Vastned (VASTB) Earnings Call Transcript & Summary

Hello, and welcome to Vastned 2021 Results. My name is Suzanne, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand over to your host, Reinier Walta, CEO, to begin today's conference. Thank you.

Thank you. Good afternoon. I'm here today with Simon Theeuwes, our IR representative. First, I would like to thank everyone for taking the time to join our earnings call. In 2021, Vastned has delivered positive results in a year in which tenants were confronted with temporary lockdowns and closures of their stores. This clearly demonstrates the resilience of our portfolio. We had a robust operational performance with a high occupancy rate of 97.9% back to pre-COVID levels and a collection rate of 96%. Our direct result increased from EUR 1.85 to EUR 1.93 per share. The limited decrease of our portfolio value of 1.6% and an increase of 0.2% in the second half of the year shows the underlying quality and resilience. The increase in valuations in the second half is the first indication of a stabilization of the value of our portfolio. This also allows for a total dividend of EUR 1.73 per share equal to the dividend paid over 2020 and a payout ratio of 89.6%. At the same time, we have made progress with the execution of our updated strategy. As said, we have been focusing on improving the tenant mix, whereby our fashion exposure decreased to 46% from 48% the year before. New tenants were added, such as My Jewellery in Arnhem and Mechelen, Bolia in Lille and Moss Copenhagen in Amsterdam. A total of EUR 18.2 million in nonstrategic assets were sold, approximately 4% above book value. And finally, we delivered on our cost-cutting targets and FTE reduction. In 2021, our focus has been on maintaining and even increasing the high occupancy rate. The occupancy rate improved to 97.9% compared with 96.5% at the end of 2020. In all countries, occupancy increased, except for France, and this was due to the departure of Sandro in Paris. In the Netherlands and Belgium, we signed new lease agreements that resulted in an improvement of the occupancy. The portfolio in Spain remains fully let. Despite COVID-19, leasing activity remained high in 2021. The number of leases concluded was 92 for a total amount of EUR 12.4 million in gross annual rent or 17.4% of the total annual gross rental income. The lease renewals caused a 4.5% rent decrease or EUR 600,000 in absolute numbers. New leases were signed with attractive tenants that enabled Vastned to improve its mix of tenants, which include Domino's Pizza, My Jewellery, Coolblue and Sinéquanone. On the next slide. COVID continued to impact our tenants in 2021, especially with lockdowns in the Netherlands and restrictions on nonessential retail locations, restaurants and bars. Vastned's other geographical locations were less impacted by COVID as government measures were less severe. We continue to be in close contact and dialogue with our tenants, and we have begun our tailor-made solutions to secure high collection rates. In total, the rent waivers we have agreed to with our tenants amounted to EUR 3.5 million in 2021, of which EUR 2.1 million related to waivers given in 2021 and EUR 960,000 to waivers relating to rents in 2020. Focus on and close contacts with our tenants resulted in an increase in collection rates to almost 96%. 3.1% is related to waivers that we have granted and 0.3% of deferrals, which will be received at a later moment. It also means that our collection rate over 2021 could never be 100% given the waivers provided and deferrals. Excluding waivers, it would have been close to 99%. The like-for-like rental growth was 0.7% positive compared to 3.8% negative last year, and this is including waivers. The increase is mainly a result of a lower amount of waivers, especially in Belgium. In 2021, approximately 39% of the rent was generated in well-performing sectors. Supermarkets and personal care showed a strong performance. Sports and home and garden stores did better than before COVID-19, and residential was also up. But also in fashion, we have seen that some retailers were performing stronger than others. In particular, retailers with a good online presence in combination with well-located stores have done relatively well despite lockdowns. As promised, Vastned has delivered on its cost reduction targets. Vastned realized a general cost reduction of 18% over the past 2 years and has reduced almost EUR 0.7 million in costs in 2021. On a normalized basis, this is as much as EUR 0.9 million. Total costs are currently only 47 basis points of the gross asset value. And all this leads to an increase in the direct result per share from EUR 1.85 to EUR 1.93. A negative like-for-like rental growth was compensated by the smaller amount of COVID-19 waivers compared with the same period last year and in combination with lower overhead costs, lower cost of debt due to lower debt, it has resulted into a significant positive delta, as you can see from the waterfall graph on this slide. In 2021, we have seen a relatively limited decrease of 1.6% in the value of our portfolio. In the second half of 2021, we recorded an increase of 0.2% in the value of our total portfolio. Although COVID-19 continues to affect real estate markets, we see the first signs that property markets are functioning again, and this seems to be a first indication that the value of our property portfolio stabilizing. Refinancing side, we continue to show stable performance. Our cost of debt slightly decreased over the year. Our loan-to-value is 43% and flat compared to 2020. In summary, 2021 delivered positive returns with a direct result of EUR 1.93, a collection rate of 96% and an EPRA NTA of EUR 14.13 (sic) [ EUR 42.13 ] per share, which is an increase compared to EUR 41.49 per share at the half year stage. We believe that Vastned made good progress on its strategy execution. We see progress with an improved tenant mix. The fashion exposure decreased to 46%, which was 48% at the end of 2020. We have new tenant wins in the so-called phygital segment. We have sold nonstrategic assets for a total amount of EUR 18.2 million. The number of FTE has been reduced from 37 to 32. And finally, we have realized cost savings in line with target. Sustainability is an important core value for Vastned in creating long-term value for its stakeholders. Vastned continues to invest in properties situated in historic city centers. And in this way, Vastned contributes to the preservation, the life span and the attractiveness of cultural heritage of historic city centers. By converting empty spaces above shops into residential units, city centers are becoming livelier after closing time, while housing stock increases. Our investment in apartments is also aimed to improve the energy levels to 8 or higher. We have realized 14 renovations or creations of apartments in 2021, which compares with 17 in total in 2020. On the Green Finance Framework, Vastned has grown approximately EUR 10 million on our committed EUR 40 million Green Revolving Credit Facility. Vastned proposes to pay a total dividend of EUR 1.73 per share equal to the dividend paid over 2020. This implies a payout ratio of 89.6%. Given the unpredictability of the COVID-19 pandemic and the possibility of new variants, many of Vastned's tenants face an uncertain commercial and financial outlook over the coming periods. As such, we are not providing forecasts or guidance on the direct result for the 2020 full year at this stage. Vastned's focus is firmly on maintaining excellent operational performance and executing its strategy.

Thank you. Yes, we could now go to Q&A.

[Operator Instructions] A question has been submitted. The first question comes from the line of Steven Boumans.

Congrats on the good results. I have a question on the guidance. You say we don't provide it due to the cost uncertainties, but we are now in an environment that we see less COVID risk, I would say, and you also see guidance from comparable companies. Could you provide a bit of guidance what you expect the direct result would be if there are no more lockdowns going forward?

Yes. Steven, we think it's still quite uncertain. It's COVID, we are still the end of COVID. It seems that it now goes away, but it's still not going fully away. And secondly, we would really also like to see what is going to be the impact of government stopping support to businesses. And because of that reason, we said, we're going to watch it a little bit. And of course, we're going to give guidance later this year, but not yet at this stage.

Okay, clear. I have a second question, if I may.

Yes. Of course.

You have seen on the Dam Square some luxury in Amsterdam, in the Netherlands, some luxury brands coming up, so do you amount -- is that a positive sign that you say, okay, those brands are expanding in the city where we are active? Or at the other side, could it also be negatively affecting your PC Hooftstraat's exposure?

I think it's a positive sign because the main reason, of course, that those brands are going to the Dam Square is that they want to be close to De Bijenkorf, which is, of course, also a destination for luxury shoppers, which has always been and always -- and it also has -- been there together with PC Hooftstraat. What we see in PC Hooftstraat, there's quite a lot of demand for space there, especially for the -- if they can get larger shops. Rents have not seen the pressure, for example, what you've seen on the Kalverstraat. So I think it's positive that there's more luxury also going there, but I think the PC Hooftstraat will also remain a luxury street.

We have no further questions in the queue. [Operator Instructions] The next question comes from the line of Kai Klose.

Maybe I can ask a question a bit more general on the strategy and of the kind of portfolio refocusing. As you mentioned here on Page 17, you have been working on the portfolio in 2021, but also to make it weatherproof in the COVID environment. Could you maybe elaborate a bit more on how much CapEx or modernization investments or maybe also temporarily higher vacancy rate we can expect when you now look more into the portfolio alignment to widen the focus and maybe reconvert assets? What might that impact -- what kind of impact that might be in 2022?