Vastned (VASTB) Earnings Call Transcript & Summary

Good day, and welcome to today's Vastned Retail and Vastned Belgium merger announcement conference call. This meeting is being recorded. And now I'd like to hand the call back over to Reinier Walter. Please go ahead, sir.

Thank you, dear attendees of this analyst meeting and webcast. My name is Reinier Walter, and I'm the CEO of Vastned Retail, and I am joined today by Sven Bosman, the Operational Managing Director of Vastned Belgium. We have the pleasure of hosting this meeting today to walk you through the transaction that we announced this morning, whereby we proposed the reverse merger between Vastned Retail and Vastned Belgium. This will create one listed organization headquartered in Antwerp. In this webcast, we will go through the presentation that has now also been made available on our website in the section Investor Relations. After this presentation, the line will be open for the analysts that cover Vastned Retail and Vastned Belgium to ask questions. Slide 2. This morning, we announced our intention for reverse merger between Vastned Retail and Vasant Belgium by means of a cross-border legal merger whereby Vastned Belgium will be the surviving entity and Vastned Retail a disappearing entity. The transaction is envisaged to become effective from the 1st of January 2025. In the transaction, Vastned Retail shareholders will receive 0.839 Vastned Belgium shares for each outstanding Vastned Retail share. Furthermore, Vastned Retail and Vastned Belgium will each declare an interim dividend in relation to the full year 2024 results, which will be paid to their respective shareholders prior to closing of the transaction. For Vastned Retail, this means we will pay a dividend of EUR 1.70 per share in December, and for Vastned Belgium, this means a dividend will be paid of EUR 2.30 per share in December. In light of the different yield profiles for Vastned Belgium versus Vastned Retail, Vastned Belgium will declare a special dividend of EUR 1 per share in December in order to mitigate any temporary dilutive effect of the merger for the premerger Vastned Belgium minority shareholders. This special dividend will be payable in January 2025. The Vastned Retail Board and the Independent Directors of Vastned Belgium believe of the careful consideration that the transaction is in the best interest of all shareholders and other stakeholders, and unanimously support the merger and recommend shareholders to vote in favor of the merger and the EGMs, which are expected to take place in September. Furthermore, more than 42% of Vastned Retail shareholders have already expressed support for the merger and has irrevocably committed to vote in favor of the merger at the Vastned Retail EGM. Slide 3. Via the reverse merger, Vastned can resolve its current suboptimal corporate structure with 2 listed entities in 2 different countries and can create one unified single listed platform headquartered in Antwerp with a simplified governance structure. On the back of this simplification, we expect to be able to realize annual general cost savings in the range of EUR 2 million to EUR 2.5 million per year. In addition, moving the company to Belgium and consolidating all corporate debt at one level in the organization is expected to allow Vastned to attract new debt at more favorable financing conditions. For shareholders, combining the listings of both organizations in one single listed entity will increase our free float and on the back of that is expected to prove liquidity in our share. Post merger, Vastned will in its entirety be part of the Belgium listed real estate sector. As a Belgian BE-REIT, Vastned will benefit from this well recognized and established regulatory regime and have easier access to capital markets. Being part of this regime and no longer being constrained by our current suboptimal corporate structure will provide Vastned a solid basis to establish a sustainable growth strategy and pursue accretive investment opportunities going forward. Lastly, combining Vastned Retail and Vastned Belgium, we will increase our portfolio diversification, in particular for Vastned Belgium shareholders, who will get access to our portfolio of super-prime inner-city assets in attractive locations in the Netherlands, France and Spain. Slide 4. The announced transaction follows a strategic reorientation that was initiated by Vastned Retail in 2023 in light of rising interest rates, increasing yields in the abolishment of the Dutch FFI regime. On the back of this strategic reorientation, we announced the start of strategic divestments of assets at the right price to unlock shareholder value and improve our balance sheet and financial ratios while at the same time, reviewing our ship optimal corporate structure with 2 listed entities. Since then, we have made good progress with our strategic disposal program. We have managed to sell assets for a total of EUR 126 million, which we managed to do around book value. This effort has allowed us to significantly reduce our loan to value. For the remainder of the year, we will continue to execute on this strategy and expect to continue to sell assets at the right price and the process of which will be used to repay part of our external debt and improve our balance sheet. With today's announcement, we take an important step in the further execution of our strategic reorientation. Together with Vastned Belgium, we have worked hard over the last months to work out a new simplified group structure. This transformative transaction will set up Vastned for the future where it can continue its current strategy in retail real estate in high-quality locations in our selected markets. It will also allow Vastned to generate sustainable return for shareholders and pursue accretive growth opportunities in the future. Slide 5. Summarizing the announced reverse merger between Vastned Retail and Vastned Belgium is envisaged to become effective on the 1st of January 2025 with all Vastned Retail shareholders to receive EUR 0.389 Belgium share for each outstanding Vastned Retail share. Vastned Belgium shareholders will receive a special dividend of EUR 1 per share to be paid in January 2025. Shareholders in both companies will be entitled to receive an interim dividend in relation to the 2024 results for the respective company to be paid in December '24. And following the transaction, we expect to generate EUR 2 million to EUR 2.5 million in annual recurring cost synergies where as we also expect optimized access to capital markets and the established Belgian REIT regime. Slide 6. After the successful completion of several disposals over recent months, Vastned Retail currently owns a portfolio of EUR 1.3 billion, generating more than EUR 67 million rental income. This EUR 1.3 billion portfolio includes Vastned Belgium on a fully consolidated basis and Vastned Retail only -- owns only around 65% in Vastned Belgium. Following the merger, all shareholders of Vastned Retail and Vastned Belgium will all together become a shareholder in a single listed company that fully owns a EUR 1.3 billion high quality retail real estate portfolio. As such, all shareholders but particularly the current Vastned Belgium shareholders will become owner of a more diversified real estate portfolio. Slide 7. Our portfolio is well diversified across 4 countries, offering exposure to high yield, high-quality retail real estate in popular shopping areas of selected European cities, with a strong mix of international and national tenants. Following the transaction, Vastned will continue its strategy and keep its focus on high-quality retail real estate in popular shopping areas across our selected markets. Slide 8. After the proposed merger, Vastned Belgium will be renamed Vastned. Vastned will be a company with a simplified governance with its headquarters in Antwerp and a double listing on Euronext Brussels and Euronext Amsterdam. The Executive Committee will consist of a CEO and CFO; Sven Bosman, who is currently Operational Managing Director of Vastned Belgium, will become the new CEO of Vastned. The CFO position is open and we aim to fill this position in the coming period before the merger becomes effective. The one tier board will be chaired by Lieven Cuvelier, who is currently Chairman of the Board of Vastned Belgium. The other board members will be selected in the coming period. I have decided to leave Vastned following completion of the merger after transforming the company through challenging markets. Slide 9. As indicated, Vastned Retail shareholders and Vastned Belgium minority shareholders, we will become shareholders in the same company as a result of the transaction. Currently, Vastned Retail shareholders are expected to hold 89% of the voting right in post-merger of Vastned, whereas current Vastned Belgium shareholders are expected to hold the remaining 11% of the voting rights. Following completion of the transaction, it is expected that shareholders will benefit from an increased free float and share liquidity. In support of the transaction, 5 shareholders of Vastned Retail and Vastned Belgium have signed merger support agreements, undertaking among others to vote in favor of the merger at Vastned Retail EGM with more than 42% of the voting rights in Vastned Retail. This shows the strong support we have from major shareholders in this transaction. Slide 10. Following recent disposals, Vastned is in a strong financial position and well placed to address upcoming refinancings. Through the proposed merger, Vastned will be a Belgian REIT, which will allow the company to attract debt at one combined level of the organization at more favorable financing conditions. Current fully consolidated LTV is around 40%, in line with target LTV, which is envisaged to remain at 40% after the transaction. We believe that our efforts to reduce LTV have paid off and will put a combined organization in position, which will enable a sustainable growth strategy and allow Vastned to pursue accretive investment opportunities in the future. Slide 11. Today, we announced the intention to merge Vastned Retail and Vastned Belgium through a reverse merger. We aim to publish more details of the merger in June and we'll convocate EGM for both Vastned Retail and Vastned Belgium expected to be held in September '24 to request share approval for the merger. Thereafter, in December 24, both Vastned Retail and Vastned Belgium will pay interim dividends in relation to the 2024 expected results, meaning that Vastned will not pay its regular interim dividend in August this year. Vastned Belgium will also declare a special dividend of EUR 1 in December 24, which will be paid in January '25. Finally, the proposed merger is envisioned to become effective from the 1st of January 2025. Thank you for listening and I will now open the floor to questions.

[Operator Instructions] And our first question comes from Amal Aboulkhouatem from Degroof Petercam.

congratulations for this nice operation. I think long awaited by the market. I have a few technical specific questions. First one on the disposal program announced last year Vastned, I understand that you will continue to sell asset by the end of the year and you will not help the disposal program given the merger?

We have -- in the merger, we have, of course, created business plans, in that business plan for the Netherlands, we still have some divestments lined up, which we will continue to finalize those transactions. And at a certain moment, of course, we will also stop the divestments but I think there is still some to be done.

Okay. Okay. But just to have an idea, it will be not the same magnitude of what has already been achieved, I guess?

Absolutely. You're right about that.

Okay. Another question on the support from the major shareholder of Vastned Retail. I just wanted to know if, based on your information, is there any lockup agreements signed by these shareholders for the period after the major completion when they will become a shareholder of Vastned?

No, we have not.

Okay. And perhaps last question I saw in the graph of the future organizational structure of the portfolio, that Spain will remain held at the entity level and not directly at the Belgium level. Is it transitory or would you like...

Sorry, I didn't understand the question. Could you repeat that?

Yes. Just in the slide, let me just go back, Slide #2. And the simplified structure, we see that the Spanish subsidiary will still be held by the Netherlands.

Yes, that's not directly under the company, which is being merged. So Vastned Retail N.V. is being merged and this company is lower down the structure in these companies in Spain, and therefore, they will remain there.

Okay. And it will remain like that for the future? Or it's too soon to...

Yes, we have no plans at this stage to do anything about that.

We will now move to our next question from Steven Boumans from ABN AMRO - ODDO BHF.

Congrats, of course, on this major restructuring. I got some specific questions on the deal. To start with, could you please help me on the legal process, the potential hurdles in legal or otherwise, that could obstruct the deal and also the percentages of shareholder votes needed during the EGMs for both entities. That's the first one.

Yes, if you have 2 EGMs, you have the Belgium EGM, that's where we -- 75% of the votes present as a need to vote in favor of the transaction. And I can also mention that Vastned Retail will be voting.

So sorry, 75% has to be present and then the majority.

No. The need to -- you need to have a 75% majority of the votes present So 75% of votes present needs to vote in favor and Vastned Retail will vote. And then in the Netherlands it's a 2/3 majority. Well, we are -- [ they need ] to vote in favor of the votes present at the meeting.

Okay. That is very clear. Do you see any hurdles, legal or otherwise, that would obstructed or that's some -- that you will not get the votes. Any thoughts?

I think we -- what we have put down is a good proposal for all shareholders that we simplify our structure. So for me, this is -- I have all the confidence that the shareholders are going to vote in favor of this deal because we, as a Board, think this is a good deal for all shareholders and stakeholders.

Okay. Then maybe also one follow-up. In the past, I know the Belgium shareholders did not vote for a -- there was a different deal, obviously. But could you please remind us why that deal failed from the Belgium shareholders back then?

There was a different deal because at that -- in that deal, what we did in the past is where we did an offer on the Belgian shares. And that was quite a technical deal where we needed to get to a threshold of 96.5%, and we didn't get to the threshold of 96.5%. So at that stage, we couldn't continue that deal.

Okay. That is very clear. A different question on the deal. Why did you choose to pay quite a lot of dividend where shareholders pay dividend tax on it instead of changing the exchange ratio of the deal, which would do the same trick but then without shareholders having to pay tax on it.

At the end, we have chosen to do it in -- we have had multiple scenarios where -- which we looked at. And at the end, we thought this is the most clear one to pay an extra dividend to the Belgian shareholders because it's also tied to the fact that because of the lower yielding Dutch portfolio, they will get a little bit less dividend in the first couple of years. That's why we did it with the dividend.

Okay. So you -- yes, because Belgian shareholders look more at dividend and hence, this is the best way to structure...

That's what we think, yes.

Okay. Clear. Last question for me on the deal structure. You mentioned the EUR 2 million to EUR 2.5 million expected synergies but you also say outweighing the fiscal cost in the new structure. So could you please clarify that 2% to 2.5% will be net of the additional fiscal cost? And second...

No, it's not net. We think that we are -- the way we see the synergies is, first, we think we are going to have financing synergies. So we are going to be in a market where at the end, we can find a cheaper financing, then we have the synergy cost that's like we have just less cost in the company. And then the third part is the fiscal structure, especially France being under Belgium is less good as being under the Netherlands. So that's where we see some tax leakage and it is going to depend on really how the treaty is going to look, how high that's going to be.

Okay. Could you quantify the financing synergies, the direct cost and...

Yes, that's quite -- that's a little bit difficult because the financing costs, we think about we should be able to get about 50 basis points. But the tax cost is a bit more difficult because it depends on a couple of factors.

Do you have a range?

I think that, Steven, is really going to depend on how the future treaty between France and Belgium is going to look.