Hamborner REIT AG (HABA) Earnings Call Transcript & Summary

Hello, and welcome to the Hamborner REIT H1 2024 Results Conference Call. [Operator Instructions]. This call is recorded. [Operator Instructions]. I will now hand you over to your host, Mr. Niclas Karoff, CEO, to begin today's conference. Thank you.

Yes. Good morning, ladies and gentlemen, and welcome to our presentation of our H1 figures for 2024. I will be joined by members of our team, including my colleagues, Sarah and Christophe. Before we start, let me once, again, give you some information regarding the transmission of this conference. As described in our invitation to this call, we recommend that you only use one of the dial-in options given, either follow the presentation live via webcast or by telephone. If you dial in their webcast and via telephone at the same time, there will be a technical delay. And please understand that you can only ask questions over the phone. This said, let's move on to the presentation. First, as usual, an overview of the key figures for the first half year. Yes, still the market environment, we were a bit able to continue our positive operational performance in the second quarter, which led to further growth in revenue and earnings. Income from rents increased by 4.1% to EUR 46.7 million. FFO came in with a plus of 0.7% at EUR 28.3 million. Yes, the corresponding FFO per share amounted to EUR 0.35. As a result of the dividend payment in Q2 or influenced by it as well as selected value adjustments in the property portfolio, NAV per share and LTV took a slightly negative development. Regardless of this, the overall financial situation remains comfortable. A few more words on the rent development. As the overview shows and as already mentioned on another occasion, annualized rents were positively affected by the property acquisitions last year as well as further indexation effects. In total, annualized rental income amounted to EUR 90.5 million. As of 30th of June, based on a year-on-year comparison, total like-for-like rents have increased by 3 percentage points, mainly attributable to index adjustments and vacancy changes within our office portfolio. For the remainder of 2024, we continue to expect limited positive like-for-like rent effect. On the next slide, we will take a closer look at the earnings situation. As already mentioned, income from rents and leases increased by 4.1% to EUR 46.7 million. Maintenance expenses slightly increased year-on-year to around EUR 2.8 million. Yes, the costs still relate to regular ongoing maintenance. And as part of our full year outlook, we announced the postponement of several measures from the 2023 financial year. And with reference to the status of our technical measures, we expect total maintenance costs of around EUR 10 million for the full year 2024. Concerning the other operating income, we are coming back to -- we were coming back to a more regular level. After previous year's number was strongly influenced by a compensation payment for the early termination of a rental contract. Interest expenses slightly declined to approximately EUR 7 million in the first 6 months of this year, mainly due to the repayment of our bonded loan in 2023. In addition, the downward trend in interest rates in recent months has led to lower expenses for variable financing. Interest income from cash deposits was only -- was also below the 2023 figure, but still an amount of around EUR 840,000 in the first 6 months of this year. On the bottom line, the result for income and expenses led to an FFO of around EUR 28.3 million, a plus of 0.7%. Moving on to the next slide. Let's take a closer look at our operating business. During the last 6 months or during the first half of this year, our portfolio KPIs do not show major changes and developed largely stable. Yes, as there were no property transactions, our portfolio still consists of 67 office and retail properties. In contrast to last year, which has been characterized by far-reaching uncertainty regarding the value development of the properties, we have decided not to carry out a portfolio-wide external valuation, irrespective of this and following new insights from sales and lease activities, the fair value of 5 office and retail properties has been adjusted. We saw both decreases and increase in market value, which on balance led to a slightly decrease in the portfolio, total portfolio value of EUR 7.8 million or 0.5%. As a result, total portfolio volume declined to EUR 1.463 billion at the end of June. With 2.9% EPRA vacancy rate developed largely stable during the last month. In view of the limited letting task with effect for the current year, we recorded a slight decline in total portfolio walls to 6.1 years. However, with 7.4 and 4.5 years, the figures for the 2 sub portfolios remain at a comfortable level. So, overall, considering the current market conditions, we can be satisfied with the operational performance of our portfolio during the first 6 months of the year. On next page, you will find an update on our tenant structure, which shows only a few changes compared to the last quarters. We have recorded to the last quarter, we have recorded minor changes in the percentage shares of the individual tenants, which are mainly due to indexation effects. Within the top 10 list, only the food retailer, Aldi and the City of Mainz have swap places. Food retailers remain by far our largest tenants, which is still making up 1/3 of our annualized rents, yes, roughly 1/3. Overall, we continue to have a solid and reliable tenant base, which is also reflected in our letting results shown now on the next slide. With reference to the -- our letting operations, we were able to maintain a high retention rate over the last month and achieved a letting result approximately on previous year's level of around 25,000 square meters. As already mentioned, and apart from continuous work on vacancy topics, open letting tasks with the effect for 2024 are very limited as we are facing a remaining letting volume of only 1.1% of total annurents. As in the past, the remaining leases up for renewal towards the year-end to a large part, include contracts that are renewed on an annual basis, and we are quite confident to be able to complete the upcoming task in a timely manner. Yes. This slide shows our current financial situation due to limited financing activities in the last month. Our financial liabilities only changed slightly and have been reduced to EUR 692 million. As a further positive effect, the average interest costs remain at a very low level of 1.9%. For the remaining expiring loan in 2024, amounting to approximately EUR 13 million, which is due at the end of Q3, negotiations are well advanced. As already indicated, LTV was negatively affected by the dividend payment and the value adjustments within the portfolio and increased to 45.1% as at the end of June. REIT equity ratio was at a lower but still solid level at 54.1%. Net debt to EBITDA and EBITDA interest coverage also remained on a comfortable level and amounted to 9.8% and 5.6%, respectively. Yes, ladies and gentlemen, as usual, for our H1 presentation, let me now conclude with our outlook. Based on the continued positive operating performance, we see ourselves in a position to confirm our full year forecast. For the current financial year, we still expect income from rents and leases between EUR 91 million and EUR 92.5 million, positively affected by the last year's property additions and further indexation effect. Concerning fund from operations and based on our current income and expense projections, we still expect to end up in a range between EUR 49 million and EUR 50.5 million. The FFO development will be affected by a couple of main factors, which you'll find outlined on the right-hand side of the slide. Let me point out again that this guidance does not include effects from potential transactions during the remainder of the year. And in this context, we are currently concentrated on selected activities on the sales side. And with this, ladies and gentlemen, we are at the end of the presentation and move on to our Q&A part. Thank you very much for your attention. And yes, we are looking forward to your questions.

[Operator Instructions]. The first question comes from the line of Andre Remke, calling from Baader Bank.

Yes. Good morning to all of you. Niclas. A couple of questions from my side, please. First, starting with the maintenance expenses. You expect again higher number for the second half? Are these measures already, let's say, contracted or some kind of fixed. I'm asking because we saw several times when the past measures were postponed and expenses at the end of the year were then lower than anticipated. Could you give us a feeling how likely is an execution really for the remainder of the year? That's the first question, please.

Yes. Andre, thanks for your question. So I mean, actually, it's -- as you know, the maintenance consists of various numerous individual tasks. And so, it's a combination, finally. Various things are in preparation and have been given to service providers, and we're supporting us and others are still under planning. So it's a combination of everything. I mean -- so far it's a blending yes. But as of today, we feel -- yes. And that's what we have integrated in our forecast, obviously, that we assume a total volume of around EUR 10 million until the end of the year.

Okay. And there no further postponements in the first half. So this is on plan.

I mean, at least nothing substantial that I could talk about at the moment. I mean, as I said, we are talking about numerous individual tasks from smaller task to larger half, mainly smaller task here on the maintenance side. But yes, we have updated our forecast based on a very -- on a detailed internal analysis obviously, with our technical department. And, therefore, that's the number we can give at the moment.

Okay. Perfect. Then the second question, could you provide us with an update on your disposal plan. In the last call, you mentioned the potential volume of, if I remember correctly, EUR 50 million. Is this still a possible amount? And how are discussions with potential bias progressing at the moment?

I mean, based on today's assumptions here internally, we would say the range of potential sales would be between -- for the full year between EUR 25 million and EUR 75 million just as a ballpark figure. Yes. And considering the progress, I mean, it's a range also here concerning this topic, meaning starting from early on market sounding phase until a transaction where we have made more progress are in the middle of more detailed analysis on the other side. And concerning FFO effects, I'm sorry. As of today, we would expect -- I mean, obviously, depending on where we end up considering the final numbers. But in general, we would expect rather a lower and so no substantial impact on our FFO results for this year. I mean if you look at the calendar, yes, we are in August right now. So, I mean, yes -- and as I said, we are in different stages concerning the transaction. So -- or the -- concerning the individual assets. So we do not expect a major impact here on the FFO.

Okay. And then on your refinancing schedule for the next year, would it be reasonable to become already active this year in terms of cost for them? Or what is your attention from today's perspective?

If you mean being active, you mean securing the financing as of -- okay. Understood. I mean, first of all, maybe to stress this point, I mean, obviously, we have -- we decided very early on to go into discussions with potential financing partners here. And so, we started talks already quite a while ago. And coming back to your question, I mean, this obviously depends on further -- on our view and further development on the interest side, I mean, always also here a mixture of balancing. We don't want to be too early not to or to save additional -- otherwise, additional financing costs, which would be unnecessary. On the other hand, we don't want to be too late to come into any kind of risk here. So I'm balancing it out altogether, but we still be very comfortable also concerning the fact that a major part of the refinancing for 2025 is going to happen later during the year, clearly and not in the early part of the year. Yes. So this gives us additional time here. And -- but I can say from today's perspective, I think we are on a good track here and feel comfortable concerning the refinancing topics here for next year.

What are common terms you would agree right now?

On the finance -- I mean, let's say, we -- I mean, obviously, we -- as usual, are depending on duration and what kind of assets you have and other factors. But I would say, if we talk about typical medium-term financing on a secured basis, let's say, a range between 3.6% and 4%. That's something the range, 3.5% to 4% rather on the upper side.

Okay. And the very last question on your portfolio valuation. You stated that you had value adjustments for 5 properties. Does this refer mostly to potential disposal properties? And would it be fair to transfer those indications also to the remainder -- the remainder of the portfolio or the overall portfolio. So what are your expectation here also going into the second half of the year? Any need for further value adjustments outside of the 5 properties...

For these properties, we did the valuation here at midterm based on very specific additional information that we had. So we don't see that this is representative for the entire portfolio. I mean that's why we -- as I pointed out, we decided that we don't make an update valuation for the entire portfolio. So these are...

And do you believe from today's perspective to have a stable valuation during the year?

I mean, from today's perspective, I think I don't make any predictions here. I mean -- and maybe let me stress again also concerning the individual changes in valuation for these couple of assets here. It was a combination of valuation decrease but as well of valuation uplift. So as also a combination here. But concerning the end of the year, it's tough to say from today's perspective, yes. I mean, yes, no predictions here at this point in time from our side.

Okay. Fair enough. Thank you for just a trial.

The next question comes from the line of Ventsi Iliev calling from Kempen.

My first one would be on the investment market. Do you note that the investment market is opening compared to, let's say, 6 months ago?

Okay. Yes, concerning the investment market to -- I mean, my view is based on what I hear from the colleagues and also what do I see in the market that less has changed than I personally would have expected at the beginning of the year. So my personal expectation would have been that we would get more deal flow, meaning more offers. I mean, let me stress the fact it's not that we don't get any offers on the table. There are lots of always offers, but considering assets which fit from our perspective to our investment profile. And it's still quite slow. It's still quite slow. And yes, so I don't know. We have to be patient here. Yes.

And is that because sellers are perhaps still too slow on adjusting their expectations and just in general, could you give a number for a yield level at which sellers are willing to sell?

Because the -- I mean if you consider our investment strategy and you see that is ranging from core to manage the core properties, which obviously have employed a different risk return profile. And considering that we are on the office and the retail side, it's quite a spread. And therefore, you don't have these 1 or 2 numbers, which it would be misleading from my point of view to give any kind of -- but what I think it's not only the price expectation topic. I would assume that there are also other reasons next to it, which caused more delay on the -- considering the -- yes, until more product comes to the market. I mean just if you can think about all the topics around ESG and preparating data, et cetera. So if you want to bring an asset to the market in this market environment, I would assume that sellers will have a very strong interest to provide or being even more interested to provide an asset with all information necessary for potential buyers. And this sometimes takes also more time and other factors which might have an impact numbers. But yes, it's just a guess from my side.

All right. And then last one on maintenance. As you mentioned, you have quite a bit scheduled for H2, but do you see any potential spillover into 2025?

I mean, not as of today, meaning substantially, but based on the experience we have made -- I mean, I have no matter right now. I mean not -- I mean we can't avoid this finally. If I look backwards last year, and I think also the year before, because we still are facing a situation where on the -- concerning service providers, for instance, it's not always so easy to calculate when they are available. Second, another influencing factor, obviously, is when you -- if you need certain permissions to do something. If they don't -- if you don't get them as planned concerning your timing, you might have another delay. And obviously, the further you go into the year and get to the year-end, you can come into a situation where you have certain measures which you have to postpone and where it's too late to have other measures which originally were scheduled for next year to move them forward, yes. But as of today, that's -- it's okay for us. And we have another factor maybe to make the picture a bit more complete. If you think about tenant incentives, for instance, for fit-outs, this obviously is also dependent in various cases on the timing on the tenant side. So where we can make our own schedule, but if the tenants need longer for certain measures or decisions or whatever, this also can cause some delay on the timing side. But yes, I mean, having said this, we did our math here for our updated forecast with our technical colleagues. And that's the best guess we can give at the moment.

[Operator Instructions]. The next question comes from the line of Thomas Neuhold calling from Kepler Cheuvreux.

There's only one left, and this is regarding the letting market. Obviously, you don't have a lot of relating to do in the next couple of months, and you achieved quite a strong indexation in the last half year, I would say. I was just wondering, given the slowdown of the German economy, what do you expect in terms of how occupancy rates and reletting rents might develop next year, particularly in the more volatile office segment...

Thank you. Well, generally, we are very comfortable with our current vacancy rate. And in terms of vacancy where we have, yes, some action points we see that it takes longer to release vacant areas, and it takes longer to negotiate with tenant on conditions, and it is not only about rental level. It's also about the extension of leases and tenant fit-out and vacancy period, et cetera, as a rent-free period. But generally, we are still comfortable with the properties we have within our portfolio. We have some to do's for this year. We have 1.1% vacancies to release. And for the next year, we already started in a very early stage to poach the market and to, yes, find new tenants for our properties.

We currently have no questions coming through. [Operator Instructions]. The next question comes from the line of Norbert Kalliwoda calling from Kalliwoda Research.

Yes. Just the cost of debt. So you mentioned it is 1.9%. So how do you see it in the next quarters? Will it be unchanged? Or might it maybe decrease a little bit or increase? And I -- and the second question would be regarding your sustainability efforts? Or can you give us some insight what you are planning next..

I mean, concerning the average cost of debt on our side, considering the fact that we have no substantial refinancing in the upcoming months apart from this, apart from the volume that you see in our overview, which obviously is limited. I think I wouldn't expect a substantial increase on the average increased cost side. However, looking forward into 2025, and then on to 2026 based on the fact that we have much more to do on the refinancing side here. As of today, based on today's interest level, obviously, we will expect an increase. And on the other hand, as I pointed out in 2025, I mentioned it before, a major part of the refinancing to do will be later in the year so that the effect in 2025 also -- yes, yes, this would go in the other direction. But clearly, for 2025 and 2026, as of today, we would expect a more substantial increase of average interest costs. Concerning ESG, I mean, we have made our schedule for the year based on our decarbonization strategy, which just as a reminder, maybe we published in the first half of the year. And obviously, we have various, various measures, underlying here for the year. And maybe also as a reminder, as part of our decarbonization strategy, we also published our expectations on the investment side for the year 2024 as well as '25 and '26. Obviously, these are cost indications here that we have here for next year, but we said that we try to provide as much visibility here on the -- on this topic. And yes, we are working on this. And for this year, we have quite some -- yes, we have some investments on the maintenance side as well as on the CapEx side, which are reserved only for direct ESG impact However, if you compare it, it's clearly more on the CapEx side that we see, yes. Overall, I think we feel being on track here as of today. But to be fair, I think it's a learning curve for us as well. I would expect that, together with the results for 2024, once we have made our first experiences here also by dividing into different buckets as we described it here within our presentation, together with the decarbonization strategy, it will be much easier for us than to go into more detail concerning our execution.

The next question comes from the line of Philipp Kaiser calling from Warburg Research.

Just as one quick question from my side with regards to the potential investment volume. So assuming a recovery on the transaction market and considering the current financial situation, meaning the current LTV level and the huge discount to NAV, what would be the potential volume you could invest to secure further growth any insight would be very helpful and appreciated.

Yes. I mean I don't want to hear come down to a number. But what I can say is, I mean, as pointed out, we are focusing currently on our sales activities rather as part of our rotation program. But rotation means for us that first, we need -- we want to have more visibility how the sales activities run and then see on a cautious base based on the results there, if there would be room for additional activity on the acquisition side. Nevertheless, as of today and phasing and taking into consideration our current balance sheet structure and the view we have, I wouldn't assume here, I mean, clear focus on sales activities within the rotation and not the acquisition activity, doesn't -- this doesn't rule out any acquisition in the future, but a clear focus on the sales activities because we don't want to stress our KPIs here unnecessary.

Well, there are no further questions. So I will hand you back to your host to conclude today's conference.

Yes. And thank you very much for your participation and the questions towards our team and myself and then hope to see and talk to you soon and have a good remaining week from our side. Thank you very much.

Thank you for joining today's call. You may now disconnect.