NSI N.V. (N4RN.F) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining, and welcome to our 2025 Half Year Results Analyst Call. Today, our CEO, Bernd Stahli; accompanied by our CFO, Elke Snijder, will comment on the results presentation published on our website this morning. [Operator Instructions] For now, I would like to hand over to our CEO, Bernd Stahli.

Good morning, everyone, and thank you for dialing in. Let's dive straight into the presentation. Just as a quick reminder, Slide 4 defines our clear strategic priorities, Amsterdam specialists and selectively elsewhere, so not exclusively but predominantly into Amsterdam. Sector smart, we would not shy away from other sectors if the opportunity does arise but think mostly in terms of the internal opportunity that we have with respect to converting offices to residential. Customer first, very simple. Without customers, there is no business. So they're front and center in all of what we do to make sure that we deliver the product of the future. Sustainability leader. And sometimes we don't chat enough about it, but we're ahead of the game and it does make a difference in all elements of our business. Growth, we are small, yet ambitious. We love to take the next step and scale, and we want to do that together with our shareholders. And we know that we need to keep them happy along the way. So no, we're not going to grow at any price, but it's an ambition that we do have because we recognize that size does make a difference in this market. Slide 5 shows the main KPIs. I'll highlight a few because they'll come back in the rest of the presentation. We have a small increase in vacancy in the first half to 5.9%. Part of it is strategic specifically relating to HNK Houthavens and Amsterdam, where we're going to do an upgrade of the ground floor and part of it is just 1 or 2 buildings where we have an increase in vacancy over the period. On the gross rents, they're up 4.7%, which is a good increase, especially if you take into account that indexation over the period was running at just about 2%. The LTV is up to 34.5% due to CapEx and a small negative revaluation of the portfolio of 2.7% that Elke will elaborate on later. Sustainability wise, we remain at a very high level, but there hasn't been really much change over the period. Slide 7 shows the map of our assets. More than half of our assets are located in Amsterdam. We're happy about that. There were no acquisitions or disposals in the first half. There is still ongoing asset rotation. We are planning to sell our one remaining asset in Hoofddorp and 2 remaining assets in Eindhoven. Those 2 should release over EUR 40 million of capital coming back into the business to reinvest on new acquisitions or on our development program. Slide 8, we've got some very good news on Vitrum. It's taken a while, but we're finally there. In May, we concluded the process to obtain the environmental permit for the redevelopment, which was the last part of an authorization process we needed to be able to start the project. We are now working with a building contractor to finalize the details of the projects and to finalize the terms on which the project will take place financially, and we're aiming for a start of the project in the first half of next year. Once completed, this will be one of the best assets in the NSI portfolio, further expand our Amsterdam footprint and drive profitable growth in terms of EPS and NAV. Once we finalize the details with the contractors, we will communicate the financials of this project in more detail. Slide 9 shows a new render of the Southwest corner of the building. And you can see this actually does look very good for the market in today's context. Slide 10. Just a brief update. We don't typically talk about individual buildings that much. But in this specific case, it is worthwhile to mention. End of last year, we acquired Sypesteyn in Utrecht. We bought it with 74% of the space let. The presentation shows we're now at 88%. That's the end of June number. For August, it will be 94% and we're leasing the space 5% above what the incoming contracts were at time of acquisition. There is one unit left that is explaining the 6% vacancy. That's on the sixth floor. The space has been refurbished and that should be let up in the coming months. Over the same period, the building has come from a C label to an A+ label. So we're very happy about that as well, being at minimal cost, less than EUR 1,000 to get there. All in all, we're very pleased with the acquisition and the progress since at this time, Central Utrecht is proven to be one of the most dynamic leasing markets in the Netherlands. And if you go to the back of this presentation on Slide 35, we actually show that rental growth in [ prime ] Utrecht has kept up in line with prime rental growth in Amsterdam since 2010, cementing the position of Utrecht as the second most important office market in the Netherlands. Slide 11, we show our plans for Vivaldi. We're cutting that back just under 9,000 square meters of office space in August. Those of you who attended the Capital Markets Day presentation in 2022 will remember back then that we had a plan for a longer-term redevelopment of these assets to make this space better and more attractive and genuinely future proof. That plan does remain a realistic option. But we have decided that for now it's best to keep running the assets for income over the coming years as the plans aren't finished. And we have to take into account and consider the time and capital commitments that we have for our other projects. We can't do everything in one go. We have already Alexanderpoort project underway, Vitrum is coming up and we also have potentially Well House to consider as well, which is next door. So for now, we're just running it for income. The space will get back is in reasonable shape and we plan to spend some money on it, probably less than EUR 1 million before bringing it back on to the markets. Given the quality of the space that we're getting back, we're optimistic on leasing, but it will take some time to lease out this volume in its entirety, especially if you take into account that it will likely be and is very likely to be a multi-lease building with flexible contracts. So yes, we'll keep the flexibility ourselves with respect to our future plans, but don't expect those plans to happen in the coming 3, 4 years. It's a longer term -- medium to longer-term plan still. Slide 12 shows that we have a strong track record on leasing, one that we are proud of and one that gives us the confidence that we can handle any upcoming vacancies, such as Vivaldi at this point in time. Slide 13. Obviously, some new data that we're presenting for the first time. We have been, for some time, tracking actual physical occupancy in our buildings. And it's something that we continue to rollout in our portfolio, adding more buildings every time. The process to track the data is fully automated, but it's taken us some time to clean the raw data and translate it into relevant information that is both insightful and ready to be interpreted. We're only at the start of building up our own history in terms of data, so it's hard for us to draw too many conclusions at this point in time. But if you look at the data, you see some relevant numbers in terms of physical occupancy over time, but also how it sort of decided over the weeks. Generally, the belief is that in the Netherlands pre-COVID, the physical occupancy for offices was about 70% to 75% with Wednesdays and Fridays relatively quiet days. Our data suggest occupancy levels have been improving a bit over the past 12 months, but they continue to trail pre-COVID assumptions. Thursday is the busiest days of the week. Tuesday slightly disappointing, Friday the quietest day of the week that can't be much of a surprise. We appreciate that some of you may want to read into this data that tenants in our portfolio still have a need to right size as the space is not being used efficiently. Perhaps, rightsizing is indeed an ongoing feature in the market has been since COVID and may continue for a few more years. In multi-tenant buildings, we have proven to be able to manage this rather efficiently as we show in our vacancy data. Our vacancy is fully under control. As long as you own the right buildings with the right product offering, there's always replacement demand for space that does come back. And this is exactly why our in-house flex office platform, HNK, and bringing services beyond the HNK portfolio is so important for us and for our customers. It allows us to cater to evolving demand patterns like hybrid work with scalable high-quality solutions, where people want to work and it's a great example of how our integrated approach helps us to remain responsive and efficient, while creating long-term value for our shareholders. Slide 14 is my last slide before I hand it over to Elke, and it's a slide that we've shown before and continue to repeat as it encapsulates very clearly what we've achieved over the years. We continue to grow rents well ahead of inflation. Like-for-like gross rental income has outpaced CPI since 2019. New leases are signed materially -- at materially higher levels, confirming the reversionary potential in our portfolio and the attractiveness of our locations. And with that, I would like to hand it to Elke.

Thanks, Bernd. Okay. Let's now first have a look at our valuation. As you noticed, it's down with 2.7%. Notable is that for this round, we have moved to a new group of appraisers, namely Savills, is a complete newcomer and Cushman on a different set of assets. As said, revaluation in total was slightly negative and of course, you're sort of curious how we interpret that, but I think it's hard still to interpret in a market where transaction liquidity remains very limited. And especially for a new group of appraisers, it's hard to assess value. I understand that with limited liquidity in the transaction market, you might take a bit of a conservative view. On this slide, on the left, as you are accustomed to, you can see the euro amount and the split between the positive and the negative revaluations. And on the right, we show a number of assets, exactly the same, positive and negative revaluations. Interestingly, you can see that it is exactly the same number on positive revaluation, 17 over the first half. And it was also 17 over 2024. Those are not the same assets for the vast majority. Yes, we can -- we're still quite positive because we see positive valuations coming in. And as I said in the context, as I just mentioned, we sort of have a neutral view on this. Moving to the next slide, sustainability. For us, one of our core pillars of our strategy, we continue our leadership in the industry with respect to this topic. We see continued strong performance, for example, GRESB and also BREEAM. But our strong focus is on improving energy usage of our assets. As we think that together with CO2 impact, this is the most important contributor to our sustainability journey. On the top right, you can see EPC score. The vast majority is in A or better, and only 3 assets in total are still below that -- yes, but we're performing so well there. It's something we look at. But for us, we're more interested in actual kilowatt hour per square meter performance. To date, on the left, you can see our performance is far ahead of the pathway set for Paris Proof, even though our path towards the goal will not be linear. Some investments create bigger impact than others, and there's also other factors that influence year-on-year performance like the weather, but also how your tenants go about it. And that points me towards another point I want to make. It's not just the asset performance that we're looking at, but we also tried to guide our tenants in energy, durable, sustainable behavior by giving them insight and perhaps even some tips where we can. Then moving to a new slide that you haven't seen of us before. As I said, we don't only look at our kilowatt hour per square meter usage, but also at CO2 as a key metric next to energy intensity. This adds a little bit more depth. So one of the reasons why we've set an ambitious goal to reduce energy in our portfolio. We want to highlight here the link with carbon emissions. The Paris Climate Agreement aims to limit global temperature rise to 1.5 degrees Celsius. And to meet this goal, the real estate industry must reach roughly 0 kilograms of CO2 emissions per square meter by 2050. That's all the way on the right. Reaching this goal, I think that's sort of the main message of this slide. It depends on 2 key factors: it's our portfolios energy intensity, but also the decarbonization of the electricity grid. While we are committed to reducing our energy intensity as much as financially feasible, achieving full alignment with the Paris targets also requires a significant drop in grid-related emissions, a factor, unfortunately, largely outside of our control. That is why we focus on what we can influence directly improving the energy efficiency of our assets. In fact, as said on the previous slide, we're outperforming current energy intensity targets, and we'll continue aligning with that pathway towards 2035. Okay. Moving to the next slide. And look, diving into some numbers now. I think these are all familiar slides for you. Just, of course, interesting to look at the update of the numbers. First EPRA earnings. Here you see the rundown from GRI to NRI to EPRA earnings. I think 2 things to point out, quite similar to last time we talked is that costs are still well in check, as you can see in operating cost, but also in the administrative costs. And we can also see corporate income tax with a direct rate of 5.5%. That's the EUR 1.1 million you see on the slide. And that's well within our guidance that we've given you from 5% to 7%. Now looking at a couple of waterfalls. The first rundown is earnings per share, EUR 0.91 in the first half of last year towards EUR 0.99 in the first half of this year and what are the big buckets that explain the difference from left to right? The recent acquisition is Sypesteyn coming in as for December. So we're starting to see positive impact, even a little bit trending ahead of our own predictions, as Bernd already mentioned. Then the next big one is the disposals. As you know, we disposed the 3 assets last year Laanderpoort all the way at the beginning of the year with Den Bosch Binnenhof and Fellenoord Eindhoven in the second half of the year and leading to the EUR 0.06 impact in the first half. GRI like-for-like, that's the biggie, shows the impact of lower lease incentives, indexation and managing our vacancy. Then moving to the right, you see some smaller impacts. And I think the last one that I want to mention, but that's something that you can link to the previous slide as well as our corporate income tax. We're moving from EUR 1.1 million this year, and versus EUR 0.5 million last year is EUR 0.6 million difference, and that exactly comes down to EUR 0.03 negative impact. So to simply put, we're paying a little bit more corporate income tax. But again, well within the guidance that we've given you. Then on to the next slide, NTA per share. This shows the bridge of EPRA net tangible asset value per share from end of '24 to the end of this first half of '25. Going again from left to right. The EUR 0.82 that you see was the payout that we did in May as the final dividend over '24. The EUR 0.99 is the EPS performance over the first half of the year that we talked about on the previous slide. The EUR 1.47 is an indirect impact, and that's the translation of the revaluations that we've seen, and then which ones are, I think, sort of noticeable. Maybe the deferred tax relates to an increase of the deferred tax asset as a result of the negative revaluations, so that linked and the effect of the stock dividend that we did in May here is EUR 0.26. Simply put, the denominator of NTA per share has increased this leading to a lower outcome, and this all results in a decrease of NTA per share over this half year of EUR 1.39. Okay. Now it's something that I am, of course, especially proud of is that we have on the next slide, looking at the loan facilities that we have, our syndicated loan. We've been able to extend this quite successfully with ABN AMRO, Rabo, ING and Belfius, and we've extended the loan facility to 2030 with 2 1-year extension options. The total facility remains the same with EUR 50 million in the term loan and EUR 300 million in RCF, keeping all our loans fully unsecured, so providing full flexibility on our loan book. Commercial terms were such that we've been able to keep our average cost of debt stable at 2.9%. And again, very happy with that outcome. Then on the right side of the slide, you can see that we have linked it to sustainability as well. For us, really important because this is a key pillar of our strategy. And also, it was important for the bank. So there, I think we found each other quite well. But it can also lead to a benefit on our interest rate, but if we don't perform well, then actually, we'll be paying a little bit more on our loan facility. But it's a mechanism in place of Tier 4 key sustainability metrics that are important to us. Okay. Two more slides on the financials to go. So bear with me. So as a sort of -- well, direct consequence of being able to extend our facility, you can see on the top right of the slide, the average maturity that has increased from 3.5 years to 4.2 years. So that looks quite healthy. And on the left, you can see nicely how now our term loan and the RCF are put in 2030 instead of 2026. You can also see here that the part that we've currently drawn from our RCF facility of 300 is EUR 70 million. Now what's up next for treasury activities? We're keeping an eye on the EUR 40 million private placement that expires end of January 2026. And we are mindful that this fixed rate private placement was agreed in times of negative case rates. Renewing it at this point in time would make our average finance costs go up by -- well, a small step, but it will go up a little bit. Okay. That's, I think, what's notable on this slide. Moving to the last one. We keep a keen eye on our balance sheet scape here. On the left-hand side of this slide, you can see that our cost of debt is remaining stable as well as our ICR, interest coverage ratio. LTV on the top right is low, still at 35.5% -- 34.5% and that's all impact of the negative revaluation. If you've done the calculation, if you take out the negative revaluation, our LTV would be well, flat with 2024 at 33.9%. And then on the bottom right, net debt to EBITDA has improved and that's on the back of a higher EBITDA. Okay. So far for the financial metrics, and I'm giving it back to Bernd for the outlook for the rest of the year.

Thank you, Elke. The economic environment is okay, but not much better than okay. So we are living in a more uncertain world than we did maybe expect 6 months ago. By and large, what we see is that the larger tenants are sort of holding back on decision-making, but smaller tenants continue to do their business as is. We don't really see much of an issue. If we specifically work out the elements of our strategy and see what is going to happen for the remainder of this year, as we mentioned before, we're selling Hoofddorp and Eindhoven that should be completed before year-end. Sector smart, we're continuing to look at the opportunity to convert office to residential space in our own portfolio. We have a pilot that we are creating full turnkey offering of assets -- office assets in our portfolio that is going to continue to expand. So far, it's working out quite well. We're going to deliver HNK Rotterdam Alexander by year-end this year. That will be a Paris Proof building, high quality that I think will be very well received by the market on completion. And growth, well, obviously, if we look at Vitrum, which is obviously what is going to attract quite a bit of attention in our portfolio in the second half as we prepare for that, that will be a great addition to our cost over the years to come. Our guidance, we've maintained it within the range of EUR 2.05 to EUR 2.15. There's a little bit of dilution as a result of the stock dividend that we issued in the first half. Otherwise, there is no real major change in our portfolio that would warrant a different number than what we were sort of internally penciling for. We're actually generally optimistic about the outlook of our business, and we are happy to answer your questions. So I'm handing it back to Martijn for the Q&A.

Thank you, Bernd. We will be continuing with the Q&A now. Sandra, you can give the instructions for the Q&A.

[Operator Instructions]

Okay. I will be handing over the first question to Vincent Koppmair from Degroof Petercam.

Yes. Congrats on the solid operational results in H1. I just had maybe 2 questions or 3 questions for you. Mainly looking at -- of course, you mentioned already the change in the valuators and the -- there was now the devaluation and the lack of transactions. But do you see any other reasons in the slowdown of the market? Because I would argue that over the last quarter, it was seen as more of a bottoming out. So now the new revaluation might come as a surprise.

You want to give all the questions first or you want to address them one by one?

I could go one by one, if it's okay.

Okay. Do you want to do it?

Yes. I'll -- I mean, what we are noticing with our group of valuers, and I think that sort of has remained the same versus the last group that we had is that we still seem to have a discussion about all the investments that we do in sustainability and how that translates into value. And still the assessment of our HNK locations, which is by now 9 locations that we're looking at is a bit difficult. And I think one of the big ones that we're finishing up by the end of the year is our HNK location, new Rotterdam Alexander, where we're doing a very large EUR 20 million refurbishment and then of course, we have some comparables within our own portfolio. But my personal opinion there is that there was a little bit of a conservative view more as show first and then we come in with a good value approach. Yes, so I don't try to read too much into this. I'm, of course, also curious at how our colleague companies, real estate investors will show their values. But I'm not concerned when I look at this.

Okay. Clear. Then I will have 1 question on your newest acquisition last year because, of course, you highlighted in one of your slides, and you mentioned that, of course, you had very strong leasing and strong rental growth. But what do you see as the medium-term strategy for this asset and for potentially your other assets? Vivaldi you already mentioned, of course, but just more of a picture of this asset, for example.

You mean Sypesteyn in Utrecht.

Yes.

If you look at the building, you can see its older. It's a 1970s building. At some point in time, you will require to do more of an investment into this building. In a market where prime rents in Utrecht are 300-plus. We are renting out at 200. So it tells you that it's not the same quality, because location is great, but you're not attracting the premium rents that are achievable in that market. So to be able to achieve those, you need to make much more of an investment. Given that we have plants coming up for Vitrum, we have other plans. And given how long it typically takes to get projects to start, you should work on the assumption that this is going to be rented out for at least the next 7 or 8 years before a project is likely to happen on this spot. And it could either be a refurbishment or a complete tear down and new build office tower going up. We do know that we can add significant square meters on that plot if and when we were to do so, but work on the assumption, this is going to be an income producing higher yielding assets for the time to come.

Okay. Clear. I have only -- okay, I have 2 more questions, maybe then I'll leave the floor. In terms of reversion potential. You mentioned in press release that this year, you have more or less 11% reversion potential, but you don't assume to be able to capture everything. What is your more or less assumption, are you able to capture 80%, 90% of this or maybe lower amounts?

It will be less. Part of it is related to Vivaldi where there is a higher rent likely in the market versus the departing rent of spaces that left the building. But the reality is that when you start with an occupancy of 0, you're not capturing it very quickly. It just takes time to lease up that building. Secondly, there is a lease where actually the renewal date is end of this year. So yes, formally, it is part of the reversion of this year. But if it happens, it's actually going to happen to some extent next year and there are some other minor elements. Part of it is Utrecht where the failure tells us that the ERP is over EUR 300 a square meter Sypesteyn, but we're actually leasing it out at EUR 200. And yes, we can lease it out at EUR 300, but it requires so much CapEx that for us, that doesn't make a lot of sense to invest that at this point in time. So actually, that number is -- I wouldn't -- it's not misleading. It is what it is coming out of the data, but that's why we highlighted in the document ourselves. We're not going to capture much of it this year.

Clear. Clear. Then maybe my final question was that at the press conference for the full year results, you mentioned that in the case of the market slowing down and deals not materializing, you would consider doing SBBs again. Has your position changed on this topic given the current circumstances?

Well, you always look at managing your balance sheet throughout time. Clearly, a small changes that we've restarted the issuance of stock dividend, so that's actually doing the opposite. Now we know that Vitrum can go ahead, and we need the capital to invest into that project. You can see on a projected basis that our royalty it was increased a little bit. It then doesn't make a lot of sense to continue to buy back, if anything. If we look for new acquisitions, you also have to allow for some balance sheet capacity to do that. So no, for now, don't expect any further buybacks for the time to come.

The next caller will be Roy Kulter from ABN AMRO.