First Property Group plc (FPO.L) Earnings Call Transcript

So there's obviously no view, it's unlikely that the situation will change in Poland then?

It's obviously determined by valuation of the properties, but we're confident with the deferred tax assets that we have recognized today.

Okay. And it's up and down depending on what the value of the properties are doing. So if the property value goes up, obviously, your deferred tax asset reduces, a drop in value, then you get more of a deferred tax asset. So you want the deferred tax asset to disappear, I think, these values have gone up. Does that make sense?

My next question is obviously having looked at the presentation again, has any progress been made with regard to the vacancy for the Blue Tower property at Warsaw, how is that going?

Yes. It's going well. This has been an extraordinarily good building in terms of occupancy levels. The vacancy we've now got is vacancy that we bought all -- to the extent that any part of that property was occupied, we made a series of purchases in the building, as you probably know. And at every point where the building had occupancy, it's retained occupancy pretty much 100% ever since we bought the property. But then we bought 7,000-odd square meters of vacant space in 2022, and we've been leasing that up. There's about 2,400 square meters left. And we are in advanced negotiations with a tenant to take that remaining space. So we hope to have some positive news on Blue Tower at that point.

Okay. So I presume there's going to be fit-out costs before the [indiscernible] move in?

Yes, there will be fit-out costs, unfortunately. But they tend to be a small proportion of the benefit that there will be -- not tend to be, they will be a small proportion of the benefit that the property will get through the tenancy.

Okay. In terms of fund management, I mean, listening to the presentation, it's clear that the company is moving on from it to some extent. So I understand that the annualized fee income is GBP 1.3 million. And I can see it in the notes, it says this turns out to be GBP 0.32 profits before central overheads and so on. Having looked at the different funds, by definition, they will run out of time. Is there 1 or 2 funds where due to whether there's an ownership of 46% or a joint ownership of 23%, leaving yourself about 77%. Will those mandates continue? Is there a plan to have it continued? Or if the income drops below a certain level and it's not possible to recover the overheads, will the decision potentially be made to say this is no longer for us?

So one of the great benefits, if I may say so, of the team at First Property Group is that we are fund managers, but we're also, by nature, proprietors. And if you look at our fund management model, the way we've practiced it, we've always been co-investors alongside shareholders, or most of the time, if not all the time, we've had a small stake in each fund. And in fact, I think the largest proportion is 45% in Fprop Opportunities. So we're not shy to deploy our cash. And this makes us quite distinct from most fund managers who are not proprietors by nature, but advisers. They come from the advisory part of the world as opposed to the proprietary part. And this is not the first time that fund management has been under pressure in the 26-year history of First Property Group. Between '08 and 2010, 2011, there was huge pressure on the fund management business. And Blue Tower, which has done so well for us, for example, was bought then because we couldn't raise third-party money. All the institutions have vacated the playing field as it were. And so we put our own money into action. And we're seeing -- what we've experienced over the last 3 or 4 years, 5 years maybe, is huge structural and market changes in property, commercial property right across Europe, including in the United Kingdom, obviously. And those -- the structural changes are regulatory and they come from capital adequacy requirements foisted on pension funds and institutions that have now basically left property pretty much and are mostly invested in corporate and government bonds. There's been a huge move towards bonds, which I think is deeply damaging to the British economy. But anyway, that's what's happened. And that's a regulatory shift. The other regulatory shift that has been deeply damaging to property is the drive towards net zero, which has effectively made lots of properties obsolete or requiring huge CapEx in order to keep them functional. But the other impact of ESG has been a withdrawal of capital from the sector as well because banks don't want to lend on property that isn't top-notch ESG compliant. And so paradoxically, instead of repurposing perfectly -- otherwise perfectly good buildings, what's happening is that you're getting a withdrawal of capital from these buildings and exacerbating problems both from a tenancy perspective as well as from an investment market perspective in commercial properties. Those are the structural changes that have taken place. And there's no light at the end of that tunnel. It doesn't look like the government is going to roll back on net zero or suddenly release the capital adequacy requirements that pension funds need to make and so on. The other market change that, of course, has taken place is after 12, 13 years of close to 0 interest rates, we're now seeing interest rates normalizing quite dramatically. And that's -- as interest rates rise, the value of a property drops, there's an inverse relationship. So that -- those are the hits that we've experienced not just as a fund manager, but as a company as well. And in order to hold our position to be able to continue to exist, we've necessarily had to sell some assets. We did a fundraising ourselves in 2024. And we are faced with difficulties raising third-party client money at the moment. There's no doubt about that. But we won't let First Property Asset Management Limited fail or we won't cease our asset management capabilities because there is every possibility, every likelihood indeed that over time, governments see sense, they change these regulations and money comes back into the sector. Commercial property is a fundamentally crucial part of the British economy. So I do think that it would be pedantry and wrong to close down our asset management division simply because we're having problems at the moment. We need to ride this out and do the best we can as proprietors and come back to the asset management model when institutions are investing again. That's a very long answer to your simple question.

I'll add one point is it's the same people involved in both the fund management and the proprietary activity.

So we don't save a lot of money by shutting it down either.

Yes.

Yes. So I presume you've obviously mentioned in the presentation, has the Ostrowiec shopping center been refinanced?

It has, yes. We've agreed terms for the extension of the loan on that shopping center.

Okay. And there was a mention of the Romanian property.

So we have entered into a preliminary purchase agreement to sell that property, which is conditional on the Monopolies Commission, believe it or not, of Romania. This is the madness of EU regulations. I won't get political. But we have just to sell a small office block in Cluj in Transylvania, we need anti-monopolies clearance. I mean it's -- so that's going through the process at the moment.

And forgive me if I must say, is that the final property...

That's the final property in Romania.

Therefore, is a move to further simplification.

Yes, Romania is over for us really. It never really worked out. The depth of the market, just to put markets into context, the U.K. commercial property market turns of about GBP 100 billion a year. The Polish property market, about GBP 5 billion [indiscernible] or EUR 7 billion. And the Romanian market has never broken out of GBP 1 billion a year. And so it's been very difficult in Romania to find deals. Actually, the deals we have done in Romania have all, with the exception of 1 or 2, I think, been really profitable for us, but it's terribly difficult to find stock.

Okay. My final question is obviously the presentation of the current situation is the case of basically looking for bargains in the U.K. My obvious question is, how is that going?

Again, it's so hard to predict because you have to kiss a lot of frogs before a prince turns out, not that I'm looking for a prince. The princess will be more to my liking. But we go through that process. Jeremy is at it 24/7. I'm at it 24/7. And we bought a little property in Leatherhead for GBP 600,000, which we hope will do well for the group. We get planning permission on it to convert it from offices to resi. We're looking at a few others of that kind of thing. And we'll just do as many as we can, but it's impossible to give you any indication on it because it's deal led.

Yes. Obviously, I'm aware of the level of profitability within the financial year for the AGM, which is, turns out in earnings per share of about 1.8p. If it turned out roughly the same next year, by implication or the year we are within, I presume looking at the coverage proposals for the dividend that in effect, you're potentially looking at 0.5p in current year [indiscernible].

We're not going to make any sort of firm commitment because that's not what we do. But I would just say that it is our aim as a Board to make the company profitable and to pay dividends, which we would hope would increase over time. That's our aim and ambition.

And that we did very, very successfully for many years until we took a hit.

There have been a number of questions that have -- I don't think anybody can actually see them, but that have come up. But I think we've answered pretty much all of them. There were 2 or 3 questions on the fund management role, which I think Ben has fully covered. We've talked about where we're thinking -- where the investment opportunities lie. We just talked about investment dividends and so forth. And the other questions, I think, have been answered either in writing separately. I think there's -- I don't think there are any other questions that we feel that we haven't really covered. I think we're fully covered on all the questions that we have on the screen. There's 2 that have come in. Can we have a proxy number for Resolutions 7 to 9? I don't -- we've withdrawn them. So I'm afraid that -- yes, I mean, that's irrelevant, frankly. And you will get a poll figure on every poll of the resolutions that we put to the meeting will go out on the information service later. Is that right, Jill?

They'll be part of the RNS.

Yes. So I think unless there's anything else, that answers all our questions. Thank you very much. Thank you for attending the meeting. Thanks online. And thank you for listening, if anybody was.

Thank you for updating attendees today. On behalf of the Board of First Property Group plc, we would like to thank you for attending today's Annual General Meeting, and good afternoon to you all.