First Property Group (LSE:FPO) — Preliminary Results

0:00 Good morning. Welcome to the FIRST PROPERTY GROUP PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via the q and a tab situated on the right hand corner of your screen. Please just simply type in your questions and press send. Before we begin, I'd like to submit the following poll. I'd like to hand you over to Ben Habib, CEO. Good morning, sir. Good morning. Well, thank you very much everyone for attending our results presentation for our preliminary announcement of results for the year ended 03/31/2026. For those of you who've attended this meeting before, you will know that there is a presentation that is available online. And I think all participants have it have access to it. Do they Jeremy was on the website, so it's on the website. So if you haven't got access to it, I suggest you go to our website, if possible, and, and click on it. It's my intention to go through the slide as fast as I reasonably can, and look forward to your questions, which I think is probably more interesting for you than hearing me speak.

1:10 But let me just go through the results in the order of the presentation. Starting on what I think is Yeah, the third page. Pre tax profit up 12.2% to 3,400,000 from 3,000,000 last year. Importantly, underlying profits are up by some £650,000 per annum from about 1,000,000 last year to 1,650,000 this year. And what we mean by underlying profits is that if I and the rest of the team were to go on holiday, and all other things being equal for the rest of the year, we would make a profit of around 1.65, we would have made a profit of around 1,650,000.

1:56 And that is good when you think that the prior year, that was only a million quid. So the underlying sustainable revenue and income profitability of this company is going in the right direction. But we did make one off profits during the year as we did in the prior year. And in the last year, we made £1,200,000 roughly from the sale of two properties, one of which was also bought during the year. So it was a rather quick profit. And on the back of these good results, and the sale of a property, our debt has reduced from 12,900,000 by 46, sorry, reduced to £12,990,000, which is a reduction of 46%.

2:44 And net debt reduced by 70%, down to £6,000,000. So our balance sheet is much strengthened, which is evidenced also in our cash position. We ended the year with just under 7,000,000 in cash compared to just under 5,000,000 in the previous year. And on the strength of these good accounts, and profitability by the company, we have declared our first dividend in many years, it's a small dividend, but it's a step in the right direction. Again, long term shareholders might recall that it is our policy as much as we are able to do so safely to pay dividends out of our profits. It's been a very difficult last five years, but I'm delighted to say that we are now paying a dividend again.

3:29 And we hope that we can build the dividend payment up from this base. But we want to start at a level which we believe we can sustain, you know, which is why it's not a it's not a it's not larger than a quarter of a pence per share. Third party assets under management at March 31 were 144,000,000 down from 164,000,000, which is largely due to property sales. Now, the market for third party funds has become increasingly difficult over the last few years. And I can come back to that. But I have said, I think in previous results announcements that we would, over time, begin to look less like a fund manager and more like a proprietor property trader, property investor.

4:17 And the result, you're seeing that now coming through, you're seeing our, you've seen the trade in our properties that's taking place, you've seen our sell properties, buy properties, but you've also seen our AUM reduce and I can take questions on it. But I can explain and I will explain in greater detail when we come to prospects as to why third party funds raising third party funds is problematic. Total AUM was 189,000,000. Of course, total AUM includes properties that we ourselves own, which is why there's there's a difference between third party AUM and our AUM Weighted average unexpired fund management contract, which is becoming less of an important figure as our AUM drops, is four years and one month, which is up from three years and four months last year. And that's principally due to the expiry of some short dated contracts during during the year.

5:13 So in summary, on page four, I think it's a it's a really helpful pictorial representation of what we've achieved, which is profits up, EPS up, cash up, net debt down, total AUM down as mentioned NAV up, adjusted NAV up, and NAV per share up to 38.57 p per share. And it's not I tend not to comment on our share price. But it does strike me as odd that a company with so much cash in it, having had having come round the difficult period, having emerged from the difficult period of the last five years, really with a very solid base is trading in the market at around a 60% discount to NAV, I could understand a significant discount to NAV when the market was in complete turmoil, and FIRST PROPERTY GROUP was being impacted by it. The market is still very challenging, very difficult, no doubt about that. But we have found our place within that market.

6:19 We've adjusted ourselves to the new market circumstances. And we have repositioned the group, I think, to a very, very secure position. So I'm surprised that the market isn't picking up on that, you know, significant change in the position of the group. But be that as it may, over time, I hope that our share price will reflect the steps that we've taken within the group to secure our position and to grow our profitability. Turning then to page five, which is an analysis of contribution to profit before tax at the year end over the last few years. And you can see that contribution to group profits has risen dramatically as a result of has changed in its nature dramatically away from AUM towards the proportion of income and profits we make from our investments in our various funds, as well as from our direct properties.

7:24 I'm going to skip page six, which in a sense I've already been through. Page seven gives an analysis of the five group properties that we've got. We've got an office in Warsaw, which is the Blue Tower office block, which is valued at 24,000,000. This is by far and away, the most significant asset in the group. And I'm pleased to say that having bought 7,000 square metres of more of Blue Tower in August 2022, you might recall that we used to own about fifty-forty 8% of Blue Tar, we bought another 32% of it in August 2022, virtually all of which was vacant.

8:15 We have now let around 5,000 square metres of that space, And the remaining two and a bit thousand square meters is under offer. And we hope to complete the lease with that tenant. Of course, no deal is a deal until it's signed. But we hope to do that during the course of July, which would mean that Blue Tower would be 100% leased. And all that vacant space that we bought actually, with the benefit of hindsight, frankly, a bad point in the cycle, that vacant space would be leased. And that will then show up in our in our figures going forward, because we will cease to have the costs associated with the vacant space. And we will begin to have income associated with that vacant space, there will be a fit out costs associated with it as well. So there'll be some expanded CapEx expenditure in order to make that space income producing.

9:10 But I'm very pleased with the way that Blue Tower has leased up. And it's a real testimony, I think, to buying in the right location. This is a fantastic location in Warsaw, the building is a Class B building, but it's a fantastic location. And we can can we levy rents, are much lower than Class A buildings. And you know, it's been a formula that we've used for many years, and it is now coming through and proving itself again on blue tie say again, because actually for many, many years until we bought that vacant space, blue tie remained 100% leased. And I'm hoping that having got this now leased, if assuming this deal goes through in July, that we will have a similar robust occupation level at Blue Tower in the future.

9:57 Then the rest of the properties are relatively small, and I don't intend to go through them, unless you would like me to do so and by all means raise questions at the end. Next page, page eight, I've gone through in a sense, that's the Blue Tower property. And I can take more questions on that at the end if you like. Page nine sets out the group properties division, which is essentially an assessment of the associate investments that we have in our funds. And also our sort of non associates smaller than just, you know, we just recognize the dividends effectively that we get from the from the four funds at the bottom of that page, whereas we take a proportion of the profits of the one, two, three, four, five funds in which we have more than a 20% interest.

10:53 And the figures associated with each of those funds is given in the table. I don't intend to go through those fund by fund. But again, at the end, if you've got any questions on it, I'd be glad to take them. I think I should say that FOP, which is a significant first property opportunities PLC, which is a significant proportion of our net assets as a group has itself a significant asset in Ostrovich, a shopping centre, which we're just refinancing at the moment terms have been agreed with a new bank on on actually on better terms than the exiting bank new five year loan. That should be in place quite soon.

11:40 And we are also hopefully selling one of the properties in FOP which will conclude I again, I hope in the next month or two. So there's good things going on in FOP, which for the shareholders in FOP will result in releases of cash. And we are obviously a 45% shareholder in FOP. So we will also experience a release of cash from FOP. If these deals if the refinancing, and the sale of that one property goes through in next few months. Then on page 10, you have a review of our fund management division, the AUM as well as the revenue that we get from the fund management division.

12:29 As you can see, that's been under pressure over the last few years, and will remain under pressure, unless there are structural, regulatory and legal changes that take place in The United Kingdom. And perhaps this is a good moment to discuss why AUM is under pressure. And I don't think we're alone in this. The government has passed over the last few years, legislation that and regulations have been passed by various regulatory bodies that incentivize insurance companies, pension funds, etc. Not to invest in property not to invest in UK PLC, but instead to buy bonds, and particularly government bonds, mostly driven through the capital adequacy requirements associated with making these various investments property attracting a very high capital adequacy requirement.

13:25 And for those of you who are as long in the tooth as I am, you will remember that in the 80s and 90s pension funds, for example, used to have 8090% of their assets in UK PLC and stocks in you know, listed shares with about five to 10% in property and maybe some other adventurous stuff. Nowadays, they have about five to 10% in listed shares, and about half a percent in property, with the remainder in corporate bonds, or in government debt, then that is a massive, massive change in the architecture of investing institutions, a very, very damaging change, actually, because it means that we've gotten the country has no access, no access to deep capital markets, for the development of the country's businesses.

14:15 And instead, the government is soaking everything up. And I suppose that shouldn't come as any surprise to us, because the government is so heavily indebted and seemingly incapable of stopping its addiction to evermore debt. So AUM is going to be difficult. And that means that the volumes and the integrity of our property market is also going to be under pressure. We property is always been illiquid, but the liquidity will reduce and remain low as a result of institutions vacating the market. And so even though we've seen a very, very big change, you know, a big downturn in the markets in the last few years, no one should think that this is a cyclical downturn.

15:01 A cyclical downturn just happens when interest rates go up, people are overextended, they need to reduce their exposure to debt and so on. That works itself through the system and then markets pick up again. But actually some of the damage, some of the very significant damage that's been done to the property market comes from the structural kinds of structural changes that I've just mentioned, in terms of capital adequacy requirements being set by the government, the incentivization of institutions to buy government debt. But also, we have been hit very, very hard by ESG requirements that have made any commercial property that can't reasonably meet EPCC ratings by 2027, and EPC B ratings by 2030 obsolete. And, you know, that takes a lot of stock out of the market too, that takes a lot of liquidity out, it makes it difficult for tenants, tenants themselves motivated against taking buildings that aren't, you know, all singing and all dancing from an ESG perspective, because they themselves are rated by their regulatory authorities on their carbon footprint.

16:07 And if they're not in the best buildings, they get penalized. So there's a the damage that's being done by these regulatory and legislative changes is deep. And it is not going to come back in a cyclical upswing. There may be a cyclical upswing, but it won't make up for all the damage that's taken place as a result of these government policies, unless of course, legislation changes. And you get a, know, half sensible government that recognises the need for the private sector to make money. So that's how I see fund management going forward. And as a result of that, the only option we have as a property company is to do imaginative things as a proprietor. So to buy property, well, buy sites, buy brownfield sites, get planning permission, boost their value through planning permission, effectively all the old fashioned kinds of things that we used to do as a proprietor, but in a more challenged market, which means that we have to be doubly judicious in what we do, because you can't assume that the market's going to take you out of the position that you may enter having a particular view on a given asset.

17:17 So very, very challenging times, still in the property market. I don't intend to go through the various funds. But again, I can take questions on them if you want me to. In terms of so just turning to pages fourteen and fifteen. In terms of where we are in the markets I've discussed, I'll just finish off on The UK since we were on The UK. Great structural challenges as a result of government legislation and regulations. Great challenges in the economy, because we have a government that doesn't recognise the need for the private sector to grow. It's practising policies of high taxation, high borrowing, high regulations, all of this is impacting GDP.

18:06 GDP per capita is actually been negative, I think for the last, I don't know, four years, you'd have to fact check me on that. But I think about for the last four years, GDP per capita in The United Kingdom has been negative. So it's not just regulatory and legislative changes that are damaging us, actually, the economy itself is in deep trouble. And the policies that are being practiced and continue to be practiced are not going to alleviate the problems of the British economy. So we are trading, as I say, in very challenging times, we're not expecting interest rates to come down in a hurry. Sterling is likely to be weak. The Bank of England is likely to be concerned about importing inflation.

18:51 Oil prices, as we know, have popped up, they've come down a bit recently, but they've popped up more or less. And that means reducing interest rates is going to be difficult for the bank, which means that you're not going to get, you know, a cyclical uptick in value from the property markets, because we need interest rates to come down for cyclical increases in prices. So The UK remains challenging. We're not dealing in debt, you would have seen we're not taking any debt in The UK, the debt markets, you can get debt, but frankly, it's not worth it in my mind, you can get 30 to 40% LTV with very high debt ammo rates, high margins, where you're really just making money for the bank, you're doing all the work for the bank, whereas the debt really should be servicing and make allowing the equity holder to boost returns. That's not the case anymore in The United Kingdom.

19:43 Poland, even though it's had a very difficult time on the capital market side, because there was a withdrawal of capital from Poland, as the carry trade ceased to exist. You might recall over the sort of ten years post the credit crunch, interest rates in the West were very low interest rates in Poland were high, and that attracted capital into Poland. Poland did very well over the credit crunch years. But when interest rates in the West popped up, capital left Poland, and that's basically been the case and remains the case in Poland, they have traded, they have had very strong economic performance, you know, they've got a balanced economy, they have a good domestic level of demand, but they also have good manufacturing and export related, you know, that their economy relies much more on exports than ours does.

20:35 And so they've, you know, much more balanced economy, and they've been growing and, and the war in Ukraine, paradoxically, perhaps has benefited the Polish economy because of the increase in defence spending, but also the influx of Ukrainians bringing in money to Poland with them, boosting demand and activity in the Polish economy. So the real economy in Poland has done well, the capital markets have been in difficulty. We are now seeing some steadying of the capital markets in Poland, But they too are subject to some of the structural changes that we've experienced in The UK with banks, for example, not wanting to lend on properties, particularly that are not, you know, ESG or singing and all dancing. So blue tower, you would have seen that bank debt on blue tower is what €5,000,000, I think roughly on a on a 20 odd million value, a very, very low debt levels. And you would have seen our debt levels across the group have come down again, because of this.

21:33 So we can refinance positions in Poland, we're seeing some improvement in terms, but there remains effectively a dearth capital, which which is why we're not investing more in Poland. If the capital markets would recover in Poland, I think you would then see us more active there. But if you can't get debt, to trade Polish assets, it makes much more sense to trade UK assets, where the market is much more liquid. The attraction of Poland used to be the higher yields, the higher debt levels, so that you could really magnify the rates of return on equity that we got through the debt. But that again, in Poland doesn't exist. And so even though The UK markets challenged, perhaps more fundamentally than the Polish one, It's a more liquid, it still is a more liquid market, it's our home market, and we can get in and out of The UK market in a way that I don't think we would be able to in Poland.

22:32 So when we do look at new Polish assets to buy, but it's highly unlikely that you will be seeing us buying assets there. The story really in Poland is to maintain our income, which is holding up well in the various properties that we've got, maintain income refinance our position, over the passage of time, reduce the debt associated, you know, mortgage against these properties, mortgage on these properties, and eventually get ourselves into debt free positions on these assets. And, and yeah, so that's about it on where we are. And it's difficult to tell you where the future profits are going to come from, because we are going to become by dint of necessity more opportunistic.

23:17 In our purchases, we may buy properties for investment, we may buy properties for trading. But we can't give you any view of where these deals are going to come from. Because by the nature of opportunistic purchases, they come around from time to time, we're looking, and we you know, we nab them when we see them, but there's no there's no sort of pipeline that I can point to and say, Yep, this is where it's all coming from for the next year. All I can say is that we've come through the very as I mentioned already, we've come through the difficult period, the balance sheet is strong, we're sitting on good cash piles, we are finding assets that we wish to buy and we can trade. And we have done some good deals. And I anticipate we will go on doing good deals.

24:03 We are now I would describe in summary, a small, secure, capable, property, proprietary, real investment and trading business. That's where we're at. And I think that probably brings me to the end of my presentation. And I look forward to your questions. That's great. Thank you, Ben for updating investors today. Can I please remind investors to submit your questions just by using the q and a tab situated on the right hand corner of your screen? And for your reference, a recording of today's presentation will be available in the investment So the question is, as you highlight the discount to NAV is significant, what actions do you look to take to unlock the value from here? As a management team, what we've only ever really focused on, and what I believe we should only focus on is running the company properly.

24:55 I'm not into taking steps that are designed to boost the share price at the expense of the security of the company. I hope that over time, the markets will recognize the wisdom of always focusing on the security of the company, and we'll come to value our shares properly. And as we increase the dividend, I think that in itself will help to boost the share price. But we're not going to start doing share buybacks, and stuff like that weakening the position of the company for a short term sort of pop up in the share price. I don't think that's in the long term medium or long term interest of shareholders or the company. Next question also from Benji, what is your vision for the coming years for the group?

25:41 When looking at earnings mix shareholder returns, etc? It's great to get the dividend back. But with debt down, what strategy do you look at to grow the group? So that so as I mentioned, there's no the strategy is not to have a strategy, it's to have an open mind, look at the opportunities that come across our desk, and make offers based on a difficult market, where we think we are likely based on the prices that we offer, if we are able to buy those properties at those prices, to make money come hell or high water. So for example, this morning, we bid on a portfolio of residential property being built in Surrey. And yesterday, we built a we bid on an office block in well, not yesterday, a couple of weeks ago, we bid on an office block in Brentwood.

26:29 Very, very different propositions, but all price adjusted to reflect the risk that we think inherent in them, and giving us the ability to make a profit over the course of what we would see as the investment period in those given properties. And one of the great advantages, if I may say so, having been in property for so many years, and having been a developer myself, is that we are able to look at all kinds of commercial property, and indeed residential because we're bidding on resi, and just, you know, move this way or that way, depending on where we see we can make money. So that's how we see it. Have you considered the large discount to NAV as a reflection of the market's concerns of a corporate governance at FPO, for example, Ben Abid related party transactions, fifteen year plus tenure of the independent directors.

27:25 I don't think so. This is from a guy called Huey F. I don't think it's got anything to do with corporate governance. Actually, if you look back at the results of this company over the long term, I haven't done it recently, but we did it about a year ago. I think a long term internal rate of return on NAV for this company was about 16% over twenty years or something. It's quite phenomenal. And, you know, no amount I'm just going to address is this Huey F? Let me just tell you something, Huey, I don't know how old you are, how long you've been in business, but no amount of the creation of regulations to get boards of directors to tick boxes creates a capable board of directors or a team of people that have the ability and the trustworthiness to deliver for their shareholders.

28:15 Fundamentally, we've lost touch with in this country is is caveat emptor, you as a shareholder need to look at us as a management team, and you need to decide whether this is a management team, which over the cycles is able to navigate itself with competence, and as I say, trustworthiness, are they able to do it? And do we believe in them? The having lots of non executives who know nothing about property who know nothing about the mechanics of our business, but might ostensibly give people comfort and tick boxes for you, Huey and others who fear this kind of thing won't get over that problem. What you need is competence and capability in the company.

29:02 And the team here that I've built up over a long period of time, we have had difficulties, of course we have. But let me just give you an example, Huey. A property that we're buying at the moment for £11,000,000, traded last in 2018 for £19,000,000. A property that we bought in Uxbridge last year, traded three years ago, four years ago, at £18,000,000, we bought it for £5,000,000. The market has been absolutely decimated. Decimated is under egging what's happened to the market. And this has got nothing to do with the capability or otherwise of the management team. It's everything to do with government policy and the way this country has been run.

29:47 And this is not just the property sector that's been affected. Every single private sector has been affected. So anyone who's sitting around thinking, Oh, it's a matter of corporate governance, is actually forgive me, I'm going to speak utterly frankly with you smoking something very strong, because it's not corporate governance that is affecting us. What's affecting us is absolutely abysmal governance over the last, particularly the last ten years, but for the last thirty years in The United Kingdom. Next question. No, there are there any other company countries we're looking to invest in? No, we're not looking to invest in any other countries at the moment. We've got one asset in Romania, one remaining asset in Romania, which is under offer, and we would hope to sell that in the next few weeks, as well. I didn't mention that but it's only one property in a fund.

30:44 We know The UK, we're deep into The UK market. The UK market is the most liquid market in Europe. And we will continue to trade The UK market. Okay, if there are no other questions, I think we can bring the meeting to a close.