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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 Q3 Results 2022 Conference Call. Please note this call is being recorded. [Operator Instructions]
I will now hand over to Niclas Karoff, CEO. Please go ahead.
Yes. Thank you, and good morning, ladies and gentlemen. Welcome to our Q3 2022 Earnings Call. As usual, also on behalf of Hans Richard, and today, for the first time, on behalf of our new colleague, Sarah Verheyen, who joined our management team at the beginning of October, intending to take over the operational responsibilities here by the end of the year. Christoph, who is heading our IR activities i,s joining today's call as well. And as usual, he will be available for any subsequent questions regarding our figures.
We will start presentation with a glance at the highlights of the first 9 months. And afterwards, I will hand over to Hans Richard, who, as usual, will provide all relevant financial results; followed by Sarah giving an overview here about the operational and sustainability activities.
Okay. Let's move to the next page, key figures. So let's start with those. Yes, despite the challenging economic conditions, we are keeping on track, both strategically and operationally. And thus, we're able to achieve very solid Q3 results. Regardless of our strategically driven sales activities, total rents on a year-on-year basis came down just slightly, once again, positively affected by numerous rent indexations and also influenced by the onboarding of 2 core DIY properties in spring. As a consequence, FFO came down, additionally driven by certain one-off cost effect.
Operational figures on consistently good levels, as we think. More details by Sarah later during the presentation. Our financial profile remains very solid with an LTV of around 41%. And as we think, comfortable net debt-to-EBITDA multiplier of 10.9. So overall, a solid first 9 months of the year, which forms the basis for our updated guidance at the end of this presentation.
After this short introduction, let's have a look at the development of our portfolio. The following chart provides here a portfolio overview. And concerning portfolio value, taking mainly into account our acquisition and sales activity, portfolio value slightly up compared to year-end 2021.
Concerning vacancy. Yes, despite various letting successes overall, vacancy went slightly down during Q3 to 2.1%. And here, let me point out that our core portfolio contained only 1.2% vacancy as of end of September. Once again, we think it proof for the high quality and stability of our assets. WALT went up slightly during Q3 to 6.7 years. Yes, by the way, significantly higher compared to year-end 2021, where we stated at where we have been at 6.1 years.
On the next page like-for-like development on a year-on-year basis. Yes. Considering the current inflationary environment, we are continuing here to provide more transparency on the rental development, including detailed, as I said, year-on-year like-for-like split of the effects from the different influencing factors.
As you can see, we benefited from rent increases, based on indexation clauses, amounting to 4.2%. Positive effects from indexations were partly offset by higher year-on-year vacancy and lower reletting rents within our retail portfolio. Both aspects have been influenced by the assets, with the former anchor tenant, Real. And depending on the further inflation development, we expect some additional positive effects for the remaining year and as well as for 2023.
On the next 2 pages, quick overview concerning transactions in 2022. Yes. And presenting you a short overview concerning our transaction activities. And as well then on the next page, concerning our -- the results of our portfolio optimization.
As already mentioned, 2 newly acquired DIY stores have been integrated into our portfolio. Based on location, asset quality and also the tenant profile, is we think a valuable addition to our core portfolio, we are securing further reliable cash flows.
As part of our strategic disposal program, we successfully sold the 3 remaining High-Street properties on latest fair value level, and successfully completed our short-term divestment activities. So out of the former High-Street portfolio, there is just one asset left, which is part of our part of our managed core portfolio.
The results of our divestments as well as the positive effects of our portfolio, and our portfolio structure here, you will find on this page. All in all, we were able to achieve a more focused and modern as well as an easier to manage portfolio, which is especially reflected in the development of average age and size of our assets. Of our -- yes.
And with reference to our comparably small team and new corporate structure, this also allows for more efficient portfolio and asset management. Yes.
And with this short overview, let me hand over to Hans Richard.
Yes. Thank you very much, Niclas. Good morning, ladies and gentlemen, and from me also, a warm welcome to all of you. As always, let us now have a closer look at the financial figures.
Let's start with the FFO development. With a total of EUR 63.2 million income from rents and leases, went slightly down compared to previous year, which mainly relates to the disposal of various retail assets during the last 12 months. The reduction of around EUR 4.8 million due to disposals is partly offset by additional rental income from acquisitions of around EUR 2.9 million. Besides, rent development was positively affected by various index-based rent adjustments.
Total maintenance cost increased to around EUR 5.6 million year-on-year. The expenses related to regular minor ongoing maintenance and various planned measures. On the one hand, the increase of more than EUR 1.5 million is caused by previous year's COVID 19 impact, where maintenance was significantly reduced. On the other hand, for the measures original planned for Q4 2021, have been postponed to this year partly due to delays in the application of building permissions, lack of capacity of building firms, as well as shortage of material or rather supply bottlenecks. Currently, we assume total maintenance expenses of around EUR 9 million for the full year 2022.
As a result of the higher maintenance, net rental income declined to EUR 54.3 million, a decrease of 5.4% compared to the first 9 months of 2021.
Administrative expenses are nearly unchanged year-on-year as the negative effects from cash deposit costs were almost entirely reduced in Q3. Personnel expenses increased to EUR 4.4 million. This is primarily due to onboarding of additional employees as well as to recruitment costs in connection with the appointment of our new management Board member, Sarah.
Other operating income was significantly lower as a result of substantial one-off effects in the previous years. In 2021, we received a contractual agreed lease termination payment of EUR 2.2 million from our former tenant, Real. The approximately 8% lower interest costs resulted from scheduled repayments, expiries of loans and positive refunding effects since the beginning of the year.
As a result of income and expenses, the FFO came in largely as planned in the reporting period at EUR 37.3 million. The corresponding FFO per share amounts to EUR 0.46.
Now let's have a look at our NAV and NTA development. After the significant revaluation uplift at the end of last year, our consistently solid earnings situation had a further positive impact on our NAV. FFO contributed with around EUR 37 million to the NAV development in the first half of this year. In contrast, the NAV was negatively affected by our dividend payment in May. As a result, NAV per share amounted to EUR 12.08 as at the end of September, a decrease of 0.2% compared to the end of December 2021, but a significant increase of 7.8% year-on-year. As in previous reporting periods, there is no material difference between NAV and NTA, which is only EUR 0.01 lower on a per share basis.
Now I would like to give a short update on our financial situation which is again continuing to remain very solid. The REIT equity ratio amounts to 59.6% and therefore still well in excess of the 45% ratio required. The LTV per end of September is at 41.1%. Further debt indicators, such as net debt to EBITDA or EBITDA to interest coverage ratio, remained at solid levels at 10.9% and 4.8%, respectively. Our average financing costs are on a comfortable level at 1.7%, with an average remaining term of loans of 4.6 years.
In spring, we have finished our refinancing activities for the current year and signed follow-up agreements for all loans scheduled for refinancing in 2022. Given the current interest environment, the REIT financing terms are very attractive with an average interest rate of 1.6% and an average maturity of 6.3 years. During the last weeks, we have already started the refinancing process for 2023 and just signed a follow-up agreement for a loan expiring in June 2023.
This is all for me for the moment. Thank you for your attention. Let me now hand over to our new colleague, Sarah Verheyen, who will provide further information on our operational business activities. Sarah, the floor is yours.
Thank you, Hans Christian, and good morning, everyone.
First, I'd like to quickly introduce myself. My name is Sarah Verheyen, and I joined the company as COO and CIO 6 weeks ago. And I'm working in the real estate market for more than 15 years now. Should you be interested in details about my professional background, please have a look at our website and feel free to get in contact with me directly. I am much looking forward to meeting you personally soon.
Let me start with an update on the current letting situation on Chart #10. Despite the ongoing challenging market conditions we are facing, we were able to achieve numbers of letting activities in the year to secure leases for around 67 square meter (sic) [ 67,000 square meters ].
Besides long-term renewals with existing food retail tenants amounting to around 60%, we also signed various leases with new office tenants of 74%. As a result and compared to H1, the total portfolio vacancy rate decreased to 7.1%, and the WALT increased significantly year-to-date to 6.7 years, while office and retail WALTs are at a comparably high level at 7.8 and 5.2 per years. Sorry.
There are only limited leases outstanding for renewal in the remainder of this year related to 1.3% of the total annual rents. These pending renewals essentially related to a small number of office leases that expire by end of this year, and we are confident to sign further lease agreements during the next weeks.
Let's move on to just a few remarks on our tenant structure compared to year-end '21. There are only minor changes on the top tenants overview. With the handover of our last former Real Market in the Mannheim property, the food and DIY retailer, Globus, has doubled its shares and now contributes 4.4% of our annualized rents. As a result of the market exit of Real, the insurance association, VBG, climbed up to the top 10 tenants list on 1.5% in total.
The food retailers currently still account for around 1/3 of the company's total annual rents. And due to the acquisition and closing of the 2 large-scale retail properties in Freiburg and Kempten, as Niclas earlier said, our DIY exposure increased by 250 bps up to 11.4%.
So in total, our retail tenants contribute to 56% of our annual rents, while the share of the office tenants is at around 44%. All in all, we can say that our tenant structure remains very solid, and the high share of our tenants with strong financial profiles and largely independent from economic conditions are part of our portfolio. In the current, yes, very challenging market environment, these tenants provide us with a stable and reliable cash inflows.
Turning attention now to an extract of our recent ESG activities. As part of the company's ESG strategy, we defined 4 key areas for which we expect to generate major positive contribution in the interest of our stakeholders and the overall society.
During the last 12 months, we focused on sustainability working areas on environmental topics, mainly, especially the preparation of a full carbon accounting for our entire property portfolio, means a considerable part of our work includes the identification, collection and analysis of relevant data. And as defined in our stakeholder engagement program, we are in close dialogue with our tenants to increase data collection rates and quality of data required to run these carbon accounting program.
Based on the carbon footprinting, we carried out additional ESG audits for selected properties to further verify the results and identify specific measures to further optimize the energy and carbon efficiency of those assets. As a result, we developed a catalog of potential measures, which will be further assessed and implemented over the next years by our asset management and technical teams within the company. The results from our carbon footprinting analysis will form the basis for a decarbonization strategy, which specific -- with specific mid- and long-term reduction targets.
Besides the ecological impact of our business activities, we are also focusing on social sustainability aspects means, in particular, in terms of company's responsibilities and attractiveness as an employer. And given the positive development of nearly all social KPIs, such as GDPRs and employee satisfaction rate, we are confident to attain our defined goals.
Furthermore, in the past months, we were able to expand our ESG management approach, both organizational and regarding processes. In '22, our Supervisory Board established a ESG Committee to advise the company on all relevant sustainable matters. And additionally, we established a dedicated sustainability department within the company that bundles our competencies, yes, from different departments, like asset management, technical management and also corporate level.
As you might have noticed, we have recently published our '22 ESG Report, which is available for download on our website, and that provides you with further information and results.
Thank you for your attention. Let me now hand over to Niclas for a short outlook and guidance update.
Yes. Thanks, Sarah. Taking off from there, concerning guidance. At this stage of the year and taking into account the Q3 results, we are able to confirm or even specify our guidance for the full year of 2022. We still assume rental income of EUR 84 million to EUR 85 million and now expect to achieve an FFO at the upper end of the former range, between EUR 48 million to EUR 49 million. With reference to NAV per share, we remain at our expectation of a number around the level of the end of 2021. And based on this updated forecast, we should be in a position again to propose an attractive dividend to our shareholders for the fiscal year.
So finally, let me thank you once again for your attention. And now we are looking forward, as you will, to your questions.
[Operator Instructions] The first question from [ Esther Gudrun ], who is a freelance.
[Foreign Language]
[Foreign Language] I would like to say this in English. The question was, what were the investments in our assets and the current assets?
As you know, this was -- I'm not sure. Ms. [ Esther ], do you mean the acquisition, or do you mean the investments?
The investments in the assets. It was on full year -- I don't know.
We are referring to maintenance, maintenance cost.
Maintenance cost.
Maintenance. Yes, yes.
Yes. Okay.
Yes. In the first 9 months, we invest around EUR 5.6 million. Mainly in the former Real areas, this was EUR 1.2 million. And the other investment is more normal maintenance what we had in plan, partly coming from postponed investments or maintenance, what we had expected for 2021. That's the reason for the stronger increase if you compare this to last year. .
Yes. The next question comes from Kai Klose from Berenberg.
I've got 2 questions, if I may. The first 1 is on Page 7, regarding the split of the FFO. Could you just give a bit more light regarding the lower amount of CapEx? Is this that you increased the maintenance investments? Or what can we expect here for the remainder of the year. Maybe also for '23, do you see any larger need for CapEx from upcoming lease expiries? And the second question is on Page 9, regarding the financial situation. Just to clarify, you had 1.6% as an average interest rate for debt renewals. And as you mentioned, you also extended a loan due in June next year. Could you indicate what's -- based on that, is the current margin cost of the homeowner's financial debt?
Kai, let me start with the marginal financing costs. You know this depends from the LTV level and from the duration. So overall, if you have this in mind, actually, we expect interest rates between 4% and 5% at the moment.
So it includes what kind of margin?
You can have a look to the cost for that, plus margin. Margin is, you can say, around 100 to 150 basis points. But again, it's very different and depends here from LTV level and the duration. So if you can see, we have around 300 basis points. That's the cost for that on the market at the moment, yes?
So the second question was our maintenance cost. For the full year, I said we expect here EUR 9 million. And for '23, I'm sorry. Here, we are in the process to elaborate this at the moment.
And just a quick one here on maintenance and CapEx. CapEx were lower, maintenance were higher as expected. Do you have an idea how that may look in 2023 in the context of upcoming lease expiries?
No. No idea at the moment. But I believe CapEx, this is the first time we're a little bit higher or much more than we had seen here in 2022.
I see. And the very last question from my side. When it comes to debt renewals, what kind of duration you're currently targeting? Of course, in the context of LTV and in content of financing costs. But you still aim for 10 years? Or given the higher cost, you may go for 5 or 7 years? What's your [ quote of ] this?
That very depends from the asset, what we finance. It could be 5 years, it could be 10 years, and it could be a shorter duration. So that's -- for example, for the last refinancing, what we had made now for the loan expiring mid-2023, it was 5 years.
I see. And maybe the very last question, maybe for Mr. Karoff. I think previously, you mentioned that you have the intention to go a little bit more unsecured, to increase the unsecured amount of debt. What are your thoughts here maybe for the midterm? Given the spread between secured and unsecured debt is quite high.
Yes. I think where we have a close look, obviously, what's happening on the unsecured market here. And what we always do is make the comparison, as you outlined, between both those options, general options for financing. And yes, then we will do the math, once we are up for decision, which way we go. And therefore, as of today, we haven't made any decision yet.
However, we are in a position here to be, if you look at our overall balance sheet position, that we can be very flexible here. Yes. So no decision yet made.
[Operator Instructions] We'll now take the next question from [ Vince Ellis ] from Kempen.
I have a few questions, and the first one relating to valuations. If you look at CBRE reports, they actually show 50 bps yield out-shift. And also, if you look at deals in the market, we see some discounted deals in other geographies. So could you comment on what you're observing in the market? And what you're expecting, maybe not only for this year, but also next year?
Yes. I mean, obviously, to make a forward look currently for the next year is quite a tough call. And what we serve -- what we see on the transaction market is that transactions that take longer, getting -- yes, taking -- yes, simply take longer. Some goes back to the seller.
We still see transactions on the market obviously happening, but it's a market situation, kind of waiting situation from, I think, from the point of view from various investors. And yes, therefore, we are still active here in the market, but making any predictions at the moment is quite a tough call.
Okay. And then second one on like-for-like rent growth. As you commented, there's a negative reletting effect. And could you comment if this relates to the former Real properties? And if yes, what would be the effect excluding them?
Yes, I think you have seen the split in the chart. And it's indeed the Real effect. This was a reletting effect, the minus. And you can separate from this, the plus, what you have seen in the rental growth coming here from the indexation. And we had an effect in cash in the minus of EUR 1.4 million in the first 9 months.
Okay. And then last one, given the current macroeconomic environment, would you say that the annual acquisition target of EUR 100 million, is that on hold?
I would say that as of today, based on the fact that we are, on one hand, still active in the market; but on the other hand, are even more selective concerning acquisitions, we -- you shouldn't expect that we meet this target.
So as of today, I would expect it will definitely be below this figure. I mean, this figure that's something that we anticipated in the first half year. And since then, obviously, the market situation, the whole market station, has changed substantially. Yes.
The next question comes from Philipp Kaiser from Warburg Research.
Yes, the 9-month figures, I think I also understand the robustness of the business model. But I think also like next year will be a more demanding environment. So it's like just 2 acquisitions to date, and also like higher refinancing costs for the amount of debt was outstanding and maturing next year. Could you shed some light on the possible impact on the FFO you might also envisage for next year due to this effect?
You mean the effect from the acquisition activity? Or -- I'm sorry.
Yes. So the combination of kind of lower acquisition than at the beginning of the year, kind of targeted, due to the change in the macro environment. And also the higher refinancing cost for the debt which matures next year. So those both effects will have an effect on the FFO for the coming years. So any indication about the amount of the impact for next year?
I mean, you can do the math, I think, in a way, a little bit as well. Obviously, you see the average interest cost we have currently in our balance sheet. You see, for every new acquisition we would do now, we have a different interest environment currently. And you can see the refinancing, the average refinancing costs for the financing which is up for next year is 1.7%. And if you take the current market level for the debt costs, together with the volume, and I think you can do the math a little bit, what's the impact from the financing side there in case we do the refinancing here that way.
And for the upcoming -- for the transaction market, I mean, if we decide to -- if we would acquire next year additional assets, obviously, the same applies, on the one hand, to the interest costs. But you have also -- I mean, we have also have the expectation that this will be reflected in a higher ingoing yield for the asset itself. So -- and then obviously, you take, in a way, the combination.
But what will be the ingoing yields on average here for acquisitions, we don't see yet and don't have yet on the table. That's obviously very hard to predict. I mean, it depends. If you look at our strategy, we are talking about office and retail. We are talking about core properties as well as our managed to core strategy. And obviously, we are talking also about different market segments might have also, to a certain extent, individual developments within the next couple of months and quarters on the pricing side.
Okay. Perfect. Understood. So there's kind of no indication, how likely low acquisition volume this year will impact the rental growth for next year.
So this will not be a big effect. You have seen the acquisitions, what we have done. This was in the first half year overall. And with this, the impact will be limited if you see only on this.
Yes. And we typically -- as you can assume, I mean, we do it on a year-by-year basis concerning our acquisition planning. But I think it's fair that you can assume that we do not expect to have the acquisitions we anticipate from the start of the year contributing on the rental side. And this obviously, yes, reduces the impact for the current year then on the rental impact. And on top of it, which we see now, obviously, is -- are the positive effects from the indexation, yes, which is a certain offset as well.
[Operator Instructions] There are no further questions on the phone at this time.
So then also on behalf of our team here, thank you very much for participating in the call. And also, at this point in time, thank you to Hans Richard. It was -- has been his last call today. Obviously, he will stay on board for a couple of weeks. But as of this last call, I want to use the opportunity on behalf of our team here to say thank you for many years of service to the company here, and -- yes, from my side.
Yes. Thank you very much from my side, too. As you know, I will retire at the end of the year, and I would like to say thank you very much for all the interesting discussions, what we had in calls, conference calls and direct calls over the last 14 years. Thanks again.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.