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

Welcome to the Cibus Nordic Real Estate Audiocast with Teleconference Q1 2022. 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 Q1 report from Cibus Nordic Real Estate. My name is Sverker Källgården, and I'll be hosting this conference together with the group CFO, Pia-Lena Olofsson. Next slide, please. Summary of the period. Pia-Lena will take us through the numbers later on, so I'll jump straight into the significant events during the period. On the 17th of February, we press released that the Board was mandated to issue up to 10% new shares by the extraordinary general meeting that has been held. And on the 22nd of March, we announced that we had issued a senior unsecured green bond of EUR 50 million under our MTM program. On the 24th of March, we announced that we had completed a -- directed share issue of 4.4 million new shares, raising approximately SEK 955 million. And on the same day, we announced that we had entered into a binding agreement regarding the acquisition of a property portfolio of 34 grocery and daily good stores in Denmark. And due to the directed share issue, the number of shares and votes in Cibus raised to 48.4 million shares, which was presented on the 31st of March. Next slide, please. Significant events after the end of the period. On the 6th of April, we closed the acquisition in Denmark. I'll come back to that a bit later on in the presentation. And on the 11th of April, the Board of Directors withdrew the proposal to introduce a new share class and called for an extraordinary general meeting to increase the dividend to EUR 0.99. And at the Annual General Meeting on the 20th of April, Nils Styf was elected as a new Board member and Patrick Gylling was reelected as Chairman of the Board; and Elisabeth Norman, Victoria Skoglund and Stefan Gattberg were reelected as board members. On the 28th of April, we announced a single asset acquisition in Finland. And earlier on today, we have announced that the extraordinary general meeting increased the dividend to EUR 0.99 per share. Next slide, please. Our move into Denmark, the first step into Denmark. This was an off-market transaction, and we started looking at it in early 2020, but due to corona, Denmark closed its borders, so the portfolio was taken out of the market. Later on in the fall last year, 2021, we looked at it again. Denmark opened up. So we traveled there and visited all properties, then we contacted the owner and negotiated the deal. We have bought 34 assets, which stands for 76,600 square meters. It's a modern portfolio. 27 out of the 34 assets are built since 2010. The current vault is 5.3 years, and the anchor tenants are the leading grocery chains in Denmark Coop. And if you look at the NOI, approximately 2/3 of the NOI comes from the Copenhagen region. Next slide, please. And as you can see, there are modern properties, and these could be located anywhere in the Nordics. So the stores are pretty similar to what we are used to and you are used to that Cibus is buying. It's the same kind of assets, supermarkets with the same kind of tenants. So we are very happy about the entry into Denmark. Next slide, please. Talking about -- a bit about what Cibus Nordic is. We are a real estate company, and we are focused on daily goods properties. We fill them with strong tenants to provide dependable income to our shareholders. We are listed on Nasdaq Stockholm mid-cap since June 2021, but we have been listed on First North since March 2018. We have a clear Nordic focus, although we are monitoring other markets, but the Nordic focus is very clear. And we pay out monthly dividends to our shareholders as the first company in the Nordics, EUR 0.99 for the current 12 months. The story about -- next slide, please. Here, you can see on the map, you can see our current portfolio, which is spread all over the Nordics. And this is more or less a story about Cibus. It's the story about portfolio diversification. Traditionally, these kind of assets were owned as either single assets or in small portfolios of 2 to 5 assets, which meant we had a very high risk concentration. If the tenant left, you lost all your cash flow. We came into a weak negotiation position with the tenants and the banks realized this, the bankability was low, which meant you had a very high risk but also very high return business. What Cibus realized is that if you own 450 of these properties, you diversify the risk and lower the concentration. Only 1 of our assets stands for more than 1.5% of the total NOI. You become an active operator with the tenants as you own a lot of stores with a handful of tenants. The banks realize this, so the bankability is much higher, which means that you have lowered the risk but you have the same return as a single asset. And due to the risk factor of owning 1 or 2 or 3 of these assets, we can always buy these assets, 50 to 100 basis points higher than the existing portfolio is trading at and produce value-creating growth for our shareholders. Next slide, please. Cibus sometimes -- or a lot of people put us on the retail shelf. We do not see us as a retail company, we see ourselves more like an infrastructure company and the infrastructure we present or produce is food to the populations of Sweden, Finland, Norway and Denmark. And one clear difference between grocery and retail is that we see -- we have a very large resilience towards e-commerce. We have seen a negligible negative effect even during the pandemic, the share of online trade rose to nearly 5%. And a large share of that was -- of that volume was click and collect from our stores. And if you look worldwide, very few operators make a profit on online food sales. On the other hand, we see a notable positive effect as our existing stores work as a natural distribution network for other goods purchased online. So we are -- our stores are pickup point for these other purchases. Next slide, please. We also stand out in this segment that we are an active property manager, and we have our own organization. That organization can actively work with our existing portfolio and look at new acquisitions, which makes the deal certainty, if you contact Cibus very high and that we are very quick to react when we get a new opportunity. Next slide, please. Sustainability. We are actively working with ESG, and we have an action plan on how to reach the goal to become 0 emissions by the year 2030. We do this together with our tenants as we have a lot of triple net leases and cannot control their electricity and heating consumption. Next slide, please. Looking at the growth, we have set a new growth target that we did in late 2021, and the growth target is that we should grow our portfolio to approximately EUR 2.5 billion to EUR 3 billion by the end of 2023. Finland, Sweden, Denmark and Norway are our main markets. But as we grow as a company and we get known all over Europe, as we are becoming a large player in this segment, we get contacted by opportunities all over Europe. So we are looking at the opportunities, but Finland, Sweden, Denmark and Norway are clearly our main markets, and the Nordics has a lot more to give to Cibus. But we are -- as I said, we are looking at other markets as well. We have a strong cash position and a very strong pipeline regarding possible acquisitions in all Nordic countries. Today, we got the mandate to issue up to 10% new shares. And looking at the diagram, you can see that the growth pace is above the target in Q1 2022. Next slide, please. Looking at the shareholders list on the last day of March, the Fjärde AP-fonden as the largest shareholder, followed by AB Sagax, Columbia Threadneedle, Dragfast and Marjan Dragicevic, in total, the 50 largest shareholder own 42% of the company. And the last day of March, we had 41,000 shareholders. Next slide, please. The Cibus share price performance. We have an average daily volume of SEK 48 million with about 2,500 transactions per day. The last day of March, the share price was SEK 251.20, and the total share return in the last month was 58%. Next slide, please. On to Pia-Lena for the financial overview.

Thank you, Sverker. I will briefly go through some key figures for the quarter. Rental income was EUR 23.5 million. Net operating income grew with 20% to EUR 21.8 million. Profit from property management was EUR 14.6 million and earnings after tax, EUR 35.5 million or EUR 0.79 per share. Next slide, please. Looking at the P&L in more detail. As I mentioned, net operating income was EUR 21.8 million. We have some nonrecurring items in administration. During the quarter, Cibus has supported UNHCR's humanitarian work in Ukraine with EUR 200,000. We also have approximately EUR 100,000 in legal and advisory service, mainly in connection with restructuring within the group. Net financial items is affected by a positive exchange rate change of EUR 915,000. Unrealized changes in value of investment properties was EUR 26.5 million. And this was due to higher rents from indexation, which increases the property value. We also see slightly lower yields in all 3 countries. Next slide, please. Our current earnings capacity on a 12-month basis shows a net operating income of EUR 102.2 million. And this includes the Danish portfolio that was signed in March, but taking possession of April. Profit from property management plus expenses for hybrid bond was EUR 64.9 million or EUR 1.34 per share and this is an increase of 17% per share since 31st of March last year. Next slide. After the Danish acquisition, we have 440 properties and a property value of EUR 1.8 billion. Property with grocery and daily goods tenants amounts to over 95% of our net operating income. Next slide. Looking at our segments in the first quarter, Finland contributed with 80% of the net operating income. Sweden was 16% and Norway 4%. Looking at the earnings capacity in the coming 12 months, and there's a slightly different picture. Finland will contribute with 69% of the NOI. Denmark will be in second place with 14%, Sweden 13%, and Norway 4%. Next slide. So the strategy is to give us shareholders stable and viable dividend that increase over time. Our dividend policy says that we should increase our dividend with 5% per year. And the Extra General Meeting today increased dividend to EUR 0.99 per share divided into monthly installments. Next slide. Looking at the balance sheet, you can see that we have prepared for the Danish acquisition that we took possession of 6th the April. Property value was not affected yet and amounted to EUR 1,543 million. Senior debt was also unaffected at EUR 731 million. Senior unsecured bonds included the new EUR 50 million green bond. Cash position is high in other net assets. And we have a prepayment of EUR 10 million for the Danish portfolio that was escrow account, which is also affecting other net assets. The EPRA NRV included the new share issue and amounted to EUR 713 million or EUR 14.7 per share. Our net loan-to-value stands at 52% at the end of the first quarter, but it will increase again after the possession of the Danish portfolio. So it will be within the finance policy target of 55% to 65% loan-to-value. Next slide. Our average remaining lease time includes the Danish portfolio. And it was 5.1 years. And you can see that the graph below that is very stable around 5 years. Next slide. Of our external funding, EUR 731 million is bank financing. The average floating interest margin is 3 months EURIBOR, STIBOR or NIBOR plus 1.7%. Our average tenor of bank loans was 2.4 years and 67% of the bank loans are hedged with interest rate derivatives. The first loan matures in 1.3 years. We have 3 senior unsecured bonds on the market, 1 green SEK bond of SEK 600 million, 1 in new green Eurobond of EUR 50 million and 1 Eurobond bond of EUR 135 million. And then we also have the hybrid bond of EUR 30 million. Next slide, please. One of Cibus goals is to reach investment grade credit rating. To be able to reach it, we will continue to grow the portfolio with acquisitions in the Nordics. But as said, we're also monitoring new markets in Europe. We aim to be active on the bond market via our MTM program, which contains both senior unsecured and hybrid bonds. We also have a mandate to issue up to 10% new shares up until the next Annual General Meeting in April next year. Over to you, Sverker.

Thank you. Looking at the future and the main focuses for Cibus. Next slide, please. And the focus area going forward is of course, continued growth in the Nordics. We have feet on the ground in all 4 countries and a very positive deal flow prospects, but we are also monitoring new geographies. And as I said, as we grow as a company and get more well known, we get more prospects. But there's nothing relevant to talk about here, but we are starting as we are a growing company, and we like to expand our geographies. We are constantly looking at new geographies and see what can fit Cibus in the future. And of course, we will start structuring our capital and debt to meet criteria of investment-grade and credit rating by the end of 2023. Next slide, please. Last but not least, what are the primary reasons to invest in the Cibus share? While we produce a high and stable yield, we have never lowered our dividend in euros per share from one quarter to the next. There is a potential for favorable value growth. We have an investment strategy of acquiring individual properties and properties portfolios with a higher yield requirement than the existing portfolio is trading at. And we have a growth target to grow the portfolio to between EUR 2.5 billion to EUR 3 billion at the end of 2023. We are paying out gradually rising monthly dividends, and the goal is to gradually increase them by 5% annually, and we are present in a segment with a long-term resilience and stability. Thank you. That was all for us in the presentation, and we are now open for questions.

[Operator Instructions] We have a question from Svante Krokfors from Nordea.

I have a couple of I have a couple of questions. So you don't want to be elaborate more on what countries outside of the Nordics you're looking at? Is it Germany or -- you have to change the name of your company to greater Nordic.

I don't think we have to change the name. SEB bank, the Scandinavian (sic) Skandinaviska Enskilda Banken didn't change their name when they went abroad. So the Nordics is a very clear and strong brand in Europe. So I don't think we have to change the name. What kind of markets are we looking at? Well, we are looking -- when we get prospects from advisers in Europe, as we are well known in the Nordic markets and the advisers up here. They know us and they have offices all over Europe. They constantly come to us with prospects. And they have done this since the start. We have -- since the start, we have said we are focusing on the Nordics. But now that we are present in all 4 Nordic countries, it's very natural for us to take a look outside the Nordics as well. Germany, as you said, is clearly an interesting market in Benelux countries as well. But -- we haven't started looking that seriously at any portfolios. But we are -- as we did with Norway and Denmark, we're trying to learn the markets and see what kind of legislations and how the market works in the rest of Europe. So we'll see what happens and when the stars are aligned, and we see a good deal. We hopefully can enter rest of Europe as well.

And then on bank's lending willingness, have you seen any changes in these times?

No, we haven't. They are very positive to still lend us money. So we still have very good discussions with the banks, and they are absolutely willing to lend us more.

Yes. The fact that we could make a Danish deal in the beginning of 2022 when there's a war in Ukraine and there's an uneasy in the market really shows the strength about Cibus and our business and how the market looks upon Cibus. So we're very proud and happy that we could make that deal both with bond investors, a rights issue and with bank financing.

Okay. And then do you want to give some color on the debt that you had from Denmark, I guess the terms are quite favorable.

Yes. In Denmark, they have favorable loans on, and it's one of those loans that we have taken to finance part of this acquisition.

Then on -- you have authorization to add the 10% new shares that doesn't help you that much on the way to EUR 2.5 billion to EUR 3 billion. You also abolish the deal share plan this time. But do you have any plans on issuing possibility deal shares with another structure?

Not at the moment that we -- that's a question for the Annual General Meeting if we introduce a new share cuts. But as we have done the last couple of years is that if we use the full mandate and see another good deal, we will call for an extra general meeting to ask for a new mandate. So we'll see what happens. And hopefully, we can grow faster than the growth base that we've done already this year. So we'll see what happens. And now we have a mandate for 10% new shares, and that will help us a bit on the way. And then if we need, we call for an extra mandate.

And then on value or yield requirements, I guess the biggest part of the EUR 27 million increase was from rental increases. And if I calculate your valuation yet from the earnings capacity has come down from 5.7% to 5.6% roughly. That is probably also explained by the Danish acquisition.

Yes, but we do see a slight yield compression actually in all the 3 countries, but it's not, as you say, it's very, very little, but we do see the signals, and we do a concession.

But at the same time, we see signs of raising interest. So we'll see what happens to the yield requirements going forward.

And perhaps on your CPI indexation on rents, can you guide us a bit on that timing in the coming evenly throughout the year?

Yes. Well, Finland do have a CPI index basis over the year. It's mostly concentrated during year-end, but we do have indexation in Finland when the contracts are renewed, so to say, at that date. So we see that more evenly over the year. Sweden and Norway, on the other hand, have index increases once a year -- index for October would then increase the rents in January.

And then last one to Pia-Lena. So just to be clear, your net one-offs in income from property management was 600,000 positive, 900,000 from the FX impact -- and then Yes. And then 300,000 minus admin.

True.

And then perhaps a question regarding the dividend. Your dividend payout ratio is coming down or has come down quite significantly. Do you have any thoughts about that? Do you want to -- I mean you could obviously pay a bit more, but I guess you want to say...

Cost on growth now. And we intend to keep the dividend policy to increase our dividend with 5% annually. And we also aim to grow quite heavily. So we think that's a good combination, and we're going to stick with that.

Thank you. There are to be no further questions. I'll turn the conference back to you, Sverker.

Yes. And there's no question from the web either.

Okay. So thank you very much for listening in to the Q1 report presentation for Cibus Nordic real estate. And hopefully, we hear from you again at the next quarter. Thank you.

Thank you.

Thank you. This does conclude today's call. Thank you all for attending. You may now disconnect your lines.