Hamborner REIT AG (HABA) Earnings Call Transcript & Summary

Yes. Good morning, ladies and gentlemen. Welcome to our conference call regarding the publication of Hamborner's Preliminary Results for Fiscal Year 2019. As you might have noticed last week, my long-term colleague, Rüdiger Mrotzek, passed away suddenly and unexpectedly at the age of 62. You will remember our management Board for 13 years and made substantial contributions to the successful development of our company. In Rüdiger, we have lost an esteemed colleague who worked tirelessly in the interest of the company and all employees. We will always honor his memory. On behalf of the family and the whole Hamborner team, I want to thank all of you for your expressions of sympathy. We really appreciate all your thoughts during this difficult time. As hard as it may be to go back to business as usual, now I would like to change the subject and inform you about the development of our business in the previous year. The fiscal year 2019 was again a record year in the history of Hamborner. The preliminary figures prove the success of our long-term strategy of sustainable growth, sustainable cash flows, and sustainable increase in dividends combined with the low-risk profile and solid financing. At first, let us take a look at the highlights of the past year. All our provisional and, at the moment, unaudited key figures show a positive development. Income from rents and leases increased by 2.1% compared with 2018, which is fully in line with our guidance. With 3.1% funds from operations, one of our KPIs rose slightly higher than expected at the beginning of the previous year. Accordingly, FFO per share increased by 3.1% to EUR 0.68, exceeding the previous year's record level by another EUR 0.02. Despite the tough market conditions and the high competition on the transaction market, the company successfully continued its growth strategy, investing a total amount of around EUR 30 million into properties in Bamberg and Lengerich. We also continued our portfolio optimization and divested one smaller nonstrategic asset. The annual evaluation of our property portfolio recorded a like-for-like value increase of 3.2%. Total portfolio volume at the end of 2019 was around EUR 1.6 billion. This corresponds to a year-end NAV per share of EUR 11.59, an increase of 7.4% compared to the end of 2018. So our growth cost has been value creative and what is very important value creative on a per share base. Moving to the next slide, to give you further information on rents and FFO. Development of rents was positive and in line with our forecast in the course of the last year. Total rental income increased by EUR 1.8 million or 2.1% to EUR 85.2 million. The change was mainly due to our acquisitions in 2018 and 2019. On a like-for-like basis income from rents decreased by EUR 100,000 or minus 0.1% year-on-year, the main reason for the small decline of the 70-bps increase in our vacancy rate. Our economic vacancy rate, including agreed rent guarantees, increased to 2% compared to 1.3% in the previous year. Nevertheless, vacancy is still on a very low level, especially if you compare this with our industry. As already mentioned, FFO increased slightly more than predicted by 3.1% to EUR 54.3 million. Main reasons are lower-than-expected maintenance expenses in the course of the year, in particular, fewer tenant improvement measures as well as lower operating cost. The corresponding FFO per share increased to EUR 0.68, EUR 0.02 above the record level of EUR 0.66 from the year 2018. The further disproportionate rise in FFO compared to rental increase once again prove our lean structure, our efficiency as well as our cost discipline. The next chart includes a few remarks to our acquisitions in 2019. As a result of the continuing low interest rate policy in Europe, the high on the investment market continued in the previous year. The market was again characterized by price increases due to higher demand. In this challenging environment, Hamborner continued its growth cost and acquired 2 high-quality local supply properties in Bamberg and Lengerich. The total investment volume was EUR 29.2 million. The properties will contribute to annual rental income with EUR 1.6 million. Considering the top investment market, the gross initial yields of 5.2% and 5.5% as well, and the macro and micro locations are very attractive. The anchor tenant of both asset and the well-known food retailer, Edeka, that has signed long-term lease contracts. These acquisitions fit perfectly into our acquisition strategy and other basis for future growth in rental income and FFO. Thanks to our far-reaching network and closed contact project developers, we are able to sign the purchase agreements for 3 additional office buildings. Hamborner invested EUR 16.1 million for the acquisition of an office development in Neu-Isenburg. The main tenant of the 4,500 square meter property is the IT service provider, UBL, which has signed a long-term lease contract. Annual rental income amounts to EUR 0.9 million and the gross initial yield is 5.4%. The new office building is characterized by its energy sustainability. It has been built using high-quality materials and meets the very latest standards. The building is currently in the process of being certified by the German Sustainable Building Council, the DGNB. It has already been precertified at the DGNB's highest level, platinum. The property has already been transferred to the Hamborner portfolio on January 1 and, therefore fully contributes to rents and FFO in the current year. Furthermore, we signed the purchase contracts for 2 additional project developments in Aachen and Bonn, which are close to completion and will be transferred within this quarter. The 2 office assets with the gross initial yield of 5.2% and 5.3% are predominantly leased to the very developed insurance company, Barmer. Total investment volume for the assets is EUR 51.1 million. Additional annual rental income will amount to EUR 2.7 million. The outstanding transfers led to further rental growth in 2020. As we intend to steadily enhance the quality of our portfolio, we are also active on the disposal side and sold a smaller nonstrategic high street asset in Leverkusen. The selling price was EUR 1.6 million, EUR 0.2 million above recent fair value. With the residual book value of EUR 1.5 million, the contribution to earnings will amount to EUR 0.1 million. The next chart shows the portfolio development in 2019 in consideration of the acquisitions, the disposals and the yearly revaluation The performance of our portfolio was again very positive in 2019, which highlights the quality of our office and local supply properties. The total market value of the portfolio was EUR 1.517 billion at the beginning of 2019. We invested a total amount of EUR 29.2 million in 2 assets, which already created value added as the fair value of the purchase properties increased by EUR 0.9 million until the end of the year. The disposal of the asset in Leverkusen reduced the portfolio value by EUR 1.4 million. As in recent years, all our properties were valued by GLL at the end of 2019. The annual revaluation of the existing properties led to a like-for-like increase in value of EUR 48.9 million or 3.2%. Taking into account the new investments, the disposal and the increased fair values of the existing properties, the total market value of the Hamborner portfolio rose by EUR 80.8 million to around EUR 1.6 billion at the end of the year, an increase of 5.3% year-on-year. The next slide shows the development of NAV per share during the last 5 years. As a result of the value increase at the end of the year, the growth in absolute NAV amounts to EUR 64.1 million. The corresponding NAV per share was 7.4% higher compared to the previous year at EUR 11.59. In the last 5 years, from the end of 2014 to year-end 2018, NAV per share rose from EUR 8.67 to EUR 11.59. Despite the increase in the number of shares due to 3 capital increases in 2015 and 2016, the NAV significantly rose on a per share basis by 33.7%. Nevertheless, considering the current share price of EUR 10.4, NAV discount amounts to around 10%. On the next chart, you see further selected preliminary key figures. The operating business was again very successful, reflected in a 1.5% increase to the operating results. Profit for the period was slightly lower than 2018 as a result from sales decreased to EUR 0.1 million. Our financial situation remains comfortable. LTV is 42.4% and REIT equity ratio, 57.3%. This year, our AGM is scheduled for May 6. In light of the consistently positive business development, we intend to propose a dividend increase from EUR 0.46 to EUR 0.47. So this would be a plus of 2.2% year-on-year, and it would be the fifth increase in a row. Before moving to the outlook, a short summary of the fiscal year 2019. We continued our business development in 2019. Our key figures show positive changes. The rents with plus 2.1% and FFO with plus 3.1% are fully in line or above our recent forecast, FFO per share reached a record level of EUR 0.68. The dividend will increase up to EUR 0.47. And based on the current share price, dividend yield is around 4.5%. In light of the currently positive business performance and the upcoming property transfers, we are optimistic and confident that the positive development will continue in 2020. For the current year, we expect an increase in income from rents and leases of around 3%. This forecast already includes the outstanding transfers of the offices in Aachen and Bonn but does not take into account further acquisitions or disposals. Based on the income from rents and leases, we assume that the FFO will reach the current record level. Our remaining firepower of now actually EUR 130 million to EUR 150 million give us potential for further acquisitions that would have a positive impact on rental income and operating results. The dividend proposal to AGM for fiscal year 2019 will be EUR 0.47, and we intend to continue our reliable dividend policy with sustainable and, from time to time, increasing dividend payment. So far, my explanations to our preliminary figures, our final figures for the current year, we will publish on March 26. And I would like to say thank you for your attention and now I look forward to your questions.

[Operator Instructions] We now take our first question from Gudrun Esker of [ Thor Immobilie. ]

[Foreign Language] Hello, good morning, everybody. I would like to ask the last acquisitions are concerning office buildings, new office buildings. Previously, you have bought mainly retail and a larger [indiscernible], center for purchasing several things. Office, is this a new trend in your policy?

Yes. Hello, this is Hans. As you know, we have a mix in our portfolio where you can say, in general, 1/3 office and 2/3 is local supply. And indeed, in the past, we had acquired a lot of local supply assets and now was the time, in our view, to invest a little bit more in offices. That's not a change in our strategy. That's a normal acquisition trend what we have from time to time. So the answer is so, okay?

Our next question comes from Georg Kanders of Bankhaus Lampe.

You mentioned the lower maintenance cost or low maintenance spending as the reason for the increase in the -- increase in FFO. Could you provide us with the actual number of the maintenance costs you had?

Incidence costs are on the level of the previous year.

Yes.

EUR 5.5 million is round about.

The reason that is relatively difficult to estimate the cost for tenant improvements if we change contracts. For example, for the year we had an account at the beginning of 2019, a much more higher amount. And this was not realized in 2019, and perhaps this will come in 2020. That's the reason that we will be on the same level on the FFO per share like in 2019 to answer this.

Okay. This would be then the next question.