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

Welcome to the Cibus Nordic Real Estate Audiocast with Teleconference Q4 2021. Today, I'm pleased to present CEO, Sverker Källgården; and CFO, Pia-Lena Olofsson. [Operator Instructions] Speakers, please begin.

Thank you very much, and once again, welcome to the Q4 interim report audiocast for Cibus Nordic Real Estate. And thank you all for listening in to our call on this rather turbulent day. As said, speaker today is myself, Sverker Källgården, the CEO; and with me is Pia-Lena Olofsson, the Group CFO. Let's go to the slide with a summary of the period. Pia-Lena will take us through all the numbers, and I'll jump straight into the Board's recommendation to the Annual General Meeting regarding dividend as presented today. The Board of Directors intends to propose to the 2022 Annual General Meeting that a new share class D will be established with a bonus issue being made to existing shareholders in connection with this. They also proposed that the dividend will be increased by 5% to EUR 0.99 per existing share to be distributed to all share classes. Accordingly, current shareholders will receive a dividend equivalent to EUR 0.99 for each existing shares held and divided between 12 dividend payment dates. All share classes are to receive monthly dividends. And the Board intends to submit the complete proposal for decision in connection with the notice convening the Annual General Meeting. Next slide, please. Significant events during the period. Well, we had a busy quarter. It started in November when we bought a single asset in Finland with S Group as tenant, and then we acquired a grocery store in Sweden, currently under construction, with Willys as a tenant. And on the same day, we acquired Charlottenbergs Handelspark with ICA and Lidl as anchor tenants. On 30th of November, we completed acquisitions of 72 grocery stores from Sagax and also welcomed Sagax as new shareholders in the company. That private placement increased the numbers of shares from 40 million to 42 million shares. And on December 1, we updated our growth targets. The management team and the Board of Directors, we estimate that the company will be able to double the property value of its portfolio to EUR 2.5 billion to EUR 3 billion and meet the criteria for an investment-grade credit rating by the end of 2023. On December 7, we announced that we had implemented a rights issue of 2 million shares, raising SEK 492 million to the company. And then we made 8 new acquisitions in Norway that almost doubled our Norwegian portfolios with Norgesgruppen, Rema 1000, Coop, and Kiwi as anchor tenants. On the last day of December, we announced that the number of shares and votes in Cibus amounted to 44 million and the share capital in Cibus now was EUR 440,000. Next slide, please. On the 17th of February, at the Extra General Meeting, the Board was given authorization to issue up to 10% new shares up to the Annual General Meeting. The purpose of the rights issues are to pay for acquisitions. And on the same day, the Nomination Committee's proposal to the Board was announced on the Annual General Meeting. The Nomination Committee proposes that Patrick Gylling, Elisabeth Norman, Victoria Skoglund and Stefan Gattberg are reelected as members of the board, and that Nils Styf is elected as a new Board member. Further suggests Nomination Committee reelection of Patrick Gylling as Chairman of the Board. Next slide, please. What is Cibus Nordic? Well, Cibus Nordic is a real estate company focused on daily-goods properties. We fill them with strong tenants to provide dependable income to our shareholders. We are listed since March 2018 and on the main list since June 2021. We have a clear Nordic focus. And as first company in the Nordics, we pay out monthly dividend to our shareholders, currently EUR 0.94 for the current 12 months up to the Annual General Meeting. Next slide, please. The story about Cibus is the story by portfolio diversification. Traditionally, these kind of assets have been known as either single assets or small portfolios of maybe 2 to 5 assets, which meant that there was a very high-risk concentration and you came into a weak negotiation position with the tenants. The banks realize this that if the tenant leaves, you lose all your cash flow, so the bankability was low, which meant you had a very high risk, but also a high-return business. What Cibus realized is that if you own 400 of these properties, then you diversify the risk and lower the concentration. None of our assets is worth more than 2% of our combined NOI, which means that the risk concentration is very, very low. And by owning such a large amount of properties, you become an active cooperator with a tenant and not just a landlord to negotiate rent with. The banks realize this, so 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 single assets or small portfolios, we can buy assets 50 to 100 basis points higher than the existing portfolio trading at and produce value accretive growth for our shareholders. Next slide, please. What sets Cibus apart from other retail, because a lot of investors put Cibus on the retail shelf. And the difference between Cibus and other retail is that we have a resilience towards e-commerce. We see a negligible negative effect. Even during the pandemic, the share of online trading rose to around 5%. And a large share of that volume was click and collect from our stores. And if you look worldwide, you see very few operators that can make profit on online food sales due to the low margins and the high cost of distributing the food to the end consumer. On the other hand, we see a notable positive effect on e-commerce as our existing stores work as a natural distribution network for other goods online, which creates a strong footfall to our stores. Next slide, please. We also set apart in this segment that we are an active property manager. We have our own organization that actively works both with our existing portfolio and also with new acquisitions. Next slide, please. Sustainability. Well, at Cibus, we are driven by the conviction that we have in our decisions about our real estate portfolio can contribute to a responsible social development. In our acquisitions and the management of our properties, we have the ambition to promote sustainable development for both tenants as for a living community and that this contributes to a good long-term profit development for our shareholders. Looking at energy. Today, we have 39 of our properties which have solar panels and the annual carbon dioxide reduction they generate is about 690 tonnes, which is equivalent to the electricity consumption for approximately 2,600 apartments. And we have set the goal to have zero emissions by 2030. Next slide. Growth. Well, as I said, we have set an ambitious growth target to grow our portfolio value to EUR 2.5 billion to EUR 3 billion by the end of 2023. We have started working on that. We have a property value of around EUR 1.5 billion at the moment. We see Finland, Sweden and Norway as our main markets, but we are also interested in Denmark. So that is a market that is monitored at the moment. We have a strong cash position and also a very strong pipeline regarding possible acquisitions in all Nordic countries. As we said earlier, we received a mandate to issue up to 10% new shares. And we have made a slight organizational change in that Lauri Tiensuu now has the role of Head of Business Development. And his focus areas are new markets, but also special projects for the company; for example, ESG and how to get carbon dioxide neutral by 2030. Next slide, please. Looking at the shareholders list as of 31st of December 2021. The Fjärde AP-fonden was still the largest shareholder, followed by AB Sagax, Columbia Threadneedle, Dragfast, and Marjan Dragicevic. In total, the 15 largest shareholders held 41.6% of the company and Cibus had 41,000 shareholders. Next slide, please. Looking at the share price performance. Average daily volume is around SEK 37 million with about 2,000 transactions per day. Looking at the share price on the last day of December, the share price was SEK 290.8 and total share return since the 1st of January 2021 was 113%. Due to the unease on the stock exchange, the share price has fallen and is now trading at around SEK 240. Today, we are up by 3.1% on a very nervous stock. Next slide please and over to Pia-Lena, for the financial overview.

Thank you, Sverker. I will present some key figures for the fourth quarter. Rental income was EUR 21.6 million. Net operating income grew 22% to EUR 20.4 million. Profit from property management was EUR 12.8 million and earnings after tax, EUR 16.4 million or EUR 0.38 per share. Next slide, please. Looking at the P&L in more detail. As I mentioned, net operating income was EUR 20.4 million for the quarter. We have nonrecurring items in administration costs of about EUR 100,000 for consultancy fees for the analysis of new markets and for the preparation of the new growth targets. We also have items affecting comparability in net financial items of arrangement fees of EUR 293,000 on a loan that we have refinanced during the quarter. We also have a positive exchange rate change of EUR 213,000. Unrealized changes in value of investment properties was EUR 6.3 million, and this was mainly due to our acquisitions during the quarter, but also we see some yield compression in Sweden. We have low current tax due to the use of loss carried forward and taxable depreciation on building inventory. Next slide, please. Our current earnings capacity on a 12-month basis shows a net operating income of EUR 85.8 million with the properties that we have taken possession of at the end of 2021. Profit from property management plus expenses for the hybrid bond was EUR 54.9 million or EUR 1.25 per share. Next slide. Here is a snapshot of our portfolio at end of 2021. We had 400 properties. Property value was EUR 1.5 billion and we had 867,000 square meters. Properties with large grocery store tenants, Kesko, Tokmanni, Coop, S Group, and Lidl sum to more than 90% of the net operating income. Next slide. Looking at our segments, we now have 3 countries: Finland, Sweden and Norway. During 2021, Finland gave 84% of NOI, Sweden 15%, and Norway 1%. Our of property value, 81% was attributable to Finland, 16% Sweden, and 3% Norway. Next slide. Cibus strategy is to give our shareholders stable and reliable dividend that increased over time. Our dividend policy says that we should increase our dividend with 5% per year. And as Sverker said, the Board proposes to the Annual General Meeting that dividend increase with 5% to EUR 0.99 per share divided into all types of shares as additional share classes are introduced. Our shares will have monthly dividends. And as Sverker said also a complete proposal will be published in connection with the convening of the Annual General Meeting. Next slide. If we look at the balance sheet, as I said before, property value was EUR 1.5 billion. Senior debt was EUR 724 million, giving a loan-to-value on secured debt of 48.3%. Then we have our 2 senior unsecured bonds of EUR 194 million, giving a net loan-to-value of 57.8%. Our hybrid bond is part of equity, but not in the net asset value. ERPA NAV was EUR 592 million or EUR 13.5 per share. Next slide, please. Our average remaining lease time was 5 years at the end of 2021. And as you can see in the graph on the bottom right, it has been very stable around 5 years in the past. Next slide. Regarding funding, we have bank financing of EUR 724 million. The average floating interest margin is 3-month EURIBOR, STIBOR or NIBOR plus 1.7%. Our weighted average tenor was 2.6 years, 66% of the bank loans are hedged with interest rate derivatives and the first loan matures in 1.5 years. And we have our 2 senior unsecured bonds, 1 green SEK bond of SEK 600 million and 1 Eurobond of EUR 135 million, plus the hybrid bonds of EUR 30 million. Next slide, please. One of the goals is to reach the criteria for investment grade in credit rating by the end of 2023. Cibus is now reviewing our capital and debt structure to see how we can meet our targets. A part of this work is that the Board proposed to extend the articles of association with another share class D. Over to you, Sverker.

Thank you, Pia-Lena. What about the future? What are the focus areas going forward? We see the Danish market very interesting and hope to enter the market during 2022, if something interesting comes out. But otherwise, we look at continued growth in Finland, Sweden and Norway. And of course, investment grade and credit rating, we are starting to structure our capital and debt to meet the criteria by the end of 2023. Next slide, please. The primary reason to invest in the Cibus share. Well, firstly, 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. We have a growth target that we should grow to EUR 2.5 billion to EUR 3 billion at the end of 2023, and that generates potential for favorable long-term growth in share value. We have gradually rising monthly dividends, and we aim to gradually increase them by 5% annually. And last but not least, we are in a segment with long-term resilience and stability. And especially at uneasy times like this, our business model has proven its stability and resilience towards any hiccup in the market. So we are in a very long-term resilient and stable position. Thank you. That's all for us. Please, now if you have any questions.

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

A couple of questions. Perhaps more on a general note. Is there any changes in the competitive landscape? It appears that looking at your fair value changes, there doesn't seem to be much aggressive buying going on in the market?

No. The competitive landscape is more or less the same as it's been for the last couple of years. So it's business as usual.

And then regarding the Danish market that you are looking into, could you explain a bit around the differences that separates Denmark from the other 3 Nordic countries in your segment?

Yes, absolutely. We see Scandinavia as 1 large market. The situation is more or less the same in all Nordic countries. There are a handful of operators. Finland stands out being a clear duopoly. But otherwise, in Sweden, Norway and Denmark, there are 3 to 5 competitors that have the food market. And Denmark is fairly similar to Norway due to the density of the amount of food stores. There are a lot of food stores in Denmark and they are rather small, if you compare to Finland and Sweden, where we have the hypermarkets. What stands out in Denmark is really the financing situation though, whether you can have -- they have something called revolving credit loans, which is kind of a bond situation, but it runs through the banks, which makes the Danish market very interesting when it comes to project financing. Otherwise, legislation is more or less the same: long leases and a stable market.

And then the question about the D shares, not that surprising given your investment grade ambitions. Could you give your own words about your reasoning behind introducing D shares?

Yes, it's part of our work when it comes to reaching investment grade. We want to have different tools in the toolbox. So this is something that we are and the Board, especially, is involving and preparing for the Annual General Meeting.

The next question comes from the line of Joonas Ilvonen from Evli.

Joonas from Evli. Yes, first question regarding your EUR 2.5 billion to EUR 3 billion asset target. You must have made a pretty thorough assessment of the whole Nordic daily-goods property store market. What would you say, how large is this total market? Or in other words, what kind of a market share would this, around EUR 3 billion figure imply?

Yes. I haven't got the total number for the whole of Scandinavia. But if we look upon Finland, which is our largest market, and we have the largest share of our portfolio, we own 10% of all food stores in Finland, which says that there are a lot of food stores still to be bought in Finland. We have the largest market share in Finland. So then we can understand that there are a lot of more stores in Norway, Sweden, and Denmark to be bought. So the market has not dried up and there are still plenty of properties to be bought.

Okay. And the next question regarding -- I mean, you already touched upon this investment grade and capital structure review. And well, your net LTV ratio already knocked down a bit, but it's still pretty close to 60%. Would you be able to put some color at this point on where you might want to land? I mean your current policy states that the lower limit is 55%, but at least my feeling is that maybe you might have to go even a bit below that?

Yes. That is true. We will need to reach to be around 50%, I believe. And we have also said that we are going to revise our finance policy targets when it comes to LTV further on. The first page now is for us to grow and then later on in this period up to the end of 2023, then we will more structure the debt and capital structure. So yes, there will be a revision of the financial policy targets of the LTV going forward.

All right. And may be if you could just elaborate on the yield levels? I mean you say you see some yield compression in Sweden. But I mean, other than that, this whole market we have talked about for a few years that it has been pretty steadily valued at around 6% or so. No major yield compression. How's the situation in Finland? And do you see like this whole recent discussion about yields and interest rates and whatnot. What kind of an effect it might have on valuations?

We see the same kind of situation in Sweden and Norway and possibly even Denmark when we're looking into that market, that we can buy we can buy assets at larger portfolios and very good assets at around 5% to 5.5%, creating value accretive growth for the shareholders. Finland is still a bit above that, but my guess is that Finland will pick up as well. And I believe that we will see some yield compression in the Finnish market as well.

[Operator Instructions] The next question comes from the line of Matias Arola from Inderes.

Joonas already asked almost all my questions, but I have 1 left. This is also related to your growth target. How should we think your growth target? Is that the target based on assumption about flat yields or have you counted discounting any yield compression?

We hope for a slight yield compression as well, but mostly, of course, the growth is made by acquisitions, but some yield compressions might help us along the way.

Yes. And did I hear right that the investment grade rating requires an LTV ratio around 50%?

Yes, that's correct.

[Operator Instructions] There are currently no further questions from the phone line.

Are there any on main?

Yes, we received 1 regarding the D shares and the bonus issue. Will that go to the current shareholders? And yes, the bonus will go to the shareholders of Cibus.

And of course, there will be a record date for owning the shares at some point. But...

It will be decided on the Annual General Meeting. It's just a proposal from the Board.

Yes. All right. So no further questions. So once again, thank you for dialing in at Cibus interim report for the fourth quarter 2021. And hopefully, we'll hear from you again in the next quarter. Thanks, and bye-bye.

Thank you. Bye.