Warimpex achieved a positive operating result (EBITDA) in the first half of 2020 despite losses in the hotel segment due to the coronavirus. This can be attributed primarily to the earnings contribution from the rental of office properties – this segment saw a 15% increase in revenues compared with the prior-year period. Following the posting of property impairments and currency losses, this led to a loss of €21.7 million for the first half of 2020, including a result of minus €3.0 million for the second quarter of 2020.
“Warimpex has strategically realigned its property portfolio in recent years. As a result, the hotel segment, which is being heavily impacted by the health crisis, now makes up only 12% of the total portfolio while office properties with long-term leases that are contractually assured account for 76%. In the office segment, Warimpex is benefiting from the attractive locations and high quality of the assets. All of the office properties have been newly built or extensively refurbished in recent years and satisfy the latest tenant requirements, ensuring long-term rentability,” explained Franz Jurkowitsch, Chairman of the Management Board of Warimpex. “The decision to focus on office developments and assets is increasingly proving to be the right strategy, as all of our office properties are enjoying very stable development compared with the few remaining hotel properties in the portfolio, which are currently suffering due to the global market situation.”
Current development projects progressing
In the first half of 2020, Warimpex focused on the development of current projects in Poland, Germany, and Russia as well as on continuing with construction permit processes. Despite the challenging market conditions, progress was made on material plans with no delays.
In Poland, Warimpex will continue to move forward with the next office property development projects (Mogilska Phase III, Białystok Offices, and Chopin Office). The company expects construction permits to be issued for at least two of the three properties listed in the second half of the year.
A detailed look at the first half of 2020
Warimpex increased its revenues from the rental of office properties by 15%, with the figure rising from €9.2 million to €10.6 million. This can be attributed primarily to the completion of Mogilska 43 Office in May of last year. Due to the effects of the health crisis, revenues from the hotel segment declined by 51% year-on-year to reach €2.4 million in the first half of 2020. This led to a decline in total revenues to €13.6 million. Expenses directly attributable to revenues rose from €6.0 million to €6.5 million, yielding gross income from revenues of €7.1 million (2019: €9.2 million).
The operational impact of the government measures to contain the COVID-19 pandemic became clear in the second quarter in particular. Looking at the second quarter on an isolated basis, hotel revenues declined from €3.0 million to €0.2 million, while the associated expenses were only reduced from €1.5 million to €1.0 million. By contrast, revenues from the rental of office properties remained stable in quarter-on quarter terms at €5.2 million. Overall, consolidated revenues fell from €9.0 million to €5.7 million in the second quarter and expenses directly attributable to revenues dropped from €3.1 million to €2.4 million. This resulted in gross income from revenues of €3.3 million for the second quarter of 2020 (second quarter of 2019: €5.9 million).
While Warimpex sold an office property and the operating company for the Dvořák hotel in Karlovy Vary in the first half of 2019, no property transactions were completed in the first half of 2020.
EBITDA retreated from €9.9 million in the prior-year period to €0.3 million, and EBIT fell from €16.6 million to minus €9.2 million. This can be attributed to a lack of property sales, negative effects from property valuation, and the negative earnings contribution from hotel operations. The financial result (including earnings from joint ventures) declined from €4.1 million to minus €10.6 million. This includes non-cash losses from currency translation in the amount of €4.7 million (2019: gain of €7.3 million) and losses from joint ventures of €2.5 million (2019: gain of €0.4 million). These can also be attributed in part to negative hotel results and in part to losses from currency translation
Due to these effects, the result for the period decreased from a gain of €17.9 million in the first half of 2019 to a loss of €21.7 million.
Outlook
Based on its experience during the global financial and economic crisis of 2007, Warimpex has set its strategic focus on expanding the property portfolio, engaging in active asset management, and creating new offerings, and will continue to consistently pursue this strategy. The loosening of the government measures to contain the COVID-19 pandemic is expected to slowly but surely contribute to the recovery of the hotel segment. Warimpex expects the solid trend in the office segment to continue due to the attractive locations and high quality of the assets. However, the long-term effects of the health crisis are still difficult to predict and depend on how the pandemic progresses.
“The fact that the equity ratio increased from 31% as at 30 June 2019 to 38% as at 30 June 2020 underscores Warimpex’s solid financial foundation. The highly successful 2019 financial year made a major contribution here. With a crisis-tested team, deep roots in its core markets, excellent relationships with strong partners, and its economic and financial strength, Warimpex remains optimally equipped to overcome the current and coming challenges. Based on the stable development of the office properties and current refinancing arrangements, the Management Board is therefore considering discussing the possibility of a dividend payment as well as other measures with the Supervisory Board in the course of the ongoing evaluation,” concluded Jurkowitsch.
