Transcript
Speaker: I'm Martin King, property analyst at Edison Investment Research, and I'm delighted to be in Athens today to talk with Dimitris Papoulis, CEO of Trade Estates. Dimitris has been CEO since 2022 and has overseen a period of very strong growth in the company.
Speaker: We're going to talk about its strategy, that growth and the further opportunities. Dimitris, good to see you. Martin, great to be with you today and thank you for the interview.
Speaker: to issues Can we start? ah For investors who might not be familiar with the company, I'm thinking particularly investors outside of Greece, could you give an overview of what Trade Estates is?
Speaker: So Trade Estates is a specialized real estate investment company focusing in retail parks and logistics. It's focused on ah the omnichannel retail, combining end-to-end solutions for modern retail. And since its inception,
Speaker: It has grown into a platform of 600 million euros worth of assets in an art underserved segment of the market. You talked about retail parks as being an underserved sector.
Speaker: Can you also talk about the attraction of retail parks to consumers and what drives that interest for investors? So ah retail parks are are all about convenience, accessibility and value. There are focus on a serving necessity shopping and that differentiates the model in many ways against discretionary income destinations. We are anchored normally by supermarkets, home furnishings, electronics, needs that are resilient towards various economic cycles. On top of that, Greece is ah very underserved on the specific sector, offering important opportunities of growth and returns.
Speaker: Dimitris, you talked about having built a ah platform of 600 million in assets. How fast has that growth been? Trade estates has delivered a compound annual growth of more than 30% over the past five years.
Speaker: Our funds from operation have grown from 9 million euros to 22 million euros over the last three years, which represents one of the most aggressive growth rates among European real estate companies.
Speaker: And I know you want to talk about the the very strong growth opportunities that you see going forward, but before that, can we just take a step back and talk about the creation of Trade Estates?
Speaker: So Trade Estates was established through the contribution and spin-off of seven bigger assets of Fulis Group, one of Greece's prominent retail groups.
Speaker: These assets formed the foundation of the creation of ah of Trade Estates, but as time evolved, the company has increased its shareholder base ah through private placement and IPOs. So, Fouls was very important when Trade Estates was formed, ah but and it's still important, but the company has grown a lot since then. Can you talk about how the shareholder base has has broadened?
Speaker: Furnace is very important and will be very important for for trade estates. ah The stake of the company from 99% during in its in aids inception today is through a series of private placements and the IPO.
Speaker: 13% of the company is through is owned through Latsko Family Office, the Family Office of Miss Mariana Latsis. 31% of the company is free-floating and approximately 2% belongs to the to the management of the company. So this evolution presents the determination of Furlish Group to create a real multi-shareholder base real estate investment company with specialization coming from the DNA of its founder.
Speaker: Can I get you to talk about ah the future growth prospects, both organic and the prospects for future development, and also how much visibility you've got about that? Yes, well, ah we have a strong track record of producing solid organic growth and this is a a main result of our specialization.
Speaker: ah The combination of experience and the strategic relationship with the ah the majority of international and local value retailers is giving us the opportunity to continuously enhance the performance of our assets including our marketing-driven approach ah that ah steadily increases the traffic ah in our retail destinations. Well, ah back in our IPO, we have announced a development plan of 250 million euros spanning over a five-year period, from year 23 to 28.
Speaker: At present, we have ah concluded more than half of this development plan and is already operating and producing income. And there is another 125 million euros approximately to be invested over the next three years.
Speaker: All this bringing us into a gross asset value of more than 750 million euros. So the majority of the remaining of our investment plan refers to the emblematic development of the Hellenicon commercial hub retail park of trade estates.
Speaker: ah More than 75 million euros of ah of of total investment. So as you say, it'll take some time for these new developments to to come through and start to contribute to earnings. Does that mean you can still grow earnings in the meanwhile? The reality is that to date we have executed our development plan faster and bigger than what was initially scheduled and promised.
Speaker: Ahead of us we have three years of development. and it's going to take some time until those assets will become income producing.
Speaker: Of course, that is on our table and it will be managed along with the operational growth of our existing assets. And of course, at the same time, we investigate opportunities of acquisitions of already stabilized income producing assets that might contribute to our portfolio and the growth of our company.
Speaker: We should not forget that we have already incorporated two new retail parks less than a year ago that are still in the face of pre-stabilization.
Speaker: So growth opportunities are there, our relationships with the international tenants are all growing. We have a big demand of new tenancies that of course enable us to achieve higher returns for our parks. And most important of all, there is a proven overperformance over destination, over competition with double digit growth still, increasing traffic footfall for the year to date.
Speaker: I've also got to ask you ah the other question. There's an awful lot going on around the world. If we had picked up a ah newspaper in January and read the headlines today, we'd have been shocked.
Speaker: ah So there is always uncertainty. So if the environment is less favorable for you, what are the downside risks? Our business model is is ah is designed to be resilient across economic cycles.
Speaker: Our anchor tenants are normally supermarkets. ah home electronics, home furnishings and in general the essentials to the family household.
Speaker: They are also supported by value propositions in apparel and footwear. This tenant mix along with long leases, our weighted average unexpired lease term is 10 years, ah high occupancy rates, secure steady growth and a stable rental income and cash generation.
Speaker: And you you mentioned ah long leases, maybe you can say ah what the average length of a lease is, but I think most of your rents are indexed to inflation. Inflation has been high at various times.
Speaker: Given those long leases, inflation indexation, how confident are you that the current level of rents is sustainable? I can definitely say that our portfolio is not over-ended.
Speaker: It's true, ah one of our advantages is that 99% of our rentals are CPI indexed, but most importantly, the rent contracts are linked to turnover rents. So, during positive economic cycles, our company is benefiting from the overperformance of our tenants.
Speaker: During negative economic cycles, we have the security of minimum base rents that are fully guaranteed. So rents are sustainable. What's been happening with valuations? Do you think valuations also are sustainable or even likely to grow?
Speaker: so ah our portfolio is valued at an average of 7.30% yield for the past two years I think that a level of yield on a comparable basis with European peers of shopping centers and retail parks is on the higher side. Although the evolution of the Greek stock market and most important the performance of the of the Greek economy, a reality is that the yields applied to our valuations remained at approximately 7.10% for the past two years.
Speaker: um Compared to European peers, I would say that this is quite a level and I think it safeguards the robustness of the net asset value of our company.
Speaker: Just turning to the the balance sheet, you've indicated that as you develop out the pipeline, the loan to value ratio gearing will go up a bit. How comfortable are you about that and the company's ability to manage that debt position?
Speaker: So, Trade Estates maintains a prudent financial structure that supports both its organic operation and the future growth.
Speaker: Our net LTV will reach 48% by year-end 2026 89% of our total debt is fully covered by interest rate swaps that secure an all-in cost of approximately 3.1% for our interest cost.
Speaker: At the same time, our interest-covered ratio based on EBITDA is 3.1 times, so ah we feel quite confident about ah satisfying our interest needs in the short and medium run.
Speaker: So you've talked about the growth of the portfolio, the sustainability of rents and net asset value. On costs, can you talk about your ability to scale up the the platform to further and improve returns?
Speaker: Yes, and that's part of our ah focused and specialized model. um We maintain a lean ah asked ah structure of of management and the the more assets we we we we add on our platform, ah the more ah funds from operation we produce and total returns for our shareholders.
Speaker: Our cost ah structure in one of the is one of the most competitive in the industry and we intend to continue following this this pattern in the years to come.
Speaker: So if we put all this together um as a shareholder, ah what should I be looking for in terms of returns? Is it about dividend growth or is it about capital growth? So if one looks at the performance of the company historically, I would say both.
Speaker: there On the one hand, the dividend policy of our company, we deliver 6.9% return for our shareholders for year 2025, giving out approximately 72% of our funds from operation.
Speaker: On the other hand, our company trades at approximately 11 times our funds from operation. So the combination of operational performance with the track record of delivering on time ah our development plan, I would say presents an interesting investment opportunity for the shareholder ah that wants the safety of a backup of exceptional a real estate asset portfolio with a clear focus on the annual reward of our shareholders plus the value generation for them.
Speaker: Dimitris, thank you very much. That's been very clear. It's been ah an exciting five years for the company and it sounds as though the the next five years will be equally so. So we look forward to catching up with you in the future.
Speaker: Well, thank you very much, Martin, for the thoughtful discussion. ah Yes, it's been a ah great journey for trade estates to date. But tomorrow will be an even more exciting journey of more than doubling our size by applying the same principles we have done to date.
Speaker: ah Full focus on operational excellence along with total shareholder return that is very satisfactory for shareholders and stakeholders.
Speaker: Thank you very much.
