Lar Espana Real Estate SOCIMI SA

MAD:LRE

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Lar España's Q1 2023 Business Update Presentation.

I would now like to turn the conference over to Mr. Hernán San Pedro Anan San Pedro, Lar España's Investor Relations and Corporate Communication Director. Please go ahead, Hernán.

[Hernan San Pedro, executive]

Good afternoon, everyone, and thank you for joining us today. This is Hernán San Pedro. Welcome to our Q1 2023 business update presentation. As usual, the press release has been sent and the presentation is also available in our website and at the CNMV official website. Presenting for us today is Jon Armentia, Corporate Director and CFO of Lar España. After the presentation, as usual, too, we will hold a Q&A session.

As Jon will explain later, this first quarter of 2023 has been a very positive period, together with some relevant milestones. Let me hand the call over to Jon. Please, Jon.

[Jon Armentia, executive]

Thank you, Hernán, and good afternoon, everybody. First of all, I want to thank all of you for being here for our Q1 2023 business update presentation. I would like to point out that in this first quarter of the year, we have continued to grow, outperforming all the figures for the same period last year. The level of sales not only improved compared to the same period in 2022, but even exceeded pre-pandemic levels by 11.1%.

Regarding footfall, we have reached almost 20 million visits, 5.6% more than in 2022. Our net operating income has also experienced remarkable growth, reaching almost EUR 21 million, 25% more than last year, which demonstrates the growth experience in the portfolio revenue for this year, having also optimized the expenses associated with the company's operations. Finally, I would like to highlight that all this growth is evident throughout the income statement, with net profit reaching EUR 32 million, 5x the amount of 2022.

But these good results are certainly not a result of chance. Our portfolio is made up of 14 high-quality assets, which continued to increase in value. Moreover, we firmly believe that the retail sector requires a high degree of specialization, and we have the best manager we can have. Thanks to active asset management, our occupancy levels are close to 96% above prepandemic levels. We have a perfect mix of retailers and activities that allows for an appropriate effort rate, while our revenues and profits are growing significantly.

I would also like to highlight the leasing activity that Lar España has had in the period. During this quarter, almost 6,000 square meters have been rotated and 32 operations have been signed. A total amount of EUR 2 million in rents have been negotiated in the period, with a rent uplift on top of the [ negotiation ] of 4.5%.

In summary, in this period, we have achieved very solid operating results. We have had good results in terms of both gross rental income, EUR 25.1 million; and net operating income, EUR 20.9 million, both figures increasing significantly versus the previous year's figures. As a result, EBITDA stands at EUR 16.6 million, growing more than 28% than the one registered in the same period last year.

Also noteworthy is the improvement in net profit that reached EUR 32 million, 5x the amount of 2022. At the end of March, our assets present an EPRA topped-up net initial yield of 6.4% and an occupancy rate of 96%, with a gross asset value of EUR 1.5 billion. The collection figures are also doing very well, reaching to levels around to 98%.

I would like to expand a little on what I said above. The good performance of our sales is undoubtedly influenced by the right mix of retailers and activities. In Slide 10, you can see how most of the categories have performed very well during the quarter, even those that were suffering more after the pandemic.

In Slide 11, we can see our financial profile. After the bond buyback carried out in January '23, which we will analyze on the next slide, the company's financial debt is at excellent level. I would like to point out it is an optimal combination of debt, cost and maturity. Our net LTV decreased in this quarter to 35.7%, with an average cost of debt of 1.8%. Furthermore, I would like to remark that all our debt is at fixed rates and secured and green, with an average debt maturity of 4.5 years.

Now I would like to dwell on the bond buyback for an amount of EUR 110 million that we carried out in January 2023. It was really a successful transaction in which we obtained an implicit discount on the repurchase of the bond of 18%, equivalent to a total final price of EUR 90.5 million that were fully paid using the company's cash resources. Thanks to this, an amount close to EUR 20 million of income has been reflected in the Q1 2023 P&L.

In addition, we improved our leverage from a net LTV in September of 38.9%, to 37.1% after the transaction and to 35.7% as of the end of March 2023. As a result of the transaction, the NTA per share is increased to EUR 11.6 per share and now stays at EUR 11.31 per share.

As for the dividend, this year, one of the highest ordinary dividend in our history was approved at the Annual General Meeting, EUR 50 million, which have been already paid, EUR 0.6 per share, and represents a dividend yield of 14.2%. Our commitment to shareholder returns is demonstrated by the fact that, since our founding, the company has distributed more than EUR 325 million in dividends.

In relation to valuations, I would like to highlight once again the strength of our assets, which have risen 54% since acquisition. The company has continued to work on improving the quality of its portfolio through an active management with last trends in technology, omnichannel strategy and customer knowledge.

In the following slide, we can see in the P&L statement how the results of Lar España have been very positive in this period. All the main figures have presented a remarkable improvement versus the 2022 figures. Starting with the line of revenues that reached EUR 25.1 million, and that increased by 21.4% compared to 2022. The same occurs with the operating result that reached EUR 16.6 million at 28.3% higher than the previous year.

Additionally, this quarter, it's very important to highlight the extraordinary positive impact registering in our P&L thanks to the bond buyback carried out in January. Everything mentioned above leads to a net profit that increased to EUR 31.9 million, 5x the amount of 2022.

In relation to ESG, you all know how important it is in Lar España. I would like to mention some of the last milestones and achievements. First of all, we would like to share with you the performance of our assets for the year 2022 in terms of emissions and consumptions, which were published in our 2022 annual report last month.

We have reduced significantly our carbon footprint in comparison to last year, almost 40%, continuing our trend of the previous years. Thanks to these efforts, the company has been awarded by the Reduzco seal by the Spanish government, becoming the first real estate company listed in Spain to achieve this. Regarding the energy consumption, the improvement is also demonstrated with a decrease of more than 15% compared to 2021, and almost 28% compared to 2015.

It is also important for us the social contribution and to generate value in those communities where we operate in. The jobs generated in 2022, more than 16,000 jobs; and our commitment to local development, with more than EUR 57 million in purchases from national suppliers, are a clear example of that.

And with this commitment, alignment and collaboration with international standards is fundamental, such as our commitment to the Global Compact through the signing of a commitment letter and the participation in impact accelerator programs, a BBB ESG rating in the MSCI index, being one of the companies in the IBEX Gender Equality Index, and with a score in GRESB, 8% higher than the peers average, with the maximum score for the management part.

These are just some of the many initiatives that we carried out in this area, so important to us, and in which we will continue to work every day to remain a benchmark in the sector.

And now I would like to end with a few brief discussions. I would like to close this presentation by highlighting once again the solid results obtained by Lar España in the first quarter of 2023, thanks to our active asset and corporate management strategy.

Our earnings have grown significantly at both top and bottom line levels. Our EPRA NTA stands now at EUR 11.31 per share. In addition, we maintained an optimal financial profile, with a moderate net LTV level of 35.7% as of today. And finally, we have paid one of the highest ordinary dividends in our history, EUR 50 million, which is almost 70% more than the dividend paid last year.

Thank you for your attention.

[Operator]

[Operator Instructions] I now hand over the call to our Hernán San Pedro.

[Hernan San Pedro, executive]

Thank you very much, Jon. We have a first question from the buy side around the debt. What are your expectations about the company debt? And could we expect any other bond buyback in the future?

[Jon Armentia, executive]

Thank you, Hernán, for the question. We don't expect, looking at the future, significant changes in terms of our financial debt. After the bond buyback that we carried out, we think that we have reached to a very comfortable LTV. And taking into account that we don't have maturities in the short term, that we are with an average cost of debt of 1.8% and all of it peaks. We don't expect significant changes to maintain these figures in the coming months and in the coming years.

And Hernán, sorry, about the potential additional bond buyback. Well, this will be something that will be analyzed. As you know, we are maintaining significant discounts when we analyze how our green bonds are trading and what could be, in the future, other alternative to have on the table to be analyzed as we did in the first quarter of 2023.

[Hernan San Pedro, executive]

Thank you, Jon. The second question is from buy side people, too, around our operating performance. We have seen European peers presenting figures in the last week. I think that your figures are best than the peers. Can you explain something more about the traditional outperforming of Lar España over the rest of the European peers?

[Jon Armentia, executive]

Thank you, Hernán. Well, I think that in our case, I think that the strategy since the very beginning is key, and has been key in order to reach to this performance that our assets are having. In terms of dominance of our assets, in terms of quality, as we have seen, we have been able to increase significantly. We did it also in 2022, and we have done in the first quarter in the cash that we are generating our shopping centers and retail park, maintaining a very positive performance in terms of footfall and more in terms of sales, including the average ticket per visitor. And with an effort rate that we have maintained in a very low level, 9.6%. So I think that those are the keys of the performance of our assets.

[Hernan San Pedro, executive]

Thank you, Jon. The next question is from sell side about valuations. What do you expect in the next valuations in half 2023?

[Jon Armentia, executive]

Well, this is a good question. It's true that in the market what we have seen in the last months is, again, an increase in interest rates. So it could affect to discount rates, to yields. But also on the other hand and in parallel, what we have done in our assets, the driver that we can manage internally, the cash generation of our assets, is also increasing. So let's see what we see in June, but we don't expect significant changes in comparison with the last valuation in December.

[Hernan San Pedro, executive]

Okay. Thank you very much, Jon. Next question is about the rent growth, excluding linearizations and other issues.

[Jon Armentia, executive]

Okay. Well, if we exclude that effect that, as you know, this year, the impact of those linearization has been lower than the one that we had last year. If we exclude that effect in terms of GRI, we'll be increasing 14.5%.

[Hernan San Pedro, executive]

Marcos, can you remember the way they have to use in the [ phone ] in order to send more questions?

[Operator]

[Operator Instructions] I now hand over the call to Hernán San Pedro.

[Hernan San Pedro, executive]

Thank you. We have one question more. Jon, please, how do incentives in the P&L this year compared with Q1 last year, please? Thank you.

[Jon Armentia, executive]

Yes, the comparison this year versus last year, this year, we have registered an impact of EUR 3.7 million -- sorry, EUR 2.1 million and last year was EUR 3.7 million. So as I said before in the previous question, there has been a lower impact in 2023 than in 2022.

[Hernan San Pedro, executive]

Thank you, Jon. We have one question more around CapEx. Can you explain something about the CapEx expected for the present year 2023?

[Jon Armentia, executive]

Okay. As you know, last year, we invested an amount of EUR 17 million in CapEx. For this year, although during the first quarter, we have not invested a significant amount, around EUR 1 million. We expect this to account some significant projects that we are investing in CapEx, as Gran Vía de Vigo and Megapark. We will be finishing the year more or less in an amount around to EUR 10 million.

[Hernan San Pedro, executive]

Thank you, Jon. The last question is from individual investors. Please, Jon, can you say us if you have buybacks in mind? Best regards.

[Jon Armentia, executive]

Well, about bond buybacks, what I said before, it could be an option taking into account the discount that they maintain as of today. In the case of share buyback, we don't think that we'll need this option, taking into account, well, that we are not a very big company. So if we implement a share buyback, we'll be reducing our size and our liquidity, and also because this will be affecting the net LTV of the company.

[Hernan San Pedro, executive]

Okay. Thank you very much. There are no more questions. Thank you very much for attending the call. Please remember that all the Grupo Lar and Lar España teams are at your disposal. Please feel free to contact with us for any additional information or more questions you could have in the future. Thank you very much. Goodbye, and good afternoon.