Hamborner REIT AG (HAB2.VI) Earnings Call Transcript & Summary

Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

Yes. Good morning, ladies and gentlemen. This is Niclas Karoff for HAMBORNER REIT. Thank you for joining our half year results conference call. I'm pleased to be here today with members of our team, including my colleagues, Sarah and Christoph. As usual, I will start with a short presentation followed by a Q&A session. While in the past, participation in the Q&A was only possible by telephone, you know also have the opportunity to ask questions via the webcast directly in your web browser. We hope that everything will run smoothly from a technical perspective and look forward to interacting with you. So let's start on this slide with a look at the key figures of 30th of June 2025. Yes, the real estate sector continued to face headwinds during the first half of 2025, at least overall, yes, and with a challenging financing and interest rate environment, increased complexity of rental markets, yes, persistently high construction costs and transaction market development, yes, that still hasn't reached previous levels overall. Regardless of this, HAMBORNER's business performance remained largely on track in the first half of the year. As a result of the recent property disposals, income from rents and leases decreased by 2.1% to EUR 45.7 million in the first 6 months of this year, influenced by the property sales as well as increased costs at the operational level, FFO came down around 12%. Key financial figures showed moderate changes with an LTV increase to 44.3% and a corresponding decline in the REIT equity ratio to 55%. Operational performance remained largely resilient with a vacancy rate of 3.5% and the portfolio WALT of 5.7 years. Further details, yes, as usual, will be shown here on the following slides. So let's move on here to the rent development. On a year-on-year basis, our like-for-like annualized rental income rose by 1.4%. Yes, it was mainly reflecting the impact of indexation adjustments. The positive indexation effects were partly offset by slightly lower rent levels on the reletting side, mainly within the office portfolio. The disposal of the office properties in Hamburg and Osnabruck as well as the retail asset in Lubeck resulted in a rent decline of 3.5%. At the end of June, our annualized rental income amounted to EUR 88.6 million. Yes, on the next slide, a more detailed look at our earnings situation. As already mentioned, income from rents and leases declined by 2.1%, which is primarily attributable to our strategic asset sales. As already predicted in our initial full year forecast, we saw an increase in maintenance costs in the first year -- first half of the year, yes, which amounted to approximately 27% compared to previous year. The expenses related to ongoing maintenance activities as well as several larger measures implemented or initiated in the first half of the year. Administration expenses rose by approximately 17%, primarily driven by the continued further development of our IT infrastructure. Personnel expenses increased by nearly 15% year-on-year, reflecting workforce changes or changes within the workforce over the past 12 months. Other operating expenses increased by approximately EUR 2 million, mainly comprising costs associated with strategic and regulatory projects, particularly in the areas of digitalization and sustainability. And declining overnight deposit rates led to lower interest income, which amounted to approximately EUR 0.3 million in the first half of 2025. Yes. And all in all, funds from operations totaled to EUR 24.8 million in the first half of the year with a corresponding FFO per share of EUR 0.31 per share. Yes. Going on to the topic of disposals with the transfer of ownership of the properties in Lubeck and Osnabruck at the beginning of the second quarter of this year, the most recent disposal activities have been successfully completed. The disposals were realized approximately at the level of the most recent market values and corresponded to a total transaction volume of EUR 27.4 million. In connection with our full year forecast published in February, we had announced another property disposal, which, however, has not been completed as anticipated in the first half of the year. Accordingly, this property will remain in our possession for the time being and will continue to contribute to rents and FFO in the remainder of the year. Let's now turn to an overview of the portfolio KPIs. Following the closing of the transactions in April, the number of assets has been reduced to 64 at the end of June. Due to the changes in the respective rental situation, we reclassified 2 properties in our managed to core portfolio at the end of the first half of the year, a retail property in Hallstadt and a smaller office property in Darmstadt. In contrast, the previously existing managed to core property in Lubeck was sold, meaning that the sub portfolio now consists of 5 properties, which account for 5.7% of the total portfolio WALT. As at last year's half year reporting date, we did not carry out a portfolio-wide external asset valuation. Nevertheless, in consultation with our external appraiser, we made save -- selective fair value adjustments for 4 office and retail properties, which were primarily attributable to the respective, yes, location and living situation. In total, the adjustments resulted in a decline in fair value of EUR 7.3 million or 0.5%. Taking into account the property disposals and the impairments, the fair value of the total portfolio decreased by EUR 34.7 million in the first half of the year, standing at around EUR 1.406 billion as at the end of June. The EPRA vacancy rate increased slightly to 3.5% during the course of last month, mainly caused by additional vacancies within the office portfolio. The total portfolio WALT remained stable at 5.7 years during the second quarter with terms of 6.9 years in the retail and 4.1 years in the office portfolio. Moving on to the tenant base. Yes, the largely stable performance of our operating business is also reflected here in the consistency of our tenant structure. There have been only smaller changes in our top tenant and sector allocation list, yes, and these shifts are primarily attributable to our sales activities as well as indexation effects. Going on with the leasing situation, yes, as illustrated on this slide here, we achieved a number of leasing successes in the first half of the year, signing contracts for more than 12,000 square meters. Office space accounted for the vast majority of this volume, representing approximately 94% of the total letting results here. At around 95%, the retention rate remained at an extremely high level, yes, we think, once again, reflecting, yes, continued overall satisfaction among our existing tenants. With regard to the rental volume, only 0.9% of the annualized rents are up for renegotiation or reletting during the remainder of the year. Yes, this puts us in a comfortable position. And at the present time, we are confident to be able to complete our remaining rental tasks here. Yes, let's move on to the company's financial situation. Our financial liabilities declined substantially in the first half year of 2025 primarily due to the repayment of our remaining bonded loan in March as well as the loan repayments in connection with our latest property disposals. Following the dividend payment in June and the individual value adjustments within the property portfolio, EPRA LTV rose 0.6 percentage points year-to-date and yes, amounted to 44.6% (sic) [ 44.3% ] as at the end of the second quarter. And accordingly, REIT equity ratio slightly declined to 55%. Yes, given the limited refinancing requirements during the first half of the year, average interest costs remained at a low level of 1.9%. Average loan maturity, yes, has slightly declined to 3.1 years. And concerning key debt metrics, EBITDA ratio of 10x and interest coverage ratio of 5.3x. The 2025 debt maturity schedule indicates only minor refinancing requirements in the next weeks. We are currently finalizing the refinancing of the loan expiring in September, and, yes, we intend to sign the corresponding agreement shortly. The loans expiring in the fourth quarter are due at the end of December based, yes, on our financing strategy for each asset, we are predominantly already in advanced discussions with our -- yes, with credit partners. Yes, let's now turn to the outlook for the second half of this year. Yes, despite the ongoing macroeconomic challenges and also uncertainties, the company remains fundamentally positive about further business development in the remainder of the year, positively affected by the suspension of the disposal process already mentioned before, which had been included in our initial forecast for 2025. We now expect a slightly higher rental income for full year 2025 in a range between -- sorry, EUR 89.5 million and EUR 90.5 million. Our slightly adjusted revenue forecast is not only influenced by the sales activities but also affected by higher income from rental agreements signed during the year. Yes, taking into account the expected increase in operating costs, we continue to expect the full year FFO in a range between EUR 44.0 million and EUR 46.0 million. And with that, ladies and gentlemen, I would like to conclude the presentation and open the floor for your questions. So far, thanks so much for your attention.

[Operator Instructions] The next question comes from Thomas Neuhold from Kepler Cheuvreux.

Yes. I actually have 3 questions, and I think the best is to take them one by one. I would like to start with the guidance. You slightly increased your revenue guidance by midpoint EUR 1.5 million, but you did not increase your FFO guidance. Does that mean that your cost base will also increase by a similar amount this year? And what is the reason for that? That's the first question.

Yes, Thomas, thanks for the question. Yes, let's put it this way, where we decide to be a bit more cautious here on the FFO side because we have various influencing factors here on the cost side, starting on the -- concerning technical investments, for instance, which obviously represents a large portion within our cost structure. And we were facing here during -- just to give you an example from the operating side during the first half of the year for a few properties, some additional measures that we hadn't planned. No big deal, but still, you can't -- concerning the amount -- the number of measures, which are behind so many assets here so that we are a bit more cautious here. Just to give you an example. And on top of this also, obviously, we have a number of running projects here internally, which also provide additional cost, a lot of -- and therefore, we decided to keep the FFO, yes, forecast as it was before.

Understood. My next question is on this revaluation loss of 0.5%. I think you mentioned that only 4 assets were revalued. Can you give us an indication what the like-for-like revaluation on these 4 assets was?

I mean don't fix me exactly on the numbers, but I think it was in a range between -- it started around 4% on the lower level and I think on the upper level, it has been around 9%. Yes, so between 4% and 10%.

Okay. And just to remind me, in the past, did you carry out revaluation at the half year or you only did it, I think, if I remember correctly? So this was driven by assets.

Yes. Actually, we looked at it -- it was different across the years. Sometimes we didn't do any revaluation during the half year. There have been 2 incidents when we did a full external revaluation. This was just as an example during COVID. And also, it was, if I remember correctly, during the phase when we had a lot of movement influenced by the development of the interest rates. And last year, we were applying the same. So we were looking -- I mean, obviously, we look through our portfolio on a regular base and -- but picking individual assets, that's something we did as well last year.

Okay. Understood. And my last question would be on the rental market outlook. What is your expectation how the rental market will evolve for the next 6 to 12 months?

I think hasn't changed a lot. We see that rental contract negotiation sometimes takes longer. Certain topics that have to be covered in a wider sense relating to sustainability issues. I mean, for instance, energy management related and data related so that we hopefully get more access to data with the support of the tenant, which we then need for our further internal [ levels ]. Just give you a few examples, and these are things that tend to take longer in the discussions. But overall, fundamentally, no major changes during the last 6 months.

The next question comes from Andre Remke from Baader Bank AG.

Yes. Basically, 2 questions left. First is on the planned but not materialized disposal. Could you give some color on the reason here? And is the property still on the disposal list? And probably more in general, could we expect any disposal activities this year? The first question, please.

Yes. I mean maybe with the second question -- to answer the second question first, Andre, we expect no further impact from disposals for this year as of today. And concerning your first question, I mean, as we always pointed out, yes, we want to keep discipline also not only on the acquisition side, but also on the disposal side. And I mean, there can always happen something on the disposal side during the transaction where we finally then say that we don't come together with a potential buyer. And on top of this, for this asset, which we talk about here in the last couple of weeks, we decided apart from our strategic approach concerning this asset, concerning sales and that there might be reasons as well to keep it or yes, that might make it more attractive to keep it on our balance sheet. And therefore, we are in a phase at the moment where we have to make up our mind if we give it back to the sales process again or if we maybe do something else with the asset here from a strategic asset management point of view.

Okay. And coming to the asset side, the acquisition side, in the last call, you mentioned that you had a lot of potential acquisitions on your table. Is it still the case?

I would say, I mean, it's not that we have a huge pipeline, but we are currently -- we are, let's put it this way, a bit more active on the acquisition side here, but it's too early to go into detail at the moment. Yes, so fundamentally, not much change in the market, but obviously, based on the fact that we are scanning the market intensely, once in a while, they come attractive asset across on our table, and then we have to decide if we look at them on a more detailed way. And at the moment, it's a bit more active than during the first half, let's put it this way.

Yes. Okay. Brings me to the last question. You have a cash position as of June of only EUR 9 million after the dividend payout. How would you finance potential acquisitions?

I mean, obviously, we have our refinancing going on. And this refinancing also gives us for -- in certain cases, gives us the option to add additional debt. And therefore, we could generate here additional cash flow, which we could use for -- also for an acquisition. In addition -- yes, I'm sorry. Yes, and on top of this, just to let you know, we also have some unencumbered assets here on the balance sheet.