Hamborner REIT AG (HABA) Earnings Call Transcript & Summary

Hello, and welcome to the conference call full year preliminary results 2022. [Operator Instructions] I will now hand you over to Niclas Karoff, CEO, to begin today's conference. Please go ahead.

Good morning, ladies and gentlemen. Welcome to our preliminary figures 2022 earnings call, also on behalf of my colleague, Sarah Verheyen and Christoph from IR. He will be, as usual, available for any subsequent questions regarding our figures. Yes, I will start with a short presentation to give an overview of the preliminary, obviously, unaudited figures. And in addition, I will provide more details on our year-end portfolio revaluation as well as our current financial situation. Afterwards, I will hand over to Sarah, who will give some insights into our operational business development. So let's start with a short overview concerning our preliminary key figures for 2022. Yes, despite ongoing challenging market conditions, we are still keeping on track both strategically and operationally, and thus, we're able to achieve, as we think, very solid results for full year 2022. Despite our sales activities during the last year, total rents remained solid compared to 2021, positively affected by acquisitions and further rent indexations. FFO came in 4% lower as against 2021 at EUR 55 million -- EUR 51 million, sorry, EUR 51 million, but above our latest guidance of EUR 48 million to EUR 49 million, yes, mainly driven by higher other operating income generated in Q4 as well as additional interest income. Operational figures remain on consistently good levels, more details here by Sarah later during the presentation. Our financial profile remains, yes, very solid with an LTV below 40% and a comfortable net debt-EBITDA multiplier of 9.9%. So overall, we think is solid business performance, especially, pointed out before, under the still challenging circumstances. On the next slide, more information concerning portfolio revaluation. Yes, let's have a deeper look here at the development of our portfolio. Yes, this slide provides a portfolio value bridge, including effects from our transaction activities and external portfolio revaluation. The scheduled year-end valuation was carried out once again by our external appraiser, Jones Lang LaSalle. As you can see, the transfer of the 2 core DIY properties acquired last year positively affected our portfolio value with EUR 49.3 million. The disposal of our last 4 smaller high street assets, which were up for short-term sales led to a fair value decrease of EUR 18 million. And on the basis of the reappraisal, the market value of our like-for-like portfolio was down slightly by EUR 31 million or 2%. Yes, the decrease is particularly due to the dynamic development of the transaction market as well as interest environment, which is also reflected in the higher discount and cap rates shown on the right-hand side of the slide here. Despite the value adjustments, we believe that the reappraisal once again emphasizes the high quality and also resilience of our property portfolio and confirms our strategic approach, especially our solid tenant base with renowned companies focusing on local supply as well as office tenants here with high stability and creditworthiness supported the stable portfolio development. In addition, indexation effects made considerable contribution. As a result, the total portfolio volume as at the end of 2022 remained at around previous year's level at EUR 1.6 billion. NAV per share came down slightly by 2% and amounted to EUR 11.86 as of 31st of December. Now I would like to give a short update on our financial situation, yes, which is again continuing to remain very balanced. REIT equity ratio still amounts to 59.6% and is therefore well in excess of the ratio required. As pointed out before, the LTV end of December is below 40% at 39.1%. Further debt indicators, such as net debt to EBITDA or EBITDA -- interest coverage ratio remain at comfortable levels at 9.9% and 4.9%, respectively. Same applies to average financing costs, with the level at 1.7% and an average remaining term of loans of 4.6 years. At the end of last year, we already signed a refinancing agreement for the larger part of our secured bank loans expiring in bank -- expiring in 2023. A substantial part of refinancing needs relates to our unsecured bonded loan in an amount of EUR 62.5 million, which is due to be repaid during the first quarter of this year. And yes, given the current interest environment as well as our comfortable liquidity situation, we first intend to use existing cash to repay the loan and to raise potentially necessary debt depending on further development of our transaction activity here in the markets. And with that, yes, let me hand over to Sarah, who will provide more details on our operational business development.

Thank you, Niclas, and good morning to everyone. Let's start with an overview of our tenant structure. Compared to year-end '21, there are only minor changes in our top 10 tenants overview. With the handover of our last formal Real Market last year in the property in Manheim, the food and DIY retailer, Globus, has doubled its share and now contributes with 4.5% of our annualized rent. As a result of the market exit of Real, the insurance association, VBG, climbed up into the top tenant list. And generally, we can say that food retailers currently still account for around 1/3 of the company's total annual rent. Due to the acquisition of the 2 large-scale retail properties in Freiburg and Kempten, the DIY exposure increased by 270 bps to 11.7%. Yes, in total, our retail tenants contribute to 56% of the annual rents, while the share of our office tenants is at around 44%. We see that our tenants still have good credit rating, as Niclas said, and they provide us with stable cash flow even during a time of economic uncertainty. This results in an overall solid portfolio of key figures, which you can see on the next page. Considering our transaction activities and the revaluation, our total portfolio value remains at EUR 1.69 million -- EUR 1.609 million, sorry. Compared to '21, the total portfolio world went up from 6.1% to 6.5%, while office and retail worlds are both still high at high levels with 5 years and 7.6 years. Successful letting activities reduced the EPRA vacancy rate of our portfolio from 2% in '21 to 1.9% in '22. Within our core portfolio, which currently accounts for around 96% of the overall portfolio, the vacancy rate has been reduced to just 1.1%. For further details, let's move on with the letting situation and rent development. The annualized rents year-on-year increased by total of EUR 5 million, where of EUR 1.3 million comes from acquisitions and sales, so EUR 1.3 million for transaction, and EUR 3.7 million from existing properties, which include effects of indexation and reletting. The indexation effect from '21 to '22 is plus 5%, equaling EUR 4 million in annualized rents. Depending on the further development of inflation, we are expecting additional positive effects for 2023 and catch-ups from 2022. In terms of lease contracts and our current leasing situation, even in challenging leasing markets, we secured numbers of leases for around 84.500 square meter last year, and we're able to achieve signings of 95% of the total expiring leases in 2022. Leases outstanding for renewal in this year in '23 are on the same level as in 2022 at 7.6%. We can confirm that we already signed lease contracts in this year and currently negotiate on several prolongations with existing tenants. Yes. So far from my side, and now back to Niclas for a short outlook.

Yes. Thanks, Sarah. And let me conclude this presentation here with a short outlook. Based on the positive business development and the solid financial earnings here and liquidity situation, we are intending to propose a dividend on previous year's level of EUR 0.47 per share. This would correspond to an FFO payout ratio of approximately 75%. And based on -- yes, that's the ratio here. For 2023, we expect to further increase in income, assuming income from rents and leases between EUR 88 million and EUR 89.5 million. FFO is expected in a range between EUR 50 million and EUR 52 million. Among other things, development of rents and FFO will be affected by our transaction activities during the course of this year. And for the time being, our guidance includes net investment volume of around EUR 50 million, assuming, yes, that a major part of transaction will be closed in the second half of the year. Besides investment activities, our earnings situation will be influenced by further developments of rent markets, interest environment, obviously, and the corresponding cost effects also. With reference to NAV per share, we aim at a number slightly below previous year level, and this assumption includes further possible value adjustments in our property portfolio in the remainder of the year. Yes. So finally, let me thank you again for your attention. And now we are looking forward to your questions.

[Operator Instructions] And our first question today comes from Andre Remke from Baader Bank.

A couple of questions from my side. The first question is on your guidance. You stated that you are expecting leasing markets to remain uncertain. Does this refer to both of your segments, retail as well as offices? And is this a more general statement for the overall market? Or do you have some specific contracts in your portfolio, in your mind where it could become more difficult? This is the first question, please.

Okay. So I would say -- or we would say it's more general, yes, assumption given the current situation in the market. So there are no specific tenants where we already know that they are getting in trouble or we might be facing problems there. It's not retail or office specific. It's a general assumption. And I mean if you see the research reports and also our results, we are, yes, let's say, not too optimistic here. It's the very beginning of the year. So yes, we will see what the markets bring us. And the good thing is that we could already sign leases with the existing tenants. We are negotiating different parts of these agreements like indexations and lease terms. And we are looking, yes, positive, yes. But yes, generally not differentiate between office and retail.

Yes. Okay. And a follow-up on that. You mentioned that you already signed some leases. Did you already face some pressure from tenants on these specific leases? Or what brings you to the assumption that it could become more difficult? Because the overall leasing market at least if you're not expecting a huge recession -- well, last year was strong. CPI is still high. Are tenants not really -- like to take the CPI increases?

Yes. I would say it's a combination of different factors coming together. I mean we have indexation. And of course, tenants try to negotiate on thresholds and levels and try to optimize themselves in the lease negotiation. Second is, we see that service charges are becoming more important as being part of lease negotiations. And the overall economic situation is something -- yes, which is part of all these agreements and the situation of our tenants.

Okay. Second question is on refinancing of the bonded loan or your decision to repay in the first instance. Does this mean you will not anymore strive for the unsecured markets? So is this off the table? And what could be current cost of debt if you would decide to refine then these kind of loans?

Yes. I mean, fortunately, we are -- we feel ourselves being in a pretty comfortable situation, as I pointed out, based on our current liquidity situation. And therefore, we want to be -- use this flexibility. And depending on -- and we will see how the market further develops during the further course of the year. So coming back to your question, looking forward, is it off the table that we could imagine to tap the unsecured market? I would say no, definitely not. But we clearly -- we have a, yes, pricing sensitivity here, obviously. And we always compare what we get offered for on the secured side as well as what the market presents itself on the unsecured side and then want to decide very carefully here. And obviously, the market has been last year very dynamic concerning the development of spreads and rates here. And therefore, as now the refinancing is up for this bonded loan here, we clearly prefer currently to use the existing liquidity, yes. And concerning costs that we are currently facing for the -- you mean on the secured or on the unsecured side?

Both, because you mentioned that you already worked on the secured side for refinancing for this year. Probably it would be perfect if you could tell us the terms on that.

Yes. I mean, obviously, you know about how the market is and how flexible that the rates currently develop. But out of -- yes, out of the current situation, we would expect on the secured side financing costs of, let's say, around 4% to 4.5%, yes, depending obviously on a couple of factors like what's the duration and other factors. And on the unsecured side, let's say, maybe between 5% and 5.5%, something around -- more on the upper end most probably at the moment. Yes. But as I said, 2 weeks from now this can be different again. And we are carefully observing the market. And it's very interesting to see -- or has been interesting to see in recent months how, yes, these markets have developed here. And therefore, we can just point it out again, we want to keep the flexibility as long as possible here.

Okay, okay. Then a question -- a more general question on your strategy. You strive for, if I remember correctly, 10% to 20% of your portfolio should be managed to core. At the moment, you are for while -- or since a while, you are at around 4%, 5%. Is this -- what is your strategy in the current market environment? Or to here -- to keep the flexibility, waiting on opportunities? Or could we expect that you are striving in your mentioned budget of EUR 50 million for this year more towards managed core properties?

I mean, I would say we keep our generally opportunistic approach here. I mean it all depends on what we get on the table. And it's very -- I mean, based on my experience here, it's very difficult to predict, let's say, in the second half what kind of asset class and what kind of risk profile will provide more interesting offers to us. I mean we -- strategically, we clearly have the goal to increase our -- within the total portfolio our share of managed core properties. But it's also clearly depending on what we get on the table, yes. And as you know, the market is in a specific situation at the moment. It all depends on what we get. And yes -- and I think this flexibility of covering 2 asset classes and 2 different risk profiles has helped us in the past a lot, and yes, potentially also in the future, yes. So we have no clear preference now to go only one road concerning our assets, yes.

Do you have something on the table at the moment? Or is this completely dried out pipeline at the moment that we observe? Is the overall market probably...

Let me answer to this. I mean, generally, there is a lot of uncertainty in the market and we see less opportunities for new investments on the acquisition side. However, right now, we are active on -- with retail properties, especially large-scale retail properties. And yes, we'll give an official statement once we are able to sign a new contract. But the answer is, yes, we are still seeing acquisition opportunities. But in fact, there is still a discrepancy of the price expectations between buyer and seller. And I mean, the current transaction volumes reflect this as -- yes, transaction mark is not that high.

Okay. Perfect. Then very last question. Sorry for so many questions. You mentioned for the fourth quarter other operating income as well as interest income to be a topic. What was the reason here? Any specific reasons? And the amount of delta between the -- your last guidance and the provided EUR 51 million in FFO?

Yes. I mean we are talking about total volume of approximately EUR 1.5 million. And this splits up in approximately EUR 500,000, just a ballpark, from interest income and around EUR 1 million from other operating income with, yes, individual cases here.

And we're now moving on to our next question, which comes from Kai Klose of Berenberg.

I've got 3 questions, if I may. The first one, you indicated for '23 -- well, the guidance implies a margin squeeze on FFO -- on the FFO margin squeezed by about 260 bps. What are the moving parts here? Are that more -- is it a increase in interest expenses or personnel or G&A costs?

Yes. I mean, obviously, interest costs based on current market situation. And as well, we expect additional maintenance costs, yes.

Yes. But which item will increase more, interest expenses or maintenance or G&A costs?

Sorry, sorry, I didn't get it acoustically right. Kia, can you...