Earnings Call: Q1 2021

Apr 27, 2021

Yes. Thank you very much, and good morning to you, ladies and gentlemen. Welcome to our earnings call here. Hans Richard and myself, as you will, will lead you through the results of the Q1 year of this year. Let's move directly to our key figures here for Q1 2021. Yes, despite the ongoing pandemic got challenges here related to the environment here. We had a good start into this year. Rental income of €21,800,000 remained at previous year's level. Profit increase driven, which you can see here, by success from our sales activities. FFO, however, has decreased to €12,700,000 influenced mainly by pandemic related impairments. We get more detail even more detail on this a little bit later on. Financing structure, as you used from us, I think, remains solid with the REIT equity ratio at 55% and LTV at €44. EPRA NAV per share slightly increased by €1.8 to €11.26 compared to the end of 2020. Yes, and Richard will provide further details obviously on financials here in a few minutes. I will leave it with that for now. On the next page, as you used to some portfolio key metrics here for our Q1, Fair value remains unchanged. However, the portfolio share of our High Street properties, which you can see in the last column here, they don't reflect they sold assets of approximately EUR 40,000,000, which are up for closing during the second quarter. So meanwhile, the share of these high street properties within our total portfolio has further reduced meanwhile to approximately 6% to 7%. As a result of the intense and successful letting activities here. Yes, and despite the challenging environment, both walls with here at 6.4 and occupancy rate remain at consistently high level. Moving on to our recent acquisitions, providing you with some additional information on those. Yes, let me introduce you to our new assets in our portfolio or which will come to our portfolio. Let me start with our initial managed core investment, which is situated here within an established office location in the prospering city of Mainz. The property benefits It's both from, I think, excellent infrastructural connections and also a growing environment, which already today is characterized by the headquarters of well known companies. And in The wider area here, important educational, especially research institutions. Yes, just a few examples. Those include the local university as well as cutting edge research facilities here of Max Planck Society and Helmholtz Association. And by the way, close to the university in Mainz, you also find the headquarter of the COVID-nineteen the vaccine developer, BioNTech. Yes, the property with approximately for 700,000 square meter of rental space came in at an in going yield here of 7% with a secured cash flow for the remaining lease term. And as we are convinced, the very attractive potential for further rental and Belly growth. With reference To future reletting, yes, we intend to start here with a detailed planning early on in order to reposition the asset in line with our ESG strategy. And yes, this will include substantial CapEx measures within the property as well as of today, the redesign of the fixed sales. Yes, in addition, we entered into a forward acquisition year for a multi tenant core office building in the city of Munster with a rental space of approximately 6,300 square meter. The property is located next to the Dortmund Ems channel, which is part of the backbone of the West German Sewer System. It's still under construction, And we expect to transfer into our portfolio around the end of the year. The quality of the property, Also with reference to ESG criteria, yes, and as well as the fact that we are present in the see with 2 further assets. This allows for very efficient asset management in the future, yes? The property is highly visible, and it's part of a larger development project, which once completed should include a campus style area with various functions. Munster is an established B Cities, a city like Nuremberg or Leipzig and shows ongoing strong macroeconomic indicators and also sustainable growth perspective. So we're very happy that we were that we could secure this property here for our portfolio. Moving on to the disposals in 2021. Yes, we've been pretty active on the sales side. As mentioned before, we have continued the disposal of High Street assets during the Q1. In this case, 2 properties in Bad Homburg. And in addition, as part of our active portfolio management approach, we sold 3 further assets, which no longer fulfilled our overall investment strategy here. This includes a small wholesale retail asset in a city retail center as well as a smaller mixed use property in Hamburg. And yes, on average, the five assets were sold at approximately 8 said above our latest above the latest value. Looking forward for the remainder of this year, we will concentrate our activities here on selling further High Street Properties and on finding an adequate balance of buy and sell, as mentioned before. Yes, and with this short introduction, let me hand over to Hans Richard for further details on the operational side. Yes. Thank you, Niklas. Good morning, ladies and gentlemen, and also warm welcome from my side. Let us now take a closer look Okay. So operating and financial figures for the Q1 of the year 2021. First of all, Let's have a look at the development of our FFO. With a total of EUR 21,800,000 income from rents Leases is at the previous year's level. Reductions of rental income due to disposals and pandemic related risk provisioning are offset by additional rental income from acquisitions of around €1,000,000 Total maintenance expenses amounted to around €1,000,000 and thus are around 15% below the level of 2020. The decline mainly results from follow on effects due to COVID related postponement of measures in 2020. Net rental income amounted to over €18,900,000 a plus of 1.1% compared to 2020. Personal expenses increased by around 15% compared to Q1 2020, mainly due to the recruitment of new employees and additions to provisions from management board compensation, which are related to share price developments. Other operating expenses were approximately EUR 1,200,000 in the Q1 of 2021. This item mainly includes corona related write downs on receivables of €900,000 and is therefore significantly higher compared to the Q1 of 2020. As a result of income and expenses, the FFO came in at €12,700,000 in the reporting period. The corresponding FFO per share amounts to $0.16 All in all, a slight decrease of 5.9% year on year. Now let's have a look at our NAV and NTA development. The NAV calculation shows a decrease of long term assets, which is mainly a result of the portfolio disposals in the course of the Q1 of 2021. The increase in short term assets relates So liquidity enhancements and the reclassification of properties held for sale. Non current liabilities and provisions increased as a result of Additional loans in relation to the newly acquired assets overall. NAV saw a slight increase of 1.9% is against the end of 2020. NAV per share as end of March 2021 came to 11 point to €6,000 The difference between the March 2021 NAV and NTA only relates to Hambron of tangible assets of around €500,000 For this reason, the values for NAV and NTA per share are almost identical. Let me now continue with an update on our tenant structure. Compared to year end 2020, there are no major changes in our top ten tenant list. In total, food retailers currently still account for 1 third of the company's total rent. Our office tenants generate around 39% of the total rent. Our solid tenant structure and, in particular, the high share of tenants with strong financial profiles and operations that are mainly unaffected by COVID-nineteen from the basis for our stable cash inflows even in this economically difficult times. Now a few remarks on the letting situation. Despite the continued challenging conditions on the letting market, we achieved a very strong letting result in the Q1 of 2021. We were able to conclude leases for around 46,000 square meters in the course of the Q1, primarily related to contract extensions with existing tenants. The vault for the total portfolio is around 6.4 years. The average terms in retail and office remained at a consistently high level at 7.1 5.3 years. Considering the difficult economic conditions due to the COVID-nineteen pandemic, the positive operating performance underlines The expertise of our internal asset management, the high quality of our diversified property portfolio as well as our high proportion of tenants with strong financial profiles. Our lease expiry schedule still shows that the share of contracts expiring remains well balanced throughout the next years. Due to our successful letting operations during the last weeks, we decided to offer as an one off snapshot an additional detailed insight in Hambrona's Q1 Letting activities. The share of expiring rental agreements for 2021 accounts for an amount of around EUR 4,300,000. The expiring rental income in 2021 is offset Our new leases and lease extensions already concluded with the total volume of EUR 3,400,000. This corresponds to a strong Follow-up letting completion of 77.5%. This includes the extension of the 5 largest contracts Finally this year, the cumulated annual rental volume of around EUR 2,000,000 The majority of all contracts were concluded with office tenants. At 81.5%, the tenant retention rate remains at a consistently high level. The remaining leases outstanding for renewal in 2021 only correspond to a total volume of around €1,000,000 or 22.5 percent of the volume expiring during this year. Currently, we expect 27.1% of the outstanding expiries to be extended in the course of the year. For the remaining part of 72.9%, the reletting is well in progress, and we are confident to sign further follow-up letting agreements during the next month. Let's move on the development of Hamburger's EPRA vacancy rate, we have been able to further reduce the EPRA vacancy rate by 0.2 points to 1.7% in Q1 2021. A reduction of 0.1 percent points is caused by property disposals during the first The majority of the effects is related to our strong letting performance where we are consistently able to either re let to existing tenants or attract new tenants. Now a few remarks on our financial situation. Hambrona financial Test of the 45% ratio required. The LTV at the end of March is at 44%, and our EBITDA interest coverage ratio rose once more to 6.4%. We also managed to again reduce average financing costs slightly to 1.71 percent with an average remaining term of our loans of 5.3 years. We have already concluded our follow-up financing for 2021 at favorable terms of 1.1% and are currently starting Negotiations on refinancing our liabilities expiring in 2022. Current average interest rates are still considerably lower Then the expiring financing agreements and Hambrona will benefit from the lower rates in the coming years. Let me give a few remarks on the current impact of COVID-nineteen. Despite challenging market conditions, Rent collection rates have still seen a stable performance in the last month. Throughout the month of July to December 2020, Without a nationwide lockdown, the average rent collection was almost back to precrisis level at an average of 98.8%. Following the resumption of the lockdown at the end of 2020, the rent collection rates fell slightly but continued to increase over the course of the year, resulting in an average of 94.7% in January to April 20 21. We are continuing our cooperative dialogue with tenants affected by the current lockdown and are confident To find further mutual and fair agreements as we did in connection with the 1st lockdown in 2020. So far, From Arthur, thank you for listening, and let me now hand over to Niklas for a short outlook. Yes, Hans Richard, thanks so much. Getting back to guidance and outlook. Yes, finally, a short overview here. There are no relevant changes to the status here of our full year presentation just a couple of weeks ago. Yes, supported by the good operational performance, which we just described during the last minutes And the resilience of the portfolio, we will further concentrate here on, yes, On one hand, closed tenant management relating to the pandemic situation as in the quarter before. Then clearly driving forward our letting and CapEx tasks. Yes, we are going to take care of the remaining refinancing topics for 2022. And clearly, also, we'll see that we get a further on successful asset recycling here within our portfolio strategy. Yes, and Major goal, as before, remains to lay the ground here this year for further sustainable and the accretive platform growth within Hamburg. And with that, thanks so much, first of all, and open for questions from your side. Thank We'll now take our first question from Dennis De Jong from Kempen. Please go ahead. Your line is open. Hi, good morning all. Yes, so a couple of questions from my side. Hopefully, we could address them 1 by 1. So first question would be whether you would foresee further write downs on receivable given that we have already progressed a bit into Q2. That will be my first question. Sorry, Dennis, could you repeat this write down concerning what, please? I'm sorry. Yes, sorry, concerning the receivables, further right. Okay, sorry. This is depends from the further lockdown what we will have seen. Sorry, but at the moment, I can't give you here an answer. You know we had We had write downs of around EUR 860,000 in the Q1. Yes. No, actually, I was trying to get more color on to what you're seeing as we're progressing into Q2. But I guess that's an answer as well. Yes. But Yes. This is depends from the lockdown. If we can open in a relatively short way Short time, then I don't believe that we will have a high amount of receivables here. But If we will have a lockdown up to the Q3, then we have totally other situation. Okay. That's all clear. And I was wondering whether you could yes, the rental levels On the lease renewals, how they progressed? These are mainly in In the same level what we had before. There was no big reductions. Okay. Sounds good. Final question from my side will be whether you could give any color on expected CapEx and yield on cost to give some light on the managed Core assets, specifically the Mainz asset. Dennis, we are in the middle at the moment of doing a technical further technical analysis, obviously, after we onboarded the asset tier. But I can tell you, it will be a substantial investment over there because, as I pointed out, it will relate not only to the interior part, but also concerning the outer part of the property. But it will also depend on other factors like, for instance, how much subsidies we could get from public supporting programs, etcetera. So therefore, it's a little bit early for us to make here reliable estimates on this. Course, we have done our analysis internally, but we would rather prefer then once we have more light on what exactly we're going to do here to form a kind of, yes, a kind of investment story here to provide you with the full package of details once we are further progressing with our planning, yes? But that's as of today. Okay. Understood. We'll look forward to that then. Yes. Thanks. That was all from my side. Thanks, We'll now move to our next Question from Kai Kloth from Berenberg. Please go ahead. Your line is open. Yes, good morning. I start with 3 questions, if I may. The first one It's on Page 10 of the letting activities. Could you indicate, if any, how much of the contract extensions came from premature extensions of the meaning where you gave, for example, some rent reductions or rent help to the tenants and that in return you achieved to extend the underlying lease contract. The second question would be on the targeted What about you intend to spend for maintenance and CapEx? Could you give only a little bit more color how the talks with Real has been developing? And What the budget is you intend to spend and how much it would be spent splits between CapEx and maintenance? And the last question on that, do you how do you intend to finance these investments by debt or by equity? Thank you. Yes. Okay. Then perhaps I can start with the letting situation. So less than 10% of the re letting is corona related, and this is only one tenant in one asset. So it's not a big issue here. On Real, please understand here we are in the middle of the negotiations and it's rather complicated. You have 3 parties here, Rial, as the old tenant. You have potential new tenants, and we are a little bit in between here. And it's here too early. We don't have here final figures at the moment. If we have signed the contracts, be sure Then we will come immediately to the market. Sure, understood. Just out of just being curious, Do you expect the portfolio investments to be more on the maintenance or on the CapEx side? Just to how that might affect the That's very depends at the end of the day from the contract. I think it will be a reasonable amount in CapEx, but it's unclear it will happen in this year or next Here, I'm not sure. And so that you can give incentives to the new tenant and then You will split this year by year On the rental contract, on the duration of the rental contract, so here we are At the moment, totally open in these negotiations. Understood. And very last question On Page 13 regarding the debt expiry schedule. Do you have any targets regarding the Thanks for the 2022 expiries. Will it again be on a 10 year basis, 10 year mortgage or may be aiming for It could be possible that we are here perhaps more flexible. But it's so that the main part of this around more than 80% will expire at the end of the year 20 22. So and here, we are looking at the moment for the offers of the banks, and it's not started yet to do this for 10 years or not. Overall, you can expect that we will have more flexible in the financing in the future than in the past. It's not so that we will, in general, refinance for 10 years. And overall, from the strategy, we believe it makes more sense if we have a more active portfolio management That we will have here a little bit more flexibility on the financing side, too. Understood. Thanks so much. We'll now move to our next question from Thomas Rotholser from Jefferies. Please go ahead. Your line is open. Hi, good morning. Just one question on office letting markets here in Germany. I mean, There was a rather weak development until recently. And what we heard from a couple of competitors of you is That there might be first signs of a recovery, especially with regards to inquiries. Could you share that? Maybe you can provide us some color how you look at this and what's your experience here? Thomas, this is Nicholas. May I can start and Hans Richard can add. I mean, you look at our portfolio and our operational tasks during corona, we haven't seen really phases where nothing worked. So we more or less had a constant stream of negotiations, and we didn't see a real black hole here during the last couple of quarters. So meaning, on the other hand, you don't see a big recovery on our side at the moment. But this might be as well driven by the fact that if you look at our portfolio and the kind of letting tasks here, It's a bit different than maybe for other competitors. You're rather talking about smaller sizes on the letting side, which anyhow are easier to let at the moment. Our observation is that especially large contracts, complicated contracts take longer. But for our daily business here, bread and butter business, we haven't seen any real obstacles here also during corona. Therefore, it's a bit difficult for us. Might be the reason based on the assets we have and the locations we have, but it's not that we have seen a big up and down within recent months here, with exception to what I just pointed out concerning really larger contracts. And we have shown you our letting activities in the Q1, and this was very successful. So I can't see here that we will perhaps we will have again a little bit more recovery, yes, But we are not affected from this at the moment. Okay. Thank you. We will now move to our next question from Philipp Kaizer from Warburg Research. Please go ahead. Your line is open. Hello, everyone. Just a couple of questions. First to start, could you shed some light on the one off effects On maybe early repayment charges from the, yes, sale of high street assets, we handed over 6 in the Q1. Are there any kind of bonuses to see and which direction will we go in the within the 2021? And then maybe how you progress on the sale of the remaining High Good afternoon. On the other hand, kind of, yes, some words about your acquisition pipeline, so to I get a feeling of the recycle of the revenues from the sale. It would be from my side. Okay. Then I maybe start on the pipeline and acquisition and sales activity, and maybe Hans Richard can add on the other topic. So on the sales side, we are I think we are with a pretty good movement at the moment concerning our high street assets. We I think we could sell even faster than we are doing at the moment. But as I pointed out before, for us, it's important to keep a good balance between sale and acquisition activity here. And at the moment, it's more challenging to find good fitting assets here being at core or a managed core asset. Therefore, we are a a bit cautious here on the sales side not to increase the speed too much here, yes, to secure the cash flows from the assets here. Yes, and that's the situation we have. Apart from this, the I think for the kind of assets we are selling, the market has picked up recently. Same applies to our regular acquisition business, we've seen during the last couple of quarters during corona in 2020, we saw mostly core products on the market. And meanwhile, we've seen a little more managed to core product as well. You have specific product, which is very much looked for at the moment and obviously, very pricey. This is, on one hand, a core office product with long term secured cash flows. And on the other hand, new or fully refurbished food anchored retail assets of institutional lot size. Those are Asset types, which are very much looked for at the moment in the market. Nevertheless, we feel pretty good here on the concerning our own pipeline. We have a couple of assets we are looking at more closely at the moment. And as you can see here from our news, the flow constantly, we are able to bring new assets here to the portfolio. Yes. Perhaps your first topic, if I understand it right, this was The prepayment penalties, is this correct? Yes, exactly. Yes. Yes. This is not finally negotiated. And here, we are optimistic to reduce the effects to a minimum. You have seen that we have Board gets in and actually now some assets and here we are in negotiations with the banks that we give this as a security to the debt for the loans. And with this, we would avoid here prepayments. But it's at the moment not finally Negotiator. Okay. Thank you very much. This was all from my side. Okay. We'll now take our next question from Karim Foad from Clearance Capital. Please go ahead. Your line is open. Hi, good morning team. Just a quick one for me. Can you give us a quick update on your views on the LTV and the LTV targets going forward? And if And how you think you're going to hit the LTV targets, maintaining earnings while going through the disposals for your retail on the high street retail as you carry on forward. Just an update on that would be great. Thank you. That's the only question for me. Yes. Would you like to answer next question? Go ahead, please. No. We feel with our LTV, with our actual LTV, very comfortable. For us, it's more important the REIT equity ratio with this 45% from the legal side. And actually, we have 55% around. And with this, We feel very comfortable, and we don't like to stress the ratio much more down. That's not our intention at the moment. Okay. Thank you. At the moment, so I'd like to hand the call back to our speakers for any additional or closing remarks. Yes, fine. So thank you very much for your attention and interest in our numbers. And should you have any further questions, Please don't hesitate to call Christoph or ourselves here directly at the company. And apart from this, we wish you a good week. And again, thanks for attending. Yes. Thank you very much from my side too.