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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the HAMBORNER REIT First Quarter 2023 Results Conference Call. This meeting is being recorded. At this time, I'd like to hand the call over to Niclas Karoff, CEO. Please go ahead, sir.
Good morning, ladies and gentlemen, and welcome to our Q1 2023 Earnings Call. A warm welcome also from my colleagues, Sarah and Christoph, we're sitting right next to me. As always, Christoph will be available afterwards for subsequent questions regarding our figures that you may have. Before we begin, I would like to share with you some information that relate to the very transmission of this conference. As already described in our invitation to this call, we recommend that you only use one of the dial-in actions given either follow the presentation live via webcast or by telephone. If you dial in their webcast and be a telephone at the same time, there will be a technical delay. And please understand that you can only ask questions over the floor. And now let's focus on the presentation. I will first begin with a short overview of the Q1 figures 2023. And afterwards, I'll provide you with more details on our current financial situation. As always, later on, our last time, Sarah will give you some insights into the development of our operational business. So let's start with the key figures for the first quarter of this year.Yes, as we all know, market environment continues to be largely determined by the war in Ukraine and the associated economic consequences. Despite those ongoing challenging market conditions, however, we are still continuing to keep on track both strategically and operationally and had a good start as we think into 2023. Compared to the first quarter of 2022, we had an increase in rental income of more than 6%, mainly as a result of rent increases from property additions and indexation effects. FFO increased by over 23% and amounted to EUR 13.6 million, which corresponds to an FFO per share of EUR 0.17. NAV per share slightly increased due in Q1 by 1.4% to EUR 1203. And operational figures remained very solid with a world of 6.5 years and a vacancy rate of 3.3%. Yes, the vacancy rate has been affected by temporary vacancy in our managed to core property in Mainz more details on that later on by Sarah. Our financing structure remains very solid, which is reflected in a REIT equity ratio of 60.4%. And in LTV, which compared to year-end 2022 has dropped to 38.2%. Let's now have a closer look at the operating and financial figures for the first quarter of this year. I continue with a closer look at our FFO development. As already mentioned, the increase in rental income was mainly caused by property additions and indexations. Total maintenance expenses decreased to around EUR 1.5 million year-on-year. Those expenses relate to regular ongoing maintenance and various smaller plant measures in the first quarter of this year. We expect maintenance activities to rise during the next months and still assume total costs for 2023 at around previous year's level. Personnel expenses increased mainly due to onboarding of additional employees in the course of 2022. Other operating income amounts to EUR 1.7 million, mainly due to the compensation payment for the early termination of the contract of a tenant in the property in Mainz.The increase in interest expenses is mainly the result of interest payments for loans refinanced in 2022 as well as of higher expenses due to increased interest rates for the floating rate bonded loan zones. Rising interest payments were partly offset by further interest income from cash deposits in an amount of EUR 600,000.On the next slide. Yes, we provide an overview regarding our current financial situation as of end first quarter of this year. The REIT equity ratio as well as LTV level, both remain very solid. Further debt indicators such as net debt to EBITDA and EBITDA to interest coverage still remain at comfortable levels of 9.7% and 4.4%, respectively. Compared to year-end 2022, our financial liabilities have reduced as a result of the scheduled repayment of the bonded loans due in March 2023. Given the current interest environment as well as our comfortable liquidity situation. We decided to fully repay the loan and to procure the potential raise of additional debt depending on further development of transaction markets in the course of this year.Our average financing costs are still on a comfortable level at 1.8% with an average remaining term of loans of 4.8 years. So all in all, our financial situation remains very solid. Yes. And Sarah, she will now provide you with more details on our operational business development.
Thank you, Niclas. Good morning, and welcome to our conference call. Let me start with a few comments on the recent letting activities in our Managed to core property in Mainz. As you might have seen in our yesterday's press announcement, we were able to sign a new lease for our property in Mainz, which leads to several impacts on our portfolio figures shown on the following slides. We acquired this property as part of our managed to call strategy in 2021, and the asset was fully led to a single tenant from the insurance sector. And we recently agreed with this tenant on an early prolongation of the contract that was originally due in Q1 2024. We were now able to sign a lease contract with the City of Mainz, a tenant with a best credit rating. And at a rent level that is slightly above market and the lease term initially of at least 4.8 years. Due to the current general legal restrictions regarding the accommodation of refugees, we agreed a special termination right for the tenant as of end of December 2027. In case of changing legal regulations, we intend to continue our cooperation with the City of Mainz beyond 2027. To underline the importance of sustainability topics once again, this lease contains so-called green lease clauses. That includes, for example, sharing of consumption data as well as the commitment to operate the property with renewable energy in the future. The signing of the new lease in Q4 2022 led to a significant value enhancement of the property by around 21.5% compared to its purchase price in '21. All things considered this project demonstrates our approach on how to generate value with managed to core properties, and this is success not just from an economic perspective but socially as well. Let me now continue with a view on the portfolio key metrics. In the first quarter of this year, there were no changes within our property portfolio. However, portfolio value increased slightly following the signing of the sales contracts for a smaller retail property in Münster.The fully vacant asset was sold to the local authority at a purchase price around EUR 0.5 million above the latest market value. The transfer of ownership is expected within the second quarter of this year. The impairment adjustment of the property caused a slight increase of our portfolio value to EUR 1.61 billion by end of March. The average remaining lease term remains at a consistently high level of 6.5 years. And the EPRA vacancy rate slightly increased to 3.3% year-to-date, which is mainly due to the temporary vacancy while the construction works in Mainz are ongoing before we hand over this property to the new tenant.The vacancy is also reflected in the ratios of our managed 2 core portfolio shown on the lower right-hand side of this chart. And following our letting activities in Q1, the figures within our core portfolio improved with an office [indiscernible] of 5.2 years and a low vacancy rate of just 0.9%. Coming to the rent development. As you can see in the development of our annualized trends, we saw positive like-for-like effect of 3.9% of the total portfolio. Again, this metric is also influenced by the current vacancy in Mainz. The like-for-like adjustment within the core portfolio were 6%. We could benefit from rent increases due to indexation amounting to 4.7% for the overall portfolio. Depending on further inflation development, we can expect some additional positive effects for the rest of this year. Let's look on the next slide showing the current leasing situation. As already mentioned, we secured several expiring and new leases in the first quarter of 2023. In Q1, contracts were signed for rental space of around 23,200 square meter, an increase by 33% in comparison to the first quarter of the last year.Office spaces account for 75%. The leases currently outstanding for renewal in 2023 are at 4.3%, and we stay confident to sign further agreements over this year. Finally, a few comments on our tenant structure and tenant base. Compared to year-end 2022, there is a change in our top 10 tenants overview caused by the lease termination with the previous tenant in Mainz. So the tenant was replaced by [indiscernible] the real estate company of the Federal State of Bavaria with office spaces in our properties in [indiscernible]. It's the location at better [indiscernible] and in Ingolstadt. There are no significant changes in our sector distribution as food retailers still account for 1/3 of company's total annual rent, and we still have a diversified tenant base. Around 12% were generated with tenants from the DIY sector. In total, office tenants contribute with around 43% to total annual rent. To summarize, our tenant structure is still very solid and reliable. And with that, I hand back to Niclas for a short outlook and guidance update for the rest of the year. Thank you very much.
Yes. Thanks, Sarah, and let me conclude the presentation with a short outlook. Given the positive business development in Q1 and despite the continuing uncertainty, we are able to confirm our full year guidance for 2023.Rental income is still expected to be between EUR 88 million and 89.5 million, and the operating result in the range between EUR 50 million and EUR 52 million. Development of rents and FFO will be mainly affected by our transaction activities in the course of this year. Corresponding to our original guidance, we still assume a net investment volume of around EUR 50 million. Besides investment activities, our earnings situation will be mainly influenced by further development of rent markets, interest environment and corresponding cost effects. And with reference to NAV per share, we aim at a number slightly below previous year's level. This assumption includes further possible value adjustments in our property portfolio in the remainder of the year. And with that, ladies and gentlemen, thank you very much for your attention, and we are now looking forward to your questions.
Thank you, Niclas. Ladies and gentlemen, [Operator Instructions] and our first question comes from Ventsi Iliev from Kempen.
Can you hear me?
Yes, we can hear you. Thanks.
Okay. I have a few quick questions. So the first one is on the one-off termination fee. Do I understand correctly that this is included in the FFO for Q1?
Shall we reply directly? Yes. Yes, it's included, yes.
Okay. Then second one would be on maintenance. What level of maintenance expense do you expend this year compared to last year? And could you also let us know the estimated CapEx for the property in Mainz?
So the total maintenance expenditure for this year, we expect more or less on the level of last year. Yes. That's around EUR 9 million that we would expect. And with reference to the CapEx investment in Mainz, we are -- yes, I mean, based on the agreement with the tenant, we are not in a position to give you more details on that. But what I can tell you is that we don't expect a major impact on our internal statement here on our financial situation on the P&L side.
Okay. And the last one is about the guidance. So the guidance, as I understand, still assumes EUR 50 million of acquisitions this year. So have you identified any opportunities with which you would like to go forward?
Yes. As already stated in the last call, we are currently in -- yes, in due diligence for 2 large-scale retail properties. And we more or less finished our due diligence and see a potential filing within Q2 this year.
Ladies and gentlemen, [Operator Instructions] our next question comes from Kai Klose from Berenberg.
I've got 3 quick questions. I may. The first one is on Page 3 of the presentation. You mentioned that of the EUR 1.7 million other operating income, EUR 800,000 came from the early lease termination agreement. What is the difference and what explains the higher volume compared to Q1 last year? Second question, you mentioned, if I understood correctly, that you expect a positive contribution from indexation to this year's rental growth in the remainder of the year. Could you be a bit more precise on that? And the last question would be, again, on the property in Mainz. Who's I would assume that there is some CapEx needed to convert that into a kind of residential asset, who's paying for that?
Okay. So Karl, let me start with Mainz. The CapEx for the property will be paid by the tenant.
So with reference to -- sorry, one was contribution of CapEx. I'm sorry Kai, can you repeat the first one was on Page 3, you were referring to…
Exactly. On page 3, you say EUR 1.7 million other operating income, of which EUR 800,000 came from the lease termination. What's the difference and what explains the higher volume compared to [indiscernible] in Q1 last year?
Maybe just one second, Kai will be back soon. Just looking for the figures, just a second, please. With your second question was referring to rent development that we expect for the course of the year. And we would expect 2% to 3% more of the effect on the rental side here.
You mean 200 to 300 [indiscernible] as a contribution from indexation?
Yes, that's right.
So to be precise, in addition to the 4.7% in Q1 or as a total year contribution from indexation?
They will be more referring to the total year.
And there are currently no questions in the queue. And as a final reminder to ask a question at this time. [Operator Instructions]. And as there are no further questions in the queue, I'd like to hand the call back over to Niclas Karoff for any additional or closing remarks. Over to you, sir.
Yes. Thank you very much for your attention. And should you have any further questions, please don't hesitate after the call to get in touch here with Investor Relations on our side. And apart from that, thank you very much. As I said, for your attention, also on behalf of my colleagues and then hope to talk to you soon. Thank you.
Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.