Lar Espana Real Estate SOCIMI SA

MAD:LRE

Earnings Call Transcript 2022-Q3

[Hernan San Pedro, executive]

Good afternoon, everyone, and thank you for joining us today. This is Hernan San Pedro, welcome to our Q3 2022 business update. As always, the press release has been sent and the presentation and financial report are also available in our website and at the official website of [ Fene ]. Presenting for us today is Jon Armentia, Corporate Director and CFO of Lar Espana. Connected to for the Q&A session are Miguel Pereda, Vice Chairman of Lar Espana and Executive Chairman of Grupo Lar; and Jose Manuel Llovet, Chief Executive Officer of Commercial Real Estate of Grupo. After the presentation, we will answer any questions you may have. And now let me hand the call over to Jon. Jon, please?

[Jon Armentia, executive]

Thank you, Hernan, and good afternoon, everybody. First of all, I would like to thank all of you for being here for our 9 months 2022 business day. Let me start highlighting the macro situation we are currently experiencing. As you know, the global macroeconomic situation is not at its best. The uncertainty generated by the world in Ukraine is affecting countries, companies, and families. However, despite this complex situation, Lar Espana, thanks to the efforts of all those who work in this company has achieved major milestones so far this year.

In June, we presented our new strategic plan in which we set and major objectives, both at the business level and ESE terms. In addition, which confirm our PLD rating with a stable outlook on the IDR due to the soundness of our financial structure. On the other hand, we continue with our strong commitment to shareholders and the remediation. And in May, we paid a dividend of EUR 0.36 per share, 4% and dividend yield of 7%. Finally, I would like to point out the strength of our assets, whose valuations, which, as you know, are done in June and December have ego positively. Since the acquisitions, our assets have appreciated by 54%. The site taken in recent years have allowed us once again to be prepared for this and short time times. Although I will detail our operating and financial results below, I would like to highlight the sense of our business.

Our year improved significantly versus the previous period, and our occupancy continues to be very positive. We have a high-quality portfolio, fully renewed and with a large percentage allocated to core activities. In addition, our relationship with our tenants is one of trust and collaboration and on our leases are indexed to inflation. On the other hand, we continue to have sustainability as one of our main pillars, and we continue to reduce our emissions and make our shopping centers and retail parks more efficient. Our new strategic plan includes new objectives in terms of ESG and business, all with the aim of continuing to be the retail leader in Spain.

Finally, I would like to highlight once again the stent of our financial structure, in which all of our debt is at a peak rate and without maturities under 2026. -- in the following slide, we can see the performance in terms of footfall and sales. If we look at the footfall, the increase compared to the same period last year is almost 10%. In relation to sales, the year both we're expecting the prepandemic situation in 2019, 10% and with respect to last year, 16% -- if we look at the operating indicators on Slide 8, we can see that it is breaking news. Occupancy levels remained high at 95.4%, and the F rate is still at very acceptable records. WAULT stands at 2.6 years, with 65% of the retailer leases with expiration dates beyond 2025. At least level in the first 9 months of 2022, more than 42,000 square meters have been rotated and 127 operations have been closed. The annual rotation rate stays at 10% and a total amount of 8.6 million is in rents have been negotiated during this first 9 months.

In short, we are facing a quarter deal with the company has demonstrated again its strength and it was the results and good strategy in terms of business and prudent leverage, as you all can see in the indicators at Slide 10. At financial level, we are in a quarter where the company has demonstrated its strength -- we have got good results in terms of both goal income, EUR 64.1 million and net operating income of EUR 55.5 million, both figures increasing significantly versus the previous year's figures. Also, the work is the improvement in net profit that reached EUR 68.4 million, 5x higher than the figure in 2021. Paper INT per share reached EUR 10.88, and 5% higher than in December 2021. When analyzing the evolution of this figure, it's important in taking into account the dividend paid in May EUR 0.36 per share. Besides ePronings stands at EUR 0.33 per share, a 42% rise versus 2021. At the end of September, our assets present and infra-out Italy of 6% and an occupancy rate of 95.4% with a gross value of EUR 1.5 billion. The collection figures are also doing very well, reaching levels down to 97%. At the corporate level, I would like to point out several elements.

Firstly, I would like to remind you that last May, we paid down EUR 30 million in dividends, which represents a dividend yield of 7%, one of the highest in the Spanish continuous market. I would also like to highlight the soundness of our financial structure. Our net LTV decreased in this quarter to 38.9% with an average cost of debt of only 1.8%. Furthermore, I would like to remark that all our debt is at peak rates and going. Finally, our cash position is close to EUR 200 million as of September 2022. If we look at the evolution of the company's financial debt on Slide 14, we can see the improvement that has been taking place in recent years. In the case of net LTV, it has gone from 41.9% in 2020 to 48.9% in September 2022. In the case of the year is cost of debt, the current release rate is 1.8% compared to 2.2% in 2020. In relation to ESG, you all know how important Pix [indiscernible]. I would like to mention some of the milestones and achievements of 2022. [ Epra ] has wanted us once again a well-aware in recognition of our dedicated reporting on this aspect for the fifth consecutive year. We manage our assets in a responsible manner, and we position among each of them considering the aspects of environment, sustainability, accessibility and society. We have also received the financial report Apra will award for the consecutive year. Besides, MSCI have ratified and confirmed we are deeply ESG rating for Lar Espana. In relation to the current footprint, Lar Espana registered external footprint of 2021, completing 4 years to be eligible for [ radiocolabel ] was contend and last week by midterm. The company also submitted its emission reduction plan to the ministry as another step towards [indiscernible]. Regarding certifications, 100% of the company's assets are currently recertified, 93% of them with an excellent or vertical rating. Let me also point out that Lar Espana has entered in the SDG ambition program and accelerated initiative that ends to challenge and support participating companies of the in broadband.

Furthermore, the company is currently working to develop an action plan showing our commitment to align the company's sustainability strategy with UN Agenda 2030 let's look at the portfolio valuation in Slide 16. At June 2022, Lar Espana's gross value reached EUR 1.5 billion. The total portfolio has risen 53.6% versus acquisition price, 4.1% since June 2021 and 3.2% since December 2021 recovering from the pandemic. It's important to point out that Lar Espana has a received portfolio of dominant shopping centers or retail parks in Atlantic catchment areas with assets 100% owned, delivering flexibility, control, and full decision capacity and solving a diversified tenant base with a well of EUR 2.6 and close medium and long-term relationships and an active management, employing the latest trends in technology, omnichannel strategy, and customer knowledge experience. Reflecting Espana's financial strength with the last annual general meeting approved based on 2021 results, a dividend of EUR 0.36 per share, amounting to EUR 30 million, a 7% dividend yield over market cap -- this dividend positions as the leading Spanish-listed companies in terms of direct shareholder moderation. Now let's turn to Slide 18 to go over the P&L. Our assets generated a total income of EUR 64 million with an increase of 6% versus the same period last year. All figures have presented a remarkable improvement versus the 9 months of 2021 figures, reflecting Lar Espana trend and receiving portfolio. This effect can be seen in the EBIT and the net profit, which increased to EUR 68.4 million, 5x higher than in the previous year. After all that has been said in this call, I would like to highlight the exceptional results that Lar Espana has obtained in the first 9 months of the year.

Lar Espana receives has been demonstrated one again. We are leaders by ELA and one in the retail sector in Spain. We have presented very positive operating results during the period, exceeding pre-pandemic levels. Our financial structure is sound. We have proven debt with a net LTV of 38.9% and a cash position close to EUR 200 million. We continue our commitment to innovation, which will enable us to better meet the needs of our tenants and visitors to our shopping centers for retail products. Implementing SG practices remains the cornerstone of our strategy and our way of relating to the society in which we operate. We remain committed to shareholder return and value creation. And finally, we want to go further. That is why last June, we presented our 2022, 2025 strategic plan, which includes among other prospects an annual profitability target of more than 10%. In short, we have achieved many accomplishments in the period, but we want to achieve many more. And although we are aware of the current delicate economic situation, we are prepared to continue working to achieve great results. Thank you for your attention, and now we can open the Q&A session.

[Operator]

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

[Hernan San Pedro, executive]

Thank you very much, Jon. We have some questions. The first one is for Jose Manuel Llovet in terms of an from buy side. In terms of leasing activity, can you give us any color in the short and medium term for the company.

[Jose Llovet, executive]

Okay. Thank you for the question. Hernan, Hello, everyone. Yes, to answer this, I will take the chance to remark some of the KPIs previously mentioned by Jon proceed performance. And then maybe we can answer how the leasing activity is moving and how it is based in the performance of our assets. We have seen a very good collection of KPIs. First is the occupation is 95.4%, which we think is stabilized now. GRI is plus 7.2%.

And this is thanks to the indexation and a healthy rotation of more than 42,000 square meters in 127 deals with tenants and the rent uplift in average, it is near 2%.  -- we have seen also that the collection is in the region of 97%, which is also very positive. And the key of this good balance -- is the good balance of rents and sales because we have an effort ratio quite healthy of 9.3% in the context of sale increase that you have seen during the presentation that it is above 10% over the numbers in 2019. My conclusion is that I think that this collection of KPIs show the strength of our portfolio and our retailers' performance and this is resulting in an increase of sales and market share in the markets where we are. So the answer is positive. We are having a strong relation with the tenants. The performance is positive and the increase of rents is positive as well.

[Hernan San Pedro, executive]

Thank you very much, Jose Manuel. The next one is from buy side to Jon. Congratulations for being one of the highest-yielding companies in Spain in the side of the bond. Have you thought about showing some curve for them and buying back bonds in the secondary market as many companies have done, what better use of your EUR 200 million cash then buying back due on bonds and at current levels?

[Jon Armentia, executive]

Okay. Thank you for your question. Well, as you know, we have a very high cash position always in the company. The bond buyback is one of the options that we have on the table. Also in parallel, we have the potential save-back also the potential asset acquisition. Yes, in the case of the bond buyback as you asked, we are also analyzing it as one potential answer in order to invest our cash and to increase the return on the profitability for the shareholders.

[Hernan San Pedro, executive]

Thank you very much, Jon. The next one is from the sell-side to Miguel Pereda. Miguel, can you give us some color about the performance of the company in this complicated macro scenario thinking in the short and medium term?

[Miguel Espeso, executive]

Thank you, and thank you for the question. Well, I think that the most important thing is what Jose Manuel already explained. So probably even in this difficult situation or difficult scenarios that might arise. What we see is the good performance of our portfolio out of the assets, and that's probably the better answer that we can give now. Not only the situation is good is that the results have been improving in the last months and then in occupancy, in rents, in uplift in the rotation of some of the surface.

All the aspects on the asset side of the company, I think they are very, very strong and the data of the collections also even in the situation of today shows the strength of the company. And of course, we cannot forget the liability side of the company is that both in terms of cash position, but also in the cost and the length of the financing that we have, we are in, I think, a very extraordinary position to face in one hand to face situations that might be more difficult, but also to get advantages of the opportunities that we might see in the future. So even in a situation that might be a little bit more difficult. We think that both in the asset side, but also in the liability side, Lar Espana is in a very good position for the future.

[Hernan San Pedro, executive]

Thank you Very much, Miguel. The next one is from my side to Jon. What worst can this incentive in the P&L for the first 9 months and Q3, please?

[Jon Armentia, executive]

Thank you for another question. Yes, the impact that we have registered in this first 9 months in the P&L is EUR 10.6 million or less reducing the effect also in comparison with the one that we had in the previous year and in line with the fact that we commented in the full year 2021 to losing that was going to be effective in the rest of the year in 2022 and in the coming years 2023 and 2024.

[Hernan San Pedro, executive]

Thank you very much. The next one for Jon too around CapEx. Can you give us outlook for CapEx in 2022 and 2023, please?

[Jon Armentia, executive]

Well, about CapEx, as you know, in most of the retail parks on a shopping centers power portfolio, we have implemented our more important investment plans for this year, mainly the means that we are investing in CapEx are Mirapart and Gambia Lelio -- during the first 9 months, we have invested more or less EUR 9 million, EUR 10 million more or less. We expect to increase this figure in Q4 also finishing those works. -- for 2023, we expect to reduce this amount in comparison with 2022.

[Hernan San Pedro, executive]

Thank you, Jon. One question as for -- more for you from sell-side Thinking on year-end, what do you expect regarding asset valuations?

[Jon Armentia, executive]

Okay. Well, as you know, in the first 6 months of the year, well, we saw in our portfolio was an increase of 3.2% in combined with December, mainly because of the improvement in the cash flows generated by our incentives and retail parks. Taking account what has happened in the third quarter and as Jose Manuel said, that the leasing activity when we compare new rent with the previous rent, we are improving in that figure. -- in including in this second half of the year, the cash flow generated by our assets. For December, we don't expect significant changes in our gross value. We know how market is nowadays, but we even how our assets are performing, we don't expect significant changes, and we think that in a stability in terms of loss asset value for the year-end.

[Hernan San Pedro, executive]

Thank you, Jon. Marcus can you remember the way the people have to use in order to send more questions?

[Operator]

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

[Hernan San Pedro, executive]

Thank you, Marcus. So no more questions. So thank you very much for attending the call. Thank you very much for the interest in our company. Please remember that all the teams at large panel level and group level we are at your disposal. And please feel free to contact with us for any additional information you commit. Thank you very much, and good afternoon.