Hello. Welcome to the conference call Full Year Preliminary Results 2022. Please note this call is being recorded. You will be in a listen-only mode throughout the call and have the opportunity to ask questions at the end. This can be done by pressing star one on your telephone keypad. I will now hand you over to Niclas Karoff, CEO, to begin today's conference. Please go ahead.
Good morning, ladies and gentlemen. Welcome to our preliminary figures, 2022 earnings call. Also on behalf of my colleague, Sarah Verheyen and Christoph, from IR, he will be as usual available for any subsequent questions regarding our figures. Yeah, I will start with a short presentation to give an overview of the preliminary, obviously unaudited figures. In addition, I will provide more details on our year-end portfolio evaluation, as well as our current financial situation. Afterwards, I will hand over to Sarah, who will give some insights into our operational business development. Let's start with a short overview concerning our preliminary key figures for 2022.
Despite the ongoing challenging market conditions, we are still keeping on track both strategically and operationally, we're able to achieve, as we think here, very solid results for full year 2022. Despite our sales activities during the last year, total rents remain solid compared to 2021, positively affected by acquisitions and further rent indexations. FFO came in 4% lower as against 2021 at EUR 51 million. Above our latest guidance of EUR 48 million-EUR 49 million. Mainly driven by higher other operating income generated in Q4 as well as additional interest income. Operational figures remain on consistently good levels. More details here by Sarah later during the presentation.
Our financial profile remains very solid with an LTV below 40% and a comfortable net debt, EBITDA multiplier of 9.9. Overall, as we think a solid business performance, especially pointed out before under the still challenging circumstances. On the next slide, more information concerning portfolio revaluation. Let's have a deeper look here at the development of our portfolio. This slide provides a portfolio value bridge including effects from our transaction activities and external portfolio revaluation. The scheduled year-end valuation was carried out once again by our external appraiser, Jones Lang LaSalle.
As you can see, the transfer of the two core DIY properties acquired last year positively affected our portfolio value with EUR 49.3 million. The disposal of our last four smaller high street assets, which were up for short-term sale, led to a fair value decrease of EUR 18 million. On the basis of the reappraisal, the market value of our like-for-like portfolio was down slightly by EUR 31 million or 2%. The decrease is particularly due to the dynamic development of the transaction market, as well as interest environment, which is also reflected in the higher discount and cap rates shown on the right-hand side of the slide here.
Despite the value adjustments, we believe that the reappraisal once again emphasizes here the high quality and also resilience of our property portfolio and confirms our strategic approach. Especially our solid tenant base with renowned companies focusing on local supply, as well as office tenants here with high stability and creditworthiness supported the stable portfolio development. In addition, indexation effects made a considerable contribution. As a result, the total portfolio volume as at the end of 2022 remained at around previous year's level at EUR 1.6 billion. NAV per share came down slightly by 2% and amounted to EUR 11.86. As of 31st of December.
I would like to give a short update on our financial situation, yeah, which is again, continuing to remain very. REIT equity ratio still amounts to 59.6% and is therefore well in excess of the ratio required. As pointed out before, the LTV per end of December is below 40% at 39.1%. Further debt indicators, such as net debt to EBITDA or EBITDA interest coverage ratio, remain at comfortable levels at 9.9 and 4.9 respectively. Same applies to average financing costs with level at 1.7% and an average remaining term of loans of 4.6 years.
The end of last year, we already signed a refinancing agreement for the larger part of our secured bank loans expiring in 2023. A substantial part of refinancing needs relates to our unsecured bonded loan in an amount of EUR 62.5 million, which is due to be repaid during the first quarter of this year. Given the current interest environment as well as our comfortable liquidity situation, we first intend to use existing cash to repay the loan and to raise potentially necessary debt depending on further development of our transaction activity here in the markets.
With that, let me hand over to Sarah, who will provide more details on our operational business development.
Thank you, Niclas, and good morning to everyone. Let's start with an overview of our tenant structure. Compared to year end 21, there are only minor changes in our top 10 tenants overview. With the handover of our last former Real market last year, in the property in Mannheim, the food and DIY retailer Globus has doubled its share and now contributes with 4.5% of our annualized rents. As a result of the market exit of Real, the Insurance Association VBG climbed up into the top tenant list. Generally, we can say that food retailers currently still account for around 1/3 of the company's total annual rents.
Due to the acquisition of the two large-scale retail properties in Freiburg and Kempten, the DIY exposure increased by 270 basis points to 11.7%. In total, our retail tenants contribute to 56% of the annual rents, while the share of our office tenants is at around 44%. We see that our tenants still have good credit rating, as Niclas said, and they provide us with stable cash flow, even during a time of economic uncertainty. This results in an overall solid portfolio of key figures, which you can see on the next page. Considering our transaction activities and the revaluation, our total portfolio value remains at EUR 1.69 million, EUR 609 million, sorry.
Compared to 2021, the total portfolio world went up from 6.1% - 6.5%, while office and retail worlds are both still high, at high levels with five and 7.6 years. Successful letting activities reduced the EPRA vacancy rate of our portfolio from 2% in 2021 to 1.9% in 2022. Within our core portfolio, which currently accounts for around 96% of the overall portfolio, the vacancy rate has been reduced to just 1.1%. For further details, let's move on with the letting situation and rent development.
The annualized rents year on year increased by total of EUR 5 million, whereof EUR 1.3 million come from acquisitions and sales, so EUR 1.3 million for transaction and EUR 3.7 million from existing properties, which include effects of indexation and reletting. The indexation effect from 2021 to 2022 is +5%, equaling EUR 4 million in annualized rents. Depending on the further development of inflation, we are expecting additional positive effect for 2023 and catch-ups from 2022. In terms of lease contracts and our current leasing situation, even in challenging leasing markets, we secured numbers of leases for around 84,500 sq meters last year, and we're able to achieve signings of 95% of the total expiring leases in 2022.
Leases outstanding for renewal in this year, in 2023 are on the same level as in 2022 at 7.6%. We can confirm that we already signed lease contracts in this year and currently negotiate on several prolongations with existing tenants. Yeah, so far from my side. Now back to Niclas for a short outlook.
Yeah. Thanks, Sarah. Let me conclude this presentation here with a short outlook. Based on the positive business development and the solid financial earnings here and liquidity situation, we are intending to propose a dividend on previous years level of EUR 0.47 per share. This would correspond to a FFO payout ratio of approximately 75%. Based on, yeah, that's the ratio here. For 2023, we expect a further increase in income, assuming income from rents and leases between EUR 88 million-EUR 89.5 million. FFO is expected in a range between EUR 50 million-EUR 52 million.
Among other things, development of rents and FFO will be affected by our transaction activities during the course of this year. For the time being, our guidance includes a net investment volume of around EUR 50 million, assuming that a major part of transaction will be closed in the second half of the year. Besides, investment activities, our earning situation will be influenced by further developments of rent markets, interest environment obviously, and the corresponding cost effect also. With reference to NAV per share, we aim at a number slightly below previous year level. This assumption includes further possible value adjustments in our property portfolio in the remainder of the year. Yeah.
Finally, let me thank you again for your attention and, now we are looking forward to your questions.
Thank you. As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. That is star one for your questions today. We will pause for a brief moment. Our first question today comes from Andre Remke from Baader Bank. Please go ahead.
Good morning together. Couple of questions from my side. First, thank you for the presentation and the early release of your prelim figures. The first question is on your guidance. You stated that you are expecting leasing markets to remain uncertain. Does this refer to both of your segments, retail as well as offices? Is this a more general statement for the overall market, or do you have some specific contracts in your portfolio in your mind where it could become more difficult? This is the first question, please.
Okay. I would, I would say, or we would say it's more general assumption given the current situation in the market. There are no specific tenants where we already know that they are getting in trouble or we might be facing problems there. It's not retail or office specific. It's a general assumption. I mean, if you, if you see the research reports and also our results, we are, let's say not too optimistic here. It's the very beginning of the year. We will, we will see what the markets bring us. The good thing is that we could already sign leases with existing tenants.
We are negotiating different parts of lease agreements like indexations and lease terms and we are looking positive. Generally not differentiate between office and retail.
Yeah. Okay. Thank you for that. A follow-up on that. You mentioned that you already signed some leases. Did you already face some pressure from tenants on these specific leases? Or what brings you to the assumption that it could become more difficult? Because the overall leasing market, at least if you're not expecting a huge recession, well, last year it was strong. CPI is still high. Are tenants not really like to take the CPI increases?
Yeah. Thank you. I would say it's a combination of different factors coming together. I mean, we have indexation and of course, tenants try to negotiate on thresholds and levels and try to optimize themselves in the lease negotiation. Second is we see that service charges are becoming more important as being part of lease negotiations. The overall economic situation is something, yeah, which is part of all these agreements and the situation of our tenants.
Okay. Thank you for that. A second question is on refinancing of the bonded loan or your decision to repay in the first instance. Does this mean you will not anymore strive for the unsecured market? Is this off the table? What could be a current cost of debt if you would decide to refinance these kind of loans?
Yeah. I mean, fortunately, we feel ourselves in a pretty comfortable situation, as I pointed out, based on our current liquidity situation. Therefore, we want to use this flexibility and, depending on, and we will see how the market further develops during the further course of the year. Coming back to your question, looking forward, is it off the table that we could imagine to tap the unsecured market? I would say no, definitely not. We clearly, we have a pricing sensitivity here, obviously.
We always compare what we get offered for on the secured side as well as what the market presents itself on the unsecured side, and then want to decide very carefully here. Obviously the market has been last year, very dynamic concerning the development of spreads and rates here. Therefore, as now the refinancing is up for this bonded loan here, we clearly prefer currently, yeah, to use the existing liquidity. Yeah. Concerning costs that we are currently facing for the-- You mean on the, on the secured or on the unsecured side?
Both, because you mentioned just that you already worked on the secured side.
Yeah
for refinancing for this year. Probably it would be perfect if you could tell us the terms on that.
Yeah. I mean, obviously, you know about how the market is and how flexible the rates currently develop. Out of the current situation, we would expect on the secured side, financing costs of, let's say around 4% - 4.5%. Depending obviously on a couple of factors like, what's the duration and other factors. On the unsecured side, let's say maybe between 5% and 5.5%, something around more on the upper end, most probably at the moment. As I said, two weeks from now, this can be different again.
We are carefully observing the market, and it's very interesting to see, or it has been interesting to see in recent months how these markets have developed here. Therefore, we can just point it out again. We want to keep the flexibility as long as possible here.
Okay. Okay. A question, more general question on your strategy. You strive for, if I remind correctly, 10%-20% of your portfolio should be managed to core. At the moment you are for a while or since a while, you are at around 4%-5%. Is this what is your strategy in the current market environment? Also here to keep the flexibility waiting on opportunities or could we expect that you are striving in your mentioned budget of EUR 50 million for this year, more towards managed to core property?
I mean, I would say, we keep our opportunistic approach here. I mean, it all depends on what we get on the table. It's very, I mean, based on my experience here, it's very difficult to predict, let's say, in the second half, what kind of asset class and what kind of risk profile will provide more interesting offers to us. I mean, we strategically, we clearly have the goal to increase our, within the total portfolio, our share of managed to core properties. It's also clearly depending on what we get on the table. Yeah. As you know, the market is in a specific situation at the moment. It all depends on what you, what we get. Yeah.
I think this flexibility of covering two asset classes and two different risk profiles has helped us in the past a lot, and yeah, potentially also in the future. Yeah. We have no clear preference now on to go only one road concerning our assets. Yeah.
Do you have something on the table at the moment, or is this a completely dried out pipeline at the moment, which we observe in the overall market probably?
Yeah. Thank you. Let me answer to this. I mean, generally, there is a lot of uncertainty in the market, and we see less opportunities for new investments on the acquisition side. However, right now, we are active on with retail properties, especially large scale retail properties. Yeah, we give an official statement once we are able to sign a new contract. The answer is yes. We are still seeing acquisition opportunities, but in fact, there is still a discrepancy of the price expectations between buyer and seller. I mean, the current transaction volumes reflect this as yeah, transaction marked is not that high.
Okay, perfect. Very last question. Sorry for so many questions. You mentioned, for the fourth quarter as operating income as well as interest income, to be a topic. What was the reasons here? Any specific reasons? As the amount, the delta between the, your last guidance and the provided, EUR 51 million in FFO.
Yeah. I mean, We're talking about total volume of approximately EUR 1.5 million. This splits up in approximately EUR 500,000, just ball park, from interest income, and around EUR 1 million from other operating income, with yeah, very individual cases here.
Okay, perfect. Thank you very much. That's from my side.
Thank you. We're now moving on to our next question, which comes from Kai Klose of Berenberg. Please go ahead.
Yes, good morning. I've got three questions, if I may. The first one you indicated for 2023. One of the guidance implies a margin squeeze on FFO margin squeeze by about 260 basis points. What are the moving parts here? Is it an increase in interest expenses or personal or G&A costs?
Yeah. I mean, obviously interest cost based on current market situation. As well, we expect additional maintenance costs. Yeah.
Yes, which item will increase more, interest expenses or maintenance or G&A costs?
Sorry, I didn't get it, acoustically right. Kai, can you.
Which item or which of the three items will increase more, interest expenses, G&A or operating costs?
The difference is not. I mean, it's it divides more or less similar. Yeah. There's no clear, you know, major difference.
Second question is, could you indicate how the ERVs have changed compared to the contracted rents in 2022?
Slightly increased. Okay. According to the revaluation of our portfolio and our assumptions, we estimate a slightly increase of the ERVs.
How have both developed in 2022, contracted rents and ERVs?
Kai, Christoph will come back to you with a follow-up later on that point.
Many thank you. Just to, if I understood that correctly, you mentioned that the contracted rents are slightly ahead of ERVs, or was it the other way around?
No. In the presentation, we were talking about annualized rents as of year end 2022. In comparison to 2021, the annualized rents increased.
Yes. Are the contracted rents now still below, or are they above the ERVs? Do we have an over rent or under rent situation looking through the entire portfolio?
Yeah, one second, please.
Okay. Currently we do have a very small overrun with our existing leases.
Understood. Thanks. Many thanks. The last question, if I understood that correctly, when you said EUR 50 million as investments as assumption for this year's guidance, these are acquisitions or investments into the assets, into the portfolio?
This would be acquisitions, Kai. That's the net figure between acquisition and sales activities that we anticipate for this year.
When you say it's a net number, what kind of disposals do you have incorporated?
It's a rather smaller part of it. Let's say, I mean, a ballpark, let's say EUR 60 million acquisition and roughly EUR 10 million sales activities.
Many thanks indeed.
Yeah. Pleasure.
Thank you. As a brief reminder, that is star one for your questions today. Up next, we have Philipp Kaiser of Warburg Research. Please go ahead.
Hello, everyone, thanks for the presentation and thanks for taking my question. Just one small question left for me, regarding a dividend payment and the huge discount to NAV currently. Are you still intending to pay a scrip dividend this year, or that might change due to the current situation?
Yeah, thanks for the question. Currently we do not intend to pay a scrip dividend for the year. Yeah.
Okay. Perfect. Understood. Thanks. This is all from my side. Thanks a lot.
Yeah, thanks.
Thank you. Once again, that is star one for your questions today. We will pause for a further moment. There appears to be no further questions at this time. Apologies. We're just receiving another question there now, which comes from Robin Elias of Kempen. Please go ahead.
Good morning. Today's results show quite a nice beat to guidance this year. I'm more interested in guidance next year. Since the base assumption is EUR 50 million of net acquisitions, does it mean that if there are no acquisitions, FFO will likely come at the lower end of the guidance? Or is there also a chance that it might come below?
I mean, if we don't acquire any assets during the course of this year, this obviously will have an impact on the FFO. That's what we're saying. The rest depends on how all the other influencing factors. I mean, obviously, other factors as well can move in both directions. We wanted to show more or provide transparency here, simply, that we have some penciled in some potential acquisitions for this year as well as some sales activity. Yeah.
Okay. That's clear. Thank you.
I'm not quite sure because of the technical situation here, if my latest answer was transferred here. Concerning scrip dividend, just let me repeat it again. We just for clarity, we do not intend to propose here a scrip dividend for this for the year. Yeah. Thanks. Sorry. To the general-
Thanks. Thank you. As there appears to be no further questions, I'd like to hand the call back over to you, Mr. Karoff, for any additional or closing remarks.
Yeah. Thank you very much for the attendance, and happy to answer additional questions later on. If you have something, please get in touch with Christoph or ourselves. Apart from this, I think we wish you all a good week. Yeah, thanks again for attending.
Thank you for joining today's call, and you may now disconnect.