On March 20, Plaza Centres plc released its audited financial statements for the financial year ending in 2017. This was the first time whereby the company consolidated the results of Tigné Place, the property it acquired recently, in its financial statements for a full year.
This showed a positive contribution in terms of revenue from this subsidiary despite the refurbishment works and the expiry of a significant number of rent agreements during the year 2017, which the company declared, led to lower occupancy rates.
When compared to the year 2016, where according to the company’s prospectus for the bond issued in 2016, this subsidiary was fully occupied and generated an annual rental income of €479,781, Tigné place generated rental income for over €500k during 2017, despite the lower occupancy. We attribute this positive performance to the renewal of the relevant rental agreements at new terms, closer to market rates for the area.
In this regard, at the time of the acquisition, Tigné Place was fully rented out at an average rate of €148 per square metre, which is well below the average rate in the Sliema area. We estimated that similar properties in Sliema area could be rented out at a minimum of €170 - €180 per square metre. The same applies to the car spaces of Tigné Place, which as at 2016 were being rented out at an annual rent of €660, compared to an average of €1,000 in this area.
The increase in average rental rates for this subsidiary was supported also by the capital investments that the company made and is still making to improve the state of the offices and common areas within this building. This confirms the positive contribution that the subsidiary may give to the Company in the near term, especially once the refurbishment works are completed and occupancy levels stabilise, which we expect by the end of 2018.
Overall, the earnings before interest, tax, depreciation and amortisation (EBITDA) increased by 19% compared to 2016, although the EBITDA margin decreased from 82.6% to 82.0%. The company explained that this was due to the increased maintenance and marketing expenses, which were incurred due to the lower occupancy rates.
Net profit did not change significantly, with €1,269,072 profits registered in 2017 compared to €1,266,780 in 2016, despite the increased finance costs, that almost doubled during 2017, due to the issue of an €8.5 million bond in the second half of 2016. We expect both profitability and margins to increase once occupancy levels at Tigné Place stabilise.
From a dividend point of view, the stock is trading on an attractive net dividend yield of 2.8% at the current price of €1.04. We don’t see the dividend at risk in the short to medium term. On the contrary, once the Tigné Place is at full occupancy, cash flows should improve sustaining the attractive dividend.
In conclusion, we remain positive on this stock and its growth potential. Investors should consider Plaza to form part of their portfolio if they are looking for a reliable dividend paying stock, with limited downside risk and good return potential.
Caution should be taken, however, as the low liquidity of the stock could play a part in your investment decision, and as is a general theme on the Malta Stock Exchange, be wary of potentially wide bid-ask spreads when attempting to trade the stock.
Disclaimer: This article was issued by Elisabetta Gaudiano, Research Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as a personal recommendation/ investment advice including tax and legal advice. Analyst views to BUY, SELL or HOLD on particular stocks or instruments are related to the stock/instrument being reviewed and are not to be treated as personal recommendations to investors, which are only issued following suitability assessment.