News Tumas Investments p
Financial Analysis Summary Update 2019
Prepared by Rizzo, Farrugia & Co. (Stockbrokers) Ltd, in compliance with the Listing Policies issued by the Malta Financial Services Authority
Tumas Investments plc is a public limited liability company incorporated in Malta on 17 November 2000 to act as the financing arm of Spinola Development Company Ltd. Given the company’s nature of activities, that is, raising finance for on-lending to SDC, there is an inherent dependence on SDC’s cash flows and operations.
Since 2000, the Issuer has tapped the local bond market six times. The first four bonds, issued in 2000, 2002, 2009 and 2010 respectively, have to date been redeemed.
Meanwhile, the Issuer has today, two outstanding bonds, namely the €25m 5% bonds maturing in 2024 and the €25m 3.75% bonds maturing in 2027.
SDC was set up as a limited liability company in Malta on 10 May 1966 and was acquired by the Tumas Group in 1986 through Spinola Investments Limited. The business of SDC has, to date, comprised primarily of the development, management and operation of the Portomaso Complex situated in St Julian’s.
SDC owns three subsidiaries, namely Portomaso Leasing Company Limited, Halland Developments Company Limited and Premium Real Estate Investments Limited, all of which are incorporated in Malta.
In 1994, the then Malta Hilton Hotel was completely demolished, making way for the development of the Portomaso Complex. The land title was acquired by SDC from the Government of Malta and today the Guarantor benefits from freehold title of the site.
For the purpose of management and administration of Portomaso, in 2004 SDC set up PLCL to focus primarily on the leasing of longterm commercial and office components of the Complex.
In 2009, HDCL was set up with the main objective being that of acquiring the freehold title of the Halland site and the adjoining land from St Andrews Hotels Limited – a sister company within the Tumas Group. This company is now in the process of developing the site.
PREIL was incorporated in 2011 with the principal objective of acquiring property for investment purposes. The only major transaction that this company has entered into since its formation was that related to the acquisition of the dominium directum on a portion of Portomaso properties from SDC in 2012.
PREIL is 99% owned by SDC, with the remaining 1% held by Spinola Investments Limited.
Both TI and SDC are whollyowned subsidiaries of Tumas Group Company Limited – one of the largest and most diversified private business groups in Malta. The Group, which is ultimately owned by members of the Fenech family, is primarily active in property development and leasing, hospitality, leisure and gaming and energy.
As the financing arm of SDC, the Issuer’s operations are inherently limited to that of raising finance for capital projects and advancing such funds to SDC. The borrowings of the Issuer are on-lent to SDC and are regulated through loan agreements that mirror the characteristics of the borrowings taken by TI plus an additional interest margin intended to cover the costs of the company.
The assets of the Issuer are predominantly made up of the loans receivable from SDC, which altogether amount to over 90% of the Issuer’s asset base.
The principal activities of the Guarantor have to date been the development and operation of the Portomaso Complex and adjacent areas situated in St Julian’s. The Complex includes the Hilton Malta hotel and its convention centre, the Portomaso Business Tower, other office units, residential apartments, a marina, a car park and a number of commercial and catering outlets.
The Complex was launched by SDC in 1996 and to-date remains one of the largest, single private real estate developments undertaken in the Maltese Islands.
The Complex also enjoys a Special Designated Area status which allows both EU and non-EU nationals to purchase property within such area on the same acquisition rights as Maltese citizens without having to obtain an Acquisition of Immovable Property permit which typically applies to other non-SDA areas.
The operations of SDC are divided into four segments: A. The hotel and its ancillary operations; B. Property development; C. Rental operations and D. Complex management operations.
The below are considered to be the major assets of the Guarantor.
The Hotel and its ancillary operations
This segment comprises the Hilton Malta, the conference centre and ancillary operations including the underground car park, the marina and Twenty-Two Club Bar (a wine lounge on the 22nd floor of the Portomaso Business Tower). As at the end of FY2019, the Guarantor’s property, plant and equipment (PPE) had a carrying value of €162.2m. The last revaluation exercise relating to the Group’s PPE was carried out in FY2018, with PPE valued at €165.6m at the end of the said financial year (net of depreciation charges).
I) Hilton Malta – The Hilton Malta is a five-star 413-room hotel, with modern conference facilities, a health centre, themed restaurants, a large indoor pool and a number of outside pools and beach clubs. SDC has an operating agreement with Hilton International for the operation of the hotel under the Hilton brand, whereby Hilton International markets and manages the hotel and its adjacent conference centre as an integral part of its worldwide chain. This agreement, which had an initial term of 15 years, was renewed for a further 20 years in 2013, effective from 1 January 2012.
The hotel underwent an extensive refurbishment, which commenced in 2014 and reached its peak in early 2016 when the hotel was closed for a consecutive period of 10 weeks between February and April 2016. The final phases of the refurbishment, which include an upgrade of the 2008 extension hotel rooms, the presidential suite, the Business Centre and spa and wellness areas operated by Livingwell, all of which were concluded in 2019.
II) Portomaso Car Park – SDC operates underground public car parking facilities of circa 1,175 car spaces (excluded those sold for private use) with residents and tenants of the Business Tower having reserved areas for their exclusive use. This structure is ancillary to the hotel and contributes to this segment’s returns albeit to a much smaller scale.
III) Portomaso Marina – The Portomaso marina has been in operation since 1999 and has a total capacity of approximately 130 berths. It offers a number of ancillary services to its tenants including mooring assistance which is constantly provided on the quayside; security around the whole perimeter; water and electricity facilities and pump out facilities for wastewater and used oil.
IV) Twenty-Two Club Bar – Twenty-Two Club Bar is a lounge located on the 22nd floor of the Portomaso Business Tower. It opened its doors during the summer of 2006, providing evening entertainment attracting an exclusive customer base. This club is currently closed in terms of the restrictions imposed on bars and clubs by the Health Authorities with respect to the COVID-19 pandemic.
SDC has to date completed the development of circa 490 apartments within the Portomaso Complex including the Laguna units. In the past few years, the Guarantor undertook the following property development projects:
• The Guarantor undertook the construction of 44 premium residential units referred to as the Laguna apartments. During FY2018, the Guarantor delivered 40 of the Laguna apartments to their new owners and as at the end of FY2019 had three apartments left unsold.
• Construction of the Crystal Ship
– the building adjacent to the Portomaso Business Tower – finished in FY2018, and the delivery of the said tower was spread over FY2018, FY2019 and FY2020, as the Guarantor completed the finishing works in line with its obligations as per agreement with the purchaser.
During FY2018, the Guarantor obtained Planning Authority permit to develop the parcel of land previously occupied by the aparthotel known as the Halland. SDC commenced excavation works during the last quarter of FY2019, while construction is expected to commence in 2021.
The Guarantor has two sites that will complement the Portomaso Complex. A block consisting of 13 residential units and underlying commercial outlets (referred to as Block 32) is expected to be completed during FY2020 and will be placed on the market towards the end of this year for conclusion during FY2021.
The Guarantor has also a property annexed to the Portomaso Complex which it plans to develop in later periods.
SDC, through its subsidiary PLCL, leases out areas within the Business Tower (circa 3,313 square metres) and other commercial and office areas within the Complex (circa 11,300 square metres). At present, practically the entire area within the Portomaso Complex is leased out.
SDC has retained responsibility for the management and administration of the Portomaso Complex, including, the maintenance, cleaning, security and utilities within the common areas of the project and within each block of apartments, and across the exterior landscaping that characterises the whole of the Complex. SDC apportions the expenses incurred in the management of the Complex and recharges the relative costs to the residential owners / tenants, Portomaso-related operating units and the offices and commercial areas. Moreover, SDC receives a management fee as remuneration for its services towards this activity from the various occupants within the Portomaso Complex. The Guarantor has unilaterally taken up on itself the responsibility to participate in the cost of upgrading certain Complex infrastructure by injecting the necessary capital funding to meet particular targeted initiatives.
The following are considered to be material contracts that the Guarantor has in place:
Hotel Management Agreement With Hilton International
As mentioned earlier, SDC has a management agreement with Hilton International, the latter being responsible for the marketing and management of the hotel, as well as the adjacent conference centre, under the world-renowned Hilton brand. The operating agreement is based on standard industry norms and provides for a remuneration package that is based on performance. This agreement, which had an initial term of 15 years, was renewed for a further 20 years in 2013, effective from 1 January 2012.
In the main, SDC’s lease agreements with office and commercial tenants have a term of between one and five years. The lease agreements provide for renewal terms and periodic inflationary increments. As lease contracts approach closer to the end of their di fermo period, the value of the minimum lease payments starts decreasing.
The Guarantor is party to commitments of a capital nature in relation to contracted or upcoming works. As at 31 December 2019, the value of these commitments was €4.7m.
These commitments relate to the finishing works in respect of the building adjacent to the Portomaso Tower (known as the Crystal Ship), works at a Laguna apartment and other projects. In addition to the guarantees given to TI, SDC has also guarantees issued on behalf of other fellow companies within the Tumas Group which at the end of FY2019 amounted to €67.1m.
Until FY2018, SDC served as the treasury function of the Tumas Group, however, since the intercompany balances have been wound down, this role has now been shifted to other fellow companies within the Tumas Group. Nevertheless, SDC continues to provide corporate guarantees (including hypothecs over its assets) in favour of fellow Group companies and / or subsidiaries (as mentioned above). These guarantees fall within the parameters established and as permitted in the prospectuses governing the bonds in issue.
V. Market overview of the Property Market
The construction and real estate industry has traditionally been a key driver of growth for the local economy. Moreover, the positive correlation between the performances of the local economy and the construction and real estate industry has been particularly evident in recent years. These have been mainly fuelled by favourable local and external macroeconomic dynamics as well as various initiatives (including fiscal incentives) by the Government of Malta aimed at boosting the overall level of public and private investment, regenerate business/retail and consumer confidence and increase the participation and relocation of numerous foreigners and foreign companies opting to reside and do business in Malta.
The most recent data, issued by the Central Bank of Malta, shows that property prices in Malta increased by 6% in 2019 over the previous year. This led the CBM