said, if we haven't paid the dividend, we would be even at a higher level than we were at the end of the year.

The previous Board members as well as this one, but basically, it was not planned to pay the dividend. The recommendation of the Management Board was not to pay the dividend. If we have done that, we would keep the high cash. We are currently down to EUR 91 million. This is still a safe level for the group. But we went a little bit down.

And now moving up to explain what it is resulting from, apart from the dividends that I have already mentioned. Our cash flow from operating activities increased from EUR 42 million to EUR 46 million. This is an increase of approximately 12%, which is a healthy increase. And the amount that we have earned has set us to invest.

And as we can see, the investments in the real estate for 9 months amounted to EUR 94 million. Out of this amount, development CapEx, fit-outs, everything that was connected with existing investment properties amounted to approximately EUR 77 million. Additional EUR 40 million was expanded to acquire two properties in Hungary.

This is an execution -- continuation of the execution of the last year's deal, some of the pieces that were met. And as a continuation, we acquired the two properties in Budapest. This was Lanchid hotel and Vorosmarty property. On top, in order to finance the investment activity, we sold -- this is the same transaction that we have been presenting in the previous period. For -- in 2023, we sold Forrest Offices in Debrecen.

Looking at the financing activity. Please take a look that proceeds from long-term borrowings amounted to EUR 35 million, as Gyula explained and already minded out, this is GTC X and Matrix C. But in the very same moment, the last line of this financing activity, we repaid approximately EUR 28 million of bonds and loans, which means that really when it comes to our financing activity, we are more or less at the 0 level. And yes, in order to finance further investment activity, of course, we have to be thinking about acquiring new financing sources.

And jumping, yes, to some selected credit metrics. As again, explained already, our total net debt amounted to EUR 1.1 billion. This is an increase from, yes, EUR 1.1 billion but a little bit less than that. This is a result of increased liabilities, increased bank loans, on the one hand, and an increase in cash. And this translates into increased LTV of more than 47 percentage points.

Of course, this is not satisfactory for us. We still have to remember our goal of 40%. And in long term, we will be, of course, trying to achieve this level. What is not helping is, of course, the devaluations of the assets that are the result of increasing cap rates in the market. So long term, yes, we will be trying to decrease. We will be going to decrease this LTV.

It will be also a natural process. Because when current financing is being refinanced with current interest rates in the market that are achievable, are at the level of approximately 5 to 6 percentage points, where, as you can see, our weighted average interest rate for the group is at the level of 2.4 percentage points. In order to service more expensive loans, we will have to simply decrease our current.

The weighted average debt maturity is still very healthy. This is 3.7 years. When we take a look at the maturity profile, we can see that in the next 12 months, we will be repaying approximately EUR 20 million, which are bonds denominated in Polish zloty. This is the -- actually, we have already defined that in November, including interest on that. Plus we will have to refinance two maturing loans located -- secured on the properties located in Poland.

These refinancings will come within the next -- the following 12 months. And of course, 2026 will be the most difficult year when it comes to maturities. We will be talking about our strategy later on. But we would like -- I would like to underline already here that we will not wait whether the entire EUR 500 million of green bonds expiring in 2026.

We have to work on this refinancing already today in order somehow to not be fighting, I would say, even in 2026 with this refinancing, acquiring bonds in the open market financed by, firstly, secured debt; and secondly, from other sources that we can recover from the existing portfolio. And for sure, we need to work on that as soon as possible. Further, other covenants or percentages that you can see on the following slide, the split and the ratios of unsecured to secured and so on, they have not changed significantly as compared to the end of last year.

And last but not least, our balance sheet is pretty stable. And as we mentioned in the previous slide, let's go from maybe all the funds that we marked. So investment properties, they increase insignificantly. On the positive side, there was the expenditure impact on properties that I mentioned, on the negative side, the impairment loss recognized in our P&L. Cash and cash equivalents, as we mentioned, this is the difference between the expenditures on the IP acquisitions of the land, the payment of the dividend and the repayment of the loans.

On the liability side, there is a slight increase in the borrowings. And actually, the [ bigger ] difference as this is similar to what we've observed at the end of Q2, our derivatives increased. This is mainly related to the cross-currency bonds on the -- sorry, on the cross-currency swaps related to our Hungarian bonds. As mentioned, pretty flat balance sheet as compared to the end of 2022.

Of course, regrettably, we would like to be growing. But this hopefully will be happening with the new strategy that we will be presenting in the following slides.

[Gyula Nagy, executive]

Okay. So thank you very much, Barbara.

[Barbara Sikora, executive]

Thank you.

[Gyula Nagy, executive]

Before giving the word to Zsolt to present our strategy, I would like to grab the words for some initial thoughts on that. So the new management started their work in the beginning of September and identified that the strategy of GTC is something -- is a work to be begin as soon as possible. We started the revision of the company's strategy by total review of the company's financial position, its prospects and, of course, the real estate portfolio.

Going deeper, we started to understand the portfolio by segments, by countries and on an asset-by-asset basis, which is focusing on their valuation, the yields, the excess cash, generating -- and the excess cash that they generate and they can produce after debt service, the rent rolls, occupancy rates and, last but not least, the capital expenditure needs they require.

We started to understand our liability, our liability side, our loan metrics with the senior loan maturity renewability, possibility for renewables and understanding their covenants. And of course, besides that, we had to concentrate on the unsecured debt as well, especially the Eurobond, which Barbara mentioned, the payback ability of the EUR 500 million Eurobond maturing in 2026.

So as a conclusion, the new management decided to withdraw the negotiations in terms of the Ultima acquisition, which was announced in June 2023. And instead of that, we focus GTC's efforts and resources on GTC's current portfolio and the current development pipeline.

And regard to the conclusion that GTC is facing quite challenging years for the forthcoming period in terms of the excess cash flow generation capabilities and the ESG compliance and the aging of the assets. So new management wants to be focused mainly on its core real estate sectors now and improve the operation of the existing portfolio. And our aim is to selectively develop assets from our land bank in order to execute a growth strategy.

In terms of liability management, as Barbara mentioned, we have the main issue -- liability issue in 2026, when this EUR 500 million Eurobond, which was successfully raised in 2021, matures. So we understand that the company needs cash -- regularly needs cash by 2026 in order to fulfill this liability. And the cash sources can be -- what we identified is through an improved cash generation of our current portfolio, which we can see in the next few years, it will not be enough.

So the new management has to have a decision on the selective disposals of assets, which might achieve its peak in terms of the book value or those assets with high CapEx needs for repositioning both for complying the ESG criteria. So GTC's liability metric has to be slowly switched from unsecured bonds to secured financing plan on a gradual basis. And of course, it depends on the -- the question is when, presuming a decreasing trend in the interest rates.

Of course, last but not least, external sources of funds are under investigation, such as capital increase or other debt instruments made. But all of them are depending on the situation of the debt capital market. So what we identified is just a few comments before giving the word to Zsolt is that since Lone Star times, GTC turned into a kind of a holding company, which needs a new strategy. And the new management's ambition is to turn GTC back to a development company in order to execute a growth strategy and meeting the expectation of the shareholders, the investors and the market.

So now I will give the word to Zsolt to continue with the presentation of the strategy. And thank you very much for the...

[Zsolt Farkas, executive]

Thank you, Gyula. Thank you, Barbara. Good afternoon, ladies and gentlemen. Really nothing more to say from me after Gyula represented the summary of the revenue for the last 8 weeks. I would say that all the rest is -- what I can say about the strategy is that we should follow the market and try to get in the lead of the market.

Therefore, we should be open to new asset classes like senior housing, housing, PRS and focus also a little bit on developments to achieve some development revenues, what will increase our income cash and also have a very clear view on assets plus what we purchased in the past on the basis of land banking and trying to get to the best timing, the best result of it and also redevelop some of our assets to the ongoing market's needs and not just on the purpose of what it was a couple of years ago.

That means that some of our assets will be redeveloped in direction, for example, in Poland, and especially in Warsaw, to residential, where we see that the market is demanding for it. We will focus on CapEx needs on the new -- in the regulations to perform in ESG, GHG and the EU taxonomy criteria that allows us better financial instruments and also, in the letting, will allow us to increase our prices.

And I would say there is nothing more. If there are any questions, feel free to ask. If I forgot something, just feel free to [indiscernible]

[Gyula Nagy, executive]

So thank you very much, Zsolt. I think this is time for the Q&A session to open, Malgosia. Thank you very much.

[Malgorzata Czaplicka, executive]

Ladies and gentlemen, I'm opening the Q&A session. So whoever has any questions, they are free to ask. So please pass your questions.

[Jack Land, analyst]

This is Jack Land from Axebrook Capital. Could you give us an update on the status of the Ireland investment, please?

[Gyula Nagy, executive]

Yes, please, Zsolt, can you -- Barbara, can you please step in?

[Barbara Sikora, executive]

Yes, absolutely. Zsolt, I'll let you...

[Zsolt Farkas, executive]

No, it's fine.

[Barbara Sikora, executive]

So yes, we are progressing, actually I would even say, faster than planned with the product, meaning the biggest milestone to be achieved was to acquire the building permit for the undertaking. And the target has been acquired. Currently, we are in the stage of the potential -- I'm missing the word, I'm sorry. I missed the word. Basically, the word was objection.

So after publication of the building permit that was done officially, there was the general public, which was able to object to this building permit. And we achieved just one, which was a big surprise and a huge achievement, just one quite insignificant objection. This is being currently managed not at the local level, the building permit was granted at the local level. With this objection, this goes to the national level.

However, really the meaning -- this objection is meaningless. It only somehow moves the building permit being final and binding by approximately 3 to 6 months, which means that we believe by approximately the end of Q1, we should be ready with the building permit, and we can proceed either with construction or with the exit from the project.

[Zsolt Farkas, executive]

There's also some -- sorry, Gyula. Also, there is progress in the energy supply of land. So it seems that we achieved, together with the Irish management, that there is no further need for own gas supply, and we can be delivered by the state on electricity. So that was one of the most impressive results out of the last couple of weeks. And there's still the pre-let LOI agreement with Amazon, [indiscernible] also high tenant occupancy.

[Jack Land, analyst]

Okay, got it. And just one follow-up on that, is the sale of the Irish investment sort of prerequisite for beginning to deal with the 2026 bonds? Or could you even start chipping away at that before then?

[Barbara Sikora, executive]

No, we are planning to start as soon as possible. Any cash that would be flying into the company will be like, in my opinion, split between the investment and the repayment. The discount with which the bonds are currently traded amounts to approximately 33%, sometimes even more. So absolutely, we should be trying to buy as fast and as much as possible.

[Gyula Nagy, executive]

But still, GTC, the strategy, initial exit strategy has not changed in terms of the Kildare projects.

[Malgorzata Czaplicka, executive]

Ladies and gentlemen, are there any more questions to the management at this time?

[Unknown Analyst]

It's Peter at [indiscernible]. I just have a question on liquidity. At the end of the quarter, you've got around EUR 91 million of cash on the balance sheet. But do you have any other undrawn credit facilities as you did at the end of 2Q?

[Barbara Sikora, executive]

At the end of Q3, there is still EUR 4 million from the loans that we have acquired so far to be drawn. And we are currently in the process of acquiring new loans, which will be secured on the existing assets. Currently, we are looking at the Bulgarian assets to be used as a security for the new loans.

[Gyula Nagy, executive]

This will be around EUR 30 million to EUR 40 million financing in terms of [indiscernible]

[Barbara Sikora, executive]

Yes, coming this year, and we are acquiring additional, which will be drawn next year.

[Unknown Analyst]

Great. And then my second question is on City Gate. Can you just provide any updated commentary on how the occupancy is looking?

[Gyula Nagy, executive]

Zsolt, can you please jump in?

[Zsolt Farkas, executive]

Yes, sure. Sorry. We are in the second phase of utilization of one AAA tenant, who is -- after the first one, the pre-let figure went out roughly about 40% upfront and roughly about 20 more percent of the available 36,000 GLA we've rented out in the next 3 years. So it seems that we will reach at least 50% pre-lets before finishing. And we still have our tenant in CG 1 and 2 who might go over. So there will be enough space for redevelopment and getting into the new market lease 1 and 2.

[Unknown Analyst]

Got it. And if I can just ask one last question, the macro environment in Poland and Hungary looks pretty good for FY '24. CPI is expected to come down pretty aggressively. Next year, rates will follow as well. I mean, do you think about -- can the portfolio value, do you think it will start to inflect upward kind of by the end of next year? We've seen some modest declines so far over the last 12 months. But is there scope for the portfolio to be revalued upward by the end of FY '24?

[Barbara Sikora, executive]

We hope for it a lot. But of course, we cannot really predict. CPI is one thing, but interest rates in the eurozone is another thing because regrettably over the last quarter, they increased again. And this, of course, influences also the cap rates. Yes, but actually, the upward movement is a result of a number of factors.

The valuations basically currently are more a consensus of the appraisals rather than the real -- that reflect the real investment or transaction activity in all of the markets that we are active. So hopefully, if there is the positive sentiment of the investors that reflects to the number of transactions, this should most probably influence also the current cap rate and then the valuation should go up.

But -- and the second part would be our leasing activity. With the increase of occupancy, of course, the valuations will go down -- sorry, go up. And so this is one of our strategic goals, to go up at least above 90%. With that, our valuation should go up. So yes, we hope we will be doing everything that we can to improve. But what will be the market situation, market sentiment to the transactions, even to the decrease of the cap rate, this regrettably we cannot predict.

[Unknown Analyst]

[ Vladimir ] from Bank of America. Just a quick one on CapEx. I mean, clearly, you have a number of ongoing development projects still at the moment. Plus you mentioned the need to refurbish, meet new ESG requirements, et cetera, going forward. Just wondering, how should we think of the CapEx need here maybe next year? Do you have a target sort of run rate? Is it similar to where we are now? Do you see that stepping up or stepping down going forward?

[Gyula Nagy, executive]

It's depending on each of the assets. We skipped the concept of getting into overall and sticking to each asset. So we come out with the valuation of the investment comparing to the relativity on the market. Therefore, the focus won't be in one sum higher than it was last year, but it will be focused on those assets where we can achieve fast new tenants and increase our rental income. And that would be basically the change. So the focus on CapEx on those assets where we can achieve the fast currency and the occupancy rate be increased and help us on the NOI.

[Unknown Analyst]

Understood. And then another point, you mentioned that ideally any kind of excess cash will be used, on the other hand, for CapEx, on the other hand, to perhaps pay down future debt obligations. Now clearly, we saw the dividend payout this quarter. Is sort of this new strategy fundamentally supported by the shareholders? Or would there potentially be further kind of dividend outflows in the future?

[Barbara Sikora, executive]

I believe -- I don't know, Gyula, if you want to comment on that. Like our budget ideally would be prepared based on the assumption that we will be paying out the dividend. As a stock exchange company, we should be paying dividends. So we will be trying to accommodate both our investors' needs and our company needs. But Gyula, if you can...

[Gyula Nagy, executive]

This is why I can confirm that there is an expectation even in the recurrent market situation that the shareholder expect yields on the investment, not just the anchor shareholder but the other minorities as well. So we are budgeting dividend payments which is not threatening our cash flow position, our future cash flow position.

And of course, somehow, we will be -- we are building up a strategy of our use of excess cash proceeds in order to find the right -- find an adequate mix of buying back bonds, paying back bonds and paying back maturing debt as well. And of course, in order to adhere to the growth strategy, we would like to invest on development as well as Mr. Farkas mentioned before.

[Unknown Analyst]

That's clear. Great. And just one last one, if I may. On Ultima transactions, looking at some of the kind of press releases from Ultima, it looks like the ownership stake was transferred to, I guess, entities that are related to Optimum Ventures, right?

So although it wasn't in the end acquired by GTC, sort of still stayed within the broader shareholder group. I was just wondering if you can share any details as to, let's say, the change in structure of that transaction and whether there's potentially any future considerations perhaps at the right valuation to move the asset into GTC or not.

[Gyula Nagy, executive]

As a Management Board, we can express and we can comment on that we ceased the project. We dropped the project. So in the forthcoming period, especially as it is now and the structure as it is now, it will not be acquired by GTC. Your first part of the question, what happened in the current owner? I can't comment on that as GTC -- as from the GTC Management Board.

[Malgorzata Czaplicka, executive]

Ladies and gentlemen, if there are no more questions, I'm closing the meeting today. The recording will be available on GTC's website starting this evening. Thank you very much. Goodbye.

[Gyula Nagy, executive]

Thank you very much. Goodbye.

[Barbara Sikora, executive]

Thank you. Bye-bye.

[Zsolt Farkas, executive]

Thank you. Bye.