The research team at Calamatta Cuschieri recently distributed an equity research report on Plaza Centres p.l.c. (“PZC” or “Company”) with a “Hold” recommendation and a one-year price target of €1.04, implying a capital upside of 5.1% to the current price of €0.99 as at the date of this writing.
PZC owns and operates ‘The Plaza Shopping Centre’ located in Sliema. The Plaza Commercial Centre is spread over an area of 10,500 sqm hosting a mix of retail, catering and office spaces over nine floors built around a central atrium.
The retail shops within the shopping centre offer both local and international brands, whilst the office space is mainly occupied by betting companies and small financial/investment firms. Of note, during 2018 PZC completed the refurbishment of Tigne Place located in Triq Tigne, Sliema which was acquired during 2016. This property comprises a total area of 4,001 sqm and is currently occupied by retail outlets and a language school. The property also includes two floors and a mezzanine level of office space together with 100 underground car parking spaces.
The refurbishment works implemented at Tigne Place during 2018 has contributed towards a growth in PZC’s revenue. This, coupled with the conversion of a number of shops into a food hall on level 0 of the Plaza centre that was also completed in 2018, resulted in the Group’s occupancy to improve to 91% as at June 2019, representing an increase of 3% when compared to 31 December 2018. The refurbishment program of the Plaza centre is expected to be maintained throughout 2019.
Apart from the improved occupancy, PZC’s latest interim results illustrate that the Group’s revenue was positively impacted by the renegotiation of Tigne Place lease contracts with rental rates being in line with the current market rates, rather than the previously understated rates included in older contracts, most of which expired by 2018. The 2019 last twelve months (LTM) results illustrate an upsurge in revenue of 4.8% to €3.4 million, from €3.3 million generated during 2018.
Rental agreements for retail tenants have a long-term nature (an average of 16 years in 2016) whilst the agreements for the office space are much shorter (on average 2.4 years). Most of the operating and maintenance costs for common areas are recharged to tenants.
Although the latest results illustrate an improvement in revenue generation, it is important to identify that PZC still has marginal growth potential given that the Company’s establishments are not yet fully occupied. Furthermore, higher levels of revenue are expected to be generated by PZC going forward in line with the contractual rental rate increases which are included in the new tenants’ contracts.
In addition to the increase in the revenue experienced during H1 2019, EBIT was also positively impacted by a marginal decrease in expenses through a lower contribution by the Group towards marketing and maintenance costs, given the improved occupancy rates. As per 2019 LTM results, EBIT increased by €0.2 million or 8% to €2.2 million, in comparison to an EBIT of €2 million achieved in 2018. The decrease in expenses during H1 2019, is not material to the Group and amounts to less than €0.1 million.
PZC’s financial debt is made up of an unsecured bond amounting to €8.5 million at a fixed interest rate of 3.9% redeemable in September 2026, in addition to a bank loan facility of €3.6 million at variable interest rates which stood at 2.75% in 2018. In this regard, we are of the opinion that the Company
has a sufficient level of cash reserves to annually contribute towards its annual debt repayment of approximately €0.5 million in respect of its outstanding debt.
The Board did not propose the payment of an interim dividend for June 2019. However, it’s worth mentioning that PZC has constantly distributed a dividend over the past five years, which on average amounted to approximately 70% of total earnings.
Given PZC’s relatively positive outlook and improvement in revenue and profitability potential, together with PZC’s limited growth opportunities, we are of the view that the main reason to hold the stock primarily relates to the Company’s constant dividend distributions, whereby the current dividend yield stands at a healthy level of 3%.
This article was issued by Andrew Fenech, Research Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or 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.