Hello and welcome to the Hamborner REIT Preliminary 2024 results. My name is Laura, and I will be your coordinator for today's event. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you will be connected to an operator. I will now hand you over to your host, Niclas Karoff, CEO, to begin today's conference. Thank you.
Good morning, ladies and gentlemen, and welcome to our call on the preliminary figures for 2024. I'm joined by members of our team. Before we begin, I'd like to remind you about the transmission of this event. As mentioned in the invitation, please join either via the webcast link or by phone. As always, active participation in the Q&A session is only possible by phone. But before we move on to the Q&A, let's start with a presentation and a short review of the preliminary key figures as of December 2024. The year 2024 was once again characterized by, above all, a challenging market environment. Despite a stagnating economy with inflation and interest rates, Hamborner successfully maintained solid operational performance and recognized a largely stable development in both revenue and earnings. Compared to the year 2023, income from rents and leases increased by 2.0% to 93 million EUR.
The change is primarily driven by rent increases through indexation and property additions in 2023. The positive rent development was offset by an increased cost base, which led to a decline in Funds from Operations by 5.5% to 51.6 million EUR. The corresponding FFO per share was EUR 0.63. We saw a slight decrease in the NAV per share, resulting in particular from the impairment of the property portfolio as part of the regular year-end valuation. Although last year has been, as pointed out, challenging, we remain in a solid financial and operational position. Let's now go into detail and first take a look at the portfolio development. On this slide, you'll find a bridge illustrating the portfolio development in 2024. It reflects the impact of a property disposal as well as the external portfolio evaluation conducted once again by our external appraiser, Jones Lang LaSalle.
Following the negative value development in 2023, which was mainly due to the changed interest rate environment, the latest revaluation showed a stabilization of fair values. On a like-for-like basis, the market value of our real estate portfolio decreased by EUR 28.2 million, or 1.9%, to approximately EUR 1.44 billion. Developments in the office and retail sub-portfolios were almost identical at 2% and 1.8%, respectively. The consolidation is mainly a result of the stabilization of the inflation and interest rate environment, as well as an emerging recovery of the transaction markets in Germany. As in the past, our solid tenant base, including the renowned companies focused on local supply, as well as stable office tenants, contributed to the overall stability of our portfolio. Additionally, further indexation effects have played a supporting role in the revaluation process.
We remain confident in the quality and resilience of the property portfolio and currently do not expect any significant further value adjustment for the current financial year. As announced in connection with our latest releases, Hamborner has been more active on the disposal side during the last month. As part of our active portfolio management, we sold two smaller office assets in Hamburg and Osnabrück, with a total sales volume of EUR 14.5 million. The disposal decision was significantly influenced by the size of the properties and individual location perspectives. While the Hamburg office disposal has already been closed in December, we expect the Osnabrück property to be transferred at the end of the first quarter. In addition to the two offices, we were able to sign the sales contract for our last remaining high street asset in Lübeck.
The property is an inner-city shopping center that Hamborner acquired in 2016. The selling price amounts to approximately EUR 20.9 million and is approximately at the level of the most recently determined market value. With the signing of the purchase agreement, the company has finished its high street sales activities and is now focusing more strongly on retail properties with a local supply character. Within the next days, we expect the signing of a sales contract for another retail property. We intend to reinvest the sales proceeds as quickly as possible and are continuously examining acquisition opportunities here in both the office and retail property markets. By the end of 2024, our annualized rental income recorded a like-for-like increase of 1.4%, primarily driven by index adjustment. The positive indexation effects were partly offset by slightly lower rent levels on the re-letting side.
Overall, our annualized rental income amounted to EUR 90.8 million as at the end of December. On the next slide, let's take a closer look at the preliminary earnings situation. As mentioned earlier, the top-line figure grew by 2.1% to EUR 93 million. As already indicated over the last quarters, maintenance expenses rose significantly in the past year to around EUR 10.1 million. This corresponds to an increase of 21%, which is attributable to higher ongoing expenses and numerous planned projects, as well as the postponement of several measures originally scheduled for the year 2023. Administrative expenses also increased by roughly 20%. The increase is primarily driven by higher software license fees associated with the implementation of our digitalization strategy. Other operating income declined by approximately EUR 300,000, or 17.5%.
As in the previous year, the figure is influenced by compensation payments for early lease terminations, which amounted to approximately EUR 800,000. Compared to our P&L, the FFO calculation includes adjustments in connection with impairment reversals in connection with value write-ups for two retail properties in an amount of EUR 3.9 million. The corresponding amount was adjusted with other operating income. The slight increase of 1.5% in interest expenses was mainly driven by the refinancing of loans at higher interest rates. At the same time, declining deposit rates in the second half of the year led to lower interest income, which amounted to approximately EUR 1.5 million in 2024. All in all, Funds from operations totaled to EUR 51.6 million, a slight reduction of 5.5% year on year.
Compared to the previous year, we saw an increase in CapEx, partly caused by an extension on the area of our retail property in Coburg. On the next slide, we would like to provide a more detailed overview on our expected maintenance expenses. Irrespective of the postponement of measures from 2023, which led to higher costs last year, we are currently assuming a trend towards increased maintenance expenses for both the current and subsequent years. The expected development is due, in particular, to increased ongoing maintenance costs, higher expenses in connection with rental activities, and also additional costs for decarbonization measures. For 2025, we expect total maintenance expenses in an amount between EUR 10.4 million and EUR 11.6 million. With around EUR 500,000, the amount we spent for additional pure decarbonization measures was limited in the last year.
For 2025, we expect a comparable amount in a range between EUR 400,000 and EUR 800,000. As we continue to pursue ambitious decarbonization targets and aim to reduce the energy-related emissions within our portfolio by 50% until 2030, we intend to gradually increase our investments in the following years and currently assume additional costs between EUR 2.5 million and EUR 5 million. Due to existing accounting regulations, we expect that the majority of the costs will be recognized in our P&L, and the amount of CapEx will be correspondingly lower. The planned measures relate, among others, to the conversion of the energy supply to renewable energies and further optimization of technical building infrastructure. In this context, continued intensification of the tenant dialogue and an increasing number of green lease agreements is necessary. We will be addressing these issues more intensely in the coming months.
Now, let's have a short look at the most important portfolio KPIs. As the transfer of ownership of the property in Hamburg already took place in December, our property portfolio consisted of 66 properties as at the end of 2024. Despite the still challenging operational market conditions, we saw stable development of the EPRA vacancy rate, which remained at a consistently low level at 2.8%. Total portfolio WALT declined over the course of the year and stood at 5.8 years as at the end of December. The terms within the retail and office portfolio amounted to 7.0 and 4.3 years, respectively. As you can see on the next slide, in the 2024 financial year, numerous rental successes were achieved, and contracts for rental space of approximately 49,000 sq m were signed. Around 50% of the contract volume was attributable to the letting of office space.
As around a third of the signings were new lettings, the retention rate amounted to 67%. Looking forward, with only 4.8% of total annual rents, the amount of expiring leases in the current financial year is quite limited. The largely stable development of the operation business is also reflected in our tenant structure. Due to the limited letting tasks and transaction activities in the past year, the effects on the top tenant list, as well as the sector distribution, are very limited. We only saw minor changes in connection with indexation effects in the course of the year. Hamborner's tenant structure, as we think, remains highly solid and reliable, and a significant portion of rental income is generated by companies from the food sector here. They are still contributing approximately one-third of the company's rental income. Let's now take a look at the company's financial situation.
Looking back at the limited refinancing needs and investment activities in the 2024 financial year, our financial liabilities saw only a slight change, decreasing to EUR 68.1 million as at the end of the year. At the same time, the average interest costs remain at a very low level of 1.9%. The average remaining loan term has decreased from 1.4 years in 2023 to 3.3 years in 2024. Influenced by the dividend payment, as well as the portfolio evaluation, LTV slightly increased over the course of the year to 43.7%. With 55.2%, the REIT equity ratio remained at a consistently high level. Further debt-related KPIs as net debt to EBITDA and EBITDA versus interest coverage also developed stable and amounted to 9.8 and 5.4, respectively. A look at the expiry table for 2024 shows that we will only be faced with minor refinancing tasks in the coming months.
Apart from the outstanding bonded loan with a remaining volume of EUR 12.5 million, which, by the way, we will repay at the end of the first quarter, only two loan agreements with a total volume of around EUR 22.5 million will expire in the course of this year. As the vast majority of expiring liabilities will be due for refinancing at the end of this year, the relevant cost effects will be limited, very limited. Further reduction of financial liabilities and interest costs results from the announced property sales. As we intend to repay the associated loans after closing of transaction processes, we currently assume that interest expenses will further decrease over the next month. Ladies and gentlemen, let me now conclude the presentation with an outlook.
In view of the stable operating business performance in the 2024 financial year, we intend to propose to this year's AGM the distribution of dividend at previous year's level of EUR 0.48 per share. This would correspond to a payout ratio of approximately 76% and, based on the current share price, to a dividend yield of around 7.7%. Regarding the expected business development for the current year, we expect rental income in a range between EUR 87.5 million and EUR 89 million, and an FFO between EUR 44 million and EUR 46 million. The expected decrease compared to the previous year is primarily related to latest property disposals, as well as the expected signing of the further sales contract.
As the timing and volume of any potential reinvestment of the sales proceeds, as well as the resulting positive effects, are currently difficult to predict, we did not include potential property acquisitions or disposals into our forecast. In addition to the effects of the property disposals, the earnings development in the current year will be influenced by increased costs. Besides the maintenance expenses already described, these relate to personnel and administration, as well as other operating expenses. The cost increases in the areas of maintenance, personnel, and administration are expected to be between 10% and 20% in the 2025 financial year. We currently assume a higher percentage increase on the level of other operating expenses, mainly in connection with the ongoing implementation of regulatory and strategic projects. The increased other operating costs are partly attributable to one- off effects.
As we currently assume that we will also have higher costs in the medium term, especially for maintenance, personnel, administration, and interest, we will review our dividend policy in close cooperation with the supervisory board in the next weeks, and if necessary, adjust our distribution strategy. Without preempting pending discussions, we might focus more closely on the expected FFO development and other factors, such as, for example, our investment strategy, as well as the overall market environment when formulating future dividend proposals. At the same time, the company clearly intends to continue to distribute an attractive dividend to its shareholders. And with this, ladies and gentlemen, I would like to end the presentation and move on to the Q&A.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad.
We'll pause for just a moment while waiting for them to queue for questions. Thank you. We will now take our first question from André Remke of Baader Bank. Your line is open. Please go ahead.
Good morning from my side. Good morning, Mr. Karoff. A couple of questions from my side, starting with the mentioned higher other operating expenses. You called part of this could be one-off. Could you provide any magnitude of such expenses, and what means one-off? Will there only occur this year? Because last year, there were some costs for implementation, as you mentioned in your presentation. This is the first question, please.
Andre, thanks for your question.
These expenses are influenced, for instance, by additional costs related to CSRD, the implementation of the task caused by the CSRD environment, which is, for the organization, a big scope of work here, not only this year but also was already in the last year. And the second part is concerning digitalization projects. And I would say it's a combination of effects that will have an impact this year, depending on how fast we make progress with the project, but also which will lead into the next year. So it's a combination of both. We find, concerning the total volume of one-off, let's say, roughly a range between EUR 0.5 million and EUR 1 million.
But this is included in the FFO guidance. You will not adjust for that in the FFO, right?
No, this is included in the FFO guidance. No adjustment in this year.
Perfect. I'd like to hear that.
Not too many adjustments, please. The second question, you mentioned ongoing review of your dividend policy. Did I get it right that we could expect a decision already in the near future, or did I get it right?
It's a process that continues with which we have now a discussion with the supervisory board. But as of today, I do not expect that this discussion is going on through the entire year. So let's say a couple of weeks, maybe two, three months, and then we should be done. And our expectation as of today is that latest in April, in connection with the annual results, we should have a better view on that.
Okay. Perfect. And to remind me, you mentioned also here some factors you are looking at. What are the specific factors here?
Is it the investment market, the interest environment, or your own, let's say, ability to find attractive acquisitions?
It's a combination of different influencing points. And maybe I can refer also to our description concerning dividend, how we have communicated in the past couple of years concerning this topic. So our view was since 2020 that we take a broader view on potentially influencing elements. And this could be also our current investment strategy and the overall market situation as it presents itself. And if we see what kind of development we have seen in the market since 2020, which is starting with the corona time, then the interest development, etc., and transaction markets have changed substantially. So there are always certain elements that we want to take into account so that we have a fresh, updated view on what's happening on the market.
This should also be something that we take into consideration when we talk about the dividend.
Okay. Coming to disposals, you were quite successful over recent months. Will you remain active here in terms of transactions also this year? And what could be the volume you intend to sell?
We have been active on the sales side. However, please, I think if you consider the entire portfolio size, it's still quite a limited activity here. And what we will do moving forward is that we have a very close look on when we potentially bring assets to the market, clearly depending on potential reinvestment opportunities in the market. And bringing together both lines very closely, I think this will be the major task for us on the transaction side this year, so that we can find good opportunities to reinvest the proceeds from the sales activities here.
And so in a way, we keep flexibility here. So there's no substantial pressure to bring anything to the market, to make this very clear. And therefore, we want to see it closely connected to the reinvestment opportunities, also obviously in light of our intended FFO development.
Okay. Brings me to the last question on acquisitions. Could you provide an update here? Is there something more concrete? And could you probably describe the transaction environment from your side?
There's no major step forward, I think, on the transaction market side as I see it at the moment. I think we are moving in rather cautiously. We get obviously offers on the table. We have offers on the table, we get a lot of assets on the table, but it's still progressing, but in small steps, as I said. So there's not a big wave of interesting assets coming.
We have to bring a lot of assets into the filter and to look at it. So I think we have to be patient here, and this is, by the way, for office as well as retail. However, on the retail side, I would say also concerning the kind of assets we get, we see even more assets which already come at a pretty high pricing on the table, especially on the food retail side, but no major movement on the transaction market as of today, so you can more, let's say, the same I could have told you a year ago, so I would say it's a bit better, but it's not that we are too optimistic here that suddenly this will change.
Okay, this is more in general. Do you have a concrete acquisition pipeline, or is it also too early to say?
I wouldn't call it an acquisition pipeline at the moment. A bigger one, we're looking at some stuff, but nothing where I would say as of today that it's very, very clear that we're going to make it.
Okay. Perfect. That's from my side. Thank you very much.
Thank you. We'll now take our next question from Thomas Neuhold of Kepler Cheuvreux. Your line is open. Please go ahead.
Good morning. Thank you very much for your presentation. Thank you for my question. The first one I have is on your decarbonization strategy. Can you give us some figures in terms of what the total amount of decarbonization CapEx is your plan to spend over the next couple of years and what the split is between maintenance expenses and CapEx and over which time frame you're going to spend this CapEx?
Maybe happy to refer again to the page in our overview we have in our presentation here where we, as we think, are able to provide quite some transparency based on our internal planning. And concerning the maintenance for the upcoming three years, which is for decarbonization with reference to decarbonization, we are talking about on the maintenance side of a volume between EUR 2.4 million to roughly EUR 5 million. So roughly EUR 2.5 million-EUR 5 million, let's put it this way, on the maintenance side. On the CapEx side, also for the reason that I mentioned during my presentation, the amount is substantially lower. And there we would expect roughly EUR 800,000-EUR 1.5 million. And there we are talking about, and this would be the volume for the three years, just to make this clear. And this would be referring to measures exclusively for decarbonization measures.
And after these three years, you don't need to spend more money later? Or are you done then with your decarbonization CapEx?
We are quite happy that we think we're able to provide so much transparency for the next few years. I wouldn't say from today's perspective that we can stop investing then into the assets. But it's too early at the moment to make any predictions concerning sizes. I think we have done a lot of analysis, but it will also depend, obviously, on the effects that we are able to realize on the emission side based on the investments we do. And I think maybe I want to stress this point. We're still in the process of gaining experience here, collecting data, and then being able to make a kind of review of what we have done in the past.
We need this kind of historical experience to make even better predictions than for the upcoming years. And as we are still in the beginning of this phase, we move also here from quarter to quarter and from year to year. I would assume two, three years from now, it will be much easier to make further more detailed predictions which go more into the future.
That's good. My second question would be on your guidance, the 10%-20% increase in personnel administration costs projected for 2025. Can you provide more color, please, why the costs are going up so much?
Apart from very individual topics, I think one major driver is that based on the framework we are working here, not only but also strongly influenced by tasks with a regulatory background, we simply need more resources here.
We need more knowledge and more resources to cover all these points. CSRD is just one example. But this obviously has an influence on the company because it's not a one-off task. But as of today, we have to anticipate that we have to be able to provide this kind of data in this depth across on a yearly basis. And to bring the company into a position is important. Also, if you think about risk management topics, also the asset management components getting more and more important in overall tougher letting and investment markets. And if you take all the combination of those, in addition, also HR management is getting more complex. You need more resources here, and you need to invest.
Also on the IT and digitalization topic, we think it's clearly an investment into the future here to be able there to lay the basis here for further growth for the company and to do the homework we have to do at the moment. This is involving simply more costs.
Okay. Understood. My last question would be on refinancing costs. Can you give us some indication what kind of spreads banks are currently demanding for, let's say, seven to 10 years' mortgages?
Obviously, depending, as you know, of the asset itself, the size, location, etc., as you mentioned, and the duration of the loan. I would say maybe it spreads between 130 and 150 basis points, roughly. Maybe a bit more. Let's say between 130 and 160, roughly.
Okay. Thanks a lot.
130 to 160, sorry.
Thank you.
Once again, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We'll now take our next question from Philipp Kaiser of Warburg Research. Your line is open. Please go ahead.
Yeah. Thanks a lot for taking my question and thanks for the presentation. Actually, just one question left from my side. Could you share your thoughts or your plan on how to navigate out of this current situation? And with current situation, I mean still dried-out transaction market, but also quite high LTV, which probably limits you a bit on the acquisition side. On the other end, huge discount to NAV, which makes it quite complicated to get new fresh equity into the company. And then in contrast, higher costs weighing on profitability.
Any plan, any thoughts on how to maneuver out of this in the next couple of months or years?
Yeah. Thanks for the question. Obviously, the environment is as it is, and we do the best we can. I think number one is having very clear control in our operational business, very strong operational performance, hopefully in the future, and doing the homework to be able to do so, and please also take into account that the investments, as I pointed out before, that we are doing at the moment, a lot of this money we invest here is here to pay off apart from the regulatory aspects, and it's investment that we do to be more efficient in the future and obviously to generate then based on this also additional returns here and use market chances. Nevertheless, you put the layer here.
The market environment is as it is overall, and we will see if the transaction market picks up. We want to carefully reinvest the money we have. Also, if you look on our manage- to- core strategy to be able to identify attractive assets where we can create additional value, additional potential for FFO creation, and therefore, that's the framework we are working in at the moment.
Okay. Very helpful. Just one additional on this. Even if we would assume that the transaction market is picking up again and we see a recovery, what would be the volume you could invest given the current loan-to-value ratio? Any idea on that?
You just mentioned our LTV level, and obviously, we are still on a track that we want to keep it on a modest level here.
So I would say maybe I don't give you a volume at the moment because it depends on the opportunity. But based on the recycling we do at the moment, the space is not too big because the proceeds we get from the sales of the assets we are currently selling or which we sold here is limited. So it's not a big space, except we would be willing really further to go up the ladder on the LTV side. But as you said, it depends also on the market situation. If the market is picking up more strongly than expected, which might have an influence also on the values, this could potentially give us more headroom here on the acquisition side. But as of today, it's a very limited space.
Okay.
So to really participate on a pickup, you would need fresh equity, which is kind of complicated with the current discount to NAV? Or how to get it?
No. I was not talking about additional equity. I was talking about if the overall market situation would pick up very positively. I'm talking about where interest rates are going, interest levels going, where the values are going. At the moment, we don't expect substantial movement here during the course of this year. But if this should be wrong, if I should be wrong or if we should be wrong and we would see a positive development on the valuation side, then obviously this would give us more headroom generally on the LTV as well. This has nothing to do with the equity.
But also in the past, to put some water in the wine here, if we don't think that this is reliable or just it's not that we would stress the LTV to the max just because values would pick up a bit. It's a balanced we take a balanced view here. But clearly, we still have a look on LTV level and don't want to stress it too much here.
Okay. Understood. Thanks a lot for the clarification. It was helpful from my side.
Thank you. There are no further questions coming through. As a final reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. There are no further questions coming through. I will now hand it back to Niclas for closing remarks. Thank you.
Yeah. Thank you very much to all of you participating.
And if there should be any further questions, please get in contact with us, with Christoph or myself, or our team. And until then, thanks so much again and have a good week.
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.