Hamborner REIT AG

XETRA:HABA

Earnings Call Transcript 2021-Q3

[Niclas Karoff, CEO & Chairman of Management Board]

Good morning, ladies and gentlemen. My colleagues, Hans Richard and Christophe from Investor Relations and also myself, welcome you to our Q3 conference call. As a quick start here, let me provide with an overview of the highlights. And afterwards, let's have a closer look on the key results of this period. Hans Richard will continue and give you further details concerning our operational business as well as the financial part. And at the end of our call, I will then close with some comments concerning our ESG activities as well as our updated outlook. Okay. Let's start with the highlights. All in all, yes, I think we have been able to generate a very satisfying Q3 results. Meanwhile, on back of, again, very high rent collection rates, rental income came down by 3.5% compared to last year's period. This was heavily influenced by our strategic disposal program. At the same time, considering the overall market situation, our letting results remain strong with a total of 122,000 square meter during the first 9 months. Yes. And finally, our operating business led to an FFO on the level of the previous year. The portfolio rotation remains well underway with a total acquisition volume of EUR 79.5 million up to Q3. Meanwhile, most of our nonstrategic, High-Street assets have been sold. And yes, compared to the end of last year, the KPIs of our financial profile have further improved. EPRA NAV slightly up. The same applies to the REIT equity ratio where LTV came down by approximately 100 basis points. In the end, as I've mentioned before, we have updated our outlook for this business year. And I will be coming back to that at the end of our presentation. So after this short summary, I will now like to give you an overview regarding our major KPIs. Let me start with some P&L numbers and some key KPIs. Rental income, as mentioned before, year-on-year down by 3.5%. Major jump of profit during the period substantially driven by gains from our sales activities. FFO per share slightly down, taking into account the effect of our 2 scrip dividend offers here in 2020 and '21 during the periods compared. And with that, I would continue to the next page, concerning the portfolio, some key metrics over here, like-for-like, year-to-date. Rental income like-for-like up by 2.3%, mainly influenced by adjustments of CPI-linked rental contracts. Vacancy. Despite a slight increase, vacancy remains on a very low level and the WALT roughly on previous year level. With that, let's go on to the next page. Short overview considering our investments throughout the year. Yes. And our investments during the first quarter here at a glance. And despite continuously competitive market environment, we have been able to acquire, as we think, a good mixture of attractive office and retail properties. This includes 2 assets following our Manage-to-Core approach, which from the start, got a lot of additional attention from our asset management and technical team. The most recent acquisition for our core portfolio represents a modern DIY store, which was erected in 2018 in Freiburg and is run by 1 of our key tenants. This is OBI. Together with the newly constructed office in Münster and the asset in Stuttgart, these investments here, they enlarge our already existing presence in very promising local markets, which enables an efficient operational management for these assets. Looking at the disposals. Yes, when it comes to portfolio rotation in 2021, I think it's fair to say that next to our new assets, we also have been quite active on the disposal side here. Since the implementation of our enhance strategy last year, we have sold more than 10% of our total assets. Yes, and this including almost EUR 140 million of nonstrategic High-Street properties. And with reference to this part of our portfolio and except for 1 asset, which we take into the Manage-to-Core basket, most of our homework has been done meanwhile. And in addition to various advantages on the operational side, we think that following these disposals our adjusted portfolio increase -- has increased visibility as well further improves our risk/return profile. And with this short overview, let me hand over to Hans Richard.

[Hans Richard Schmitz, Member of Management Board]

Yes. Thank you very much, Niclas. Good morning, ladies and gentlemen, and also from me, a warm welcome to today's conference call. Let us now have a closer look at the operating and financial figures for the first 9 months of 2021. First, I would like to give you a brief overview of the company's tenant base. Compared to the first half of this year, there are only minor changes in our tenant structure. The food retailers, EDEKA, Kaufland and REWE are still leading our top 10 list. With the handover of former Real spaces in our property in Celle, the share of Kaufland increased around 1 percentage point to 6.9%. Consequently, Real dropped to fifth place of our list. The former Real market in the Giessen property has also been handed over to Kaufland in October. Obviously, this is not reflected in the figures shown on this slide. But the [indiscernible] will have an impact on the year-end tenant structure. Irrespective of the changes, food retailers currently still account for 1/3 of the company's total rental income. As a result of the disposal of numerous nonstrategic assets, the share of rents from the fashion sector was reduced significantly and currently accounts for 7.1%, a decrease of 170 bps year-on-year. Our office tenants, including various public authorities, governmental and educational institutions as well as renown companies, for instance, from the IT/communication or insurance sector, currently generate around 40% of total rental income. The solid and well-balanced tenant structure creates the basis for our ongoing stable and predictable cash inflows. A few remarks on the current letting situation. Despite the consistently difficult situation on the letting markets and the significantly lower take-up, we were able to extend leases with numerous existing tenants and signed various new lease agreements since the beginning of the year. In June, we achieved our most important letting success and signed long-term follow-on leases for space originally let to the food retailer Real at our retail locations in Mannheim, Celle and Giessen. As I mentioned before, the rental spaces in the Celle and Giessen property have already been handed over to the new anchor tenant Kaufland. The still existing Real market in our largest retail property in Mannheim is due to be transferred to the new tenant Globus by mid next year. Thanks to the successful asset management activities, the 9-month letting result accounts for roughly 122,000 square meters. The total portfolio WALT as well as the occupancy rate according to EPRA remains on consistently high levels at 6.1 years and 98.2%, respectively. The remaining leases outstanding for renewal in the further course of the year only correspond to 1.4% of our total annual rents. And currently, we are confident to extend the majority of the expiries within the next weeks. For the following years, our lease expiry schedule still shows that the share of contracts expiring is well balanced. Larger letting tasks only need to be completed from 2023 onwards. After the view on our recent asset management activities, a brief review of the current impact of COVID-19. Despite the long-lasting lockdown phase in the first half of this year and the associated impact on individual HAMBORNER tenants, incoming rent payments continue to see surprisingly good performance in the last few months. Following the resumption of the lockdown at the end of 2020, the rent collection rates fell only slightly at the beginning of the year but continue to increase over the following months resulting in an average of 97.4% in the lockdown month from January to May 2021. As a result of the gradual redemption of the far-reaching restrictions, rent payment ratio rose immediately and came in at around 99% in June and July. In Q3, the rent collection rate amounted to 99.3% on average and was therefore almost back at pre-COVID level. Regarding the outstanding rate payments, we are continuing our cooperative dialogue with tenants affected by the lockdown and are currently finding more and more mutual and fair agreements as we did in connection with the first lockdown in 2020. Let us all take a closer look at the 9-month financial figures. With a total of EUR 63.9 million, we saw a slight 3.5 percentage reduction in income from rents and leases compared to last year, which is mainly due to the disposal of numerous nonstrategic assets as well as pandemic-related risk provisioning. The decline was partly offset by rental income generated with the properties acquired during the last 12 months. Total maintenance expenses were lower than originally expected and came in at previous year's level at around EUR 3.5 million. This is essentially related to the postponement of several maintenance measures, especially in connection with remodeling and modernization work at the former Real locations in Celle and Giessen, which will likely be carried at the beginning of next year. Net rental income amounted to EUR 57.4 million, a slight decrease of 3.9%. Administrative expenses increased by around EUR [ 1.5 million ] year-on-year, mainly due to higher expenses for cash deposits. The significant rise in other operating income is a result of a EUR 2.2 million compensation payment received from the early collection with the early termination of the lease agreements. Other operating expenses were around 11% below the level of 2020 as there were significantly lower pandemic-related impairments of receivables due to write-downs and granted rent reductions. As a result of income and expenses, the 9-month FFO came in at previous year's level at an amount EUR 42.3 million. In consideration of the increased number of shares, which is a result of the scrip dividend offers in Q4 2020 and Q2 2021, this corresponds to a FFO per share of EUR 0.52. Now let me continue with a short look at our NAV and NTA development. As a consequence of the portfolio disposals, in the course of the year, the NAV calculation shows a slight decrease in long-term assets. The increase in short-term assets mainly relates to liquidity enhancements associated with the divestments. Noncurrent liabilities and provisions increased due to additional loans taken out in connection with the newly acquired assets. Overall, NAV saw an increase of 1.4% as against the end of 2020. NAV per share at the end of September came to EUR 11.21. As in previous reporting periods, there is no material difference between NAV and NTA with HAMBORNER's intangible assets only amount to around EUR 0.5 million. Let me finish with a few comments on our financial situation, which is still very comfortable. The REIT equity ratio amounts to 58.6% and therefore rose more than 4 percentage points compared to year-end 2020. We are still well in excess of the 45% ratio required under the German REIT law. The LTV decreased in the course of the year by 100 bps and amounted to 43.5% as of end of September. With 8.8x, our current interest coverage ratio is still on a very comfortable level. The average financing costs are consistently low at 1.7%, with an average remaining term of loans of 5 years. We have already concluded all follow-up financing for 2021 at favorable terms of 1% and are currently in negotiations on refinancing our liabilities expiring in 2022, which, to a substantial part are due by the end of next year. We expect the refinancing contract to be signed in the first quarter of 2022. So far from my side, thank you for listening, and let me now hand back to Niclas for a few remarks on our ESG performance and the short outlook.

[Niclas Karoff, CEO & Chairman of Management Board]

Yes. Hans Richard, thank you very much. You already mentioned it. Let me continue with some comments on our ESG activities here. What you see here is a short overview of our most recent ESG activities. And as part of our revised strategy here, we redefined 4 key action areas we'll define on the next page and for which we expect to be able to, as we think to generate the largest positive contribution in the interest of our stakeholder and the overall society. Substantial part of our environmental and portfolio-related work concentrates on topics around the identification, collection as well as the systematic analysis of all relevant data. Yes, surely, the recent results from our successful carbon footprint and climate neutrality project for our headquarters will be helpful as we can use the findings here for further portfolio-related tasks. Some additional results of our extensive efforts can be seen on the lower part of this page. Nevertheless, as we are all aware, not least concerning environmental and climate measures, we talk about a very complex field of topics which require not only a strong commitment but in the end also endurance. Yes. On the next page, let's continue here with 2 other points. Yes, with reference to the social and government part. The next page here shows a number of implemented or running measures in order to further improve our positioning in these areas based on the existing organizational setup and the overall situation of our company as well as to a certain extent, supported by the current status of key social KPIs, which you find on this page on the lower part here. We feel optimistic to be able to achieve our aspirational targets here for this point. And with that, let me go on with the updated outlook. And I would like to conclude the presentation here as usual with an update here for the current business year. Yes, with reference to the expected rental income, we stay at our range of EUR 83 million to EUR 85 million. Concerning FFO, we expect a slightly better results and adjusted our forecast from a range of EUR 48 million to EUR 50 million to now EUR 52 million to EUR 53 million. And the forecast adjustment is especially due to a time shift and the elimination of expenses originally expected [ above ] for the current financial year. Accordingly, we also assume a slight NAV increase compared to the end of 2020. So with that, thank you very much for your attention for now and looking forward to take potential questions.

[Operator]

Our first question today comes from Kai Klose, Berenberg.

[Kai Malte Klose, Analyst]

I've got 2 questions, if I may. The first 1 is on Page 3 of the presentation -- or on Page 10 to be precise. And we had a 3.5% decrease in income from rents due to the sale of assets. Could you indicate what was the change on a like-for-like basis? And the second question would be on Page 8 regarding the contract extensions. Two questions here. Could you indicate how much was coming on a premature basis from tenants where you have granted some rent relief? And what was the prevailing rental levels and the previous WALT compared to the new extensions?

[Hans Richard Schmitz, Member of Management Board]

Kai, do you hear me?

[Kai Malte Klose, Analyst]

Yes. very clear.

[Hans Richard Schmitz, Member of Management Board]

Okay. The answer to your first question, the like-for-like rental development was a slight increase of 0.1% was a minor change. The second question, we hadn't understand it so right because we had some difficulty with the line. Please, can you repeat?

[Kai Malte Klose, Analyst]

Yes, I was asking on Page 8, regarding the 70,000 square meters of contract extensions. Could you indicate how the new rent levels compare to the previous expiring ones and the WALT for the extensions compared to the -- compared to previous WALT of the leases.

[Hans Richard Schmitz, Member of Management Board]

Kai, it is a little bit less because it has the impact of the reletting of the Real spaces. [indiscernible] little bit less than what we had received from Real in the former time.

[Kai Malte Klose, Analyst]

And the very last question from my side. We had a slight increase in the cost ratio due to the smaller portfolio size. Do you indicate or do you intend to keep the platform as it is in order to be prepared for a larger portfolio? Or you see some potential for cost savings to improve the efficiency based on the portfolio size...

[Hans Richard Schmitz, Member of Management Board]

The main reason for this increase is the money that we have to pay to the banks for our liquidity. And this destroy a little bit here our cost ratio, and that's the main point. And additional to this, a minor point, I think it was nearly [ EUR 12,000 ] was the cost of the AGM what we had in the last year in the last quarter.

[Operator]

[Operator Instructions] Our next question today comes from Philipp Kaiser, Warburg Research.

[Philipp Kaiser, Analyst]

Just a follow-up question on the letting results. Could you elaborate a bit on the split on the different sectors between retail and office or kind of get a feeling or your view regarding the lettings and the office sector, there are still a lot of cautious from the tenants regarding new lettings. So could you just elaborate on that? That will be my first question.

[Hans Richard Schmitz, Member of Management Board]

Yes. First, in the third quarter, the main reletting result was coming from the Real space. That's very clear. I think if you have a look to the rent levels [indiscernible]

[Niclas Karoff, CEO & Chairman of Management Board]

Just with reference to the last question, any additional questions?

[Philipp Kaiser, Analyst]

Yes. Regarding the expected maintenance for the Real buildings. You mentioned in the half year report that you expect maintenance for this year between EUR 1.6 million and EUR 2.9 million and now they might seem at least the majority will postpone to 2022. So could you elaborate a bit on how much of this we can expect this year and how much next year from the expected maintenance for the 2 Real assets?

[Hans Richard Schmitz, Member of Management Board]

We expect that around EUR 1.5 million to EUR 2 million will be postponed to the year 2022.

[Operator]

[Operator Instructions] It appears that we currently have no further questions. I would now like to turn the call back over to your host for any additional or closing remarks.

[Niclas Karoff, CEO & Chairman of Management Board]

Yes. Thank you very much. And sorry again for the technical interruptions and problems. Thanks for your attention. And if you have any other further questions, which might not have been answered, or we didn't have a chance to place them, please give a call to Christopher and he is happy to answer your questions. Thank you very much for now, and have a good weekend.

[Hans Richard Schmitz, Member of Management Board]

Yes. Thank you very much from my side too.