Earnings Call: Q1 2021

May 12, 2021

Quarterly report

Please go ahead with your meeting. Thank you. Thank you very much. And again, warm welcome to the Cielo's Q1 report. My name is Verke Kjellgorten. And with me today, as said, is Pia Ljena Oglosondegroup's CFO. Next slide, please. P and L will take us through all the figures in more detail further on in the presentation. So please continue to the slide that's significant events after the end of the period. After the Q1 period, we have made 2 acquisitions, 1 in Sweden for about EUR 3,500,000 and 1 in Finland for EUR 5,300,000. And also on the Annual General Meeting, Viktoras Kuglorn was elected as new Board member, replacing Johannes Kuglestried, and all other Board members were reelected. Next slide, please. What is CBIZ? Well, CBIZ Nordic Real Estate is a real estate company focused on daily goods properties, mostly grocery properties in supermarket slides. We buy and we manage properties with strong tenants that provide dependable income to our shareholders. We are listed on NASDAQ First North Premier Growth Markets since March 2018. We have a clear Nordic focus, and we pay out monthly dividend to our shareholders, Currently EUR 0.94 for the coming 12 months. Next slide, please. And the story about CBIZ is the story about portfolio diversification. Traditionally, these kind of assets were owned as single assets or in small portfolio, so maybe 2 to 5 assets, which meant you had a very high risk concentration. If the tenant left, you lost all your cash flow. You also had a very weak negotiation position due to this with the tenants. The banks realized it, so the bankability was low, which meant that it was a high risk, but also a high return business. What Sibas realized is that if you own 300 of these properties, you diversify the risk and lower the concentration. You also become an active cooperator with the tenants instead of just a landlord as we own a lot of their stores. The bankability is much higher. So we lower the risk, but we have the same return for single assets. And due to the risk factor of owning small portfolios, we can always buy assets 50 to 100 basis points higher than the existing portfolio is trading at. And this is what produces value creative growth for our shareholders. Next slide, please. What about e commerce? The Swedish Trading Institute previous report on Amazon's effect on different types of retail. And as you can see, far right with a very high effect are electronics and books. But on the other end of the scale, with a very low effect are daily goods. Next slide, please. And we can see this in our own portfolio that we have a resilience towards the commerce. And when it comes to daily goods And groceries, in particular, we have seen a negligible negative effect. Even during the pandemic, when online Trading has risen. The share of online trading is around 4%, and a large share of that volume is click and collect from our stores. On the other hand, we see a notable positive effect that there are existing stores. They work at the natural distribution network for other goods purchased online. And as you can see on the picture, there are these kind of boxes in mostly every store or most many of them at least. Others can have it manually operated. But they all take Care and our distribution network for other goods purchased online. Next slide, please. But what also sets us apart that we are an active property manager. We have our own organization that actively works with our portfolio new acquisitions. And this organization constantly monitors the market, and they enable us make these kind of acquisitions I made earlier I mentioned earlier that we have done so far this year, which means that we can easily buy the single assets as well as large portfolios. Next slide, please. Sustainability. As we have a lot of triple net contracts and Electricity is always paid by our tenants. We work together with our tenants when it comes to sustainability. One of our largest projects is with Tocmanin, who are building solar panel plants on the roofs of our properties. And today, 28 of our properties have these solar panels. You can see on the chart to the right, that proportion has risen over the years. The annual carbon dioxide reduction they generated is about 4.21 tons, and that's equivalent to almost 1500 Apartments. Next slide, please. What about corona and the effect of Siedes business? Well, we have a business model that is noncyclical that should work over time, and the corona pandemic has really proven that. We have seen a very limited negative effect. Grocery sales are on record levels, and approximately 90% of our income comes from leading food chains. And around 99% of our invoiced rents for Q1 have been paid. So the effect is very limited. Next slide, please. What about growth? Well, if you see on the chart to the right, we have met the growth target both in 2018 2019. And in 2020, we by far surpassed the growth target by acquiring properties for EUR 340,000,000. We have a growth target of EUR 50,000,000 to EUR 100,000,000 stores. And so far this year, we have acquired properties for around EUR 9,000,000, so we've had a very good start. And the market continues to be strong. It's unaffected by the corona pandemic. And Finland and Sweden are still our main markets, but the other Nordic markets are monitored. And Hopefully, the Nordics can open up a bit more after the summer holidays, and we can go and look at properties all other than Nordics, and that will be make it easier to enter new market. We have a strong cash position and a very strong pipeline regarding possible acquisition. Normal growth will be financed through cash and bank or bond financing. But if we have opportunities for more rapid growth, that may lead to an equity raise to secure the LTV within company financial targets. Next slide, please. Taking a look at the shareholders' list as of the 31st March 2021. The 4th AP Farm is still the largest owner with close to 9%, followed by BMO Global Asset Management, Marian Dragosiewicz, Dragfas and Avanza Pension. And in total, the 15 largest shareholders stands for almost 45% of the company. And we had 32,000 shareholders on the last day of March this year. Looking at the share price performance, we have an average daily volume of SEK 21,000,000 with more than 2,000 transactions per day. And the last day on March, the share price was SEK 164. And total share return since 1st January 2020 is 20% in SEAC. And we are planning a move to the Sattel main list. We will be on the mid cap during the first half of this year. Currently, The share is trading at share price around SEK 184. Then over to you, Pielena, for the financial overview. Thank you. On Page 16, I will just briefly go through some of the key figures for the quarter. Rental income grew with 38 percent to €19,400,000 Net operating income increased with 40% To EUR 18,200,000. Profit from profit and management was EUR 6,000,000 And earnings after tax, EUR 11,200,000 or EUR 0.28 per share. Next slide, please. Looking at the P and L in more detail. As I mentioned, net operating income was 18,200,000 Costs are slightly higher due to that we have costs for this change, but not a large amount, around EUR 100,000. Net financial items was affected by a positive exchange gain of €497,000 Unrealized changes in value of investment properties was €193,000 compared to €1,609,000 thesis. Depreciation on building inventory. If we then look at cash and cash call. We have one item that I would like to point out that is affecting comparability. During the period, EUR 4,800,000 was Paid by companies in the group for intra group transactions, although this was not received back from the Finnish tax agency during the quarter. But we have received the amount now during the Q2. Next slide, please. Our current earnings capacity on a 12 month basis shows a net operating income of EUR 72,600,000 The properties that we owned at the end of March 2021. And this is unchanged from 31st December 20 20 since we did not acquire any properties during Q1. Profit from Property Management was €45,900,000 or €1.15 per share. After the period, as Fracje said, we have acquired additional properties in both Finland and Sweden. Next slide. We had 2 90 properties at the end of the Q1. Property value was EUR 1,270,000,000 And we have 744,000 square meters. Our anchor tenants, Ketsko, Tokmene, Coop, thesis. Skoop and Lidl stand for over 90% of our net operating income. Next slide. Looking at our 2 segments, Finland and Sweden. 85% of our net operating income comes from Finland and 15% from Sweden. Our property value, 84% is in Finland and 16% is in Sweden. Next slide. Our strategy is to give our shareholders stable and reliable dividends that increase over time. Our dividend policy says that we should increase our dividend 5% per year. On the Annual General Meeting that we had on 15th April this year, it was decided to increase dividend with more than 5% To EUR 0.94 share, divided between 12 monthly dividends. Next slide. Looking at the balance sheet. We have property value of EUR 1,270,000,000. Senior debt was EUR 620,000,000 giving a loan to value unsecured debt of 48.9%. And then we have our 2 bonds of €194,000,000 giving a net loan to value of 61.6 percent. And this is within our finance policy target of being between 55% 65% loan to value. Our net asset value, EBITRA ENERV, was EUR 487,000,000 or EUR 12.2 future. Next slide. Our average remaining lease time was 5.2 years at the end of the quarter And has been, as you see on the graph below, quite stable around 5 years historically. And this is because we renew our leases on a regular basis, But also buy new properties with usually long lease contracts. Next slide. At the end of the quarter, we had 5 bank loans with a total of EUR 620,000,000 The average floating margin is 3 months, Eurobore or Steelbore, depending on currency, plus 1.7%. Our weighted average tenure is 2.7 years. 68% of the bank loans are hedged with interest rates derivatives and all bank loans are Long term, the first loan matures in 1.9 years. And then we have 2 senior unsecured bonds on the market, one Green Sig Fund of SEK 600,000,000 and SEK 1 EUR 135,000,000. Next slide. Looking at our funding strategy. In the medium term, we believe that still more than 50% of external funding will be bank financing. We do, however, intend to be active on the bond market as well and are considering putting our MTN program in place. Normal growth will be financed with generated cash and bank loans, while larger portfolios will be need to be financed by a bond or perhaps a hybrid bond or a new share show to keep LTV within the finance policy threshold between SEK 55,000,000 to SEK 65,000,000 LTV. Next slide. In the long term, our funding strategy is to reach investment grade in credit rating. And then the debt structure will need to be a bit different compared to the mid term strategy. Over to you, Sverd. Thank you. What about the future and our focus areas going forward? Our focus areas at the moment that we are working with the list change to netback Stockholm main list, and our target is still to conductor list change within the 1st 6 months of this year. We are monitoring new geographies in the Nordics, But focusing now on a short term for on continued growth in Finland and Sweden to become the largest daily goods real estate company in the Nordics, We are also looking at an NTM program for bonds, as Tidjane mentioned. Next slide, please. The primary reason to invest in the CBIZ share. Well, we produced a high and stable yield, and we have never lowered our dividend in euros per share from 1 quarter to the next. There is a potential for favorable value growth. As I said, Due to the risk factor, we can always buy small portfolios or single assets to a higher yield than the portfolio is trading at. We have gradually rising monthly dividends. We have the goal to today in Business Banking. We are in a segment with the long term resilience and stability, the grocery sector in stable growth for the last 20 years. That's about all for us. So please, if you have any asked questions, Feel free to speakers. Our speakers. First question comes from the line of Svein Krogthos from Nordea. Please go ahead. Yes, good morning. Sverdka and Pielena Swante from Nordea here. Thank you for taking my questions. First one is regarding the transaction market. Can you comment a bit about what's going on there? Is Competition increasing or decreasing? And is there any difference between Finland and Sweden? I'd thesis. The market is very stable, which has been since I started in early 2019. It's more or less the same competitors. The market is more or less the same. What has been a bit these last 12 or 18 months is that no one has been able to travel into other countries. So investors from abroad I have not been so active on the market if there is any activity at all. But it is a very stable market. Yields are fairly the same. There are no large yield compressions, although we see a bit of bit movement, especially in Sweden that there are signs that it might be compressing a bit in Sweden. But otherwise, it's a very stable market and prospects are there. There are we have a lot of prospects that we are looking at, at the moment. So the market is good and stable. Thank you. And perhaps on that note, you now trade at well, closer to 50% EPRA NAV Premium and your implied yield has declined quite a bit. How do you control I mean, I think you factor in implied yield when you make acquisitions. But how do you make sure that you don't overpay for properties even though the temptation might be there as you're implying it is low. Yes. And that's As we have 2 CIOs, 1 in Sweden and 1 in Finland, are very keen on making deals. And that's maybe It's one of my thoughts to have a steady hand on that. But Really, we haven't overpaid for 1 single property since I started on CBIZ. And we aim not to overpay this year or in the future either as the market is very large and there are a lot of properties. And When we've seen that prices have gone to a level that we are not prepared to pay, then there have been competition from, for example, residential property developers that have bought the property to changed the planning permission and build residential on it. So there's the other totally different metrics than we on that kind of property. So There are a lot of properties to look at, and we are pecky, as you know. We have a clear strategy, and it's very important for us that the shareholders We recognize CBIZ in the acquisitions we do. And we will not overpay for any acquisitions. Okay. Thanks. That's a clear answer. So we should continue to expect, I mean, single assets, 6.5% on portfolios perhaps or 6 ish? That's your word, but it's a fairly good guess, yes. Okay. Thanks. Then perhaps a bit more complicated question regarding The Norwegian online retailer, Oda, entering the Finnish market at the end of this year, Have you what are your thoughts about that? And I mean, Oda will obviously operate a central distribution model, different to the Keeskondes Group, who basically ship it from the stores. What kind of Fred, do you see here? I just saw a poll speakers on the Internet of where people believe that they will buy their groceries for the coming 10 years. Or where will you buy your groceries in 10 years was the question. And I think 74% said supermarkets or hypermarkets. That's exactly the same number as when they answered the question, where do you do your shopping today. And then you had the smaller markets and other stores. So I don't think that it won't be a dramatical change. But obviously, of course, the competition from online purchases or online things will increase when they enter the Finnish market. And it will be super interesting to see how Ceesco and S Group responds to this well, you can call it a threat. So we'll see what happens. Yes. And I mean, Keesko is your biggest tenant and they have the retailer model. So I guess, It will be more difficult for Keeska to change it to a centralized distribution. Yes. But you have to Remember that Finland, especially Finland, is a very low density populated country. So it's very hard. And even if you have a central distribution network or central distribution hub to deliver food profitable. So we'll see what happens. Yes. And just looking at the map with your properties in Finland, I mean, Now I don't have the number. You could remind me about that. But I mean, the percentage in the Helsinki region around Tampere and Turku. It's not massive. No. Even if twothree of our NOI comes from the Southwest parts of Finland, and we aim to keep it that way. That's also where Finland is growing population wise. So We have our strategy, and we are very confident in our stores for the coming future. Good. And do you have you considered any new could you Expand out of the in Finland, outside the S Group, Keeskoy and TOKmoney cluster, could you take on of the, let's say, the DIY companies. We haven't looked at dealers. They are why companies, but there are other discount retailers. And when we look at portfolios, there might always be or mini money or some other part of the discount business. But we haven't as I said, our strategy is very clear, and that is to buy and own and manage Daily Goods and Grocery Stores. So we'll stick to our strategy, and there are a lot of stores left out there to buy. So We are confident that the strategy will be successful over the years to come. Okay. Thank you. That's all from my side. Thank you. Thank you. And the next question comes from the line of Matthias Ahola from Ingers. Please go ahead. Hi, Sverker and Peerlein. Hi, Matthias. Hello. Swante already took almost all my questions, but I have one left, and this is maybe a little bit more to be, Elena. If I heard right, you said that one offs where in admin costs were around EUR 1,000 in the Q3. EUR 100,000, yes. Yes, yes. But I just said to that, the cost level is somewhat high compared to your earnings capacity, and it has been high also in the previous quarters. So is this the so called near normal level for admin costs. Well, administration costs do come a little bit Cyclical also. So I would say that we might have had higher costs in Q1 than we expect for the rest of the quarter the rest Some effects that will come also later on where we had signed new contracts, which we had in mind when we did the earnings Capacity also budget when it comes to administration of especially the Swedish portfolio. So we do believe that our earnings capacity without one offs is still valid and what we Yes, a normal part on our ongoing business. Okay. Should we expect some one off today this quarter considering the main list problems? Yes. We will have one offs in Q2 also when it comes to the listing, yes. Yes. Speakers. Yes, this was the only question that I had. Thank you so much. Thank you. And as there are no further questions, I'll hand it back for any closing remarks. Okay. It's time to wrap it up. So thank you all for listening. And as usually, if you have any questions, please reach out Pielen and myself via mail or telephone, and we'll happily answer the questions we can to you. So thanks again for listening, and talk to you again in the Q2 when we deliver our Q2 report. Bye bye. Thank you. Bye.