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

Welcome to the Hamborner REIT Q3 Financial Results Conference Call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead.

Yes. Good morning, ladies and gentlemen. Thanks for joining our conference call regarding our financial results for the third quarter of 2025. I'm pleased to be here today with members of our team, including my colleague, Christoph. As usual, I will start with a short presentation followed by a Q&A session. As was the case last time, we now have the opportunity to not only ask questions via the phone but also 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 with a look at the key figures as of 30th of September 2025. Yes, despite the ongoing difficult environmental and sector-specific framework, we remain broadly on track, and we're able to continue our business as planned in the third quarter of the year. Following recent property disposals, income from rents and leases recorded a moderate decrease of 2.8% to EUR 67.9 million in the first 9 months of 2025. Influenced by property sales as well as the projected cost increases at the operational level, FFO came down by 12.2% and amounted to EUR 36.7 million. This corresponds to an FFO per share of EUR 0.45. Key financial figures once again showed a stable development with a slight decrease in LTV during the third quarter to 43.3% and a corresponding rise in the REIT equity ratio. Operating performance demonstrated continued resilience, as I think, reflected in a vacancy rate of 3.4% and a portfolio WALT of 5.5 years. And further details will be outlined on the following slides. On a year-on-year basis, our like-for-like annualized rental income rose by 1.5%, mainly reflecting the impact of indexation adjustments, particularly in the office portfolio. The positive effects from indexation were partially offset by slightly lower rental levels. Due to the numerous indexation-related rent adjustments over the past 2.5 years, we have recently noticed that some lease renewals are taking place at slightly lower rent levels. On an annualized basis, the disposal of the office properties in Hamburg and Osnabrück as well as the retail asset in Lübeck. This led to a decrease in rental income of EUR 3.2 million or 3.5%. As at the end of September, our annualized rents amounted to EUR 88.6 million. On the next slide, we will provide a more detailed overview of our earnings situation. As highlighted earlier, rental income declined by 2.8% to EUR 67.9 million, primarily reflecting the impact of asset disposals. During the year, we saw a slight reduction in the balance between operating expenses and income from ancillary cost location, mainly due to the restructuring of our external facility management. Yes, following a tender process completed last year, we expanded FM services, including improved on-site support and systematic property data collection. Although this led to a temporary increase in nonrecoverable costs, we expect efficiency gains and a significantly enhanced property data infrastructure, supporting future operational improvements and also data-driven portfolio management. Maintenance costs rose by approximately 9% in the first 3 quarters, largely in line with our assumptions at the beginning of the year. As several planned measures are currently being carried out or scheduled for the fourth quarter, we still expect an increase in maintenance costs of around 10% to 20% for the full year 2025. Admin, administrative and personnel expenses also increased in line with our estimates by around 8% and 19%, respectively, reflecting our digitalization efforts on the one hand and workforce changes as well as inflation market-related salary adjustments on the other hand. Other operating expenses increased mainly due to costs associated with strategic and regulatory projects, particularly in the areas of digitalization and sustainability as well as the use of external personnel. Despite higher interest rates for the recently refinanced loans, interest expenses slightly decreased in the first 9 months of the year. which is mainly due to the repayment of a bonded loan and loans associated with the recently sold assets. Declining interest rate environment led to lower interest income, which amounted to approximately EUR 0.6 million in the first 3 quarters here of 2025. Overall, and as pointed out before, funds from operations fell largely in line with our full year guidance by around 12% and came in at EUR 36.7 million. On next slide, a few words on the development of our portfolio. Following the completion of our latest transactions, including the 2 sold properties in Osnabrück and Lübeck, our portfolio is currently consisting of 64 assets. As already highlighted in our last call, we made selective fair value adjustments for 4 properties, as always in close consultation with our external appraiser. The value changes were primarily related to the respective location and letting situation and resulted in a decline in fair value of EUR 7.3 million or 0.5%. Taking into account the property disposals and the impairments in H1, the fair value of the total portfolio decreased by EUR 34.7 million in the first 9 months, standing at around EUR 1.41 billion at the end of September. EPRA vacancy rate fell slightly over the past 3 months to 3.4%, reflecting several follow-up lease agreements, especially with office tenants. Total portfolio WALT remained largely stable at 5.5 years during the third quarter with terms of 6.7 years in the retail and 4.0 years in the office portfolio. The tenant base overview on the next slide is nearly unchanged compared to the end of June and underlines the largely stable performance of our operating business. Since beginning of the year, we saw only minor adjustments within our top tenant and sector allocation lists mainly resulting from our disposal activities and the ongoing impact of indexation. As illustrated on the next slide, we achieved several letting successes in the course of the year with a contract volume of more than 25,000 square meters. Office space accounted for the vast majority of this volume. As in the past, we were once again able to record a remarkably high retention rate of around 95%. With 0.7% of annualized rents up for renegotiation or reletting during the remainder of the year, our remaining rental tasks are manageable. With that, let's move on to the company's financial situation. Total financial liabilities declined substantially in the first 9 months of 2025 and amounted to around EUR 630 million. As already indicated, the decrease is 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. Yes, given the limited refinancing requirements during the first 3 months of the year, average interest costs remained at a low level of 2% with an average loan maturity of 3 years. Following the increase during the year as a result of the dividend payment and or influenced by the dividend payment and the value adjustments within the property portfolio, EPRA LTV declined -- I'm sorry, following the increase during the year as a result of the dividend payment and the value adjustments within the property portfolio, EPRA LTV declined by 100 bps over the last 3 months and amounted to 43.3% as at the end of September. Accordingly, REIT equity ratio is 55.8% compared with 55.2% as at the end of December 2024. Key debt metrics, EBITDA ratio of 10.2% and an interest coverage ratio of 5.1. We are currently finalizing our remaining refinancing tasks for 2025 and intend to sign the outstanding loan agreements shortly. As part of our strategic sustainability road map, we continue to pursue the goal of reducing energy-related greenhouse gas emissions across our business model. Our decarbonization strategy is driven by 3 core levers: reducing energy consumption, mainly through property-specific energy efficiency measures, then increasing the use of renewable energy source as an additional lever and improving data quality to support implementation as a third. The 2024 GHG balance highlights measurable progress. With an energy-related emission intensity of 45.1 kilogram equative, we remain well within our target corridor and continue to implement our reduction pathway as planned. Total energy-related emissions have been significantly reduced over the past 3 years. Scope 1 emissions decreased by 15.4%, primarily due to efficiency gains and heating system optimizations. Scope 2 emissions also saw a notable reduction and the largest share of emissions remains within Scope 3, particularly tenant-related energy use. Here, the emissions fell by 10.1% and tenant-related energy consumption, by the way, remains the primary source of emissions, accounting for 83% of total energy-related greenhouse gas emissions. Thanks to improved data availability, the emission intensity for 2022 and 2023 are now below the thresholds of our defined reduction. In 2024, the annual target was again met, confirming that our trajectory remains intact. The sharper decline in emissions compared to energy consumption in 2024 is largely attributable to improved external emission factors, most notably the German electricity mix. And looking ahead, maintaining our target corridor will increasingly depend on external developments such as tenant behavior and further decarbonization of energy supply. In this context, close collaboration with our stakeholders remains a key success factor for the continued implementation of our decarbonization strategy. And with that, let me now finish the presentation with a short outlook. Yes, despite the still challenging market environment, we remain fundamentally positive about the remainder of the year and are, therefore, able to confirm our full year guidance. Taking into account the assumptions shown on the right-hand side, we still forecast rental income for 2025 in a range between EUR 89.5 million and EUR 90.5 million. The operating result is expected to be between EUR 44 million and EUR 46 million. And with that, ladies and gentlemen, I would like to conclude the presentation and open the floor for questions. Thanks so much for your attention so far.

[Operator Instructions] The next question comes from Philipp Kaiser from Warburg Research GmbH.

Just a couple smaller ones. Starting with the income from passed on cost, you already elaborate the changes compared to the previous year period. Can we take the current levels kind of a range for the coming years? Or do you see any major changes in the next month with regards to this line?

I may answer directly, Philipp. Yes. Actually, I think, first, we have to see until we have the full year behind us. I mean what we are seeing at the moment is that we make now the first experience after we changed our providers here, and we get now all the billings in-house and then have to make our estimates. And what's also included in this cost at the moment in our estimates are onboarding costs that we have here. So I think we will be able to be more precise looking ahead once the full year is completed. Yes.

Okay. Perfect. But do you expect any major changes from current levels for the last quarter kind of billing-wise or anything else what could increase or decrease the number in the last quarter of this year?

Not at the moment. Currently, we work with our assumptions based on what we have received so far.

Perfect. My next one is on maintenance expenses. You already reiterated the kind of the increase between 10% and 20% on the cost base. How much visibility do you have on maintenance expenses for the last quarter? Because if I do kind of quickly the math, the majority of maintenance costs will then be coming in the last quarter, I mean at least roughly EUR 5 million, even a little bit more how much of this cost you already have kind of booked or visibility on...

Yes. Thanks for the question. Look, I mean, I know in the past, it was sometimes quite difficult for us to do the estimates here because it often depends on so many influencing factors like when the individual tasks have been started, when the billing is coming in and sometimes some service delays, et cetera, et cetera. So -- and this in combination with a high number of measures from smaller ones to bigger ones. So it's always quite a struggle here. But for this year, we are -- I think we have pretty good visibility on what's ahead of us here for the last quarter. So from today's perspective, I think whether we will clearly be in the range and might tend to be more -- a little bit more on the lower side, but it's not fully clear at the moment, yes, but definitely within this range as of today, yes.

Perfect. Very helpful. And my last one is regards to the market values. I mean you concluded a smaller valuation with the H1 results. Have you any first indications for the full year for the entire valuation impact? And then with regards to the overall market sentiment, any insight would be helpful here.

Yes, nothing that I can say at the moment. We are in the middle of the process. As you may know that we have changed the service providers, the valuer during the course of this year. So we have a new one on board. And for obvious reasons, this new valuer has to make up his mind for the first time across our portfolio. So I mean, we use them already for our communication, and we were in contact with them already for half year valuation topics. So it's not that they see the portfolio the first time. But obviously, it takes a little bit until they are really deep into everything. And therefore, at the moment, I can't say anything. We have our clear process and we will be in very close communication once the first results are on the table here.

The next question comes from Thomas Neuhold from Kepler Cheuvreux.