Lar Espana Real Estate SOCIMI SA

MAD:LRE

Earnings Call Transcript 2021-Q1

[Hernan San Pedro Lopez de Uribe, Director of Investor Relations]

Good afternoon, everyone, and thank you for joining us today. This is Hernan San Pedro, Head of Investor Relations and Corporate Communication of Lar España. Welcome to our business update presentation. On this occasion, given the change introduced in the law on corporation, [indiscernible], the presentation will be limited to a bridge summary of the quarter made by Miguel Pereda, Chairman of Grupo Lar and key person of this conference. As usual, Jose Manuel Llovet, Chief Executive Officer of Commercial Real Estate, of Grupo Lar; and Jon Armentia, Corporate Director and CFO of Lar Espania will be at your disposal to during the Q&A session. As always, the press release has been sent and the presentation, which includes a review of the operating performance, financial, ESG and next steps is available on the web for consultation. After the presentation, we will answer any questions you may have. And now let me hand the call over to Miguel Pereda.

[Miguel Pereda Espeso, CEO & Proprietary Director]

Thank you, Hernan, and good afternoon, everybody. First, I would like to thank you all for being today for our business update. And I really hope that you and your families are well and healthy. As Hernan was explaining, on this occasion, I will be brief, summarizing the most important milestones of the quarter. And then the team and myself will answer all the questions you might have. First quarter of 2021 was still complicated from an operational point of view, as you know, in several of the regions in which we operate, restrictions at restaurants and other kind of premises persist and even complete perimeter lockdowns. were maintained in most of them. In addition, this period, the P&L account is still affected by bonuses and incentives to tenants due to the COVID and also by the exit from the perimeter of the supermarkets portfolio leased to EROSKI, that was sold. Despite all these facts, there are several events that lead us to be optimistic about the rest of the year. At the beginning of April, we had 99% of our GLA open, although there's still some restrictions in terms of time frames. The rate of vaccination keeps getting better, and better in our regions. And with the end of the state of alarm, more lesser units are now allowed to open. Proof of this is that in the first part of the year, we have continued to have new relevant openings in Megapark in Sagunto, Vistahermosa or Anec Blau, which is a further sign of the success of the study that was set up and well, we're still applying. The fact that we have prime assets in key locations with a very attractive mix between shopping centers and retail prices. And that the portfolio is 100% owned by Lar España with a powerful tenant mix and a very high weight on core activities has proven to be the key of this. Also, we need to remark that our CapEx plan is almost completed and that we remain focused on technology, innovation and on the coexistence of online and offline with a very close relationship with retailers. The best proof of this good relationship with our tenants is that retailers remain the centers with minimum levels of exits. We still maintain an occupancy that is at a level of 95%. And even we have examples where some of them are increasing the lease area, for having a better combination of offline and online activities. We have also noted that end customers visitors show significant levels of loyalty and trust. It's too that they spend less time, but also with a higher purchase ticket. With this, our centers are achieving almost pre-crisis levels on visitors and sales in the past days. Negotiations and agreements with tenants are mostly bilateral on out-of-court negotiations, and we have a very low legal litigation and without any adverse judgments for the company so far. All these facts, together with the great commercial work being carried out by the team, have allowed us to achieve results that shows the resilience of the portfolio and which is important to note are not comparable to Q1 2020 as this, as you know, was almost a normal quarter. The company's gross asset value, GAV, stands at EUR 1.4 billion, and the gross leasable area at the level of 550,000 square meters after the sales of the supermarkets. We have obtained a rental income of EUR 21 million, and the recurring profit for the period reached EUR 9.4 million. The effect of the COVID discounts is included here and the amount is EUR 3.6 million. EPRA earnings reached EUR 5.5 million, and the LTV of the company remained at the level of 39.8%. From a financial standpoint, we continue to maintain a strong and healthy balance sheet. At Lar España, we believe it is essential to do so for 2 main reasons. On one hand, in this type of uncertain situations, maximum prudence is necessary. On the other hand, once there are some clears, we must be prepared to take advantage of possible opportunities. We are keeping CapEx levels to a minimum, and the average cost of debt stands at 2.2%. The maturity of our debt stands at 3 years. And we have already started to work on the refinancing process with more than 1 year in advance and having a cash position of around EUR 200 million. It is very important for us to be able to say that we continue to maintain a high degree of stability in our shareholder base, also with valuable additions. Also, at the last AGM, we approved the proposed dividend payment for 2020 of EUR 0.31 per share, which will be paid on May 21. And this represents a return on capitalization of around 7% and is one of the highest on the continuous market. In addition, we have extended the current share buyback program will allow us to redeem 5% of our share capital during the first -- during the current fiscal year. Acquisition price is done, in all cases, at very material discounts to NAV. Also, our analyst maintain an optimistic view on the company, with a majority of positive recommendations and an average revaluation potential on the coverage of 32.5%. In the field of ESG, I would like to emphasize the importance of this point for the company. We remain committed to society with more than 17,000 jobs generated. All our assets have passed accessibility audits, and we already have 5 centers certified by AENOR in universal accessibility. In addition, we have obtained new BREEAM certifications in El Rosal and in Megapark with a very good and excellent rating. And in the environmental area, we continue to reduce water consumptions, minus 0.6%, electricity, minus 16.5% and also in CO2 emissions, all of them versus 2019 figures. In closing, I would like to emphasize that the pandemic has put companies around the world to a test. Our vision and the strategy applying has been our main strength and Lar España continued to be a resilient company with a solid financial base and a professional and experienced team that is capable of facing challenges such as the COVID one, but also taking advantage of the opportunities that we are absolutely sure will come in the future. Thank you for your attention. And now we open the Q&A session.

[Hernan San Pedro Lopez de Uribe, Director of Investor Relations]

Okay. Thank you very much, Miguel. We can go to the Q&A session now. We have our first question from sale side. Can you give us some additional information about how do you see -- how you have seen April and how you can consider -- you can maintain occupancy ratio and loyalty of the final customers? Can you answer the question, Jose Manuel?

[Jose Manuel Llovet, MD Retail, Offices & Logistics]

Yes. I'm pleased to do it. Thank you for the question. The month of April and the first weeks of May have been quite positive in terms of business and in sales. If we show you the full picture, just to understand the context you see that we had the first period from -- after the opening from June to November, we recover the full opening, and we recovered almost a full number of visits and sales. Then we suffer December to February closing, and we had a drop of 30%. And now we have had the reopening of the effect of Eastern. And what we are seeing now is, again, what we are saying always, when you open, the client come back. And now we are almost full opening, and we have only 7% below in visits. And on the other side, a very positive number of plus 5% in sales compared with 2019, which is reflecting very well the reaction of the customer. Forecast our prospect is that with the real good news about the speed of the vaccination, we will hopefully enter in a period of semi-normality, and this is going to be reflected again and even more in affluence and in sales, providing a good, I would say, a good grade of stability in the whole portfolio. So you know that we have dominant centers and what we have seen in general across Spain is that the dominant centers have recovered in the main KPIs, the sales and the visits. Regarding occupation and retailers, well, probably this is my reflection here is that the crisis has been such a big problem. But on the other side, it has provided a probably unique opportunity of having very open meetings with the tenants in the portfolio. You know that we have discussed one-by-one in the pandemic to solve the problems of the impact in occupancy. And the result now that we have is -- the occupancy is 95%. and rent collection is 93% in 2020 and 90% in Q1. So I think that this relation and these negotiations that we are having openly with all of them are providing good results. We see or we feel in the discussions that we have had -- we have had around with the leading people of the biggest companies, the biggest retailers in Spain and international. We have spoken with Inditex, with Primark, [indiscernible] McDonald, and all of them are very positive looking at the future. We have been working together in a physical and digital strategy because you know the famous omnicanality, everybody is investing a lot of money on that. We have been pioneers in that. And we think we are going to work together very openly with all of them. And I think that this occupancy is going to be there for a long time. We do not foresee closings in our shopping centers. We do not have news of big names closing shops in our shopping centers. Moreover, in the other side, we are thinking in improving and in expanding some units. So this is my view on retailers, occupancy and the business in general. And I think you mentioned something about rents very quickly. In rents, you know as you know, our company, we have a, let's say, very stable OCR before the crashes. So we were rented in all the centers. We did not have a lot of pressure in tenants and what we are granting on is temporary discounts. And our view is that we are going to come back when the COVID starts to relax a little bit and sales and affluence increase in the coming months. We will see a back to the previous rent that we had in 2019. We do not foresee a drop in rent. First proof of this is that in the last letting that we have been doing during Q1, we have let around 3,000 square meters, not such a big amount of area but representative enough, we have had a 1.5 rent uplift, which is positive and make us think that the rents will remain stable in the coming months. I'd say, of course, the sooner it finish, the better we will be able to react and the -- should will be the rents.

[Hernan San Pedro Lopez de Uribe, Director of Investor Relations]

Thank you very much, José Manuel. The next question is from Javier Díaz Rental 4 Banco. More color about the EUR 3.3 million of nonrecurring expenses? Jon, can you answer the question, please?

[Jon Armentia Mendaza, Corporate Director & CFO]

Yes, and thank you for the question, Javier. This quarter in these nonrecurring [indiscernible] other expenses, what we have registered, mainly is 2 things. The first one, the [indiscernible] project write-off we have decided to cancel the asset that we have in our balance sheet in relation with this project because taking into account the current situation we think that at this moment it's difficult to continue with this -- with the project. And the effect of this is EUR 1.7 million. And additionally, we have also included here a bad debt provision effect. With an amount around to EUR 1.4 million, which in our point of view, is a nonrecurring expense because it comes from the COVID-19 situation that we are living at this moment. So in total, both of these things represent more or less 3.3 million EUR.

[Hernan San Pedro Lopez de Uribe, Director of Investor Relations]

Okay. Thank you very much, Jon. The next one is for you too. This question from [indiscernible], the MAC group. Can you please give some color on net debt, EBITDA level, rent revisions, changing releasing rates. How much of the portfolio is doing for renewables this year?

[Jon Armentia Mendaza, Corporate Director & CFO]

Sorry, Hernan, can you repeat it, please?

[Hernan San Pedro Lopez de Uribe, Director of Investor Relations]

Yes. It's a question from [indiscernible], the MAC group. And he would like to know something more color on net debt. First, EBITDA level; second, rent revisions; three, how much of the portfolio is due for renewals this year?

[Jon Armentia Mendaza, Corporate Director & CFO]

Okay. About net debt and understanding it as financial debt, what we have done at this moment. As you know, we started working in the refinancing process weeks ago. Well, taking into account that, first, the main maturity is that we have already in February and in March 2022, in relation with the bond and also with the 2 mortgage loans with timing of with a year before the maturity. And also, the [indiscernible] that is also important, the cash position of our company. Currently, we have around EUR 200 million, and it's a very, very strong position. What we have done since that moment is to analyze the different alternatives that we have on the table. And what we have seen and in this moment is that there is interest in our assets and in our portfolio, that it's very positive. So at this moment, we are very calm in relation with this. And our idea is to go step-by-step with out running, analyzing all the derivatives in detail and with the aim of obtaining the best conditions in terms of cost, for sure, and in terms of tenure for the company.

[Hernan San Pedro Lopez de Uribe, Director of Investor Relations]

Okay. Thank you very much. Please remember that you can send all your questions through our webcast. Is there any other question? So there is no more questions. Thank you very much for your attention. Remember that all the Lar España team, financial, corporate, legal, Investor Relations and communication and all of our external manager teams, Grupo Lar. We all are at your disposal. Thank you very much and have a happy weekend. Thank you. Bye-bye.