O1 Properties Limited (“O1 Properties” or the “Group”), one of the largest owners of Class A office properties in Moscow, has announced its annual financial results for 2016.
The O1 Properties Group’s net rental income decreased by 12.7 percent in 2016 compared to 2015, amounting to USD 284 million. This decrease was mainly driven by adjusting rents to market levels, often in exchange for lease term extension. The Group believes it has completed adjusting rent levels with major tenants as a result of the economic downturn that started in 2014.
The value of the O1 Properties Group’s investment property portfolio decreased by USD 24 million, mainly as a result of a combination of the above described market correction and the Group’s acquisitions in 2016.
At the end of the reporting period, the occupancy rate at the office centres owned by О1 Properties (excluding development projects) was 88 percent, which was higher than the average market occupancy rate of 82 percent for a similar class of properties in Moscow. As in previous years, the Group’s key tenants included leading national and international companies.
О1 Properties’ net debt amounted USD 2.8 billion, compared to USD 2.7 billion at the end of 2015. The main reason for the net debt increase was a revaluation of the Group’s Russian rouble bonds (the Russian rouble appreciated 17 percent over the year 2016). The Group’s cash interest expense on loans, excluding one-off and overlapping interest expenses, amounted to USD 208 million, compared to the 2015 level of USD 198 million.
In September 2016, the Group successfully placed Eurobonds in a principal amount of USD 350 million with interest rate of 8.25 percent per annum, followed by another successful USD 335 million USD-denominated bond placement with interest rate of 7 percent per annum on the Moscow Exchange. The proceeds from both placements were mainly used to repay the Group’s financial liabilities.
Both bond issuances are in line with Group’s mid-term strategy to optimize and lower cash interest expense. The Group estimates that the bond issuances and negotiations with lenders will result in annual cash interest savings of USD 27 million, or 13 percent compared to 2016.
The weighted average interest rate on the Group’s debt for 2017 is expected to be 6.7 percent, including hedging costs and benefits. The weighted average term of the Group’s banks loans has improved from 4.1 years at the end of 2015 to 4.7 years at the end of 2016. The Group’s net LTV ratio was 67 percent at the end of 2016.
The O1 Properties Group’s total comprehensive loss for 2016 amounted to approximately USD 80 million (compared to total comprehensive loss of USD 177 million in 2015), which was mainly driven by cash positive results (net rental income less cash interest expense, administrative expenses and income tax paid plus net other income and expenses) in the amount of USD 77 million, adjusted by unrealized foreign exchange losses on revaluation of Russian bonds of USD 64 million and negative revaluation of investment properties in the amount of USD 84 million.
Tomasz Zamiara, Chief Financial Officer of О1 Properties, commented: “Given the better market sentiment we’ve observed for the last 9 months, we believe the Group has achieved market rental levels as adjusted for the economic turbulence that started in 2014. We managed to compensate for the drop in rental levels by adjusting our cost of funding to levels that we believe are now market levels. In 2017, the Group will target reaching one-digit vacancy levels and continuing to decrease its cost of debt through debt portfolio restructuring activities similar to 2016. At the same time, we have noticed increased interest in Russia from potential foreign, equity investors, which is very good sign for the market.”
