Wereldhave Nv

Good morning and welcome to the Wereldhaven first half 2024 results webcast. Today I'll talk you together with our CFO Dennis de Vrede to the highlights of the results. As always, you can type your questions in the text box in your screen also during the presentation and towards the end of the presentation we will deal with the Q&A. So let's start with the key messages of these results. If we focus on the operational metrics, I think if we look at the Dutch market, as you know, which has been a tough market for us over the past five, six years, we saw a strong recovery last year, and that is continuing in 2024. Dutch retail sales were plus 4%. That is also above the level of inflation. So we have also seen volume growth for several of our retailers. I think that is also the result of the improved portfolio quality on the one hand through the disposals that we made in the past couple of years, but also the new full service center concept that we have created. Footfall plus 5%, but almost plus 10% for the full service center. I think service centers also a very compelling figure. Valuations, they were positive last year and that trend is continuing. Everybody sees that interest rates are stabilizing. But what we noticed is that our plus 3% in valuations was first and foremost driven by increased ERVs. Over the past two years, we've had several discussions. with the media and also investors, analysts, about the rental levels. We were indexing with very high figures. Can you maintain those rental levels? What you see in the first half result is an answer. The answer is yes. The leasing spread for the portfolio, for the core portfolio, was a positive plus 1%, and that is now also being reflected in the valuations. The Fitch credit rating, we reported on that a couple of weeks ago, triple B stable. We're very happy to be back on track with regards to the balance sheet. I think this is the strongest balance sheet we've had since 2019 when Dennis and I took over. And Dennis will tell you more about that later. The debt profile has also been strengthened with new USPP. With regards to disposals, we already mentioned during Q1 and also with the AGM that we were working on disposals first and foremost for the Dutch market. Again, we're doing this because the fiscal regime is changing in the Netherlands. The REIT regime is cancelled as of the 1st of January 2025. and also the real estate transfer tax in the Netherlands is at a pretty high 10.4%. We've taken the first steps. We're working on exclusive discussions on two of our assets, and on the third asset, we're having joint venture discussions. Direct result in the first half of this year was impacted by bankruptcies, mostly in Belgium. We'll get back to that later, but also some higher financial expenses. What you will see in H2 is a normalization on the back of the new Fitch credit rating, which is causing lower marginal cost of debt, but also the fact that by now we've leased already most of the vacancies in Belgium. And this is the reason why, and that is the last bullet on this slide, we can reiterate the €1.75 direct result per share for 2024. If we then go to the key numbers, I've mentioned this, the direct result per share a little bit lower in the first half of 2024 versus last year. What you can see again for the second half of the year is the benefit of the lower marginal cost of debt, the least vacancies, but also a higher other rental income. And based on those, we still expect the €1.75 for 2024. In that scenario, we are not counting on further ECB rate cuts. Of course, if that's going to happen, that would only be upside. Indirect result per share on the back of the positive valuations, strong increase. And if we look at the loan-to-value at 43%, of course, it's higher than with Q1 because we paid the dividend in Q2, but it's lower versus the first half of last year. And of course, in the second half of the year, we will have the retained earnings and we forecast only roughly 20 million of KPEC. So towards the end of the year, we expect a lower LTV. Finally, the proportion of mixed use has also increased from 13.3% to 14.5%, so we continue to work on our strategy. If we look at like for like rental growth, we've had two years of almost double digit like for like rental growth on the back of high inflation and indexation. In the Netherlands, I think plus 5% is a very strong figure. Belgium has been impacted by the vacancies, which is logical. We do, however, expect based on the already signed leases regarding those vacancies that this figure will improve in the second half of the year. If we then go to the results themselves, leasing from an operating perspective, we had a positive leasing spread of 1.3% in the first half of this year, 7.4% in Belgium and a very small negative in the Netherlands. And what I think is very interesting is that we are still leasing 12.3% above ERV. What we've seen is an increase in our ERVs. Last year, we've seen an increase in the ERVs and the valuations in the first half of 2024, but still, we're leasing 12.3% above. And if I also look at the lease assigned post the 30th of June, this trend is continuing, which I think is quite promising for the second half of the year. If we then go to the next slide, that is the full service center performance. As always, we break down the portfolio in three brackets, full service centers, in transformation and shopping centers. You can see the full service centers by now is by far the biggest one. I'm not going to read through all the figures, of course, but you can see, for example, in the MGR uplift, new rent versus old rent, but also in the footfall that the full service centers continue to outperform strongly. Footfall, both in Belgium and in the Netherlands, we have also been doing better than the market. And this is interesting because during the COVID pandemic, we also outperformed significantly. And I think there were many people who were expecting that that would normalize after COVID. But you can still see that our centers are performing better than, amongst others, the high streets in Belgium and the Netherlands. If we look at tenant sales, there's a 2% increase versus last year. Of course, here again, Belgium is also impacted by the vacancies. That's why it's only plus 1%. That will recover in the second half of the year. In the Netherlands, plus 4%, I think, is a very decent figure. Some categories, such as F&B, but also health and beauty, are performing very strongly. The strategy of the company, Life Central, we're making significant progress. Daily life is now 67% of our footprint, of our portfolio. When we started the strategy, this was 50%, 51%. You can see with this, the portfolio is becoming more and more resilient. I'll skip the next one. We'll go to the next slide. This is a new slide in the presentation deck. We thought it would be interesting to highlight this to you. What are we showing in this slide for the Belgium on the left side and also for the Netherlands on the right side? There's a number of lines in this chart. What we are comparing is the available household income per store. versus 2015. What we've seen in both markets is that the income of the population in Belgium and the Netherlands has grown, of course, since 2015. Also, if you adjust for inflation, so in real terms, but what you can see is that the number of stores has decreased significantly. And I think if you look at both markets, 48 percentage points and 57 percentage points, you can see we get to a situation where the available spending power versus the amount of physical stores has grown to a point where rental levels and also sales in the physical stores are picking up again. So I think for a number of years, of course, physical retail has been difficult because there was an oversupply of retail. This is also what we emphasized when we launched the strategy. But we see also now, based on these numbers, that we get to a situation where the spending power versus the number of physical stores is actually looking quite good, which is encouraging, I think. If you then look at the leasing market, we have been talking about polarization for the past couple of quarters. Here you see some examples. I think on the left-hand side, of course, the bad news, the bankruptcies, Grand Optical in Belgium, Body Shop, Esprit, Kenshu Fashion, also some restructuring, such as Casas Paprika. The good news is that most of these stores have now been re-led already or are almost re-led. And if you look on the right-hand side, you see a lot of strong brands that we've been expanding in our portfolio, such as the Danish discounter Normal, Pearl in Belgium, The Sting, but also the German fashion discounter New Yorker, Scarpino, Vibra. And we also signed a new package deal with a gym operator, which is called Yellow Gym, for new locations in Hofdorp and Tilburg. I would say if this trend is continuing, I think that it only has a positive impact on the quality of our cash flow, but also the quantity of the cash flow. Take Belgium as an example. Once we have refilled all the vacancies, we will end up with a higher rent than previously and a better quality cash flow. If we then go to the occupancy cost ratios, here we've seen a small increase. Belgium and the Netherlands are now at 13% and 14%. I think these are still very affordable levels for our retailers, given their floor productivity. And I think what you also see here, for example, fashion, 15%, 16%. I think these are very healthy figures. If we then go to the direct result and the bridge, how we get from H123 to H124. Of course, the acquisition of Polderplein in Hoofdorp in December last year is contributing a lot. We've also seen that the net rental income in Belgium is increasing. France is a small minus. The Netherlands is also a plus on the back of the indexation and the rental growth. However, yeah. It's logical that the interest expenses are taking out a lot. I always say lease contracts are indexed annually and the debt is only being mark to market at the point of maturity. And it's logical that that is lagging, of course, in this market. Going forward, if indeed the ECB keeps cutting the rates and also if the long end tail of the yield curve will go down a bit, there is some upside, of course, in our marginal cost of debt. Certainly now we have this BBB stable credit rating. If we then look at the outlook for 2024, it's the same slide as six months ago. We still expect €1.75. Also for the next year, as a reminder, next year we will spend some money on the tax side in the Netherlands, of course, because the FBI regime will be gone. On the other hand, that will be compensated by rental growth. Dividend per share, we still expect to go from €1.20 to €1.25. If we then go to the strategy I already mentioned, we're making quite nice progress on our mixed-use targets. Here you can see some examples. I already mentioned the opening of the two yellow gyms in both Hofdorp and Tilburg. We also opened this quarter the new health cluster in Prezighave in Arnhem. You can see it in the picture on the top left-hand side of this slide, which is now full and quite successful. Kronenburg in Arnhem is one of the ongoing transformations. This is one of the larger, very established centers in Arnhem. It was delivered in 1979, and Wereldhaven has been the sole owner of this center since then, so we know this center inside out. We started on phase one. The construction activity is going on at full speed at the moment. The center is already, the development is already circa 95% leased. There will be a new big grocery chain, Jumbo Food Market, but also some additional daily life tenants, as we call them. And at the moment, we're working on the second phase of this project. Amongst others, we are also developing with our partner Amvest residential units. The first 156 units are being developed as we speak. Then if we look at the strategy from a CAPEX perspective, we've now spent about $206 million of CAPEX. We have $85 million to go. We expect $20 million for the second half of the year, of which roughly 50% is committed. For 2025, 30 million and afterwards 35, you can see if you do the numbers ballpark, you can see that our cash flow from operations, our free cash flow basically, is almost turning positive because the CAPEX numbers are much lower than in the past. Finally, on the yield shift, what we see is that since we launched the strategy, the yields in the Belgium and the Dutch market, of course, have gone up, amongst others because of the COVID pandemic, but also the increasing interest rates, circa 90 basis points, as you can see in this bar chart on the left. but you can see that most of our centers have outperformed that movement from a yield perspective, which has always been a part of the strategy. Once we de-risk the asset, we think it also deserves a lower yield. The residential profits, we have adjusted the numbers last year, as you know, on the back of higher interest rates. The good news is we now signed the deal in Tilburg, so there will be a 3 million inflow of cash in 2024. And in 2025, there will be an 8 million inflow from Nivelle. The other profits will come after 2025. Again, as we always say, for us, we extract from this opportunity what we can. We do this by selling the building rights. It's not the big game changer for the investment case Wereldhaven in my view, but again, these are nice additional profits for you as a shareholder. With that, I'd like to hand over to Dennis.

Thank you Matthijs and also a very good morning from my side to all of you. I'll give you a bit more color on the second three topics of our presentation today before we open it up for questions. To start with the valuations and Matthijs already mentioned that we have seen a very healthy revaluation, positive revaluation of 3% for our core portfolio, mainly driven by the Belgium portfolio this year. And that's been really driven on that side by the ERV catch-up. So what we have seen in the past, we've been leasing significantly above the ERVs, and the valuators have been picking that up, and that's been reflecting in this first half year in a 4.9% increase in Belgium. For the Netherlands, we are also positive again, 1.4%, also mainly driven by the ERV upside here. and France and the offices in Belgium are stable for the first half year. Our LTV ended up at 43% for the first half year, which is 90 basis points lower than the first half of 2023. I think that's a positive, that's a trend downwards, slightly above the full year 2023. Mainly, of course, the drivers are the lower capex investments we did in the first half year. We're still very cautious with capex spending, although we keep focusing on our full service center strategy and the transformations. Secondly, we continue to focus on our cost side. As you may also have seen in the press release, we are at a 23%, 24% APRA cost ratio, which is down like 6% or 7% from last year. And we keep working, as we mentioned here as well, on our target to be sub 40% LTV in the longer term. If I then move on to the debt profile, this snapshot here shows a very healthy debt profile for the first half year 24. Our debt profile is also further strengthened by the new 119 million US pp we have successfully raised over the past few weeks. which is meant to refinance the $88 million maturing USPP, which we need to repay this month. But all in all, that was a very successful transaction. Certainly our Fitch BBB stable rating helped us to raise those $119 million against competitive rates and with a weighted average tenor of about five years. sub 5% if I all hatch this back into euros. And the rest of the table here, you can see that we are very comfortable within all the bank covenants. On the debt composition and maturity profile compared to the end of 2023, a nice snapshot here with the two bagels. Clearly, you can see that we have been refinancing the green portion on the left-hand side. That is the USPP maturing. And we are also very much working now on the 2025 term loans in Belgium, which is a $50 million maturing term loan. And we are well on track with that to refinance that in the second half of our year. In the co-op box, also not unimportant, we have been pushing up our total debt maturities from 2.9 years to 3.4 years with the new USPPs. Moving on to ESG, another key focus for our company. We keep pushing to become future-proof, as we say that. I'll go to the next slide. We have been further accelerating our solar and also our EV strategy. We have been generating 13% of our total energy consumption last year from our solar panels, which is, I think, a very good result. We have two more solar panel projects this year in the Netherlands, which we are finalizing. I think those are on Koperwijk and in Middenwaard in Heerhugowaard. And we are also, which is the first time we do this in six years, we're looking at partnerships with some of the largest supermarket chains. chains to sell directly the electricity from the solar panels to them by means of a lease contract. On the green leases, which is another focus point for us, it's also in the KPIs of the STI of our employees. That's what we're trying to push up this year to 69 to 70, 69, 70%. Half year we're at 68%, so that's moving in the right direction. And another, I would say finally, a big topic for us is obviously the CSRD and the EU taxonomy preparations. We need to be ready by the end of this year, basically, to start reporting in compliance with CSRD and EU taxonomy from 2025. Our management agenda, finally, before we open this up for questions. I think a very similar picture from what we have seen, what we've shown you last time. I think we are very much on track with the first four topics, as you can see here. And on the phase out of France, we keep pushing and keep searching for the right moment to divest our two remaining French centers. And obviously, we have been de-risking the balance sheet very significantly, but we keep also pushing on the longer term to push our net LTV below the 40%. And with that, I hand it back to Matthijs and open it up for questions, I think.

Thank you. Thank you, Dennis. And thank you for listening. We have a first question from Amal from De Gogh, Peter Kam. Good morning. A few questions on my side. Are you considering a reverse merger like the one announced by Vastnet? That is a question we can deal with immediately. I think Fastnet can speak for themselves. I think they have a different strategic rationale to do this versus us. So at the moment, we're not working on a merger. I think if you look at the cost side, we have already achieved a lot of cost savings in Belgium, about 1.3 million recurring cost savings that we already communicated on previously. And again, these are recurring. In addition to that, if you look at our marginal cost of debt and the spread we are achieving on our unsecured financing, as Dennett was mentioning, it is approaching the Belgian levels. So I think also from a financing perspective, apologies, there's not a lot of upside here for us. I'll leave it with that. Do you think the level of OCR for fashion and footwear retailers is sustainable? I think fashion 15, 16%, yes, that is sustainable because that is a mix between some of the discount fashion retailers, but also some of the higher priced fashion retailers. I think once this becomes above 20%, and yes, we still have one or two local examples which are above 20%, but we will deal with that. We will replace them. I think that is sustainable. Same story for the footwear, Amal. Question for Dennis. How do you see average financing costs evolving in the second half of the year?