Hello, and welcome to the Hamborner REIT Q1 2025 results conference call. Please note this call is being recorded, and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the conference. This can be done by pressing star one on the 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 over to your host, Mr. Niclas Karoff, CEO, to begin today's conference. Please go ahead, sir.
Yes, good morning, everyone, and thanks for joining our Q1 2025 results conference call. I'm pleased to be here today with members of our team, including my colleagues, Sarah and Christoph. Before we begin, a quick reminder regarding the transmission of today's event. As noted in our invitation, you can follow the call either via the webcast or by phone. Please remember that if you would like to actively participate in the Q&A, you will need to dial in by phone. With that, let's begin with the presentation and take a look at the key figures as of 31st of March of 2025. Yeah, as usual, let's start with a look at these key figures and the demanding market environment, which continued to be largely unchanged in the first quarter of this year, had a noticeable impact on our key performance indicators.
Compared to the first quarter of 2024, income from rents and leases decreased by 1.7% to EUR 23 million. FFO came down around 15%, mainly due to increased costs at the operational level. Key financial figures developed favorably with a further reduction of LTV to 41.1% and a corresponding increase in the REIT equity ratio to 56%. Operational figures overall remained largely stable with a vacancy rate of 3% and a total WALT of 5.7 years. Yeah, more details on the KPIs, as usual, will be shown on the next slides. On a year-on-year basis, our annualized rental income recorded a like-for-like increase of 2%, primarily driven by index adjustments. Yeah, the positive indexation effects were partly offset by slightly lower rent levels on the reletting side.
The disposal of our office property in Hamburg at the end of last year resulted in a slight rent decline of EUR 0.3 million. At the end of March, our annualized rental income amounted to EUR 91.2 million. On the next slide, let's take a closer look at the earnings situation. As mentioned earlier, income from rents and leases declined by 1.7%. The main reason for this is a postponement of the realization of revenue-based rental payment. The related amount of a bit more than EUR 300,000 will be recognized during the second quarter and therefore will be reflected in our half-year figures. The disposal of the Hamburg property has burdened rent development in the first quarter with around EUR 80,000. Concerning maintenance expenses, these expenses rose significantly to around EUR 1.6 million in the first three months, which corresponds to an increase of around 35%.
The expenses relate to minor ongoing maintenance and several smaller plant measures. Yeah, the increase is primarily attributable to the competitively low level of expenses recorded in the first quarter of 2024. In our experience, the level of maintenance in the first half of the year is generally lower, and for the full year 2025, we continue to expect an increase of 10%-20% compared to the previous year. The admin expenses also increased by roughly 27%. The increase is mainly a result of a further expansion of our IT and software landscape. Personnel expenses rose by 11.5% year- on- year due to changes in the workforce during the last 12 months. Other operating income increased significantly, whereas the majority of the total amount results from a compensation received from a tenant for the early termination of a lease agreement.
Other operating expenses amounted to EUR 1.2 million. Declining overnight deposit rates led to lower interest income, which amounted to approximately EUR 0.3 million in the first quarter. Yeah, all in all, funds from operations totaled EUR 11.9 million in the first quarter, with a corresponding FFO per share of EUR 0.15. Coming to the recent disposals, after the successful disposal of the office property in Hamburg at the end of last year, we completed the sale of two further properties in the first quarter of 2025: one office asset in Osnabrück and our property in Lübeck, with a total sales volume of EUR 27.4 million. Ownership of the properties was transferred on the 1st of April 2025.
With the completion of the sale of the property in Lübeck, the company has concluded its high-street retail sales activities and is now concentrating even more on retail properties with a local supply focus. Yeah, in this context, we are continuously evaluating acquisition opportunities across both the office and retail property markets, with a focus on securing assets that align with our strategic objectives and long-term growth plans. Let's now take a brief look at the key portfolio performance indicators. As the transfer of ownership of the properties in Lübeck and Osnabrück only took place just recently at the beginning of April, our property portfolio still consisted of 66 properties as of the end of March. Despite the still overall challenging market environment, the EPRA vacancy rate remained stable and consistently low at 3.0%. The total portfolio WALT declined slightly, reaching 5.7 years as at the end of March.
Yeah, the terms within the retail office portfolio amounted to 6.9 and 4.1 years, respectively. The stable performance of our operating business is also reflected in the consistency of our tenant structure. Given the limited leasing and transaction activities in the past few months, there has been minimal impact on our top tenant list and also the sector allocation. Only minor changes occurred, yeah, primarily due to indexation effects. Hamborner's tenant structure remains solid, as we think, and reliable, with a significant share of rental income coming from tenants that are relatively resilient to economic fluctuations. In particular, food retailers continue to account for roughly one-third of our rental income.
As shown on the next slide, we achieved numerous leasing successes in the first three months of this year, with contracts signed for approximately 3,600 sq m, with around 86% office space made up the vast majority of the contract volume. At the same time, the tenant retention rate is once again at a very high level of around 87%, reflecting the high satisfaction and the overall quality and stability of our office portfolio. Looking forward, with only 2.5% of total annual rents, the amount of expiring leases in the current financial year is very limited. Let's now turn to the company's financial situation. Our financial liabilities decreased significantly in Q1 2025, driven by the repayment of our last bonded loan in March, as well as the successful disposal of our assets in Hamburg and Lübeck, yeah, and the corresponding repayment of associated loans.
That reduction in combination with the stable revenue development led to a 2.6 percentage point reduction in our loan-to-value. At the same time, the average interest costs remain at a low level of 1.9%. Average remaining loan term has slightly decreased from 3.3 years at the end of 2024 to 3.2 years during the first or in the first quarter here of this year. Key debt metrics also remain stable, with net debt to EBITDA at 9.4 and EBITDA to interest coverage ratio of 4.7. The 2025 debt maturity schedule indicates only minor refinancing requirements in the coming month, with refinancing needs to the remainder of the year remaining manageable. Yeah, we are proactively engaging our network to address upcoming requirements. Let's now take a closer look at the outlook for the coming months until the end of the year.
At the upcoming AGM in June, we still intend to propose a dividend at previous year's level of EUR 0.48 per share. This would correspond to a payout ratio of approximately 76% and, yeah, and based on the current share price to a dividend yield of around 7.6%. With a view to the current financial year, we also remain generally confident and reaffirm our full-year guidance. Based on the forecast assumptions already published in February, we expect rental income in a range of EUR 87.5-89 million and an FFO between EUR 44-46 million. The expected decrease in revenue compared to the previous year is primarily related to our latest property disposals.
Given the uncertainty regarding the timing and scale of a potential reinvestment of sales proceeds, as well as the resulting positive revenue and earnings effects, we have not included further property acquisitions or disposals into our forecast. In addition to the effects of the property disposals, the earnings development in the current year will also be influenced by increased costs. In the areas of maintenance, personnel, and administration, we expect cost increases in a range between 10%-20% in the current financial year. For other operating expenses, we currently assume a higher increase, mainly due to the ongoing strategic project as well as other topics. The rise in these costs is partly driven off by one-off effects, which, by the way, in Q1 accounted for roughly one-third of these expenses.
Yeah, and based on the increased cost expectations, we recently reviewed our future dividend strategy, and for that reason, let's now take a more detailed look at this strategy on the next slide. As already announced in connection with the guidance release at the end of February, in recent weeks, a detailed discussion regarding the future dividend policy has taken place with the involvement of our supervisory board. Taking into account, for instance, historical dividend distributions shown on the left-hand side of the chart, which on average amounted to around 76% of the FFO generated in the respective year, as well as short and midterm revenue and earnings expectations, we decided to reduce the payout ratio to 60%-70% of FFO.
Yeah, based on the midpoint of the current forecast range for FFO of EUR 44 million-EUR 46 million, the dividend for the 2025 financial year would accordingly amount to EUR 0.33-EUR 0.39 per share. The definition of a specific range is intended to offer stakeholders higher transparency regarding future dividend distributions and to provide us as a company, yeah, with a certain amount of flexibility in the final determination of the dividend proposals. We will continue to base our decisions primarily on the development of the business in the respective year, with FFO remaining the key influencing factor for determining the amount of the dividend payout. In addition, we will include in our decision process, for example, the individual company situation, strategic aspects, as well as, from an external perspective, economic and sector-specific developments. A further important aspect will be the respective situation regarding investment opportunities.
In case of relevant alternative investments into our property portfolio in line with our strategy, we intend to use the flexibility to move within the range described above and tend to pay out lower dividends. Finally, with the aim of continuing to grow the platform and generating additional future FFO potential. At the end of the day, however, our clear intention is to continue to pay attractive dividends for lasting satisfaction of our shareholders. With that, ladies and gentlemen, I would like to conclude the presentation and open the floor for your questions. Thanks so much so far for your attention.
Thank you, ladies and gentlemen. As a reminder, if you would like to ask a question or contribute on today's call, please press star one now on your telephone keypad, and to withdraw your question, please press star two. Ensure your lines remain unmuted locally.
You will be advised when to ask your question. The first question comes from the line of Thomas Neuhold calling from Kepler Cheuvreux. Please go ahead.
Good morning. Thank you very much for the presentation. I'm taking my questions. I have three, if I may, and I think the best is if we take them one by one. The first one is more of a bird's-eye view on the new government and its new policies. I was wondering if you can share your view on what impact the new government policy in Germany has on the German economy, particularly on the commercial property sector, and if you think you need to adjust your business strategy going forward based on that or not.
Yeah, Thomas, first of all, good morning. Concerning the new government, I think at this point in time, it's even having seen the overall planning for the new coalition year, what this really will mean for us on an operational level. I mean, one topic which might be of influence towards us will be the future policies concerning and planning around subsidies in relation to sustainability-related projects. I mean, this was a very important topic during the past coalition or during the past four years, and it will be interesting to see how the new government looks to it, in which areas they want to focus their attention here, and what this will mean for companies as well who are willing and interested to invest here on this side.
Another more general-driven point, from my perspective, is the whole bureaucracy topic, also with reference to the amount of time it takes to get approvals from the public side concerning applications, etc., on a very operational level. However, I think it's fair to say that this is not obviously only something which will be influenced on a national level, but as you know, I mean, in Germany, we have a political system where, on a local and regional level, also there are many relevant deciders here, and the structures are more complicated in Germany here. I don't know, from today's perspective, what the outcome will be for obvious reasons, but these are two fields where at least my hope would be that there will be some positive effects from it for our operational level, at least in the mid-run. Yeah.
Very interesting. Thank you. The second question is on potential acquisitions. I mean, with the recent disposals, you're likely to probably come to the lower end of your target range, and you mentioned already that you're screening acquisition. I was wondering at this point of time if you can provide already more details or at least a color on what is your preference in terms of sector, location, and if you can also talk a little bit about what potential acquisitions and the total size you could do this year.
Yeah. On the acquisition side, I think there are more potential acquisitions there. There are a couple of points to mention here. First of all, I mean, obviously, the overall market situation. I mean, we get a lot on the table.
However, it's still not what I personally would have expected considering the period we are now, what we have seen in the market with now for quite some time with higher interest levels and a market where I would have personally expected that you get simply more assets, for instance, also on the managed core side with a profile which fits to our strategic profile. Bottom line is we really have to filter a lot of properties through our system to find here some potential targets. Second, there's not still this movement in the market that I personally would have expected, at least now coming in 2025.
It's something where I think we have to be a little more patient despite the fact that you see some light at the end here of the tunnel, but still the market is not very dynamic at the moment, at least from my personal observation. Second is concerning potential acquisition. I mean, obviously, we have been able to reduce our LTV. However, please keep in mind, I mean, in connection with distributing then the dividend here in the next phase, this will have an impact on our LTV year again in the direction to the mid-year, and we want to keep some discipline here as well. Moving forward, yes, we are open for potential acquisitions, but it's not in a way that we have a lot of firepower left from our point of view at the moment, which we will be able to execute right now.
We always see this closely connected to the question how it's going on with our intended further sales activities. There is a very close connection between potential sales and acquisitions, also with reference to our FFO profile here.
With your point. My last question is on financing costs. What are the current requirements or demands of banks for typical bank financing for commercial property at the moment?
I would say not much has changed recently on this one. We still feel very comfortable here concerning the communication with the banks and concerning ranges here. I think based on today's mid-swap rates, depending on the current market situation, on a secured loan space, we are talking about terms between 3.5%-4%. On a total cost base, swap rate plus margin.
Understood. Thank you.
The next question comes from the line of Philipp Kaiser calling from Warburg Research. Please go ahead.
Yeah. Hello, everyone, and thanks for the presentation and taking my question. Just one follow-up on your financial situation and your maturity profile. As you already mentioned during your presentation, most of the financial liability to refinance will mature in Q4 this year, already having 3% average cost of debt. When it comes to next year, yeah, the average cost of debt are way lower. What's your assumption with regards to refinancing and expected increase in cost of debt with regards to Q4 this year and next year, 2026? Any insight would be helpful.
Okay. I mean, in 2026, obviously, there's more to do that we have here, and we are coming from an average cost of debt for the tranche of 2026 of 1.3%.
Based on today's interest cost, obviously, this will have an impact. I mean, you can do the math, obviously, coming from today's interest cost, as I just pointed out, and then you see the volume that we have before us here for 2026. It will have an impact. The same applies from today's perspective then as well for the next year for 2027, with currently costs for the tranche of 2027 for the loans of average cost of 1.4%, so on a similar level like 2026. However, I would say the stronger effect, the strongest effect, there's a certain postponement of the effect then. Yeah. I mean, the refinancing for 2025 now, the largest part comes at the end of the year with almost no effect or just very small effects overall from the refinancing of this year in 2025.
I mean, to Q2 and Q3, we have also minor stakes. This is a kind of message also for 2026 and 2027, where we also will not see the full effect at the beginning of the year because, for obvious reasons, the loans which are up for refinancing, they are divided in different phases of each year. It always takes a certain time lag, obviously, when the additional interest costs then come into place.
Perfect. Thanks for the clarification. Just for my understanding, there will be, as you already pointed out, the increased cost base, then potentially increased interest expenses. Do you feel confident that you can offset those increasing costs by an increasing top line, or what is the mechanism behind this? Yeah, any insights would be helpful.
Yeah. I mean, to be fair, I think we have to divide it. I mean, obviously, top line is of very strong interest from our point of view. I mean, for obvious reasons, we try our best we can here. However, on the cost side, I mean, we have—I pointed this out during my short presentation—you have to divide between one-off costs or costs which we have just for a limited amount of time, and then some additional extra cost. I mean, for instance, giving an example on the HR side, simply because we simply need more team capacity here. Yeah. And these are costs that we have to bear simply in the longer run. Yeah. For us, it's very important to be very disciplined here on the one-off cost side. I can tell you, yeah, we have a close look to that.
From today's perspective, you can't anticipate everything else equal, yeah, to compensate fully on the top line side. I mean, we will see how inflation goes and obviously with the impact on indexation of rents and also the additional potential we can generate from the existing portfolio. There is some pressure on the cost side simply because also of points that we have just limited influence on. Yeah. I mean, we all know the topics. I mean, you have to invest into the IT, and digitalization comes at a price, as an example. Of course, yeah, you can potentially offset this as well with other points, but overall, the pressure on the cost side is pretty strong. Yeah. We keep to keep as much discipline as possible here.
Thanks a lot. Very helpful. Just one add-on. Could you remind me on the magnitude of the one-off cost, including in the higher operating expenses for this year, to get a feeling?
Yeah. I mean, as I mentioned, just as a snapshot, during Q1, we had one-off costs—I mean, in a way, one-off costs or cost of roughly extra cost of EUR 400,000—and this amounted to roughly 35% of our total other operating expenses. I mean, we will see how this will be for the remainder of the year, but for the full year as of today, we would expect a range between EUR 500,000 and EUR 1 million for one-off costs or ongoing costs then. Yeah.
Okay. Perfect. Thank you very much. Very helpful all from my side. Have a good day.
Ladies and gentlemen, we currently have no question coming through. As a final reminder, if you would like to ask a question, please press star one now.
We will give a few seconds just to make sure that everyone can ask a question. There are no further questions, so I will hand you back to Niclas to conclude this conference. Thank you.
Yeah. Thank you very much. I keep it short. Thanks for your attention and for participating here in our today's call. Should you have further questions, please, as usual, get in touch with us. With that, thank you very much on behalf of the team, and have a good remaining week. Thank you.
Thank you for joining today's conference. You may now disconnect.