Hamborner REIT AG (HABA) Earnings Call Transcript & Summary

Hello, and welcome to the HAMBORNER REIT's Conference Call H1 results 2022. Please note this conference is being recorded. [Operator Instructions] I will hand over to your host, Mr. Niclas Karoff, CEO, to begin today's conference. Thank you.

Good morning, ladies and gentlemen. Welcome to our H1 2022 earnings call; also on behalf of my colleagues Hans Richard, and Christoph, who is leading our IR activities. We will start the presentation with a glance at the highlights of the first half year. And afterwards, I will hand over to Hans Richard, who as usual will provide you with more operational and financial details regarding our results. So let's start with a quick look on the key figures. Yes, regardless of the obvious challenging macroeconomic conditions here in which we are finding ourselves, we have been able to keep on track strategically and also operationally. As a consequence, we were able to achieve very solid H1 results again, yes. Influenced by our strategically driven sales activities, total rents on a year-on-year basis came down slightly. On the other hand, as expected, there were positive effects which resulted from the indexation of rents. Also the FFO came down, additionally driven by certain one-off effects relating to the reletting measures of former Real spaces. With reference to our capital recycling, we added 2 DIY properties and successfully completed our short-term strategic sales activity. More details regarding these transactions later on in the presentation. Again our financial profile remained very solid with an LTV of around 42%, a comfortable net debt-EBITDA multiplier of 9.9x and no further refinancing needs for 2022. So overall a solid first half year, yes, which forms the basis for our updated guidance at the end of the presentation. After this short introduction, let's have a more in-depth look at the development of our portfolio, yes. Let's start with the portfolio overview and additional comments on some KPIs. Concerning portfolio value, taking mainly into account our acquisitions and sales activity, slightly up compared to year-end 2021. Concerning vacancy, yes, despite various letting successes, overall vacancy went slightly up during H1 to 2.4%, however, highly concentrated on selected assets within our manage-to-core portfolio, as you can see. As of end of June, our core portfolio contained only 1.4% so that the total vacancy remains on a very low level. Concerning WALT. Yes, on the other hand, also as a reflection of our letting results, the total WALT went up to 6.6 years. And one driver has been new long-term letting agreements for our former Real spaces, which pushed the WALT for our retail portfolio at a highly attractive level of 7.9 years. Let's move on to some further insights on like-for-like development in the portfolio. Yes, considering the current inflationary environment, we want to provide more transparency on the rental development. And for that reason, we decided to include into our presentation a more detailed year-on-year like-for-like split of the effects from the different influencing factors. As you can see here, we benefited from rent increases based on indexation clauses amounting to 3.6% (sic) [ 3.6 percentage points ], which is well balanced between assets of different -- of the different asset classes and our investment strategies. There are 2 aspects that avoided higher total like-for-like rent increases: the additional vacancy, on one hand; as well as lower reletting rents within the retail portfolio, on the other hand. Latter has been influenced by the assets with the former anchor tenant, Real. And depending on the further inflation development, we expect some additional positive effects for the remaining year as well as for 2023. With that, let me move on to a short transactional overview. The next 2 slides present an overview regarding our recent acquisition and sales activities, respectively, the results of our portfolio optimization. Meanwhile, the 2 newly acquired DIY stores have been integrated into our portfolio. Based on location, asset quality and long-term secured cash flows, we consider them to be a valuable addition to our core portfolio. On the other hand, yes, we successfully sold the 2 remaining inner city retail properties which were earmarked for short-term disposal on our strategic list. Both transactions happened around the latest fair value. On the next page, you will find the updated results concerning our strategic sales program. Yes, eventually, we succeeded in achieving an even more focused, modern and also easier-to-manage portfolio than we had in the past. Within our lean corporate structure, this provides room for future major tasks, especially additional growth geared towards sustainability, yes. And with this short overview, let me hand over to my colleague Hans Richard. Thanks for now.

Thank you very much, Niclas. Good morning, ladies and gentlemen. And from me also, a warm welcome to you all. As always, let us now have a closer look at the operating and financial figures for the first half of this year. Let's start with the FFO development. With a total of EUR 41.9 million, income from rents and leases went slightly down compared to previous year, which mainly relates to the disposal of various retail assets during the last 12 month. The reduction of around EUR 3.8 million due to disposals was partly offset by additional rental income from acquisitions of around EUR 1.8 million. Besides, rents development was positively affected by various index-based rent adjustments. Total maintenance expenses increased to around EUR 3.3 million year-on-year. The expenses relates to regular minor ongoing maintenance and various planned measures. On the one hand, the increase of more than EUR 1 million is caused by previous year's COVID-19 impact, where maintenance was significantly reduced. On the other hand, further measures original planned for Q4 last year have been postponed to this year, partly due to delays in the application of building permissions, for example, in our former Real locations in Celle and Gießen. In total, around 12% or EUR 400,000 of the actual maintenance costs are related to those properties. For the rest of this year, we expect additional expenses of 2 million to 2.5 million for the 3 former Real markets. Regarding the reletting of remaining vacant spaces in Celle and Gießen, negotiations with further renowned food retailers have progressed quite well, but here we don't expect additional costs for this year. Currently we assume total maintenance expenses of EUR 9 million to EUR 10 million for 2022. As a result of the higher maintenance, the net rental income declined to EUR 35.8 million, a decrease of 5.8% compared to first half of 2021. Administration expenses increased to EUR 1.2 million, essentially due to higher expenses for cash deposits which amounted to EUR 130,000. For the second half of this year, we only expect limited further cost effects, as our financing banks already announced to abolish all fees as of this month. Personnel expenses increased to EUR 2.9 million. This was primarily due to salary adjustments as well as to a provision in connection with the appointment of our new management board member. Other operating income was significantly lower as a result of substantial one-off effects in the previous year. In 2021, we received a contractually agreed lease termination payment of EUR 2.2 million from our former tenant Real and generated additional EUR 2.1 million income in connection with the revaluation of our property in Gießen. The approximately 9% lower interest costs resulted from scheduled repayments and expiries of loans since the beginning of the year. As a result of income and expenses, the FFO came in largely as planned in the reporting period at EUR 24.2 million. The corresponding FFO per share amounts to EUR 0.30. Now let's have a look at our NAV and NTA development. After the significant revaluation uplift at the end of last year, the consistently solid earnings situation had a further positive impact on our NAV. FFO contributed with around EUR 24 million to the NAV development in the first half of this year. In contrast, the NAV was negatively affected by our dividend payment in May. As a result, NAV per share amounted to 11.1 -- EUR 11.91 as at the end of June with a decrease of 1.7% compared to the end of December 2021 but a significant increase of 8.1% year-on-year. As in previous reporting periods, there is no material difference between NAV and NTA, which was only EUR 0.01 lower on a per share basis. Let me continue with an update on the current letting situation. Despite the ongoing challenging market conditions, we achieved various letting successes during the first half and were able to conclude leases for around 44,000 square meters, primarily related to long-term contract extensions with existing tenants from the food retail sector. Consequently, the weighted remaining term of leases for our retail portfolio increased significantly to 7.9 years, leading to a total portfolio WALT of 6.6 years. The WALT in the office portfolio is still at a consistently high level at 5 years. The remaining leases outstanding for renewal in the course of this year only corresponds to less than 3% of our total annual rents. And we are confident to further benefit from the high level of certification among our existing tenants. A few remarks on our tenant structure. Compared to year-end 2021, there are some changes in our top tenant list. With the transfer of the last former Real market in our Mannheim property, the new tenant, Globus, has doubled its share in our tenant list. The Globus food market in Mannheim as well as the Globus do-it-yourself store in Berlin now contribute with 4.4% to our annualized rents. As a result of the disappearance of Real, another tenant from the insurance sector took place in the top 10 list, namely the Verwaltungs-Berufsgenossenschaft, an employers' liability insurance association which is the tenant in our office property in Mainz. Due to the transfer of ownership of the 2 large-scale retail properties in Freiburg and Kempten, our do-it-yourself exposure increased by 250 bps to 11.5%. In total, our retail properties still contribute with around 57% of total annual rents, while the share of our office tenants is around 43%. All in all, our tenant structure remains very solid and forms the basis for future reliable cash flows. Now I would like to give you a short update on our financial situation, which is again continuing to remain very solid. The REIT equity ratio amounts to 58.7% and is therefore still well in excess of the 45% ratio required. The LTV by end of June is at 48 -- 41.8%. Further debt indicators such as net debt-to-EBITDA or EBITDA-interest coverage ratio remain at very solid levels at 9.9x and 4.7x, respectively. Our average financing costs were unchanged at 1.6%, with an average remaining term of loans of 4.8 years. In spring, we finalized our refinancing activities for the current year and signed following-up agreements for all loans scheduled for refinancing in 2022. Given the current interest environment, the agreed financing terms are very attractive with an average interest rate of 1.7% and an average maturity of 6.3 years. Currently we are starting the refinancing process for 2023, especially for the bonded loans expiring in March 2023. That is all from me for the moment. Thank you for your attention. And I will now hand over to Niclas again in order to give you a short outlook.

Yes. Thank you very much. And let me go on with our guidance. Taking into account the results of the first half year as well as our current view of the upcoming months, we see ourselves in a position to specify our full year guidance. We narrowed the range for the rental income to EUR 84 million to EUR 85 million and expect to achieve an FFO within a range of EUR 47 million to EUR 49 million. With reference to NAV per share, we remain at our expectation of a number around the level of the end of 2021. Yes, in order to make the assumptions that went into this updated forecast more transparent, we have added an overview of major influencing factors. For obvious reasons, this does not take into account the effect of a significant deterioration in the overall economic situation or potential external shocks through the course of the year. Leaving these out and based on the updated forecast, we should be in a position again to propose an attractive dividend to our shareholders for the fiscal year. Yes, that's for now. And now we'd be happy to take your call. Thank you.

[Operator Instructions] The first question comes from the line of Philipp Kaiser of Warburg Research.

Can you hear me? Now it's better.

Yes, we can hear you. Thank you.

Yes, perfect. So just a couple of follow-ups. We may go through them one by one. So the first one, [ referring what you already highlighted ], the major influencing factors for your new outlook. The delayed transaction activity. [ So you have a kind of a ] good portion of cash on the -- already on the balance sheet. Are there any kind of negative impacts for the coming years if you're not able to do any acquisitions this year to recycle this cash from the highlight -- some of the high street disposals? Or what's your view on that? That will be the first one.

Yes. I mean we have been a bit cautious, during the last couple of months, on the acquisition side based on the market environment. Nevertheless, we are active here and searching for attractive assets. And so generally we intend to move forward as planned, meaning to further expand the portfolio [indiscernible] selected acquisitions. On the other hand, we will keep in mind obviously as well our LTV situation so that we don't want to overstress here the LTV, but based on market situation as we would expect it, hopefully, during the course of the remainder of 2022, hopefully, we find a few attractive opportunities. And then we will see if we are able to execute or not, yes, but...

[ Let me add, yes ]. So just kind of assuming there will be a further slowdown in transaction volume and so at least no really a recovery, that shouldn't have a major impact on your growth path for the coming years if you are not able to acquire proper assets during the second half of the year. Or is it...

I mean we are now in August, so if we are going to acquire one or a few additional assets during the remainder of the year, the impact would be slightly low, for all these reasons. And then the impact would come in 2022, but again it depends on what's the -- it depends on how the pipeline is going to continue and what the market gives. And that's what I'm saying. Yes, we have to be a little bit more cautious, meaning we want to remain disciplined on considering the pricings we are willing to pay for the assets. And therefore, we are pretty selective at the moment, but apart from this, I mean, strategically it's very clear that we want to further grow.

Okay. Fully understood, clear. Coming to the refinancing of the bonded loans. So I mean the interest environment changed rapidly in the last couple of months or even weeks, so what's your view on the refinancing side and particularly for the bonded loan? And could you also kind of imagine doing kind of an ESG-linked bond to refinance the outstanding one? Or is it not really what it's -- what you want to do currently?

The final decisions about the bonded loan and what we will do with this, at the beginning of next year, not yet. We are in preparation. And this is, yes, especially the ESG part. It could be that we will have a ESG link in the bonded loan if we would make a new one.

Okay. The last question is regarding the dividend and the dividend policy; as you stated also this morning, that you intends to continue to deliver a reliable dividend policy and an attractive distribution. So I think there is room for interpretation in the statement, so can we kind of assume that you stick to the stable dividend or kind of in line with the strategy? Like decreased FFO means also a decrease in dividend distribution. Or what -- well, yes, what we can assume from that.