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

Thank you very much, and once again, welcome to the Cibus Nordic Earnings Call for the second quarter 2022. My name is Sverker Källgården, and apologies for a bit of a sore throat, but I hope it will hold the whole conference call. And with me today is Pia-Lena Olofsson, the Group CFO. Next slide, please. Pia-Lena will take us through the numbers a bit later on in the presentation, so please turn to Slide #4 and the significant events during the period. On the sixth of April, we closed the deal in Denmark, previously announced. That comprised of 34 grocery and daily-goods properties. On the 11th of April, we announced that the Cibus Board of Directors withdrew the proposal to introduce a new share class and also called for an Extraordinary General Meeting on the fifth of May at which a proposal to increase the total dividend to EUR 0.99 per share would be presented. Then at the Annual General Meeting on the 20th of April, Nils Styf was elected as new Board member. And Patrick Gylling, Elisabeth Norman, Victoria Skoglund and Stefan Gattberg were reelected as Board members, with Patrick Gylling as the Chairman of the Board. On the 28th of June, we bought the property in Finland, and at the Extraordinary General Meeting of the fifth of May, we resolved to increase the dividend by EUR 0.24 to a total of EUR 0.99 per share, divided between 12 payments. On the 11th of May, we announced that the Board of Directors had approved a repurchase offer to holders of warrants within the framework of the 2019 to 2022 programmes. And on the last day, the 31st of May, we announced that the warrant exercise had resulted in an increase in the number of shares and votes in Cibus by 41,792 shares. Accordingly, the number of shares and voting in Cibus amounted to 48,441,792 shares as of the 31st of May 2022. And on the same day, we announced that Iiris Eestilä has been appointed as the new CIO in Finland. This recruitment was a consequence of the previous appointment that former CIO of Finland, Lauri Tiensuu, was now responsible for business development within Cibus. On the 30th of June, we announced that Cibus had gained access to an acquired the portfolio including 4 properties in Central Norway for EUR 12 million. And significant events after the end of the period is that on the 13th of July, we announced that we had updated our MTN program and published an updated basic prospectus. Next slide, please. What is Cibus Nordic? Well, Cibus Nordic is a real estate company focused on daily-goods properties. We buy properties 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. All of our properties are currently in the Nordic countries, so we have a clear Nordic focus. And as the first company in the Nordics, we pay out monthly dividends to our shareholders, currently EUR 0.99 for the current 12 months. Next slide, please. The story about Cibus is the story about portfolio diversification. On the map to your right, you can see the properties mapped out in the 4 Nordic countries: Finland, Sweden, Norway and Denmark, where the portfolio is currently at. And the story is more or less about portfolio diversification. Traditionally, these assets have been owned as either single assets or small portfolios of maybe 2 to 5 assets, which meant that the owner had a very high risk concentration. If the tenant left, you lost all your cash flow. That meant it came into a weak negotiation position with the tenants. The banks realized this, so the bankability was low, which meant that you have a high risk but also high return business. What Cibus realized is that if you own approximately 450 of these assets, you diversify the risk and lower the concentration. Only one of our assets is worth more than 1.5% of our total NOI, which means that the concentration is very low in the portfolio. And when you own a lot of properties with just a handful of tenants in each country, you become an active cooperator with a tenant instead of just a landlord. The bankability is much higher and you lower the risk, but you have the same return for a single asset. And due to that risk factor of owning single assets, we can buy assets 50 to 100 basis points higher than the existing portfolio is trading at and produce value-creative growth for our shareholders. Next slide, please. When we talk to investors and analysts about Cibus, some of them put us on the retail shelf as we are into groceries and daily-goods. But there are some things that really set Cibus apart from the other retail assets. For one example, we see a total resilience towards e-commerce. We have seen a negligible negative effect even during the corona pandemic where the online trades exploded. The share of online trade in the -- within groceries were approximately 5%, and a large share of that volume was click and collect from our stores. And after corona, the share of online trading is below 4%, so it's back to the level or even lower than they were before the pandemic. And if you look worldwide, you see very few operators that can make profit on online food sales, and that's due to the fact that the margins are too low and the cost of handling and distributing the goods out to the consumers are too high. On the other hand, we see a notable positive effect as our existing stores can work as a natural distribution network for other goods purchased online. And they are delivered to our supermarkets, and these boxes, as you see on the picture to the right, are very common in our supermarkets all over the Nordics. Next slide, please. Cibus also sets apart in this segment with the fact that we have our own organization that actively works both with our portfolio and especially with new acquisitions. It's very easy to get hold of a Cibus employee and to talk about either existing property or if you are interested in selling the property to -- out in the market. It's very easy to get hold of a Cibus employee. Next slide, please. Being a real estate company, we have a big responsibility when it comes to sustainability. But Cibus, we need to work together with our tenants as we have a lot of net or triple net leases where the tenants bear the cost, for example, like electricity and heating. One example of that is that we have allowed [ top money ] to build solar panel plants on the top of our roofs, and currently, 40 of our properties have these solar panels. And that annual carbon dioxide reduction corresponds to the electricity consumption of about 2,300 apartments. We have set a goal to have 0 emissions by 2030, and we have a plan that we follow. Next slide, please. Cibus is on a growth path, and we have grown quite rapidly the last year. We have a growth target that says that we should reach a portfolio size of EUR 2.5 billion to EUR 3 billion by the end of 2023. We are in -- the growth pace is on target in the second quarter in 2022. Finland, Sweden, Denmark and Norway are our main markets, but other European markets are being monitored. We have a strong cash position and also a strong pipeline regarding possible acquisitions in all Nordic countries. Since the Annual General Meeting, we also have a mandate to issue up to 10% new shares. Next slide, please. Looking at the shareholders' list as of the 30th of June 2022, the Fourth National Pension Fund is still the largest shareholder with a holding of 7.8%, followed by [ AB Sargax ], Columbia Threadneedle, Vanguard, Dragfast and Marjan Dragicevic. Total, the 15 largest shareholder owns 45.1% of the company. And the last day of June, Cibus had approximately 40,000 shareholders. Next slide, please. Cibus share price performance. Cibus has an average daily total volume of SEK 62 million, which deals at NASDAQ's. holds a volume of SEK 31 million and about 2,300 transactions per day. The stock market unease and the turbulence experienced since the outbreak of war in Ukraine as well as rising inflation and interest rates expectations have affected the Cibus share price as all other shares on the NASDAQ Stockholm. And on the last day of June, the share price was SEK 157.90. Today, we have recovered some and are trading at around SEK 175. Next slide. And over to Pia-Lena for the financial overview.

Thank you so much. Here are some key figures for the second quarter. Rental income was EUR 27.2 million. Net operating income grew with 36% to EUR 25.2 million. Profit from property management was EUR 13.6 million and earnings after tax, EUR 30.8 million or EUR 0.63 per share. Next slide, please. If we go into details, there are some items affecting comparability. There is a negative exchange rate loss of EUR 2.1 million in the quarter, and this loss is unrealized and is due to the much weaker NOK and SEK against the euro during the quarter. We also have a non-recurring cost of about EUR 400,000 for a bridge facility for the Danish acquisition. And the bridge loan is replaced by a mortgage loan, [ counter-jihad ] to this of this loan during the second quarter. Unrealized changes in property value was EUR 17.2 million, and it's largely attributed to the increased rents due to indexation increases primarily in Finland. But there are also some -- been some transaction on the Finnish market with lower yields, but then our valuation of which has had a positive effect on the external valuation. Next slide. Our current earnings capacity on a 12-month basis shows net operating income of EUR 103.2 million. Indexation acquisitions has increased the rent. The higher IBOR rent has increased the financial expenses and also the expenses for the hybrid bond. Profit from property management plus expenses for the hybrid bond was EUR 64.8 million or EUR 1.34 per share, which is an increase of 14% compared to 12 months ago. Next slide, please. We had 446 properties at the end of the second quarter, with a property value of EUR 1.833 billion. Properties with grocery and daily-goods tenants stand for 97% of our NOI. Next slide. Looking at our segments. Finland contributed with 7% of the NOI in the second quarter. Sweden was 13%, Norway 3% and Denmark 13%, and which is very close to the split of the NOI that we have according to our current earnings capacity. Next slide, please. See, the strategy is to give our shareholders a stable and reliable dividend that increase over time. Dividend yield was with the share price of SEK 157.9, 6.7%, and we pay dividend monthly. Next slide, please. Looking at the balance sheet, we have a property value of EUR 1.833 billion. Senior debt was EUR 850 million, giving a loan-to-value on senior debt of 46.4%. Our senior unsecured bonds were at EUR 241 million, giving a net loan-to-value of 58% which is within our finance policy target of 55% to 65% loan-to-value. Our net asset value, EPRA NRV, was EUR 728 million or EUR 15 per share. Next slide, please. Our average timing and lease time was 5 years at the end of the second quarter, and it continues to be very stable around 5 years, as you can see on the graph below. Next slide, please. Regarding funding, we have bank financing of EUR 850 million at the end of the quarter. The average floating increase margin is 3-month EURIBOR, STIBOR and NIBOR plus 1.6%. 71% of the bank loans are hedged with interest rate derivatives or have fixed interest rates. We also have 3 senior secured bonds on the market. The Green SEK bond of SEK 600 million and matures the first. It matures the 12th of June next year. We also have a hybrid bond of EUR 30 million. Next slide, please. This quarter, we've made a sensitivity analysis regarding the effects of increase on the average interest rate by various percentages. An increase in the average interest rate by 2%, for example, would affect profit with EUR 10.4 million. We have been not taking any account in the tax changes, et cetera, into account with that. Based on the earnings capacity, a 2% increase of the average interest rate would entail that the interest coverage ratio would drop to 2.6x. In order to come close to our covenant multiple of 1.75x, we would have to increase the average interest rate with almost 6%.

Thank you, Pia-Lena. What about the future? What are Cibus concentrating on at the moment? Well, we are a growing company, and we have continued growth in the Nordics. As we said, we have a strong cash position and a good pipeline. We are also starting to monitor new geographies. And when that is done, we will structure the capital and debt to meet criteria of interest rate -- interest -- investment grade and credit rating by the end of 2023. Next slide, please. What are the primary reasons to invest in Cibus share? Well, firstly, we produce a high, 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. Our investment strategy of acquiring individual properties or property portfolios with a higher yield requirement of the existing portfolio with a planned rate of investment generates potential favorable long-term growth in share value. We pay out a rising monthly dividends since October 2020, and we aim to gradually increase them by 5% annually. And last but not least, we are present in a segment with a long-term resilience and stability. The grocery and daily-goods sector has experienced stable, non-cyclical growth over time. That will be it for us. So if you have any questions, please feel free to ask.

Thank you. We'll now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Svante Krokfors with Nordea.

Question regarding your, I guess, all focus in the market is now on the debt side. And my question comes to how you reason around your relatively short maturities which, I guess, mainly relate to your ambition to get investment-grade rating by the end of '23? So could you elaborate a bit around how you plan to go forward?

Yes. As you say, we are shorter in maturity than we normally would be due to the goal that we have to invest -- to reach investment in a great way before 2023. And we do have a really good dialogue with banks, and they still want to support us in our growth strategy. So we feel that we have continued support, and we'll be able to get additional funds when needed to support us in our growth strategy.

Okay. So bank's appetite is still good for funding Cibus?

Absolutely, absolutely.

And what about the margin development? What's your feeling about the margin development in bank loan?

So long, we have not gotten any indication of increased margins. Of course, the IBORs are increasing, but not the margins. As you can see also, the average margin has come down a little bit during the quarter mainly due to Denmark, of course.

And what's the activity in the M&A market now when, obviously, things have changed quite a lot over the last year?

Yes. We have closed some smaller deals lately, but that was a deal that we've been working with for a while. Currently, the yield expectation from the sellers and the buyers are a bit apart, but that will come back and the market will adjust itself. And hopefully, when we come back after holidays, we can continue our growth strategy. So we see a lot of potential, and now it's more or less -- the market needs to adjust to the new environment, and then we can continue our growth strategy.

Okay. And I don't know if you want to answer this, but how do you weigh the -- I mean, given the fact that you want to grow to EUR 2.5 billion to EUR 3 billion by the end of '23. You also need to take down your LTV probably closer to [ 50 ] than [ 60 ] in order to reach investment grade, and your EPRA NRV premium has shrunk quite a bit for using your own shares. So how do you reason around this, given that you probably also want to increase your EPS when conducting M&A?

Absolutely. Well, there is a bit of a change in the market, to say the least, and the environment as well, and we have to adapt to that. We are still on a growth target. We'll see what happens in the market, both in the bond market and in the M&A market and also the interest rates. And we are closely monitoring these every month, and then there is no -- it's not written in stone that we have to be by the end of 2023. We will revise that every quarter and see what the opportunities are. And -- but it's clear that Cibus has the ambition to become a significantly larger company. And when that is in time, we will see. But the aim is still to be at EUR 2.5 billion to EUR 3 billion by the end of 2023.

Okay. That's clear. And that's actually all from me.

Okay. Thank you.

Thank you.

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to the management team for any final remarks.

Okay. So there are no questions on the e-mail either, okay?

No.

So then thank you, everyone, for dialing in at the Cibus second quarter interim report. And I hope you will have a great summer, and talk to you again in the third quarter in -- after the summer. Bye-bye.