Earnings Call: Q4 2019

Mar 27, 2020

Good morning, ladies and gentlemen. Welcome to our conference call regarding the publication of Humborne Health's preliminary results for fiscal year twenty nineteen. As you might have noticed last week, my long term colleague, Rudio Motzek passed away suddenly and unexpectedly at the age of 62. He was a member of our management board for thirteen years and made substantial contributions to the successful development of our company. In Rudiger, we have lost an esteemed colleague who worked tirelessly in the interest of the company and all employees. We will always honor his memory. On behalf of the family and the whole Hambonna team, I want to thank all of you for your expressions of sympathy. We really appreciate all your thoughts during this difficult time. As hard as it may be to go back to business as usual, now I would like to change the subject and inform you about the development of our business in the previous year. The fiscal year 2019 was again a record year in the history of Hambroner. The preliminary figures prove the success of our long term strategy of sustainable growth, sustainable cash flows and sustainable increase in dividends combined with the low risk profile in solid financing. At first, let us take a look at the highlights of the past year. All our provisional and at the moment unaudited key figures show a positive development. Income from rents and leases increased by 2.1% compared with 2018, which is fully in line with our guidance, With 3.1% funds from operations, one of our KPIs rose slightly higher than expected at the beginning of the previous year. Accordingly, FFO per share increased by 3.1% to €0.68 exceeding the previous year's record level by another €02 Despite the tough market conditions and the high competition on the transaction market, the company successfully continued its growth strategy investing a total amount of around €30,000,000 into properties in Bamberg and Langerhich. We also continued our portfolio optimization and divested one smaller non strategic asset. The annual revaluation of our property portfolio recorded a like for like value increase of 3.2%. Total portfolio volume at the 2019 was around €1,600,000,000 This corresponds to a year end NAV per share of €11.59 an increase of 7.4% compared to the 2018. So our growth cost has been value created and what is very important, creative on a per share base. Moving to the next slide to give you further information on rents and FFO. Development of rents was positive and in line with our forecast in the course of the last year. Total rental income increased by €1,800,000 or 2.1% to EUR 85,200,000.0. The change was mainly due to our acquisitions in 2018 and 2019. On a like for like basis, income from rents decreased by EUR 100,000 or minus 0.1% year on year. The main reason for the small decline of the 70 bps increase in our vacancy rate. Our economic vacancy rate, including agreed rent guarantees, increased to 2% compared to 1.3% in the previous year. Nevertheless, vacancy is still on a very low level, especially if you compare this with our industry. As already mentioned, FFO increased slightly more than predicted by 3.1% to €54,300,000 Main reasons are lower than expected maintenance expenses in the course of the year, in particular fewer tenant improvement measures as well as lower operating costs. The corresponding FFO per share increased to €0.68 €02 above the record level of €0.66 from the year 2018. The further disproportionate rise in FFO compared to rental increase once again proves our lean structure, our efficiency as well as our cost discipline. The next chart includes a few remarks to our acquisitions in 2019. As a result of the continuing low interest rate policy in Europe, the high on the investment market continued in the previous year. The market was again characterized by price increases due to high demand. In this challenging environment, Hamburg continued its growth course and acquired two high quality local supply properties in Bambeck and Leningerich. The total investment volume was EUR29.2 million. The properties will contribute to annual rental income with EUR1.6 million. Considering the tough investment market, the gross initial yields of 5.25.5% as well at the macro and micro locations are very attractive. The anchor tenant of both asset is the well known food retailer, Edikar, that has signed long term lease contracts. These acquisitions fit perfectly into our acquisition strategy and are the basis for future growth in rental income and FFO. Thanks to our far reaching network and close contact project developers, we were able to sign the purchase agreements for three additional office buildings. Ambonne invested €16,100,000 for the acquisition of an office development in Neuhausenburg, The main tenant of the 4,500 square meter property is the IT service provider, UBL, which has signed a long term lease contract. Annual rental income amounts to EUR0.9 million and the gross initial yield is 5.4%. The new office building is characterized by its energy sustainability. It has been built using high quality materials and meets the very latest standards. The building is currently in the process of being certified by the German Sustainability Sustainable Building Council, the DGNB. It has already been pre certified at the DGNB's highest level platinum. The property has already been transferred to the Hambona portfolio on January 1 and therefore, contributes to rents and FFO in the current year. Furthermore, we signed the purchase contracts for two additional project developments in Aafen and Bonn, which are close to completion and will be transferred within this quarter. The two offices assets with a gross initial yield of 5.25.3% are predominantly released to the creditworthy insurance company, Baamo. Total investment volume for the assets is €51,100,000 Additional annual rental income will amount to €2,700,000 The outstanding transfers will add to further rental growth in 2020. As we intend to steadily enhance the quality of our portfolio, we are also active on the disposal side and sold a smaller non strategic high street asset in Leverkusen. The selling price was €1,600,000 €200,000 above recent fair value. With a residual book value of €1,500,000 the contribution to earnings will amount to €100,000 The next chart shows the portfolio development in 2019 in consideration of the acquisitions, the disposals and the yearly revaluation. The performance of our portfolio was again very positive in 2019, which highlights the quality of our office and local supply properties. The total market value of the portfolio was €1,517,000,000 at the beginning of 2019. We invested a total amount of €29,200,000 in two assets, which already created value added as the fair value of the purchased properties increased by €900,000 until the end of the year. The disposal of the asset in Leverkusen reduced the portfolio value by €1,400,000 As in recent years, all our properties were valued by GLL at the 2019. The annual revaluation of the existing properties led to a like for like increase in value of €48,900,000 or 3.2%. Taking into account the new investments, the disposal and the increased fair values of the existing property, the total market value of the Harmonia portfolio rose by EUR 80,800,000.0 to around EUR 1,600,000,000.0 at the end of the year, an increase of 5.3% year on year. The next slide shows the development of NAV per share during the last five years. As a result of the value increase at the end of the year, the growth in absolute NAV amounts to EUR64.1 million. The corresponding NAV per share was 7.4% higher compared to the previous year at EUR11.59. In the last five years, from the end 2014 to year end 2018, NAV per share rose from €8.67 to €11.59 despite the increase in the number of shares due to three capital increases in 2015 and 2016, the NAV significantly rose on a per share basis by 33.7%. Nevertheless, considering the current share price of EUR 10.4, NAV discount amounts to around 10%. On the next chart, you see further selected preliminary key figures. The operating business was again very successful, reflected in a 1.5 increase in the operating result. Profit for the period is slightly lower than 2018 as a result from sales decreased to EUR 100,000.0. Our financial situation remains comfortable. LTV is 42.4% and REIT equity ratio 57.3. This year, our AGM is scheduled for May 6 in light of the consistently positive business development. We intend to propose a dividend increase from $0.04 6 to $0.04 7. This would be a plus of 2.2% year on year, and it would be the fifth increase in a row. Before moving to the outlook, a short summary of the fiscal year 2019. We continued our business development in 2019. All key figures show positive changes. Rents with plus 2.1% and FFO with plus 3.1% are fully in line or above our recent forecast. FFO per share reached a record level of EUR $0.06 8. The dividend will increase up to €0.47 And based on the current share price, dividend yield is around 4.5%. In light of the currently positive business performance and the upcoming property transfers, we are optimistic and confident that the positive development will continue in 2020. For the current year, we expect an increase in income from rents and leases of around 3%. This forecast already includes the outstanding transfers of the offices in Aachen and Bonnen, but does not take into account further acquisitions or disposals. Based on the income from rents and leases, we assume that the FFO will reach the current record level. Our remaining firepower of now actual EUR 130,000,000 to 150,000,000 give us potential for further acquisitions that would have a positive impact on rental income and operating result. The dividend proposal to AGM for fiscal year twenty nineteen will be EUR $0.04 7, and we intend to continue our reliable dividend policy with sustainable and from time to time increasing dividend payments. So far, my explanations to our preliminary figures, our final figures for the current year, we will publish on March 26. And I would like to say thank you for your intention. And now I look forward to your questions. Thank you, We will now take our first question from Gudrun Esker of DER Immobilier Brief. Hello. Good morning, everybody. I would like to ask the last acquisitions concerning office buildings or new office buildings. Previously, you have bought mainly retail and larger health revolving center center for for Purchasing Several Things. Office, is this a new trend in your policy? Hello, this is Eschen. As you know, we have a mix in our portfolio, where you can say, in general, one third is office and two third is local supply. And indeed, in the past, we had acquired a lot of local supply assets. And now was the time, in our view, to invest a little bit more in offices. That's not a change in our strategy. That's a normal acquisition trend what we have from time to time. So the answer is so okay. Okay. Okay. Thank you. Yes. Welcome. Our next question comes from Georg Kanders of Bankhaus Lampe. Please go ahead. Morning. On this, Rob, you mentioned the lower maintenance costs or low maintenance spending as the reason for the increase in the stronger increase in the FFO. Could you provide us with the actual number of the maintenance costs you have? Maintenance costs are on the level of the previous year. So 5,500,000.0 roundabout. 5,500,000.0 5,500,000.0 Yes. The reason is that it's relatively difficult to estimate the costs for tenant improvements if we change contracts, for example. So here, we had in account at the beginning of 2019, a much more higher amount, and this was not realized in 2019, and perhaps this will come in 2020. That's the reason that we will be on the same level on the FFO per share like in 2019 to answer this. Yes, okay. This would be then the next question. Yes. Yes, I had expected this one. Yes. Another question is do you have also an acquisition pipeline already, as you know, this yes, again, some more than €100,000,000 available for spending? It's a little bit difficult, yes. We are checking at the moment some assets. But as you know, we will have a new CEO starting on March 1, and I will discuss with him the upcoming strategy and what we will do in the future. And I think let him some days' time, and then we will announce a little bit more which direction we will here develop the company with the new CEO. So this might create a small delay in acquisitions process? No, not a delay. We are here in a process. We are in the DD process, but we have started this process. We are in the middle of this. And the result, I don't know exactly what will upcoming there. Okay. Thank you. And our next question comes from Kai Klose of Berenberg. I have two questions. The first one, could you indicate the split about what was the split of the like for like value increase of 3.2%, maybe between Offices and Retail? And the second question, could you indicate or have you already refinanced the acquisitions in Aachen, Bonn and Edinburg? And could you elaborate a bit what kind of financing costs you have fixed there? Yes. Look, hi. Good morning. I think you're in the middle of the night at the moment. In general, the revaluation of our portfolio, you can say, and I think that's not a surprise. Office was running very well with around but these are gross figures, please, plus eight percent. Large scale, we had a small plus of 1%. And High Street, and I think that's not a surprise. Here, we had a minus And overall, this led in the result to the 3.1% increase in the revaluation like for like for the existing portfolio. The financing, I think it's done for Bonn and Aachen, and this was on a ten years fixed interest rate with around 1%. And as there are no further questions in the queue, would like to turn the call back over to Mr. Hans Richard Schmitz for any additional or closing remarks. Yes. Thank you very much for the attention of our call, and I hope to see you in the next time and with our new CEO. I think we will travel around the world to visit our investors and to explain what we will do in the future. Thank you very much.