Welcome to the Cibus Q4 2023 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to CEO Christian Fredrixon and CFO Pia-Lena Olofsson. Please go ahead.
Well, good morning everybody. Welcome to Cibus Nordic Real Estate's full-year 2023 results presentation. We're talking to you from our head office in Stockholm. My name is Christian Fredrixon, and I'm joined here today with the company's longtime CFO, Pia-Lena Olofsson, whose voice you will recognize shortly. So let's get to it. So starting off with a brief presentation of myself. I joined as CEO 15th of January this year, so this is the seventh week on the job, and it's great to be here. I'm a Swedish national. I have a background in finance, real estate, and grocery. Been active in the Nordic real estate and capital markets over the past 20 years, whereas seven years in grocery real estate.
Prior to Cibus, I was a Chief Investment Officer at Vasakronan AB, a company I'm sure most of you know, but it's one of the largest property companies in the Nordics, owned by the four Swedish AP funds. Prior to Vasakronan, I had a similar role for ICA Real Estate for seven years, and ICA is, of course, a leading grocer in the Nordics. Here I got to know grocery and grocery real estate from the inside, carried out transactions, developments, financing, and set up a couple of grocery real estate joint ventures with institutional investors. I've been at Catella Corporate Finance in Stockholm, and my first real estate job was within property finance and treasury at London-listed CLS Holdings PLC. I started my career within investment banking in London, and I hold a Master of Science from Stockholm School of Economics.
So that's me, and now let's move on to Cibus. Summary of Q4 2023: rental income increased 6% year-over-year, and net operating income increased by the same number, 6% year-over-year. The market factors that increased rental income and NOI, of course, are the high inflation environment that persisted, which fed through indexation into our rents. Our NOI followed as Cibus has 90% as net or triple net leases, so we're not affected to a large extent by any increased property costs. High inflation, however, also meant higher interest rates, which affected our profit from property management, which fell by 5% year-over-year due to higher interest costs. Higher interest costs also affected unrealized property values and values on derivatives, which pushed our profit for the period down to minus EUR 34 million.
The board intends to propose an unchanged dividend of EUR 0.9 per share. Moving on to what is Cibus? What is it we do at Cibus? I think the slogan is brilliant: "Converting food into yield." That really says exactly what we do: convert food into yield. What does that actually mean in practice? It means we're a real estate company focused purely on daily goods, properties. We aim to create stable cash flows. We've been listed since March 2018 and listed on the Nasdaq Stockholm Mid Cap list since June 2021. We're the sole listed daily goods real estate vehicle in the Nordics, and we've grown from a Finnish supermarket portfolio into a pan-Nordic pure grocery player, and we pay monthly dividends to our shareholders.
And so this is our growth story so far: growing out of Finland in 2018, entering into Sweden in 2020, Norway in 2021, and then Denmark in 2022. This is about the company at the end of Q4 2023. 451 properties, a property value just shy of EUR 1.8 billion, approximate NOI of EUR 114 million, and just short of 1 million sqm of lettable area. Our main tenants are strong daily goods retailers in each of their respective markets. So what do we mean when we say we create stable cash flows? Well, we're focused purely on daily goods properties, as you know and had mentioned. Daily goods properties are great because they're a non-cyclical business, and they've proven to be cyclical in all business cycles. I mean, most recently, both in a low and a high inflation rate environment.
84% of our rental income is from daily goods tenants, and 97% of our properties are anchored by daily goods tenants. Also, importantly, 99% of our rents are linked to CPI developments, which creates a built-in inflation hedge. We have a steady WAULT over time, and it's further helped by the store location stability of the Nordic grocery markets. We also work with diversification. Geographical is one. We're in four countries and in different regions within those countries. We have a large number of assets, whereof all but one is less than 1.5% of our total net operating income. Our average property size is 2,200 sqm of lettable area, which is roughly about a supermarket-sized store. Over 90% of our leases are either net or triple net, which shelters us from property cost increases.
So all of the above work together to create a stable NOI, which has been demonstrated over time. To create a stable earnings capacity, we have a large part of our interest-bearing debt hedged. At the moment, 97% is hedged, and we use diverse funding sources. Earnings capacity is in focus for the company. We've historically delivered value to our shareholders through dividend yields, earnings per share growth, and total returns. We've showed historic operational stability, and we operate with a noticeable yield spread. Our property yields in Q4 2023 are 6.4%, and our average funding cost at the end of last year was 4.5%, creating a noticeable yield spread. Our main growth driver 2024 is increasing our earnings capacity per share. Looking back at the past year, what happened within the company?
The rising interest rates led to that Cibus took some significant measures early in 2023. For the first time in the company's history, annual dividend was lowered. Dividend per share was lowered, and the dividend was reduced to a new but long-term sustainable level of EUR 0.9 per share. New equity was raised last year in order to optimize balance sheets and buy back bonds, and then interest rates were hedged to 97%, and 100% of our bank debt is hedged, interest rate hedged. So what did the above lead to, the above measures? Earnings capacity per share grew from EUR 0.91 per share mid-last year to EUR 0.95 per share at the end of last year. And due to the above measures, but also, of course, to the inherent index link of our underlying operations.
Having a look at the graph on the right, you can see our earnings per share development and also our dividend per share development. Then looking at our share, it's a very liquid share, with the trading volume, average trading volume of SEK 65 million of turnover per day. Looking at our shareholders list, there are many familiar names in the top 50, including Länsförsäkringar Fonder , the fourth and third AP funds, and several international funds. We're proud to have almost 50,000 shareholders. So now over to Pia-Lena for the financial overview.
Thank you, Christian. Moving on to significant events during the period. The 6th of November, Cibus sold two properties in Finland to S Group for EUR 9 million. The proceeds from the divestments were used to reduce debts, strengthen the balance sheet, and had a positive effect on cash flow per share. Then, as everyone knows, Christian was appointed CEO of Cibus and started his role the 15th of January. After the end of the period, Cibus issued a senior unsecured green bond of EUR 50 million. It was issued on the lowest margin to date for Cibus, taking the tenor into account. Here are some key figures for the fourth quarter. Rental income was EUR 30.1 million. Net operating income grew with 6% to EUR 28.1 million. Net financial items were minus EUR 12.6 million, which was an increase with 10% compared to last year.
Profit from property management was EUR 11.8 million, which is a decrease with 5% compared to last year. If we go into details, there are some items affecting comparability in the fourth quarter. In administration costs, -EUR 0.4 million is attributed to severance pay and repurchase of share options for former CEO. Net financial items include an exchange rate change of -EUR 0.2 million. Profit from property management, excluding non-recurring costs and exchange rates, was EUR 12.4 million. Unrealized changes in property values were -EUR 31.2 million and were due to the increased yield requirements of slightly more than 20 basis points. The effect was dampened somewhat by increased rent levels as a consequence of indexation. Unrealized changes in derivatives were -EUR 20.8 million and were attributed to sharply falling market interest rates.
Since a large part of Cibus' hedges are interest rate caps, lower interest rates can have a positive effect for Cibus going forward. We've seen negative unrealized changes in property values several quarters now. In the fourth quarter, the change was -1.8%, and for the whole of 2023, -2.9%. From our peak valuation in 2022, the unrealized property value change was -4.5%. Rents have increased due to indexation and other rent increases during 2022 and 2023 with 14.7%. From the peak valuation in 2022, the real unrealized property value change is -15.2%. Our current earnings capacity shows a net operating income of EUR 113.8 million, which is an increase of 3%. Mainly, indexation has increased the rents, but currency effect and a slight change in occupancy has dampened the increase.
The slightly higher finance cost this quarter is due to temporarily higher margins in Finland the 1st of January, and this would decrease again during the first quarter of 2024 due to amortization. Cash flow per share has increased with EUR 0.03 per share since the last quarter and is now EUR 0.95 per share. Looking at the net operating income in a comparable portfolio, we see that the effect of indexation and other rent increases amount to 5%. Indexation increases going forward will increase NOI and cash flow, while finance expenses are 97% capped. Cibus segments are countries. Finland is the largest market with 68% of the NOI in the fourth quarter. Denmark is second with 15%, Sweden 13%, and Norway 4%. Cibus' strategy is to give its shareholders strong dividends on a monthly basis.
The board intends to propose to the 2024 annual general meeting an unchanged dividend of EUR 0.90 per share divided into 12 installments. The dividend yield on the closing share price of SEK 134.05 at the end of the quarter was 7.4%. Based on yesterday's share price of SEK 111.25, the dividend yield is 9%. Looking at the balance sheet, property value was EUR 1.8 billion. Secured debt was EUR 980 million, giving a loan-to-value on secured debt of 51.1%. Unsecured bonds amounted to EUR 148 million, giving a net loan-to-value of 57.5%, which is within the financial targets of 55%-65% LTV. The board has evaluated the LTV target and has come to the conclusion, based on the operational capacity and the financial model, to keep the LTV targets within the 55%-65% range. Our net asset value, EPRA NRV, was EUR 713 million or EUR 12.5 per share.
Our average remaining lease time was five years at the end of the fourth quarter, and it continues, as you see, to be very stable around five years. Regarding funding, 84% of external funding is bank loans. 100% of the bank loans are interest rate hedged and can maximum amount to 3.95% up until and including December 2024. Interest can amount to maximum 4.05% during the first half of 2025, after which the interest rate hedges gradually mature. 13.5% of external financing is unsecured bonds. 80% of these are hedged as well. We have a hybrid bond that amounts to 2.7% of total financing. Closing interest rate on interest-bearing liabilities was 4.5% at the end of the quarter. After the period, Cibus issued a senior unsecured green bond. Once again, Cibus has opened the high-yield bond market. The transaction was triggered by high incoming investor interest.
The bond of EUR 50 million was issued at the lowest margin to date for Cibus, taking the tenor into account. Based on the earnings capacity and taking all interest rate hedges into consideration, an increase of the market interest rate with 1 percentage point would affect profit with -EUR 0.3 million annually. An increase of 2% would affect profit with EUR 0.5 million annually. As you see, the largest part of Cibus's hedging is interest rate caps, which mean that lower interest rates can affect Cibus's paid interest rates going forward. Cibus's covenants are on the bond, an ICR of 1.75 x and an LTV of 70%. At the end of the fourth quarter, we had an ICR of 2.2 x and a net LTV of 57.5%. Over to you, Christian.
Thank you, Pia-Lena. Back to me and back to the future. So looking at the future, what are we up to and where are we going? Outlook 2024 on the ESG, which is in focus. We have a target to be carbon neutral by 2030, and we're working hard towards to get to that target, of course. Energy efficiency is one of our main focuses. As we have our net lease structure, as you know, as we talked about earlier, we need to work side by side with our tenants in these areas. Our tenants are consumer goods companies, of course, with high ambitions in their own right. That's great. And we invest in solar panels on our roofs, or we open up our roofs for our tenants to invest, is one example of the investments we're doing.
We also invest in energy efficiency, for example, LED lighting in the stores and our properties. We also source and purchase green energy for our properties. But an important part of our sustainability work concerns the grocery store as a meeting place. In many towns in the Nordics, perhaps the bank has closed. There's no library. There's less and less of these meeting places. So the natural meeting point is the supermarket. It's the place to meet and the place to bump into friends and acquaintances. And as such, we feel that supermarkets play an important part in social health. And also, supermarkets are, of course, an important way to ensure food distribution to a population, and therefore it can be seen as infrastructure. And how do we meet that and those demands and those thoughts?
Well, we focus on creating accessible and safe marketplaces together with our tenants in all of our countries and regions. We also work with refinancing or raising financing, I should say, under both our green framework and our sustainability-linked framework, which spurs us to do even more and take more action. Continuing on the outlook for 2024, as seen, our earnings capacity started to grow at the second half of 2023, and our strategy is to continue this development. CPI figures 2024 look, of course, to support increased rental income through indexation, and we expect indexation to come through also in 2024. My view is that I think there will be in the market an increased investor focus on tenants and property companies who operate with stable cash flows in operational sectors such as daily goods.
When it comes to interest rate outlooks, the swap curve and central banks' communications indicate falling interest rates, of course, which would in time lower our cost of funds. As Pia-Lena mentioned, bond markets opened. Credit spreads have come down due to revitalized investor interest towards real estate issues, which should mean more activity also on the real estate transaction markets as liquidity increases in general. Again, touching upon the transaction markets, I think there will be more liquidity and more transactions during this year for liquid assets such as grocery, especially as grocery yields are high enough to achieve a noticeable yield spread. I hope that this can create business opportunities. Looking at Cibus ourselves, we are motivated. We have a competent and agile organization, and we're ready to react. The company's focus areas going forward.
Personally, I'll be spending time focusing on learning the organization, meeting our colleagues, meeting our partners and tenants, our investors, banks, and other stakeholders. I'm, of course, also hoping to see a lot of daily goods properties in our regions and countries. The main focus areas grow earnings capacity per share, continue our balance sheet optimization, continue to create stable cash flows and dividend-paying capacity, and look at if there are opportunities to carry out earnings per share accretive potential transactions. On the ESG side of things, as mentioned, an infrastructure play creates good social marketplaces and places to meet, continue to work with energy efficiency investments, and work towards our climate-neutral target of 2030. Our last slide for today and summing things up, primary reasons to invest in the Cibus share. Converting food into yield, the slogan. And how is that done?
High and stable yield, which we strive for, potential for favorable value growth, and focus on earnings per share. We pay out monthly dividends, and we're in a segment with long-term resilience and stability. That concludes our presentation part. Now let's open up for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Svante Krokfors from Nordea. Please go ahead.
Good morning, Svante from Nordea. Thank you, Christian and Pia-Lena, for the presentation.
Good morning.
First question regarding your unchanged LTV target, 55%-65%. Before you started, there was some discussion that you might have changed this, but could you elaborate a bit on the rationale behind maintaining that it appears a bit high, although interest rates obviously have come down?
Yeah, I mean, this, of course, was discussed with the board. And the conclusion was that looking at operational capacity and also to give the company more flexibility going forward, they decided to keep the range between 55%-65%. And of course, I mean, it's a wide range you can operate within it. And now we're in the lower part of that range.
Thank you. Perhaps a continuation on that, you now saw quite a big increase in average valuation yield. Do you believe that we have seen the peak in your real estate segment when it comes to yields?
I mean, it's difficult to predict the future, but in theory and in general, if interest rates come down during the year, which is, of course, the swap rate and the central bank forecast, then that should support at least yields at the same level as we see now. And because the yields in grocery are at a high level and at a positive swap rate already, there should be investor interest as interest rates come down or a forecast that come down to enter into the grocery market, the grocery real estate market. I mean, looking at our, I wouldn't say competitors, but who are in the business along us as well in the sector, I mean, there's a lot of institutional money coming into the sector in companies who are kind of in the same daily goods and grocery sector as we are.
There's interest for sure, which could affect yields.
Thank you. And then on value changes in Q4 especially, was that based on relevant transactions in all markets, or was there also some judgments made by the external evaluator?
The external valuations, I mean, they're carried out totally independently. So I think that's a question for them, how they decided on those valuations. What I feel comfortable with is, of course, that we value all of our properties every single quarter.
External, I mean.
Yeah, external. Yeah.
Thank you. And then will you be actively looking for acquisitions given your LTV level and follow up on that? Are you comfortable in printing new equity when your share is at a 15%-20% discount to NAV?
I think that our focus is, of course, to look at acquisitions. Growth is important. I think we will look at every share in a very prudent way or sorry, look at every potential transaction in a very prudent way where earnings per share is our key driver. And if transactions look like they're attractive, then we'll take a stance then. But we have great financial support by our banks and for new transactions also. So no, we're very positive that if opportunities arise, then we will definitely have a look at those things and see how the math sums up.
Thank you. And then a question on your successful EUR 50 million bond issue recently. Could you elaborate a bit on the use of those proceeds?
Yeah. As you said, it was a very successful issue, and it was sparked by investor interest. The proceeds will be used, of course, to buy back some bonds and to look at different areas where we can perhaps make some small acquisition or buy back even more bonds. It's a wide range of what we can do with that money, so to say.
Thank you. And then last question regarding Norway is relatively small. I think it was 4% of your portfolio. How do you look at that market? Are you still committed to be there and expand there, or could you consider exiting the Norwegian market?
No, we're committed to the market. It's great to be in all four Nordic markets. That allows us to look at all deals in all markets and see where we can get the best earnings per share growth. So it's great to be in all of the markets. The market structures are the same with grocery. People need to buy food in all countries. It's the same kind of dominated by large tenant groups, the retailers themselves. So there are very big similarities on the operational side of things as well, of being in all four markets.
That's very clear. Thank you. That's all from me.
Thank you.
Thank you.
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any written questions or closing comments.
Thank you. Yeah, we have some questions from the web. One question is, what do you expect or like for rental growth in 2024? And to what extent are you planning to make disposals? Yeah, I mean, we do have inflation in all the Nordic countries, and we have CPI-linked index as 99% of our rents. So we do expect to get growth in 2024. And as you may know, the index increase in Sweden and Norway comes the 1st of January, whilst in Finland and in Denmark, it comes from when the agreement was signed.
The follow-up question, to what extent are you planning to make disposals? I mean, if the price is right, then we would look at it, of course. Our growth or our focus is earnings per share, and that's our main driver. We would look at both disposals and acquisitions with those glasses on.
Yeah, we had a question regarding the unrealized changes in derivatives. This was purely because of the dramatic change in market interest levels. Of course, if that happens, then of course, that will be positive for Cibus going forward because that would mean that there will be lower interest rates paid going forward. Since we do have our hedging in caps, if it is lowered, then that will help Cibus go forward. Yeah. Another question is, is the company actively looking at possible new investment opportunities or selling properties? That we have discussed before, so perhaps we should. We have a question when it comes to repurchasing on bonds that historically, it's been profitable for us to do that. How do you see 2024 is most profitable?
We can just say that the last bond that we did now in January had the lowest margin to date for Cibus. And also, since the interest rates are coming down, we can swap it to a fairly attractive level, which opens up, of course, opportunities also for growth. So we will both look at buying back bonds but also look at acquisitions.
Yeah. We have another question when it comes to bonds and loans maturing within 12 months and the possibility to refinance that. I mean, we have very good dialogue with the banks, and also the bond market is open, as you said, or as you know, we did the bond. And we had EUR 28 million outstanding in bonds that matured within 12 months. Part of that was bought back with the new bond that we did in January. So EUR 6.5 million of that was bought back. We have EUR 21.5 million left to refinance before December 2024. We have the proceeds from the bond that we just did also. We will see what we will do with that money.
And then the last question again on interest rate derivatives.
Yeah, because they are valued at market levels. So if there's a sharp downturn in lower interest rates, then the derivatives are not worth that much. If there's a high interest environment, then having hedges is worth a lot. And if it comes down, the expectations, then the derivatives are worth less. So that is why there was an unrealized change in interest rate derivatives in Q4.
Because interest rates came down in the market. So it's a mark-to-market.
Yeah, exactly.
That was the last written question.
Yeah. Thank you so much for listening in to our Q4 report.
Thank you.
We hope that you listen in when we put out our Q1 report in April the 23rd. Thank you so much.
Thank you. Bye.