Vastned (VASTB) Earnings Call Transcript & Summary

Hello, and welcome to Vastned Half Year Results 2022. 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 morning, everyone, and thank you for joining our half year results call. In the first half of 2022, Vastned maintained a strong operational and financial performance with positive results, a high occupancy rate of 98.5% and a collection rate of 97.6%. The direct result increased from EUR 0.88 to EUR 0.98 per share. Positive revaluation of our portfolio by 1% resulted in an indirect result of EUR 1.32 per share versus EUR 1.38 negative last year. The indirect result includes the positive revaluation of the property portfolio, positive results on derivatives, and approximately EUR 700,000 related to an internal transaction which would have resulted in a delisting of Vastned Belgium N.V. The discussions were ended due to the rapidly changing market conditions. The positive earnings per share of EUR 2.30 compared with a loss of EUR 0.50 during the same period last year. This allows for an interim dividend of EUR 0.59 per share, and it's based on a maximum payout ratio of 60% of the direct result of the first half of 2022, and that's defined in the company's dividend policy. At the same time, we have made further progress with the execution of our strategy. We have improved our tenant mix, meaning that our exposure to fashion retail decreased slightly to 45.6% down from 46% at the end of 2021. The number of FTE decreased from 32 to 30. And finally, we continued our cost control, achieving gen ex savings of approximately EUR 100,000. Since the first half of 2019, we have reduced our gen ex by almost 24%. On this slide, the key figures. And in summary, I can just say we delivered positive results for the first half of the year. And related to this, it's important to mention that our EPRA NTA increased from EUR 41.49 per share to EUR 42.89 per share. The occupancy rate increased in all countries, except for Belgium. The high occupancy rates across our portfolio reflect the high quality of our real estate, which enables to keep most of our properties fully let, even in uncertain times. Leasing activity was significantly lower in the first half of 2022 than during the same period of the previous year. 19 leases were negotiated with an annual rental income of EUR 2.1 million. This compares with 54 leases during the same period last year, resulting in EUR 6.2 million in annual rental income. In the first half of 2022, this concerned only about 2.9% of the total annual rental income. Most rental contract renewals were either positive or involved a small rental decrease, except for 2 leases in Belgium. This mostly explains the rental change of EUR 300,000. The relatively low leasing activity during the first half of 2022 also reflects the fact that we are almost fully occupied with only a few properties seeking new tenants. A year ago, we were much busier doing renewals and new leases with tenants, and there was also noticeably more churn in the tenant base. A good example of an important tenant that renewed with attractive terms in the first half of the year is McDonald's, which renewed its lease contracts for its location on Oude Gracht in Utrecht for a maximum period of 14 years, beginning at the 1st of January 2022. Vastned believes that diversification is key. Currently, Vastned is seeing signs that fashion retail is in better shape than before. This could slow the shift in the tenant mix as we see demand from fashion retailers holding up better than expected. General expenditure has been reduced significantly over the past few years, increasing by almost 24% since the first half of 2019. In the first half of 2022, we remain prudent in cost, and we're able to deliver a gen ex savings of about EUR 100,000. Vastned saw positive revaluations of EUR 14 million in total or 1% of our total portfolio that amounted to EUR 1.452 billion at the end of the first half of 2022. This compares to a decrease of 1.6% over full year 2021, and a 0.2% increase over the second half of last year. It's too early to say where valuations are likely to go next in an environment with rising interest rates and increased economic uncertainty. On this slide, the direct result development from EUR 0.88 to EUR 0.98 per share is shown, including its major components. The like-for-like rental growth was limited. Lower debt compensated for the higher cost of debt. Net divestments reduced a direct result as well as slightly higher income tax. A smaller amount of COVID-19 effect was a major contributor to the positive delta, as you can see from the waterfall graph on this slide. The loan-to-value remained flat at 43%. This was despite the significant final dividend payment on the 6th of May 2022. This compares to 44.1% at the end of the first half of 2021. The average interest rate increased with only 2 basis points to 189% from 187%. We are currently working on a financing plan for refinancing our credit facilities. We expect to address the refinancing of the balance sheet in the coming year, and we'll inform you when new financing arrangements are in place. We believe Vastned made good progress on its strategy execution. There is improvement in the tenant mix. The fashion exposure decreased to 45.6%. There's more an increased exposure to the digital segment, whether it's -- where digital and physical stores meet. The number of FTE reduced from 32 to 30. And we are -- we have continuous cost control with the gen ex savings, as mentioned, of EUR 100,000 in the first half of 2022. We are optimizing our portfolio. There were some small divestments in the Netherlands in the first half in the purchase in Rotterdam site line post the balance sheet date. There are currently no other developments in this -- on this side. Given the continued uncertainty in the market, we will continue to focus on operational excellence in the second half of the year. However, we would like to remind you that in most cases, when we divest properties, it is above book value. During the past 3.5 years, we have divested 34 nonstrategic assets for a total of EUR 43.6 million, which is 6.8% above book value. The transactions in the first half of 2022, all in the Netherlands, and totaled EUR 800,000 in value, were divested for 18.6% above book value. Sustainability is important to Vastned as we aim to create long-term value for our stakeholders. Vastned continues to invest in properties situated in historic city centers. In this way, we contribute to the preservation, lifespan and attractiveness of the cultural heritage of historic city centers. Increasing housing stock within historic city centers is another key aim. By converting empty space above shops into residential units, city centers are becoming livelier after closing time, while housing stock increased. Our investments in intercity apartments over aim to improve energy labels, raising them to 8 or higher. However, given the strong increase in construction costs, and shortage of building capacity in the market currently, we are cautious when entering into new developments. We only realized 3 renovations in the first half of the year, and we expect to complete 5 apartments in the second half. With respect to the outlook, we will approach the second half of the year cautiously due to the present economic situation. Barring unforeseen circumstances, Vastned reiterates its expected direct full year 2020 (sic) [ 2022] results of between EUR 1.95 to EUR 2.5 per share. Vastned's focus is firmly on maintaining excellent operational performance and executing its strategy. Vastned net will pay an interim dividend of EUR 0.59 per share, in line with the dividend policy. This interim dividend is equal to 60% of the direct result in the first half of 2022. I would like to thank you for the attention, and we would like now to go to Q&A.

[Operator Instructions] The first question comes from Steven Boumans from ABN ODDO.

I think the good visuals. I have several questions. First, to what extent do you expect to price through in the case of the tenants? And what can we expect for renewals going forward?

I think that's a double question there. I think first on the indexation. The indexation is what we have agreed with our tenants. So, so far, we just -- in every country, we take the numbers we agreed on, and we put that forward. So there's nothing that deviates there that from the contracts we have negotiated with our tenants. So currently, all indexation is -- yes, is passed on to the tenants. And then the second question added is on what do we think with contract renewals. Yes, that's a little bit more, I think, difficult to answer. We are constantly discussing with all our tenants, and we are looking at contracts. We have still some contracts which are over market, so there will be discussions. And typically, we are able to get market rents from -- for our units. So that's where we are at the moment. Does that answer your questions, Steven?

Okay. It does. It does. And you also say that because we saw a bigger negative renewables due to the 2 [indiscernible] tenants that should be an exceptional then.

Both of those units were over rented, and we set them back to ERV. So there are market rents. But yes, we had to take a little hit there.

Okay, clear. If I may, I have also a question on valuations. Could you please break that down between ERVs and yield movements?

If we look at our valuation, it's mostly a small shift in yields. And ERVs are flat, mostly flat in that. So it's more a yield movement than a ERV movement.

Okay. Clear. And then the last one, then I will leave room to others. Could you please comment on the differences that you see in footfall rents and valuations for the main classes that you have?

Can you repeat that? I didn't hear that.

Sorry. Could you please comment on the differences that you see in footfall rents and valuations for your main classes? So [indiscernible] Amsterdam, Utrecht, Paris, Lille, Bordeaux?

What we see or what we have seen in the last half year that there's a lot of footfall in the street, people wanted to be in those inner cities. So it's busy in the streets. We can also see that in -- we had some increase, asked from tenants, and we also were able to rent out on those spots. And it differs a little bit per street. But I think in most of the streets, we have seen footfalls coming back and also have seen that turnover for our clients were good.

Okay. And do you see some retail clusters within your portfolio? Was it all comparably strong?

No. Not really. Of course, we still have some smaller cities, which is difficult that we don't have all the information that especially on our bigger clusters. We see there as good footfall, and that people are back in the street of course, and that's why we are a bit cautious. It's also -- is it still going to be the case, of course, after the summer in the rest of the half year. And that's why we are a little bit cautious. But so far, we have seen good footfalls in the street where we're active, and especially in the most important clusters.

We currently have no questions coming through. [Operator Instructions] The second question comes from Romain Kumps from Kepler.

Yes. Just one question on my side. I think you commented on the fashion, and I think that's a bit related to your strategy. You said that the fashion is doing a bit better than you may be expected last year. Does that change a bit your long-term strategy? I mean where is the strategy today, do you still divest a bit of those fashion? Or are you changing every 6 months? What is the strategy on the really longer term?

I think our strategy has not changed on that roadmap. So we are still focusing on in the long term to reduce fashion and have a better diversification in our tenants, but it could go a little bit slower if you see, there is more ask from fashion retailers. At the end, we are trying to find the best retailers -- which fit in our stores. So that's the way we look at that. But it has not changed our strategy. We will focus on diversification, and have a more diverse tenants -- mix of tenants.

Yes. Okay. And then maybe just a second quick question. I think is it the first time in some years that you have actually bought something in this half. Could you maybe walk us through the process of this new investment?

Yes. This is a small investment in a cluster in Rotterdam, where we own already some other assets. We -- so this -- we could add this to our cluster. It was a good opportunity we could take at this moment. So we thought it's a small investment. It fits with the other investments. It's an easy path. It's let for quite a long time in a spot in Rotterdam where it's busy, and it's the only retail -- the retail part -- or what do you -- how do call it is more a -- now it's in shopping center in Rotterdam. So in an urban environment, which really works, that's why we thought, okay, let's expand our cluster with this opportunity that came on our path.

Yes. Okay. All right. And maybe just one that comes right to my mind. On Vastned Belgium, you just mentioned, I think -- Vastned Belgium mentioned the same word, same in the market conditions or rapidly changing market conditions, is that the market conditions, the public market? Or is that the real estate market? Is that the fashion industry related to the real estate market?

It's more the uncertainty. When we started having discussions and looking into it, the world looked a bit more stable. Then quickly, a lot of things changed. So it's more the uncertainties in the total market, macroeconomic that we, at a certain moment, the discussion stopped and said, okay, we're not pursuing this. So it's more the uncertain outlook.

Yes. Because it's also been one of the weakest region, if I look at like-for-like valuation. How would that change if that goes a bit better then you would start to buy it again? Or what's the process?

This process has stopped. And currently -- if something else would happen, we would, of course, come back to the market to that. But currently, the only thing I can say is that this project has been stopped.

The next question comes from Herman Van Der Loos from Degroof Petercam.

Yes. Can you hear me?

Yes. Yes.

I want to ask the same of yesterday. I have -- first of all, on like-for-like, indexation was very low. Do you expect more indexation for the second half? And what kind of indexation are you budgeting in your guidance? That's my first question. Then on the same like-for-like, is it possible to have a split between the better occupancy and pure indexation? Then -- and this question indeed comes from yesterday also, what is your -- what are the attitudes of tenants? Are some tenants especially in France? I was thinking, especially about France trying for getting some efforts on indexation, or are just applying full indexation that that's it because it's under contract? And lastly...