Cofinimmo SA (COFB) Earnings Call Transcript & Summary

[Audio Gap] Yeliz Bicici, Chief Operating Officer, Offices and Real Estate Development; Sébastien Berden, Chief Operating Officer, Healthcare; Jean Kotarakos, our CFO; and as well as our Head of Control, Jonathan Hubert; Head of Treasury, Maxime Goffinet; Head of ESG, Hanna De Groote; and our external -- and our Head of External Communications and Investor Relations, Jochem Binst; together with Lynn Nachtergaele, our Investment Relations. I will start on Slide #3 by stressing again that the pandemic that the world has been experiencing over a year now has highlighted the societal importance of the healthcare sector. As you know, through its numerous development project, Cofinimmo is actively participating in the extension and renewal of the property portfolio dedicated to healthcare in Europe. In terms of financing, Cofinimmo has distinguished itself by issuing a first benchmark sustainable bond, showing that the sustainable investment and sustainable financing are a priority for the group. In this context, Cofinimmo's results proved to be solid and the investment activity very sustained, including in 2 new geographies, Finland and Ireland, despite this pandemic. With EUR 700 million -- with more than EUR 728 million (sic) [ EUR 733 million ] invested during the financial year, thanks to the effort made by its team, Cofinimmo largely exceeded the budget of EUR 375 million of investment planned for 2020, and its assets now account for more than EUR 5 billion. Ongoing development projects represent an envelope of almost EUR 450 million to be achieved by 2023. The year 2020 ended with results which are in line with the outlook for 2020 as fine-tuned last November. With our 2020 investment, our healthcare assets represent now EUR 2.9 billion. This account for 59% of the group's overall portfolio, which has reached EUR 4.9 billion. Moreover, we pursue our strategic goal of rebalancing our offices segment by strengthening our presence in the Brussels Central Business District. The net result from core activities group shares stand at EUR 181 million, a 9% growth compared to 2019. The expected gross dividend, payable in 2021, can be confirmed at EUR 5.80 per share. The 2021 outlook is as follows. A net result from core activities group shares at EUR 7 per share, assuming a gross investment budget of EUR 333 million for 2021 and a gross dividend for the 2021 financial years of EUR 6 per share, up compared with 2020. Our company profile and strategy are well known by all of you, so I suggest to immediately go to Slide #8. This chart is well known to you, and it shows the dynamic of the change in the breakdown of our global portfolio per segment. You see on Slide 9 that we are currently present in 7 European countries. Ireland is not yet included in this chart because we entered that country after year-end. I'm now on Slide 10. With EUR 579 million, our investment in healthcare was strong in 2020 despite the pandemic. This volume represents almost 6x the average amount invested in the financial years prior 2018. July, October, November, December were specifically busy months in terms of investment activity. And we continue the investment momentum during the first 2 months of this year. Moving now on Slide #11.

Ladies and gentlemen, one moment, please. We continue in 1 minute because the Chairman's out of the call. One moment, please. [Technical Difficulty]

Okay. So I'm sorry for that. Obviously, there is a problem with the line of Jean-Pierre. So he was starting to -- he was poised to look at Slide 11 together with you. So as you know, Cofinimmo has a long and deep experience in ESG, what is illustrated here on the slide. You will recall that Cofinimmo received its first ISO 14001 certification as soon as 2008. So it's not a new trend for Cofinimmo. It's a well-established trend. Since then, we have developed many initiatives to be a frontrunner with a high level of transparency. Please bear in mind that Cofinimmo is one of the 20 leading listed companies in Belgium, and that's what we do since the [ store ] in Belgium. We also issued our first sustainable benchmark bond in November 2020, and we will tell you more about that later in this presentation. In 2020, we started implementing the project called 30³, aiming at reducing the energy intensity of our portfolio by 30% by 2030 to reach 130-kilowatt hour per square meter. Our ESG strategy is also based on the United Nations Sustainable Development Goals. You will recognize the logos on Slide 12. On Slide 13, you see our implementation actions of project 30³ in more detail as well as tangible targets set out for our different segments. The energy intensity of the portfolio has already been reduced by 14%, going from 190-kilowatt hour per square meter in 2017 to 163-kilowatt hour per square meter in 2020. And on Slide 14, you will see the impressive list of ESG benchmark and awards of Cofinimmo.

Thank you, Jean. I'm now back, and sorry I've been cut off. And I think this is the beauty of having a team around. Thank you for Jean taking over.

Welcome back.

Thank you. We are now on Slide 15, which provides information on the effect of the pandemic for Cofinimmo. At the M&A level, despite the slowdown in the execution of the due diligence process in Q2 and Q3, the deal flow did not dry up. And Cofinimmo has even exceeded the initial investment target for the full year, which stood at EUR 375 million gross and landed at EUR 733 million invested during the financial year. Most of the main healthcare tenants have benefited from ad hoc government support since they are in the first line in the fight against the pandemic. Vaccination campaigns in nursing and care home are well underway, as you know, in all the countries where we are active. So there is certainly a positive momentum in this field. Slide 16. Cofinimmo's market cap was EUR 3.3 billion at the end of December and EUR 3.5 billion already now. Daily liquidity remains sound, as you can see on Slide 16. The share price was not unaffected by the pandemic, of course, but in a lesser degree than the peers, either the other Belgium blue chips in the Bel20 Index or the real estate companies in the EPRA Europe Index. The total shareholder return since end of December 2019 amounts to 4%, which is substantially higher than the indices. It's also considered that the share price shows a long-lasting premium compared to the IFRS net asset value per share. In the following slides, we'll take a closer look at our property portfolio. As shown on Slide 18, the occupancy rates at year-end reached 97.4% compared to 97% at the end of 2019. In healthcare, the occupancy remains very close to 100%. In the office segment, the rate reached 92.8% coming from 91.5%. This is mainly on the back of new rentals. You see on Slide 19 the weighted average of regional lease terms is 12 years and remains unchanged compared with the end of 2019. On Slide 20, compared to 2019, yields are compressing slightly. I will now invite Sébastien Berden, our CEO, Healthcare, to take you through the highlights of the healthcare segment. Sébastien, the floor is yours.

Thank you, Jean-Pierre. As already mentioned, our healthcare department has been very active in 2020. Despite the current health crisis, the group invested EUR 579 million in high-quality healthcare real estate. Thanks to a series of acquisitions, the fair value of our healthcare segment now amounts to EUR 2.9 billion. Our continued investment clearly illustrates our mission to consolidate our leadership in healthcare real estate in Europe. As you can see on Slide 22, we are now active in 7 European countries and strengthened our diversification in healthcare asset subsegments. Moving to next slide, please. On Slide 23, you can see the segment now represents a surface area of more than 1.2 million square meters, spread over 220 assets. The following slides records the acquisition that -- all the acquisitions that were made throughout 2020 and our acquisitions during 2021 until today. I'll briefly comment there. On this slide and next slide, we see the year 2020, which brought us no less than 20 healthcare deals in 6 countries. The array of projects prove our diversification strategy in healthcare, both in geographic sense as per asset type. 3 transactions took place in Belgium, 1 in France, 4 in the Netherlands and Germany, 7 in Spain and 1 in Finland. As described, these transactions included acquisition of standing assets, extension and upgrade of assets already in the portfolio but also developments, developments of state-of-the-art nursing homes, clinics and medical centers. There's also development of innovative healthcare campuses. Moving to Slide 26. We also added a slide to show you where we already stand up to now in the year. We can see that we have reported already 5 acquisitions in 4 countries. This encompasses the acquisition, extension, development of nursing and care homes, but also the acquisition of a rehabilitation clinic and an assisted living facility. I now give the floor to my colleague, Yeliz.

Thank you, Sébastien. Moving on to Slide 28 for the breakdown of our distribution network. Our 2 portfolios, Pubstone and Cofinimur I, represent on end 2020 a fair value of EUR 0.6 billion (sic) [ EUR 0.5 billion ]. Both networks together cover 375,000 square meters and count almost 1,200 assets. Let's now talk about the office segment as of Slide 30. The fair value of the office segment represents EUR 1.4 billion at end 2020 and count 77 sites for 551,000 square meters. The map on Slide 31 helps you visualize the trend in progress with the divestments concluded in the decentralized area of Brussels or its periphery and the acquisition of 5 office buildings in the Brussels CBD, which now -- sorry, which now accounts for 62% compared to 46% at June 2018. On Slide 32, you see the first acquisition we made in 2020 in the CBD of Brussels. This is a building containing a well-known medical center and offices in the neighborhood of the European institutions. You will recall that we delivered in 2020 the Quartz, a landmark office building combining an innovative architecture with high sustainability and a key strategic location. Quartz became the home of the European Free Trade Association, the EFTA Surveillance Authority and the Financial Mechanism Office. Moving on to Slide 34. In the fourth quarter, Cofinimmo acquired the company owning the rights and room in the office building, Bruxelles Environnement -- sorry again, Leefmilieu Brussel in the Brussels CBD. This [ passive ] office building is located on the multi-purpose Tour & Taxis site in the Brussels Central Business District. Slide 35 highlights the fact that Cofinimmo announced the launch of the contribution of its office portfolio into a subsidiary. This would allow future investors, in due time, to participate in the capital of the subsidiary, of which the control would be maintained while benefiting from Cofinimmo's -- sorry, very experienced management and investment platform. Meanwhile, the group will be able to recycle a part of the capital that has been invested in this portfolio. The contribution is currently scheduled to be completed during the last quarter of 2021 at the earliest. This operation will have no effect on the consolidated accounts nor of the dividend. I will now give the floor to Jean Kotarakos, CFO.

Thank you, Yeliz. As already mentioned by Jean-Pierre, Cofinimmo's results are solid despite the 2020 health crisis context. For the overall portfolio, we can see on Slide 37 that the gross rental revenues grew by 8.5% year-on-year. This represents a like-for-like rental growth of 1.4%. Bottom line, the core EPS, shown on Slide 38, is in line with the outlook as fine-tuned last November. This has been achieved despite the mechanical dilution arising from the issue of shares in 2019 and in June 2020. The core EPS amounts to EUR 6.85 per share versus the prior year figure of EUR 6.81 per share. The rents, which are the gross rental income, amount to EUR 258 million compared to EUR 238 million at the end of December '19, up 8.5%, thanks to the acquisition made between those 2 dates. On a like-for-like basis, gross rental income increased by 1.4% between '19 and 2020. Rental income amounts to EUR 262 million compared to EUR 233 million as at the end of December '19, up 8.1% compared to 2019. Net write-down on trade receivables were booked for EUR 2 million compared to net write-back of EUR 0.6 million in 2019. After taking this into account, rental income, net of rental-related charges, amounts to EUR 249 million compared to EUR 233 million, up 7%, in line with the outlook as fine-tuned last November. The operating charges are stable. The financial income decreased by EUR 1 million at EUR 8 million. Last year's figure included nonrecurring item for less than EUR 3 million, whereas the 2020 financial income include nonrecurring item for EUR 1 million booked in the first half and linked to the contributions in kind of June 2020. The net interest charges are stable compared with last year despite the increased level of the average debt, and thanks to the average cost of debt, which decreased to 1.3% compared to 1.4% last year. The net interest charges are in line with the outlook. Hence, the net result from core activities stands at EUR 181 million, which represents EUR 6.85 per share as highlighted just before. After having commented the net result from core activities, let's have a look at the other items that bring us to the IFRS net result on Slide 39. The financial instruments net charge of EUR 22 million is mainly due to the fair valuation of the hedging instruments, in line with the change of future interest rates on the financial markets over the period. These are noncash items that are broadly constant in 2020 compared to 2019. The result on portfolio amounts to minus EUR 40 million versus plus EUR 62 million 1 year earlier. This includes several items. First one, the gain of losses on disposal of investment properties and other non-financial assets is established at EUR 5 million in 2020 compared to EUR 12 million in 2019. Then the value appreciation of the healthcare-related portfolio in Belgium as well as that of office buildings located in the CBD did not fully compensate the value depreciation of some buildings, particularly in the Cofinimur I portfolio. These changes are also affected at the level of EUR 10 million booked in Q4 2020 by the increase in transfer taxes in the Netherlands, growing mostly from 6% to 8% as from the 1st of January '21. We had the initial effect from the changes in the scope. The changes in the fair value of investment properties is stable, which means minus 0.1% for the 2020 financial year. And then other technical items include the effect of changes in the scope of consolidation that was deferred taxes, the impairment of goodwill that was recorded in the first half. Therefore, the net result group share stands at EUR 119 million versus EUR 205 million 1 year earlier. Regarding our balance sheet structure on Slide 40, there are no surprises. The growth of the last 12 months can easily be seen in the investment properties and in equities, which are the red boxes in the chart. The total assets reached over EUR 5 billion, and 93% of it are investment property at fair value, financed by EUR 2.5 billion of equity and EUR 2.6 billion of financial and nonfinancial debt. On Slide 41, we analyzed the change of the debt-to-asset ratio between December '19, which was 41% at the time, and December 2020, 46.1%. The higher ratio year-on-year comes primarily from strong investment activity, plus 8.4%, partially offset by the result on core activities generated during the period, minus 3.5%. The effect of the dividend, plus 2.8%, was mainly totally offset by the effect of the contributions in kind of June 2020, minus 1.9%, and the fact that 44% of the 2019 net dividend was paid out in shares. That was an effect of minus 0.8%. On Slide 42, you can see that the net asset value per share is somewhere between EUR 95.3, that's the IFRS NAV and EUR 110.11 per share, that's the EPRA NAV depending on the concept you find the most relevant. Let's have a look now at what we did on the financing side as from Slide 44. You will recall that Cofinimmo raised, in the first half of 2020, gross proceeds of nearly EUR 143 million through 2 successful operation as shown on Slide 44. The optional dividend and contribution in kind followed by [ net NAV ] in June 2020. After almost 5 years, we saw significant activity on the DCM market, as shown on Slide 45. Cofinimmo issued in November 2020 its first benchmark sustainable bond for an aggregate amount of EUR 500 million. It was also the first benchmark sustainable bond for a Belgian REIT that was issued. All in all, we have now EUR 635 million in sustainable financing. Slide 47 gives a detailed analysis of all the instruments we use, highlighting our ability to access diversified funding sources. Thanks to the financing activity, including the issue of the 10-year sustainable benchmark bond that I have just mentioned, the average debt maturity shown on Slide 48 increased to 5 years. At the same time, the average cost of debt has improved to 1.3% compared to 1.4% in the full year 2019. As shown on Slide 49, the debt maturities are well spread. At the end of December, the headroom on the committed credit line is about EUR 1.3 billion. After deducting the credit line [ step up ] backup for the commercial paper program, the headroom reached EUR 532 million at end of December 2020. On the hedging side, over 70% of the group's forecast debt is either fixed or hedged until 2025, as shown on Slide 50. And I will now give the floor back to Jean-Pierre, who will take you through the outlook for 2021 and the investment budget.

Thank you, Jean. So we are now on Slide 52. You see that the gross investment budget for this year stands for the moment at EUR 333 million. The breakdown is provided on this slide. Please bear in mind that we have already invested EUR 123 million in the first 2 months of 2021, namely in France and in Ireland. On Slide #53, you see that the portfolio outlook largely exceeds EUR 5 billion as shown on this slide and taking also into account project beyond 2021. Let's now have a look at the outlook for 2021 on Slide 54. Taking into account the budget just described, we set our outlook on EUR 7 per share at the level of the net current result from core activities group shares for the year 2021. Based on that, we set the target for the gross dividend at EUR 6 per share, up compared to 2020. So thank you for your attention. We are here now to answer questions you may have.

[Operator Instructions] The first question is from Dennis De Jong, Kempen & Co.

I had a couple of questions. Let's start with the Pubstone portfolio. I was wondering if we could any -- see any more disposals for this year? And yes, if you could give me more color on valuations.

Well, regarding the first part of your questions, there are divestments every year. That's part of the agreement we have in the master lease with AB InBev. So yes, you will see other divestment this year like you have seen in the past. So that's for the first aspect. Regarding devaluation, I think the best is to refer you to the details we have in the press release, where you see basically devaluation and the comment related to this valuation. I don't think I have much more to say that all the details that are already in the press release.

Maybe, Jean-Pierre, I can add that the impact of the change of the real estate transfer taxes in the Netherlands as from the 1st of January has already been accounted for.

Okay. Yes, that was actually what I was looking for. And I think the valuations on the insurance offices came down quite a bit. Could you give more color on that?

You are talking of the French portfolio, Cofinimur, that's your question?

Correct.

Yes. Well, again, there has been no collection issue at all during the year. So in terms of valuation, I think it's basically business continuity. And it's something, of course, we follow. But as you may have noticed last year, we have renewed some contracts which basically moved our average duration from 2 to 4 years, which was a good news because we have achieved that during the summer in the middle, I would say, of the pandemic for that year.

The next question is from Mr. Herman Van Der Loos, Degroof Petercam.

I have basically at the stage 2 questions. The first is on financing. Your leverage is at 46%. Could you remind us what is your target leverage, especially considering the current context? And do you expect to plan again a stock dividend to keep that in check or some other more substantial operation? Or is in your CapEx assumed that everything is going to be paid? Or are there some contributions in kind somewhere in the due diligence and so on? That was my first question. Secondly, well, I know that you do not like to comment on specific tenants, but could we have some flavor on what was the cost in 2020? And what do we expect in 2021 on -- how to say that, on the more problematic areas, namely fitness, sports, retail, but it's very small. So this one, I can forgive you. And also on AB InBev. There were negotiations last year. You didn't want to elaborate on that. Can you just confirm that there is some negotiations for this year as [ Holy Car ] remains closed in both Belgium and Netherlands.

Okay. So regarding the first part of your question. So indeed, leverage is at 46%. And as we said in the past, we like to have it around 45%. So we are still around 45%. Now for basically the futures, we have indeed, as you have outlined, several options, basically stock dividends. But there are others we have also a divestment program, as you have seen in our outlook. You know also that we have announced the [ sterilization ] of our offices and the entry of minority shareholders. We have also the convertible coming in September. So there are various instruments and various tools that will be available to us. And of course, we will decide on one versus the other or one with another depending on the evolution or basically our acquisition and our strategy. I think the most important to remember, I think, is that we have options and options have always value. And we just need to decide what is the best option for Cofinimmo looking at these various opportunities. Regarding the second part of your questions, Herman, I can refer you to all the details you see in our press release regarding the cost. There is clearly reference to the write-down of EUR 2 million, which was referred to in the press release. Regarding the pubs and wellness, well, I think it's basically 2 different environment, I would say, there. For basically the wellness, we refer in our press release that, indeed, the situation is -- has been quite challenging because you know that the wellness center in Belgium and Germany have been closed at around June last year, slightly reopened and then again closed. So based on that, Cofinimmo and Aspria have concluded an agreement, which is fully in line with, of course, the results that we have published. So I think that's on one point. And regarding the Pubstone and AB InBev, as I also repeatedly said at various occasions last year, we are always in constant and constructive dialogue with our partner, AB InBev, on many different topics: the number of pubs to be sold, as has been asked before during this call; the maintenance and other topics, which are purely punctual. And of course, the agreement reached is part of basically our results. We basically are asked by our partner, which is also a partner in the joint venture because, as you will remember, AB InBev own 10% in the JV. So basically, that this agreement remains confidential. But if you see basically that there is no significant impact in our results linked with these agreements. So that's basically the situation where we are. I think as far as the future is concerned, on the one hand, one can say that it's a crystal ball because I think there is a lot of pressure on reopening of all the -- whole retail sector as you can read in the press like us. I think it's more a question of weeks than months, but we will follow the situation.

The next question is from Frederic Renard, Kepler Cheuvreux.

Three questions actually. First one would be on the fair value of the portfolio. You mentioned obviously that the value was impacted by the Pubstone portfolio and the Cofinimur. That's one thing. But on the other side, I was expecting maybe more aggressive revaluation on the healthcare portfolio. Could you give a comment on what is the appraisal stand on that matter at this stage? That would be the first question. Second question would be on the renegotiation of lease in France. I think a lot of lease or some will lease will come in maturity by the end 2021. Can you shed some color on how renegotiations are doing? And I mean by that, are there any pressure on rental levels? And the last question is on the subsidiary of the office portfolio. Would you be ready, in the case of interest of investors, to sell your portfolio at a discount to the NAV? And if yes, could you comment on that?