Good day, welcome to Hamborner REIT H1 2023 results call. My name is Priscilla, and I'll 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. However, you'll 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'll be connected to an operator. I will now hand you over to your host, Niclas Karoff, the CEO and CFO, to begin today's conference. Please go ahead, sir. Thank you.
Yeah, good morning, ladies and gentlemen, and welcome to our H1 2023 earnings call. A warm welcome also from my colleagues, Sarah and Christoph, who are sitting right next to me in the room. Before we begin, we would like, again, to share with you some information that relate to the transmission of the conference. As described in our invitation to this call, we recommend that you only use one of the dial-in options given. Either follow the presentation live via webcast or by telephone. If you dial in via webcast and via telephone at the same time, there will be a technical delay, and please understand that you can only ask questions over the phone. Now, let's focus on the presentation.
After a short overview of the H1 key figures, I will provide more details on the company's earnings situation, the financial circumstances, as well as our latest portfolio revaluation, which has been carried out at the end of June or to the end of June. Afterwards, Sarah will give you some insights into the development of our operational business. Let's move on to the key figures here, and let's start with it. Although economic environment remains challenging, we were able to continue our positive operational performance in the Q2 , generating further growth in revenue and earnings.
Compared to the H1 of 2022, income from rents increased by 4.3% to EUR 43.7 million. Mainly due to additional rental income from property additions and contractually agreed rent adjustments as a result of the continued high inflation. FFO growth was even higher, with a plus of more than 16%. It amounted to EUR 28.1 million, which corresponds to an FFO per share of EUR 0.35. Positively affected by a, as we think, a very solid development of operational key figures. More details on that later on by Sarah. As a result of the portfolio revaluation, as well as the dividend payment in Q2, NAV per share and LTV took a negative development.
Regardless of this, the overall financial situation is remaining comfortable. Let us now take a closer look at the earning situation. As already mentioned, the increase in rental income was mainly caused by property additions as well as further indexation effects. Total maintenance expenses decreased to around EUR 2.7 million year-on-year. Those expenses relate to regular minor ongoing maintenance and various smaller planned measures in the H1 of 2023. As various measures are currently being executed or at least started, we expect maintenance costs to significantly rise within the next month and still assume total maintenance costs for 2023 at around previous year's level.
The FFO relevant other operating income amounts to EUR 1.3 million, mainly due to the compensation payment for an early termination of a rental contract in the property in Mainz. Yeah, please keep in mind that we have adjusted FFO by EUR 500,000 in connection with a write-up resulting from the sale of the property in Mosbach at the end of the Q1 . The increase in interest expenses is mainly the result of higher interest payments for loans refinanced in 2022. The interest income of approximately EUR 1 million is a result from overnight and fixed-term cash deposits, which were made due to the high level of liquidity.
For the H2 of the year, by the way, we expect a lower interest income. The next slide shows you our current financial situation. Compared to year-end 2022, our financial liabilities have been significantly reduced to around EUR 700 million, mainly due to scheduled repayments.... In particular, the refund of a large part of the bonded loan taken out in 2018. Given the current development of transaction markets, the dynamic interest environment, as well as our comfortable liquidity situation, we decided to fully repay the loan at the end of March of this year. As already mentioned, LTV was negatively affected by the dividend payment in May, as well as the recent revaluation of our portfolio.
Nevertheless, our LTV and REIT equity ratio remains solid at 42.2% and 56.4%. Further relevant indicators such as net debt to EBITDA and EBITDA interest coverage improved compared to year end 2022 and remain at comfortable levels at 9.6 and 5.6. In the remainder of this year, as well in 2024, refinancing requirements are very low with corresponding positive effects on further development of our average financing costs. All in all, our financial situation remains very solid. Let us now take a closer look at the development of our portfolio during the H1 of the year, which was obviously affected by the latest portfolio revaluation.
In order to reflect current developments here in the property markets, and also obviously to create additional transparency, our assets have been revalued by external appraisers from Jones Lang LaSalle as at 30th of June. This slide provides a value bridge including effects from our limited transaction activities and the portfolio revaluation. Taking into account the revaluation and the disposal of the retail property in Mosbach in the Q2 , the fair value of the property portfolio was EUR 1.516 billion as at 30th of June, 2023. The reappraisal resulted in a fair value reduction of our total like-for-like portfolio of 5.7%.
The decline was due to a corresponding development of the sub-portfolios, with a value reduction of 5.4% in the retail and around 6% in the office portfolio. Similar to the last regular year-end appraisal, valuation was affected by the interest environment, which is reflected in the higher discount and cap rates shown on the right-hand side of the slide. However, we are very confident that the quality of our portfolio, yeah, our solid tenant structure, which is based for our reliable cash flow development, is supporting our further development even in these demanding times. Thank you so far, ladies and gentlemen, and with that, let me now hand over to my colleague, Sarah.
Thank you, Niclas. Good morning, and welcome to our conference call. Following the presentation of the portfolio development, I would like to continue with our investment activities in the H1 of this year and introduce our most recent acquisitions. As you might have noticed, we were able to sign a purchase agreement for the two retail properties in Hanau and Offenburg at the end of June. The properties were acquired in an off-market transaction and are large-scale Cash & Carry stores at established commercial locations in metropolitan regions. Both assets are in a pretty good shape and fully let to our key tenant, EDEKA. The total investment volume is EUR 23.5 billion. With the current market development, the assets came in an attractive gross initial yield of 7.6% for the property in Hanau and 6.4% in Offenburg.
With walls of around eight and more than 12 years, the properties are perfect complement to our existing retail core portfolio and will form the basis for further stable and predictable rental income. The transfer of ownership has already taken place on 20th of July. The assets meanwhile contribute to rents and earnings. Let me continue with a view on the portfolio key metrics. Apart from the already mentioned sale of a smaller retail property in Mosbach in the H1 of this year, there were no changes within our property portfolio. As at end of June, it consists of 65 properties, and in terms of the sub-portfolio values, with an almost unchanged share between retail and office. Our operational portfolio figures remain very solid. The portfolio watch remains at a high level at 6.3 years.
We still see impact from the temporary vacancy in our manage to core property in Mainz. This effect is reflected in our current vacancy rate of 4.1%. The effect of Mainz is around 150 bips. The new lease with the City of Mainz was signed in March this year. Given a quick conversion of the rental space during the last weeks, we were able to hand over the new tenant to the new tenant at the beginning of August. Now vacancy rate has already been reduced, which will finally be reflected in our upcoming Q3 figures. The interim vacancy also affects the figures of our manage to core portfolio, shown on the lower right-hand side of the chart, as well as on the next slide. The rent development.
As you can see in this development, the annualized rents have positive like-for-like effects of 2.3% for the total portfolio. The number is obviously also affected by the temporary vacancy in Mainz. The like-for-like effects within the core portfolio were 4.1%. We still benefit from rent increases due to indexation adjustments, amounting to 4.3% for the overall portfolio. Depending on further inflation development, we expect additional positive effects for the rest of this year. For the full year 2023, we currently expect rent increases from indexation of around 4%. On the next slide, we see the current leasing situation. Besides the reletting of the Mainz property, we were able to sign further leases in the H1 of the year, resulting in lettings of around 26,000 square meters.
A share of 70% refers to office spaces. The remaining leases outstanding for renewal in 2023 were nearly half during Q1, Q2, and currently amount for 2.4% of the rents. Mid- and long-term lease expiry schedule also remains well balanced throughout the next years. Finally, a few comments on our tenant structure, which remained largely unchanged during the last month. Compared to end of Q1, we saw minor changes in our top tenant overview. As a result of the rent indexation, the renowned insurance company, AOK, moved up to the 10th place and replaced the real estate company of the federal state of Bavaria. Looking at the sector distribution, you also don't see significant changes. Food retailers still account for around one third of the company's total rents.
With the transfer of the acquisition properties in Hanau and Offenburg, the share of food retail will slightly increase as at the end of the Q3 . In total, office tenants still contribute with around 43% of total annual rents. In summary, our tenant structure is still very solid and reliable. With that, let me hand back to Nicholas for a short outlook for the rest of the year. Thank you.
Thanks, Sarah, and let me now conclude the presentation with an update to our full year guidance. Considering the positive operational performance of the H1 of the year, we feel able to narrow our revenue guidance for 2023. Now, we're forecasting income from rents and leases between EUR 88 million and EUR 89 million. Previously, it was between EUR 88 million and EUR 89.5 million. Based on our current income and expense projections, we anticipate slightly higher FFO between EUR 51 million and EUR 53 million, compared to our previous forecast of EUR 50 million to EUR 52 million. Originally, we assumed that the transaction markets would pick up in the H2 of 2023, and thus, forecasted net investment volume of around EUR 50 million.
Yeah, considering the latest developments, we now expect market environment to improve at a later point in time. Yeah, we are therefore assuming no further impact from transaction activities in the H2 of this year. As a result of the inter-year valuation of the portfolio, we expect NAV per share will be between 7% and 12% lower than the previous year's level at the end of 2023. In view of the continuing uncertain market environment, the range of this adjusted NAV guidance already takes into account further possible value adjustments as part of the regular external portfolio valuation scheduled for the end of 2023.
Ladies and gentlemen, with this, I would like to end the presentation and move on to the Q&A. Thanks so much for your attention, and we are now looking forward to your questions.
Thank you, sir. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. We'll take our first question from Andre Remke, from Baader Bank. Please go ahead. Your line is open.
Yeah, good morning from my side, thanks for the presentation. A couple of questions, please. Starting with the first one on your FFO guidance, a bit higher by EUR 1 million, at least at the upper end of the range. Well, if I get it right, there are less acquisition expected for this year, and maintenance spendings are at the same level as you planned so far. Where does the EUR 1 billion higher, or potentially EUR 1 million higher FFO comes from? This is the first question, please.
Yeah, I mean, first of all, good morning, Andre. First of all, we don't expect to execute transactions here this year anymore. Therefore, no impact from, from transaction that we, we expect at least. At least that's the status as of today. It might change during the next couple of months, but that's how we view it at the moment. Apart from this concerning FFO, yeah, I mean, obviously, it was, yeah, new situation to us a little bit after what we've seen in the last couple of years. We, we have, we are on the interest side. Interest side, interest income is, is higher than originally expected. Then we have some additional operating income.
I mean, just to remind you of these, the one-off effect here we had with a, with a tenant in Mainz, yeah, in the H1 of the year, which obviously that's also something which goes into this calculation. Maintenance, as mentioned, we expect currently, to be more or less on the level of last year.
This was, what you, you already expected, right?
I'm sorry, you mean with reference to the maintenance or?
Yeah, exactly. Exactly.
Yeah, exactly. Yeah, yeah. We I mean, just to, I mean, provide some guidance here, I mean, that's, that's what we expect as of today, that overall for the, for the year 2023, we will be at the end of the year, more or less on the, on a similar level, like last year concerning the year.
Okay. Got it. The second question on your strong, still strong, like-for-like rental growth of 4.1% on the core portfolio side. Is it fair to assume that this number will come down quarter- by- quarter? Probably, is there a number, how many of the total properties you already have faced an kind of indexation? Because some will probably also have some hurdle rates for the next adjustment. It takes you now at these rent levels longer for next adjustment. Is it fair to assume that we will face lower like-for-like rental growth in the H2 or later the year and probably also next year?
Yeah. I mean, as of today, we would expect a slightly lower like-for-like rental growth and, and, on a full year basis. I think it's, it would be fair to assume as of today, it might change, I mean, looking forward, but as of today, of around 4%.
Okay. Then the question of your acquisition target, so far EUR 50 million, on a net basis. Is it more due to a lack of opportunities and the, the dried out transaction market? Or is it also that you have keep, take a more conservative stance, to keep your LTV under control, given the fact that the property value comes down now?
Yeah. I, I would say, it's fair to say it's, it's a mixture of both. I mean, on one hand, the transaction market is still not there, where, where we, we've seen it in the past and the number of opportunities at least, which are interesting from our point of view, is limited. On the other hand, you just mentioned it, for us, we have, we have a close look, obviously, at our balance sheet and our financial structure, and we don't want it to stretch it. There, rather play it here on the, on the more, yeah, more conservative side, clearly.
Okay. Very last question from my side, please. I, I assume you financed the two properties with cash in the first instance. Will, will you attempt secured financing at a later point in time, and what could be the potential terms for this?
Yeah, I mean, obviously, yeah, we, we used some, we used some cash from, from our balance sheet here, but we also, were able to use an already existing financing from the past, within this transaction here or for this transaction.
What were the terms on that?
I mean, I, I can't tell you the, the exact terms, but they were, they were, as it was, we're talking about the loan, which, which, was already in place. It was clearly substantially lower than, than the, the current market environment or the cost, the current cost of debt on the market.
Okay, excellent. That's from my side. Thank you very much.
Thank you. Once again, if you would like to ask a question, please press star 1. We'll move on with Philipp Kaiser from Kempen & Co. Please go ahead. Your line is open.
Good morning, thank you for taking my questions. If you look at FFO, if you assume a similar Q3 and Q4 as Q2, you actually come a bit above guidance, yet you also expect expect further rent increases, the tenant in the Mainz property should move in before year-end. It seems like there's a bit of upside to guidance. Is there a margin of safe- safety, or do you expect higher costs?
I mean, good morning from my side again. I mean, overall, I think, we, we feel very comfortable with, with, with our projections here. For Mainz, I mean, the tenant already is in the or has, has taken on the property, so it's nothing which was going to happen later on during the year. But overall, concerning our guidance, I mean, I, I mean, I don't think that we have substantial space open here. I mean, we, we made our thoughts on this, and, you know, Hamborner, that we typically, hopefully, at least from your, from your impression, do a good job here on, on predicting our, our further financial situation.
Overall, let's put it this way, we feel comfortable with it, but we haven't put any, any specific, substantial reserves here. Yeah.
Mm. Okay, thank you. Also looking at NAV guidance, you still guide for 7%-12% lower, yet, at H1, it's already 11% lower, compared to the end of last year. Does it mean you expect values to stabilize?
I mean, obviously, it, it's, it's a snapshot of midyear concerning valuation as, as is midpoint valuation, and, and we will see how it, how it works out. Please keep in mind also that obviously for year-end, until then, we, we intend to collect some additional FFO, which obviously also has an impact on our overall NAV. Yeah, let's put it this way.
Okay, one last question. We saw a big transaction in Germany in grocery anchored assets, roughly EUR 1 billion. Do you happen to know any details, or have you looked at the portfolio just out of curiosity?
I, I saw the, the news about this transaction, but, I have, I have no further information here, to share with you on this transaction. No.
Okay, thank you. That's it from my side.
Pleasure. Thank you very much.
Thank you. Once again, if you would like to ask a question, please press star one. Speakers, it appears there is no further questions at this time. I'd like to turn the conference back to Sarah for any additional closing remarks. Thank you.
Yeah. Thank you very much for, for your attention, and for your interest in our call. Should you have any additional questions, please do not hesitate to get in touch with, with Christoph and our investor relations department. Apart from this, wish you a good remaining week. Thank you very much.
Thank you everyone for joining today's call. You may now disconnect. Have a nice day, everyone!