Cibus Nordic Real Estate AB (publ) (CIBUS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Cibus Nordic Real Estate Audiocast with Teleconference Second Quarter 2021. Today, I'm pleased to present CEO, Sverker Kallgarden; and CFO, Pia-Lena Olofsson. [Operator Instructions] Speakers, please begin.

All right. Thank you, and once again, warm welcome to the Cibus Nordic's Q2 report presentation. Let's move on to Slide #3, summary of the period, please. And as usual, Pia-Lena will take us through the numbers later on in the presentation, and I'll focus on the significant events. After a relatively calm first quarter, it really took off during Q2. Acquisitions during the quarter amounted to EUR 130 million, and the acquisitions of the portfolio from Sagax of 72 properties worth around EUR 72 million will be partly paid by 2 million new Cibus shares. The transaction is targeted to close and the shares to be issued during the fourth quarter of 2021. Cibus were also approved for listing on NASDAQ Stockholm. And the first day of trading on NASDAQ Stockholm's main list was Tuesday, the 1st of June 2021. And we also signed a collaboration agreement with Jarntorget to jointly develop the part of Cibus Swedish property portfolio that is not used for daily goods retail. Cibus will have no cost for the project and receive parts of the profit when finalized. And the main reason for this is that we have such a small organization, totally focused on our core business. Jarntorget have the resources to scan our portfolio for unused land. And our contribution in this is land today valued 0 in our books. Next slide, please. Significant events after the end of the period, we have continued to grow by acquiring another 3 properties in Sweden with the Coop as tenants or anchor tenant. Next slide, please. A few slides about Cibus Nordic and what kind of company we are and our business model. We are a real estate company, focused on daily goods property that are filled with strong tenants, that provide dependable income to our shareholders. We have been listed since March 2018 and on NASDAQ Stockholm's mid-cap list since June 2021. We have a clear Nordic focus, and we pay out monthly dividend to our shareholders. The Annual General meeting decided on the dividends for the EUR 0.94 for the coming 12 months. Next slide, please. The story about Cibus is the story about portfolio diversification. Traditionally, these kind of assets are being owned as single assets or in small portfolios of 2 to 5 assets, which means that the owner had a very high-risk concentration. If the tenant left, he lost or she lost all this cash flow. You came in a weak negotiation position with the tenants. The bank realized this, so the bankability was very low, which meant it was a high risk, but also high-return business. What Cibus realized is that if you own 300 properties, you diversify the risk and lower the concentration. None of our assets stand for more than 2.5% of our NOI. In fact, just one of the assets stand for more than 2% of the NOI. So the concentration is very low. And when you own quite a few properties with a handful of tenants, you become an active cooperator with the tenants and not just a landlord. The bankability is much higher, which means that you lower the risk, but you have the same return as for single assets. And due to the risk factor of owning 1 or 2 of these properties, it's the fact that we can buy at 50 to 100 basis points higher than the existing portfolio is trading at, and therefore, produce value creative growth for our shareholders. Next slide, please. What about e-commerce and the effects on our business? The Swedish Institute of Traders produced report about the effects on Amazon's entry into the Nordic countries. And if you can see, you have a scale going from low to high and therefore, property with high effects, you have electronic books and toys. But on the other hand, in the far-left corner, you have daily goods, with very low effect. Next slide, please. And we can see that in our own portfolio, that there is a resilience towards e-commerce. We have seen a negligible negative effect. Even during the pandemic, when online training has accelerated, the share of online trading is around 4%. And a large share of that volume is click and collect from our stores. And if you look worldwide, you can see very few operators that are making profit on online food sales due to the fact that the margins are low and the cost of handling and distributing the food in a safe way out to the end consumers are very high. On the other hand, we see a notable positive effect as our existing stores, they work as a natural distribution network for non-daily goods purchased online that can be delivered to supermarkets who act as pickup points for goods. Next slide, please. Cibus is an active property manager with our own organization. And that sets us apart in our segment that we can actively work with our portfolio and with new acquisitions. You can see us realize that we are a buyer for both large portfolios, but also single asset units. Next slide, sustainability. Well, we are driven by the conviction that we and our decisions about our real estate portfolio can contribute to responsible social development. And apart from that, the amount of solar panel plants have grown from 26 to 32. So for 2021, we have signed a collaboration with Jarntorget. And one of the reasons why we chose Jarntorget was their ambitious sustainability goals in their projects, all homes will carry the Nordic Swan Ecolabel. Next slide, please. What about the corona effect on our business? Well, our business model is noncyclical and works whatever economical cycle we're in. And we have seen a limited negative effect during corona. The grocery sales are on record levels. Our tenants have handled the increased demand professionally and approximately 90% of our income comes from leading food chains. More than 98% of our invoiced rents have been paid for Q2 2021, and about 99% of our invoice rents have been paid for the first half. And for last year, over 99% of the invoice rents were paid. So the effect is very limited. Next slide, please. What about growth? While we see a market that continues to be strong and unaffected by the corona pandemic, there are prospects for us to look at. And you can see as we have acquired already this year for EUR 130 million. There are a lot of acquisitions that can be made in the market. Finland and Sweden are still our main market, but the other Nordic markets are being monitored. We have a strong cash position, and the pipeline is strong regarding possible acquisitions. Normal growth within our growth target, which is around -- between EUR 50 million to EUR 100 million will be financed through cash and bank group financing. But if we see opportunities for more rapid growth, that may lead to an equity raise or a hybrid bond to secure the LTV within the company financial targets. And as you can see, we have met our growth target ever since we were listed on the stock change. 2018 and 2019 and half of 2020, we had a growth target of SEK 50 million, and it was revised to EUR 50 million to EUR 100 million in 2020. And so far, 2021, we have significantly met that target. Next slide, please. Looking at the shareholders' list as of the last day of June 2021, the Fjarde AP-fonden is still the largest shareholder, followed by BMO Global Asset Management, Marjan Dragicevic and Dragfast. And in total, the 15 largest shareholders owns approximately 42% of the company. And Cibus has 38,000 shareholders as of the last day of June. Next slide, please. Looking at the share price performance. There is an average data volume of around SEK 32 million with more than 2,500 thousand transactions a day. And on June 30, the share price was SEK 204.4 and total share return since the 1st of January 2020 was 50%. And today, just before we started the presentation, we were trading at around SEK 225. Next slide and over to Pia-Lena for the financial overview.

Thank you, Sverker. I will start at Q2 2021 in brief. So here, you see some key figures for the second quarter. Rental income grew with 21% to EUR 19.8 million. Net operating income increased with 22% to EUR 18.5 million. Profit from capital management was EUR 10.8 million and earnings after tax, EUR 11.7 million or EUR 0.29 per share. Next slide, please. Looking at the P&L in more detail. As I mentioned, net operating income was EUR 18.5 million. Administration costs include items affecting comparability of EUR 400,000, mainly due to the cost for the list change to NASDAQ main list. Net financial items included negative exchange loss of EUR 430,000. Unrealized changes in value of investment properties was EUR 2.5 million this quarter compared to EUR 3 million in Q2 2020. We have low current tax in the quarter due to the use of loss carryforward and also taxable depreciation on building inventory. Next slide, please. Our current earnings capacity on a 12-month basis shows a net operating income of EUR 76 million with the properties that we have taken possession of at the end of June 2021. So the portfolio from Sagax, for example, is not included since we have not taken possession of these properties yet. Profit from property management was EUR 47.1 million or EUR 1.18 per share. Profit per share has increased with 9% from June last year. Next slide, please. We have 307 properties at the end of the second quarter, and the property value was EUR 1.331 billion, and we have 784,000 square meters. Our anchor tenants, Kesko, Tokmanni, Coop, S Group and Lidl, stands over 90% of our NOI. Next slide. Looking at our 2 segments, Finland and Sweden is 85% of our net operating income comes from Finland and 15% in Sweden. Our property value, 84% is in Finland and 16% in Sweden. Next slide. Cibus strategy is to give our shareholders stable amount of dividend that increase over time. Our dividend policies that have been issued, increase the dividend with 5% per year. And we, as the first company in the Nordic, pay dividend monthly. The dividend yield was 4.7% for the share price at the end of the second quarter. Next slide. Looking at the balance sheet. We have property value, as I mentioned before, of EUR 1.331 billion. Senior debt was EUR 645 million, giving a loan-to-value on senior debt of EUR 0.485. And then we have our unsecured bonds of EUR 194 million, giving a net loan-to-value of 60.1%, which is within our finance policy target of being between 55% and 65% LTV. We have issued our first hybrid bond of EUR 30 million, and that is a part of equity. Our net asset value, NAV, was EUR 491 million or EUR 12.3 per share. Next slide, please. Our average remaining lease time was 5.2 years at the end of the quarter. And it has, as you can see on the graph below, been quite stable around 5 years historically. And this is as we renew our leases on a regular basis and also buy new properties with usually long lease contracts. Next slide. At the end of the quarter, we had 5 bank loans with a total of EUR 645 million. The average floating margin is 3 months EURIBOR or STIBOR, depending on currency, plus 1.7%. Our weighted average tenor is 3 years. 66% of the bank loans are hedged with interest-rate derivatives and all bank loans are long term. The first matures in 2 years. And then we have 2 senior unsecured bonds, one green bond of SEK 600 million and euro bond of EUR 135 million. We also have our newly issued hybrid bond of EUR 30 million. Next slide. Our funding strategy in the medium term is still to have 50% or more of external funding at bank financing. We do, however, intend to be active on the bond market as well and have during the second quarter established an MTN program that covers both unsecured and also hybrid bonds. Normal growth, as Sverker said, will be financed with generated cash and bank loans, while larger portfolios or faster growth will be financed with bond in combination with hybrid bonds or equity to keep LTV within our finance policies thresholds between 55% and 65% LTV. Next slide. In the long term, however, our funding strategy is to reach investment-grade in credit rating, and then the debt structure will need to change, and that's the reason for us to establish the MTN program. Over to you, Sverker.

Thank you. A few words about the future and what we're focusing on at the moment. Now that we have delivered on our promises to the market regarding building the company organization and moving to the main list at NASDAQ, have a clear focus on growth. We will continue to grow in Finland and in Sweden, but we are also now looking at new geographies in the Nordics. We hope that the countries will open up, so that we can funnel to both Norway and then have more prospects. We have also a hope of being included in the EPRA index fairly shortly. Next slide, please. Last but not least, what's the primary reason to invest in the Cibus share? Well, first, we produce a high and stable yield. From the outset, Cibus has never lowered our dividend in euros per share from one quarter to the next. There is a potential for favorable value growth. And as we have our strategy of acquiring individual properties or portfolios with a higher yield requirement than the existing portfolio is trading at, combined with an annual growth target of SEK 50 million to SEK 100 million, that generates potential for favorable long-term growth in the share value. We have gradually rising monthly dividends, and we aim to gradually increase them by 5% annually. And we are in a segment with a long-term resilience and stability as the grocery and daily goods has experienced stable noncyclical growth over time. That's about all for us. So please move on to the Q&A section.

[Operator Instructions] The first question comes from Svante Krokfors from Nordea.

Yes. Svante from Nordea. So, yes, 2 questions to Sverker and 1 to Pia-Lena, and if I start with Sverker. Is there any changes in yields in the market? That's the first question. Anything that you observed? You had EUR 2.4 million positive change.

Yes. Not dramatically, no. We haven't seen any dramatical changes in yields in acquisitions. Of course, our valuators, they look at all the deals that have been made. And -- but no, not really, no dramatical changes in yields, no.

And then relating to that, your implied yield has been going quite significantly down as the share has gone up. Is this something that kind of impacts your negotiations with potential sellers?

It can have that impact. As you saw, Sagax choose to have a part of the payment for the portfolio in new, for instance, Cibus shares, which is very, very promising for us that we can use the Share-as-a-Payment method and that Sagax, which is a renewed -- which is a high-quality company, it wants to be part of the Cibus journey. That's very positive for Cibus.

Okay. And any observations about competitors, institutional competitors that you have? Do you meet them in these acquisitions? Or is it more kind of bilateral?

Well, -- the competition is more less the same that it has been. But as you probably have seen, [Indiscernible], which makes one competitor less. But it's more or less the same going out there.

And Pia-Lena, could you remind us about -- or me or us regarding the FX impact in your -- or the one-offs, so to say, in your net financial? How -- can you help us how to model that?

Yes. I can help you. We do have exposure in CX. We had FX effect of minus EUR 430,000 in the quarter. Much of this is, of course, unrealized. So that we value the CX that we have and the FX effect on that.

The next question comes from Matias Arola from Inderes.

I have 2 questions related to your strategy and to Nordic expansion. The first one is that, is there some reason that after the last year's Coop deal, last year portfolio transactions have got so heavily here in Finland, why have not we seen bigger transactions in Sweden?

Well, probably because there are -- we have a few more competitors in Sweden that own these kind of properties and have a fairly similar business strategy than Cibus. So there haven't been so many large portfolios for sale, but also that the institutional companies that Svante talked about, they are holding on to the properties as well in Sweden. So there haven't been any larger portfolios out there for sale. And the reason is, I guess, that the owners, they like these kind of properties as much as we do.

Yes. But you have -- but you have ambitions to expand it and complete bigger transactions also in Sweden?

Absolutely, absolutely. But the strength about Cibus and having our own organization is that we can grow by buying 3 assets or 1 asset or 4 assets in smaller deals. And many smaller deals put together becomes a large portfolio. So that's one of the strengths about Cibus, that we have Peter in Sweden and Lauri in Finland that can scan the market and make these kind of acquisitions often and very quickly.

Yes. The second question, when we are considering your Nordic expansion, do you have any preferences between Norway and Denmark?

Not really. We -- the preference we have is that we are -- we aim to do the best deals we can that we possibly can for our shareholders. If those deals are in Finland or Sweden or in Norway or Denmark, it's not at all critical for us. If we can see that yields are too low in Denmark or Norway, we will wait a bit and continue to buy in Finland and Sweden. But if we see potential for valuable acquisitions in -- value accredited acquisitions in Norway and Denmark, we will look at them and make bids. So we constantly scan the market and put the money where it works best for our shareholders.

Yes. Okay. I guess that there are no fundamental phases between the years in Norway, Denmark and Sweden and Finland?

Not really. There are differences in legislation, of course. And for example, in Norway, you can charge the tenant with quite a lot of costs. But that all this is calculated when we do the acquisition. So the yields are taking this into considerations or our proposals or bids are taking this into consideration. So at the end of the day, you have to have an acquisition yield that is value accredited. So if you know the market, you can make a bids in all of the markets.

[Operator Instructions] The next question from Stefan John (sic) [ Stefan Andersson ] from SEB.

A couple of questions. First on the fair value changes, EUR 2.4 million in the quarter. Is there -- what is it derived from? Is there any yield changes in there? And if you could indicate what is your average valuation at the end of the quarter?

Yes. We do have some changes in yield in Sweden, especially. And also that we have acquired some new properties also that do have some deferred tax that we value the properties with. But otherwise, we usually do not revalue new properties before the first -- after the first quarter. So it's a little bit yield in Sweden, different yield compression. And then also, we have deferred tax that has an effect on the valuation.

And are you willing to indicate what kind of yield you currently are on average...

No, we don't disclose that. We have not the number.