Your recent 500 million euro green bond issue, I believe, was three times oversubscribed. GTC said the issuance is part of a shift in approach from structured Eurobond funding to unstructured funding. Could you tell us why you think it would be beneficial to do so at this time?

Yovav Carmi, Chairman of the GTC Executive Board: Markets are liquid and money is looking for promising new investments, and today, a year after the outbreak of the Covid-19 pandemic, investing in sustainable real estate is attractive and worthy business. We observe the market and we see that these durable and environmentally friendly properties are very popular with investors. They are increasingly willing to allocate money to properties that meet the strictest environmental criteria and meet industry standard ESG indicators. Green bonds, in a way, are a promise that the money invested will be spent on environmentally friendly projects, which is why there has been such interest. Proof of this is our excellent debut in green bonds of 500 million euros. Indeed, as you mentioned, the issue was very well received by the vast universe of European bond investors and was several times oversubscribed with an order book of over 1.4 billion euros. euros.

Does this represent a significant change in your funding? How exactly do you see the structure of GTC’s funding in the longer term?

Ariel Ferstman, Chief Financial Officer and Board Member of GTC: Yes, this is a significant change. Ultimately, we would like to change our funding structure from secured loans to a predominantly unsecured debt financing model. Our goal is to reach 90 to 100% of this type of funding. Therefore, we plan to do 1 to 2 additional green bond issues to pay off all home loans and move to unsecured debt.

And you also recently got an investment grade from Fitch and a lower investment grade from Moody’s for bond issuance. So will we be likely to see other similar bond issues in the near future?

A F: The BBB- / investment rating with a stable outlook from Fitch Ratings that we recently obtained, as well as Ba1 / with a positive outlook from Moody’s Investors Service, confirm the strong performance of our group and demonstrate investor confidence in us in as a trusted partner, which we are very satisfied with. As I mentioned earlier, we intend to do several other similar issues as our goal is to increase GTC’s financial flexibility by switching to unsecured financing. With this we will strengthen the company’s position in the EEC real estate market.

Why “green” bonds? Do you see it as a moral obligation to realize the ideals of sustainability? And does that also make financial sense, in terms of tax breaks, subsidies, etc.? What obligations does a green bond impose on your activities? Do you see green bonds as the future of this type of financing?

YC: Having a portfolio with 84% of buildings holding “Very good” or “Excellent” green certificates, it was natural for us to issue green bonds. As mentioned in our very first ESG 2020 report, we plan to achieve 100% certification for all buildings under construction as well as projects already completed. Granted, there are so far no tax breaks or subsidies for green bonds, but investors are increasingly interested in them. The cost of financing via a green bond is lower. Investors are more interested in it, and there are fewer issuers than compared to similar funding through unsecured bonds. We believe this is the direction the market will take, as green trends and environmental concerns are key determinants for many investors.

How and where do you plan to use the funds you have raised? How much will go to each sector and geographic market?

YC: First, we plan to refinance current bank loans. We want to start in the countries of South East Europe, like Serbia, Romania or Croatia, where the debt costs are the highest. Ultimately, we intend to repay all loans related to our properties.

In the first half of the year, GTC acquired a few office buildings in Budapest – Ericsson and Siemens headquarters Evosoft and Váci Greens D. You seem to have particular confidence in the Budapest office market. Why is that ? And are you now looking at other investments in this city – or are you turning your attention elsewhere?

YC: The Hungarian market has been in economic recession for many years and has recently started to recover. The country has a young, well-trained workforce, especially in the IT and high-tech sectors, which attract well-known international companies to Hungary, creating a demand for modern offices. So we see a lot of potential in this market. Recently, we invested 160 million euros in the acquisition of two unique Class A office buildings occupied by triple A tenants in Budapest. In addition, we are currently managing six office assets in Hungary and are developing a new project – Pillar, which is already fully leased to Exxon Mobil. Regarding the next steps of the business, we will continue to expand into other markets. Our Tier 1 includes regional cities in Poland, but we also plan to expand further in Serbia and Bulgaria.

You also sold your office portfolio in Belgrade during this period. Are you planning to re-enter this country and the SEE region – or are you now focusing firmly on Hungary, Poland and elsewhere?

YC: Hungary and Poland are very stable economies with high ratings, which makes them key markets for us. We will also invest in other countries, but more through organic growth than through acquisitions. We decided to sell our office portfolio in Serbia as it was a large part of our total portfolio, which was too large for a non-EU country. This transaction confirms the liquidity of this country as well as the valuations of our assets. However, we still want to return to Serbia because we believe that it is a market with prospects and that the return on investment will be satisfactory and decent. We plan to start an office project in Belgrade this year and have already acquired land with building permit for the development of 70,000 to 75,000 m² of office space.

What impact has the pandemic had on your operations? Valuations and income must have been impacted. How successful has it been, in each of the segments you work in? Are things getting back to normal now? Or is there still some way to go?

YC: Like many companies around the world, GTC has been affected by the Covid-19 pandemic. The retail sector was the most affected: our shopping centers lost 14.7 million euros in turnover in 2020 and 2.4 million euros in the first quarter of 2021. The end of the pandemic may be impossible to predict, but we are prepared for any future scenario. Offices have remained resilient – we haven’t seen a drop in average occupancy or rents in the region where we operate. In addition, we expect the demand for office space to increase in our region. We have noticed that post-pandemic multinational tenants want to save money and are more willing to move their offices from Western Europe to Eastern Europe. We also find that many employees in the CEE region have limited conditions for working remotely, so they are more likely to return to their offices.

Have the different markets in which you operate not been transformed by the pandemic? Is it fair to say that for offices the trend is to work from home or some sort of hybrid, while retail has evolved dramatically online which will have a major impact on demand and valuations? of your assets in both segments? Or is it an exaggeration? What plans do you have now for both segments in response to these changes?

YC: We have not seen any drastic changes in the operations of offices or shopping centers. Of course, the pandemic has had a significant impact in terms of changing consumer behavior, but e-commerce only accounts for around 7.7% of purchases, which is still a small percentage, especially compared to the UK, where it already represents a fifth of retail trade. We have seen buyers return after the closings and restrictions, in May and June, and we hope this trend continues. We have also seen how confident retailers are signing up for new entrances to our malls and keeping their occupancy rate high at 96 pct. We have seen the entertainment industry grow over the past few years and believe that everything will be back to normal after the pandemic as people need a place where they can meet and spend time together. Shopping centers, as well as retail businesses, fulfill this function. At the office level, we see that people are gradually returning to work in the office, because they always prefer the comfort and working environment in the office, which ensures a better balance between professional and private life. We believe that there will be no impact on the office occupancy rate.

You are also active in the residential sector, which appears to be one of the winners of the pandemic. Do you plan to focus more on this and formats like rental, student accommodation or retirement homes? And are you also looking at completely different real estate sectors in this post-pandemic reality?

YC: We mainly focus on the office and retail segments. We own some residential land and cannot rule out residential development from time to time, but we do not intend to make housing the main element of our development strategy.