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Tum Finance plc in a credit analysis perspective

TumAnd2009

Tum Finance plc holds investments in subsidiaries for capital growth and income generation. It also provides financing to companies forming part of the Group and to other related companies. Moreover, the Issuer and its subsidiaries are involved in real estate development, investment and leasing in Malta. More specifically, the Issuer and its fellow subsidiaries are responsible for the operation of Zentrum Business Centre and the Center Parc Retail Hub, both properties being situated in Qormi, Malta.

The Group, through Tum Finance plc during 2019 issued an aggregate principal amount of €20m, having a nominal value of €100 each, bearing interest at the rate of 3.75% per annum. These bonds are secured by Easysell Limited (the “Guarantor”), a subsidiary of the Company, which is 75% owned by the Issuer.

FY19 results highlights and FY20 projections:

The Group’s FY19 consolidated financial statements presents the results as from when Tum Operations Ltd, a wholly owned subsidiary of the Issuer, acquired its subsidiaries (circa. April 2019). It is thus key to note that the FY19 financial data presented above reflects a 9-month period of operations.

Revenue

Actual consolidated revenue for the 9-month period ending December 2019 amounted to circa €1.0m and reflects revenue generated from the Group’s properties, namely Zentrum Business Centre and Center Parc Retail Hub.

During the period, the Center Parc Retail Hub development was fully completed, whereby the shopping complex opened its doors on 4th October 2019 and achieved full occupancy by the end of FY19. Management further confirmed that up until August 2020, the premises remained fully occupied with tenants and is expected to remain fully occupied during the remaining months of the year.

In terms of Zentrum Business Centre, the Group continued receiving rental income mainly from its two tenants, whereby development concerning this property was fully completed during Q3 2019. Management confirmed that one of the tenants moved into the Zentrum extension in October 2019, whereby the remainder of the office block started being rented out to third parties from 1st January 2020 onwards. Management explained that this building is currently fully occupied with tenants and is expected to remain fully occupied moving forward.

In line with the commencement of operations of the new Zentrum extension, and in view of both of the Group’s properties being projected to remain fully occupied during FY20, the Group is anticipating revenue to improve for FY20.

EBITDA

Overhead expenses include maintenance, utility, common area expenses and other administrative expenses, whereby part of these costs are recovered through the service charge recognised. These amounted to approximately €0.4m as per FY19 results and are projected to increase to €0.5m during FY20. This increase is attributable to the fact that unlike FY19, the projected performance for FY20 reflects a 12-month period of operations in terms of the Group’s two properties. As such, higher levels of cleaning and advertising expenses are projected to be incurred.

Based on the above, the Group expects to generate an EBITDA of €2.7m in FY20, translating into an EBITDA margin of 83.6%. This is an improvement over FY19, where the Group generated an EBITDA of €0.6m, and an EBITDA margin of 62.3%. Such projected improvement in EBITDA margin for FY20 is mainly attributable to the fact that projections for FY20 reflect a full year concerning the Group’s Center Parc operations together with the newly derived revenue from the Zentrum extension.

Finance costs

Finance costs incurred during FY19 amounted to circa €0.3m and mainly include bank charges, bond related interest and lease liabilities interest expenses. It is key to note that actual finance costs figure for FY19 include bond interest expenses as from when the bond was issued (June 2019). These are projected to amount to circa €0.8m during FY20.

COVID-19 impact

In the face of such an unprecedented pandemic, management explained that up until July 2020, no tenant within the Group’s properties has defaulted, and that there is no indication of any tenant defaulting moving forward.

Moreover, the Group has compiled cash flow projections primarily based on the expected revenues and receipts from their tenants. However, although the negative consequences brought about by the COVID-19 pandemic on the Issuer are not yet fully known, management confirmed that these projections indicate that the Group is expected to have sufficient liquidity to meet its obligations as they fall due. Based on the above considerations and the current prevailing circumstances, management explained that the Group’s capital and liquidity position is considered to be sufficient and adequate to absorb any foreseeable implications brought about by the COVID-19 pandemic.

Conclusion and outlook

Despite we acknowledge that the retail sector is currently facing remarkable challenges, both through the online ideology and more recently, with a higher mark, the COVID-19 saga, from a debt service perspective, the Group holds the ability to service its debt.

It is important to remark that the Guarantor has an important weight on the Group, through its different target market, namely office space and its current strong tenant base. In addition, it is fundamental to note that the Guarantor’s EBITDA generation can cover the entire Group’s financial obligations, if the Group is faced with a prolonged stressful scenario brought about by COVID-19.

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