In Q1 2024, Equinox recorded a revenue decrease of 11% YoY, an EBITDA decline of 13%, funds from operations decrease of 5%, and a net income of EUR 471.6k, representing a decline of 31% YoY.

Starting off with the general macroeconomic overview, Equinox noted that Q1 2024 as well as the forthcoming period are affected by several factors. First of all, there has been a general trend of a slowdown in economic growth, both in Slovenia and abroad, with the newest forecasts implying lower than previously expected growth rates. This is due to the still uncertain macroeconomic and geopolitical situation, with inflation remaining elevated above the 2% target range, thus implying that interest rate cuts could come on later than expected, or there might not be as many of them as previously expected.

One positive development for Slovenia however, is that real estate prices continue to increase, especially in Ljubljana. On the other hand, real estate prices abroad are still under a lot of pressure, as they usually tend to be during periods of elevated inflation and high-interest rates. For Ljubljana however, this has not had that large of an impact as the tourist demand is still strong in the city, thus continuing to support value appreciation of real estate such as hotels.

Coming to Equinox, the Company noted that in Q1 it has finished the renovation of the 3rd and 4th floors of Grand Hotel Union, with 60 completely renovated rooms. According to the lease agreement they signed with Hotusa Group (the managing company of the Grand Hotel Union), these rooms were rent-exempt during the renovation period. With these rooms renovated, the rent at Grand Hotel Union is expected to increase by 16.3%.

Besides this, Equinox noted that the Nama Kočevje project is in the final phase of development, with the business part of the ground floor completed, while the residential part on the 1st and 2nd floors is in the final phase.

Moving on to financials, Equinox recorded revenue of EUR 1.63m in Q1 2024, a drop of 11% YoY, but this was mostly due to the influence of the said renovation not generating revenue. In fact, if we look at the revenue breakdown, the largest category, i.e. net rental income decreased by 12% YoY to EUR 1.47m.

In terms of operating expenses, they recorded an increase of 4% YoY to EUR 1.47m, mainly as a result of higher depreciation of +16% YoY to EUR 982k, while the other 2 cost categories, i.e. cost of goods, materials, and services, as well as other business expenses decreased, by 14% and 7% YoY, respectively. We would also like to note that due to its management structure inside Axor Holding, Equinox itself has no employees and thus no labour costs.

Taken together, this resulted in an EBITDA of EUR 1.16m, a 13% decrease YoY, implying an EBITDA margin of 71%, a decrease of 1.8 p.p. YoY. Meanwhile, the net financial result amounted to EUR 299k, growing by 55% YoY, due to the higher financial income (+25% YoY to EUR 418k), while the financial expenses decreased (-16% YoY, to EUR 119k). Besides its business operations, Equinox does have sizable financial investments, consisting of fixed income, shares as well as loans given to other companies.

Taking a look at this side as well, we can see that its fixed income and share holdings grew significantly in Q1, by 91% YoY, due to the price appreciation in both bonds, and shares, but also new purchases of money market instruments. All taken together, this resulted in a net income of EUR 471.6k, representing a decrease of 31% YoY, and implying a net income margin of 29%, a decrease of 8.06 p.p. YoY.

Equinox key financials (Q1 2024 vs. Q1 2023, EUR ‘000)

Source: Equinox, InterCapital Research

Besides all of these indicators, Equinox also uses the FFO, funds from operations. This is a real estate-specific indicator that is calculated as the sum of net income and depreciation and is used as a basis for dividend payments. Equinox as a company has a policy that says that 50-70% of FFO will be paid out in the form of dividends. In Q1 2024, Equinox’s FFO amounted to EUR 1.45m, decreasing by 5% YoY, but remaining stable.

Equinox also noted that in its SBB program, it plans on purchasing up to 10% of shares in the next 3 years. Furthermore, they plan an investment cycle of EUR 18m in the next 8 years, and they are also analyzing several potential projects at home and abroad.