Hili Properties holds and manages strategic commercial real estate for lease around Europe. The Group holds properties in Latvia, Romania, Malta, Lithuania and Estonia. Its portfolio includes dedicated business blocks and office space, retail complexes and properties housing McDonald’s restaurants in key commercial districts within the above-mentioned territories. More specifically, the Group represents the real estate division of the wider Hili Group, whose parent is Hili Ventures Ltd.
Group’s developments
On December 20, 2019, the Group disposed of its shareholding in Hili Properties (Swatar) Ltd for the consideration of €7.1m. The said company owns a property, known as Tower Business Centre, located within a prime commercial and office area in Swatar. Furthermore, in FY19, the Group sold an apartment in Latvia for the price of €152k.
In FY19, the Group also sold another two properties in Latvia for €4m, which reflected the carrying aggregate value of these properties. As at end of FY18, the Group had two other properties in Latvia for sale, however during FY19, the said properties were reclassified back to investment property, thus indicating that the Group does not have the intention to sell such properties, at least in the short-term.
On January 18, 2019, the Group acquired a plot measuring 10,680sqm in Riga, Latvia for a consideration of €2.3m. This property was subsequently sold in FY20 for €3.9m, therefore realising a gain of circa of €1.6m.
COVID-19 impact on the Group’s operations and outlook for FY20
The COVID-19 pandemic has presented very challenging conditions to global markets and naturally it has also negatively impacted both the local and foreign property markets. The Group further reported that the outbreak has significantly impacted the economies in which it operates. Consequently, this may lead to a number of tenants facing difficult financial circumstances, which ultimately will also impact the profitability and cash flow of the Group.
The forecasts for FY20 presented in the recently issued Financial Analysis Summary (FAS), are based on the underlying assumption that the spread of COVID-19 will be brought under control in the course of the year, with the situation in the respective economies assumed to remain positive in general. Unfortunately, the winter months has presented Europe with a surge in the number of COVID-19 cases, with several countries re-imposing lockdowns and containment measures.
This situation will present further difficulties to tenants especially if such measures are maintained throughout the Christmas season, where usually retail malls are packed with shoppers and merchants generating excess liquidity to cover the quieter shoulder months.
Notwithstanding the above, based on the Group’s pessimistic forecasts included in the annual FAS, which as stated by management, factor in significant strain on rental rates and occupancy, the Group should be in a position to continue operating as a going concern business. This means that the Group has sufficient resources at its disposal to continue operating indefinitely and is also expected to cover all of its financial obligations.
Additionally, the directors also noted their intentions to adopt a conservative approach concerning development opportunities, as their primary focus is on cash flow conservation and active asset management.
On a positive note, the sale of the Swatar property provided the Group with excess cash prior to the outbreak, however this has also naturally contributed to a projected deterioration in the fundamentals of the Group for FY20. Unfortunately, as the COVID-19 situation remains relatively fluid, and as the extent of the impact on Hili Properties at this stage remains unknown, the Group is exposed to further economic developments especially in the jurisdictions in which the Group operates in.
Disclaimer: This article was issued by Rowen Bonello, 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.