WRDEF - Wereldhave N.V (WRDEF) Q1 2023 Earnings Call Transcript

2023-07-21 07:41:05 ET

Wereldhave N.V (WRDEF)

Q1 2023 Earnings Conference Call

July 21, 2023 04:00 AM ET

Company Participants

Matthijs Storm - Chief Executive Officer

Dennis de Vreede - Chief Financial Officer

Conference Call Participants

Presentation

Matthijs Storm

Ladies and gentlemen, good morning. Welcome to the Wereldhave First Half 2023 Results Presentation. I'm Matthijs Storm, the CEO of Wereldhave. Next to me is Dennis de Vreede, our CFO, familiar to many of you. Thanks for attending in the midst or maybe at the beginning of your summer holidays. I think we have a very interesting presentation for you today. Towards the end, as usual, you can ask questions. You can do that already by typing in the questions at the bottom of your screen in the Q&A bar, feel free to start typing in the questions and towards the end of the presentation, we will address those.

Let me start with the first key messages of this first half of the year. First of all, like-for-like net rental income growth 10% positive. I think a very good figure mostly driven by the high indexation of the leases. As you know, we are mostly active in the Netherlands and Belgium. And in those countries, inflation and indexation of leases has been very high. That has been the main driver of the like-for-like net rental growth.

Secondly, the portfolio valuation. We had a positive portfolio valuation of plus 1% overall. But if you zoom in on that, you can see that the Dutch valuations rose by plus 3%. It's a while ago, I think it was 2015 for the last time that we had a positive result for Dutch property valuations. The main driver of that has been, of course, on the one hand the rental growth that I just mentioned. But also on the other hand, the completion of full service centers. Presikhaaf in Arnhem went up by value plus 10%; Sterrenburg , Dordrecht by plus 4%, those have been drivers of the positive valuation as well.

Thirdly, our loan-to-value, it has increased a touch in the first half of the year towards almost 44% coming from 42%. This is logical because we paid our annual dividend in full in the second quarter. And also we spent more CapEx in the first half of the year versus the second half of the year, the expectation. If you look at the annual budget, we spent more in the first half of the year, given that the loan-to-value has ticked up a bit for now. But of course in the second half of the year, we will aim for a reduction. There will be a reduction and Dennis will elaborate on that further in the presentation.

The reorganization, we sent out some press releases regarding that both in the Netherlands and in Belgium to achieve cost savings and a more effective and efficient implementation of the LifeCentral strategy, those have been completed. What you see in the first half of the year is that the general cost increased a little bit, but towards the second half of the year, you can see a reduction of about 7%. And next year, you will see an annualized impact of those savings. All the work behind the saving has been done, so we are confident we will achieve those.

If you look at tenant sales, I think a very compelling figure, plus 11.5% on a like-for-like basis versus first half 2022. I think it's a very strong figure if you compare that to the market. Lastly, our outlook for the direct result per share 165 to 175, we are very confidently repeating that outlook with these results. If we then zoom in on some of the key figures, I won't go through all of them. I think it's, for example, interesting to look at the total result per share of 129, which is a €0.45, more than 50% change compared to last year confirming the upward trend.

If we go to the like-for-like net rental income growth, you can see our core markets Netherlands and Belgium. Netherlands 12.5, a little bit higher indexation in the Netherlands than in Belgium. This is also because in the Netherlands we are indexing with figures from 4 months ago, published by the National Bureau of Statistics. Whereas in Belgium, it's the figure of only 1 month ago. So Belgium had some stronger like-for-like growth last year, and this year it will be the other way around. But still both countries very strong figures.

France is a very high figure. This is also driven by the fact that there's only a small number of leases behind this. I think in the French market, we also see the positive trends. Maybe the 27% figure is a little bit accelerated. Again, because it's driven by a small number of leases. Offices in Belgium was a negative figure. I think we've done well in increasing the occupancy rate of both office parks. But from a rental perspective, and the office market is certainly more challenging than the retail market in the countries where we are active.

If we then zoom in on the results, the operations in the first half of 2023. If you look at the leasing, we had significant activity with 84 leases. And if you look at the rental levels where we signed, I think it's interesting to zoom in on the leases versus ERV plus 9% as you know, already in the second half of last year, but also in the first half of this year ERVs have been increased by our evaluators.

Still we are lazing 9% ahead of those ERVs, which I think underpins that still in today's valuations. There is still a degree of conservatism amongst others driven by the limited integration of indexation in those valuations. We will come back to that later and Dennis will address evaluations.

If you look at the full service centers, of course, we have more and more evidence, now more and more full service centers complete. We have five finished full service centers in the second half of the year. There will be four more completed. So then you could say from a number perspective, we're roughly halfway. I think, from a CapEx perspective, we're already past that halfway point, which is good news in current capital markets.

So I think, if you zoom in on the performance of the full service centers, and you can read all the numbers yourself. But have a look, for example, at the footfall plus 22.6% on a like-for-like basis, I think is a very strong figure versus the market. I see many countries where footfall is still a small minus for the market versus 2019 and versus last year, we're at a plus 22.6%. Also the valuation result, I've mentioned this already, under the key messages was positive and more positive than for the shopping centers, the traditional shopping centers and those assets in transformation.

If we look at footfall, you can see in the Belgian portfolio were outperforming the market slightly. In the Dutch portfolio, there is a massive gap. This is driven of course by on the one hand to completing full service centers. Secondly, I think again, this underpins the strong asset management of our local teams in the Dutch portfolio. But thirdly, it's also driven by the fact that in the market, there is of course, also high street retailer in the Netherlands, there is also a large high street retail market. And if you look at the footfall figures for debt markets, you can explain in the right hand chart the orange market line.

If we zoom in further on the sales again, we have an 11.5% increase year-on-year on a like-for-like basis. As mentioned, you can see Belgium 10%, Netherlands 13%. Its spread across categories. In Belgium, we had a little bit of pushback from temporary closures due to the strikes of the Delhaize grocery stores in Levelt and Tournai. So that had some impact. You can see that in the chart. I think other than that, it is a very positive trend.

Next page is important. Daily life retail, as you know, we classify all the retailers in our portfolio, and we classify them in daily life and nondaily life. And with daily life, we mean the convenience retail, the stuff that you typically buy close to your house more frequently than you will always buy even during COVID times. And the nondaily life is the more discretionary retail such as fashion, for example.

You can see here, clearly, we keep on increasing in daily life in our full service centers, 64% exposure. You can see also, if you compare to the chart, the donut on the left-hand side, you can see the significant reduction of fashion in our portfolio. I think that's important to mention because if we are going to head into a recession, some of the newspapers are talking about this, I think our portfolio should be pretty resilient as it was during the COVID times.

From a leasing perspective, we've done a lot of deals in the first half of the year. As mentioned, I think it's interesting to mention that we signed a gym in Tournai, Les Bastions [ph], a very nice location within the full service center and adding another use to that specific center, many F&B deals in the Belgium portfolio. We completed a eat&meet concept in Genk in our shopping center, which is, by the way, for the first time, more than 90% occupied since 2015, 2014, I should say, which I think is a good performance from the Belgium team. In the Dutch portfolio, if you have a look at Arnhem, for example, we've signed 11 new leases for our full service center development projects. We gave a big push on that which I think is a very nice milestone.

Before I hand over to Dennis, a short focus on the OCRs, the occupancy cost ratio. For those of you who are not that familiar with that metric, it's the total cost related to renting a property for a tenant compared to the turnover of that tenant. We already mentioned last time that our figure 10% for Belgium, 11% for the Netherlands is a quite healthy figure. I think that is still the case.

The Dutch figure even went down a little bit, which is positive. I think still within the Dutch portfolio and also within the Belgium portfolio, there will be further optimization because of the LifeCentral strategy because some retailers with high OCRs will be replaced by retailers mixed use with lower OCRs. What we also see in the market is that the number of bankruptcies is increasing.

We've seen some smaller bankruptcies, for example, in the French market, also in the Dutch market. So far, these are retailers that we have put on rent in our blueprint as we say. So it helps basically the strategy of the company, and those are also typically retailers that have a high OCR.

With that, I'd like to hand over to Dennis.

Dennis de Vreede

Thank you, Matthijs, and welcome also from my side this morning. Our direct result, as you can see here on this waterfall chart, increased with 10% to a healthy €43.2 million. This was mostly driven, as you can see on the left-hand side of the graph, by the 3 countries, mostly Netherlands, as you can see here, that already in itself accounted for almost 17% increase compared to last year. But I must say, obviously, this was offset mostly by the -- or for a big chunk by the higher interest margins, which we all suffered as part of the market rates increase.

Cost savings is a continued attention point for the management, for us and our management team. As you could see already in the numbers, our direct GENEX for the first half are slightly higher than last year's first half. There were a few one-offs in that first half this year, which made it increase a little bit. However, I should say, for the full year, we are still aiming for the 8% decrease.

As you can see here, we are targeting on a €10.9 million, just shy of €11 million direct GENEX. And I think we are very much on track with that. We -- as Matthijs said, we had a few press releases earlier this year where we reorganized the Dutch team. We also did some management changes in the Belgium team. That is all adding up together with the move of our head office next month basically to a cheaper location is adding to that cost savings plan of about €2 million for this year, offsetting more than the expected inflationary costs.

Our outlook unchanged. We still believe we should be heading for the €1.65 to €1.75 per share of direct result, which should be somewhere between the 4% to 5% growth compared to 2022. And as we said already a few times before, we also maintain our view that we see an average growth of 4% to 5% for the next 3 to 4 years until 2027. That's mostly driven by the fact that we see indexation not going anywhere lower than 4% to 4.5%.

Including the cost savings reduction, we will still see the full year impact, for example, of our cost savings program of '23 and '24. So I would expect our cost to go down a little bit extra in 2024. But also, of course, we have also included the impact of the higher cost of debt. And of course, the plans of the government, the current plan that we will have to leave the FBI regime from the 1st of January '25.

Moving on to the LifeCentral strategy, and I hand it back over to Matthijs.

Matthijs Storm

Thank you, Dennis. Yes, the progress of LifeCentral in the first half of 2023, as we complete all the four full service centers that we planned for this year in the second half of the year, you will see the large increase in mixed use in the second half of the year. You can also see that in the bottom right chart on this page.

In the first half of the year, there was only a very limited increase in the mixed use. But in the second half of the year, there will be a significant increase in the mixed use, again, aligning with the message that Dennis just sent on the reorganization. Of course, we think that with the new company structure, we can even more effectively and efficiently implement the LifeCentral strategy and that is also helping.

If we zoom in on Sterrenburg and Dordrecht, this is a completion from the second half of 2022. Interesting to look at some of the key KPIs, I won't go through all of them. But what you can see, for example, the total return of the asset, 10.6%, that is unlevered. If you compare it to our threshold IRR, it's not 100% comparable, for those of you who are strong in the financials. But I think it is, to an extent, comparable, our bar threshold is 7%. We achieved 10.5% -- 10.6% even, which is a nice outperformance.

If you look at the GRI on the bottom left, gross rental income from €2.8 million to €4 million, that is more than what we budgeted. Footfall also a very interesting increase of more than 30%, and also the occupancy rate of the center, which was already high, the center is almost full as we speak.

Then Presikhaaf and Arnhem. What we did on this slide, and I hope you can read the left hand side. The slide that you can see on the left hand side is a slide that we copied from our strategy presentation, LifeCentral from February 2020. And one of the key messages we send when we presented that strategy was our expectation that once we complete the full service center, we will see the yield go down, the cap rate of the center. Why? Because we derisked the center, and we created more growth drivers for the center. So that should be reflected in the valuation.

Now we've completed Presikhaaf and Arnhem, that was actually our first full service center. It's interesting to look at the results. If you look at the green table in the middle of the page, you can see Presikhaaf before the transformation started. If we would have spent only maintenance CapEx, which is €5 million in the middle of this table, we think the IRR that unlevered internal rate of return would have come out at 5.1%, clearly below our benchmark of today's 7%, but also the benchmark of -- back in 2020, 6%.

Now what is the result of Presikhaaf and today, that is factual, and that's why it's interesting to have a look at it, the orange table on the right hand side, you can see the GRI, the rental income is €4.7 million. That is quite a bit more than what we budgeted because when we launched the strategy, we got many questions from investors and analysts and other interested people on the rental income of the portfolio after transformation. People thought you replace a fashion store with a gym, the rent goes down. And in some specific cases, that is true. But you can see overall for Presikhaaf, there's been a very nice rental increase.

Yield compression has been 20 basis points. That is a bit less than what we anticipated. That is also because in the market, yields have increased over the past 12 months, I think, for all property types, but also for retail, if you ask the brokers. The CapEx has been €25 million, and that brings you to an unlevered IRR of 8.2%, well above the 6% but also well above the 7% hurdle. So it's nice to show the first example after the completion of the project that this part of the strategy is working as well.

Then we go through the transformations that are ongoing at the moment. Vier Meren in Hoofddorp, you can see in the pictures, we are already very far in developing this asset. In the second half of the year, the Vier Meren will be completed, for those of you attending our Capital Markets Day in November, and we will really push you and urge you to attend it because I think it will be very interesting. The Vier Meren is an asset that we will present and is one of our key projects in the portfolio. We signed a lot of new leases. You can see that on the left hand side. The pre-let is now up to 83%. We are confident that we can fill this center in the remaining months towards the completion.

Then De Koperwiek , Capelle and IJssel. This is a very long-term project, but we are coming close to completion. We are now at 69% pre-letting. We have three more F&B units to let. I'm confident that the team will achieve this in the second half of the year. And then also here in the second half of the year, we will see a completion.

The Eggert in Purmerend, the third completion for 2022. We've taken some really important steps in this center over the past couple of years. The occupancy rate has increased above 95%, which was also a while ago and is already showing, I think, the payoff from the investments that we are doing in this center.

We are creating a nice eat&meet square concept like we did in Genk, as I explained earlier in the center. In Every.Deli, Fresh Street, a second supermarket, all key elements for this full service center, completion also in the second half of the year.

And then finally, Genk, I already mentioned the eat&meet square in this center. We created a new DuPont service facility that you are familiar with. We will also explain the concept and dive deeper into the concept on our Capital Markets Day that has also been launched in the Genk portfolio also here, completion towards the second half of the year.

Then the CapEx from the LifeCentral program. Initially, when we launched the strategy back in 2020, we said €350 million. For those of you who follow us more frequently, you know that back in February, we lowered this figure to €91 million, that's still a figure that you can see on the left hand side. By now, we've spent €178 million. So there's only €130 million left to spend. You can see over the coming years, it's nice well spread and also between committed and uncommitted. There's also a nice division. So if the economy were to really slice into a big recession or any other variables would move in the wrong direction, we have the flexibility to act.

Then on the yield compression, I already mentioned it at Presikhaaf, there you see the 24 basis point yield compression that I showed earlier. In the market, the yields have gone up, as you can see in the purple bars in the bottom of the chart. Our yields for the full service centers have come down. So I think you should also look at this relative picture to see that our hypothesis that a full service center should trade at a lower cap rate than a traditional shopping center, at least for these projects is materializing.

Then on the residential, I think in the past we've never been banging the drum too much on residential. Of course, we do what we can. If there is a profit to extract, we will do it. Our business model in residential is to sell the building rights. So we don't invest our CapEx ourselves. We don't take the developers' risk, that's not our cup of tea. We have a very interesting partnership with one of the largest and the best residential developer, Amvest. In that partnership, we signed a deal of 156 houses in Kronenburg and Arnhem in the first half of the year. So that is really positive news. We are looking forward to that project.

At the same time, if you make the analysis about the residential potential in our entire portfolio, given what's happening in the market -- capital markets, but also in the Dutch housing market with the new legislation that is upcoming, we think we should be a little bit more conservative here.

So you can see we've reduced our potential profitability, of course, this can move again if legislation or interest rates move. But for the moment, we think it will be less. And you can also see in the chart on the bottom right that we've pushed out some of the expected gains in time. We did expect some gains in '23, but they've been pushed out to '24 and '25.

Share price, I think most of you will follow that. We've done, I think, pretty nicely since the launch of the strategy. This is a relative picture. We are number second at the moment from a total return perspective.

With that, I'd like to hand over to Dennis.

Dennis de Vreede

Thanks, Matthijs. Financing and valuations. I think some are good news, and Matthijs mentioned that already in the key messages, a positive revaluation of our assets overall for the first time since 2015, which was, to us, very positive news and underpinning, like we said before, underpinning our full service center strategy with lower yields.

If I look at Belgium and France, it's pretty much stable, if you add it all up. But the Netherlands jumps out here with a 2.7%, almost 3% increase on the first half year. That's mostly due to the higher market rents and -- but also a slight yield shift, which is adding, let's say, the 0.6% out of the 2.7%. So good news there. Our LTV, as you can see here, increased slightly, 1.5% to 43.9% net LTV. That is completely due to the fact that we've been front loading our CapEx in the first half year. I think we spent about €40 million of CapEx in the first half year on our transformations and a little bit, of course, also on maintenance and commercial.

We also did pay out about €56 million, €57 million of dividends in April. So that's adding up obviously to our LTV. For the remainder of the year, we see that we will be spending less CapEx. And with the retained earnings, obviously, we should be seeing a lower LTV by the end of this year.

Also, we are looking at some noncore assets to sell. One of them we did sell and will be transferred in August, a small asset in Tilburg, above book value. And I think, clearly, our goal remains to get our net LTV down to the 35% to 40% range. And I think most of the arguments and the means how we can do that, which are on the right hand bottom side.

And the two most important things, obviously, to get there are selling the two French assets, the one in Bordeaux and one in Paris. And if I just zoom in a little bit on that, I think the one in Paris is on track. We are carrying out a final project there to get it to the market in '24. The project in Médoc, Bordeaux, we finalized the F&B project there. We have a grand opening in September. I think that's the right time that we put it back on the market. And we will be pushing to sell that for the right price, obviously.

If you just project yourself back to the CapEx slide that Matthijs presented, in 2025, I think, we are projecting to spend another €20 million in CapEx, so significantly lower than what we have been spending so far. We should be back in a positive free cash flow, which should also contribute obviously to a lower net LTV.

Our debt profile. Nothing really shocking to say here. I'm not going to read out all these numbers for you. Obviously, our interest-bearing debt went up a little bit, as you can see here, because of the CapEx and the dividend payments. Our average cost of debt is higher now with 3%. It went up due to the market interest rates, obviously. And I think important to see here is that we are well above or well within, I should say, our bank covenants.

Some good news on this page here, which we just also wanted to highlight, is that we've been working in the past quarter with a new reputable large U.S. investor to attract some new U.S. private placement debt, which we succeeded in $50 million or converted €46 million U.S. private placement against market rates, I should say, but I would say if I look in the market, it's on the lower end of that market range. So we are very happy that we were able to attract a new USPP investor. We've been in the market already since 2011 in the U.S. And I think this is the result of long lasting relationships in that market. So we are happy to announce that as well.

With that, I hand it over back to Matthijs.

Matthijs Storm

Thank you, Dennis, and we get to the last slide of our presentation, the management agenda. You're familiar with this. Of course, if we focus on earnings growth, you can see with the range that we communicated, we project 4% to 6% earnings growth, direct result per share growth, for this year, but we also still expect that for the coming years, I think Dennis already mentioned all the details of that in waterfall in one of the earlier slides. Our total return, what we said from the beginning, we want to exceed 8% on an annualized basis if you annualize H1 2023. And we only annualized the direct result, of course, not the valuation results, then you get to 9.9% total return, which is above the hurdle.

Transformations, we've already mentioned that. There will be four completions in the second half of 2023, all on time and on budget, and the pre-letting has made a nice step forward. ESG, very important to us. As you know, we are one of the ESG leaders in the industry. Of course, in the second half of the year, we will see where our ratings come out for GRESB and CDP and so on. For now, we can say in 2022, our rating was confirmed.

NPS, took a small step up from 24% to 25% in the first half of the year. France, I think Dennis already elaborated on the last two disposals. And the last phase of the balance sheet derisking, we are working hard on it. I think Dennis also mentioned in his slide basically where we stand. So with that, we go to the Q&A. We already have quite some questions in the screen. I think the first one, Dennis, is one that you could answer by explaining what you mean by front loaded CapEx?

Dennis de Vreede

Yes. Okay. Thank you for the question. Indeed, we are looking at a LifeCentral transformation CapEx budget, which you have seen, which is now about €291 million. Out of that, we spent the first half of this year, about €40 million. We've been working really hard to -- on those four shopping centers in -- which are in transition and which should be completed by the second half of this year. For the second half of this year, I would expect our CapEx to be much lower than the €40 million. So it's probably more into the €25 million to €30 million range. So that's what we mean with front loaded CapEx, Matthijs.

Matthijs Storm

Okay. Thank you, Dennis. Then the next question comes from Steven Boumans, ABN ODDO. With €0.89 direct result per share, you are ahead of your full year outlook. Why have you chosen not to upgrade the full year 2023 outlook?

Dennis de Vreede

Yes. Steven, good question here. Of course, we did the math ourselves as well. We hang on to our €1.65, €1.75 because we’ve some one-offs in the first half year. I think we also explained in the first quarter. We had some positive property tax refund from '22, which hit our numbers in '23. We had some positive, I must say, SBR, so sales based rent settlement, which were positively impacting the €0.89. So all in all, we believe that it is very prudent to stay within the €1.65 to €1.75 range. That's the reason behind it.

Matthijs Storm

Okay. We go to the next question, also from Steven. Could you please comment on potential divestments, media like timing and price. I think Dennis already mentioned that, Steven, towards the end of the presentation. Media, like we said previously 2023, that's still possible, but it could also be 2024. For us, it's important to achieve the right timing, but also the right price, of course. We've refinanced a big chunk of our debt in Q4 2022 with the RCF and on our bilateral loan. Now we have a new USPP investor for $50 million. So we need to pick the right moment also to sell media debt. So it could be '23, but also '24.

Quotation has been explained by Dennis, our asset in Paris. We expect to sell it in '24. Which centers do not meet the IRR hurdle today? There is one shopping center in the Netherlands, as we mentioned previously, but we choose for commercial reasons not to disclose the name of that center, Steven. Potential of office divestments, I think if I screen through the questions, there was also a question from [indiscernible] why we are not selling the offices? So we can combine those. As you know, we have some offices in the Belgium portfolio. At the moment today, tactically, we cannot sell the offices because we have to comply with [indiscernible] the Belgian REIT regime.

One asset cannot be more than 20% of the portfolio. Today, Belle-Île in Liège is 18.6%. If we would sell Vilvoorde or Antwerp offices or both of them, we would exceed the hurdle. And of course, we want to comply with the regime. I think from a strategy point of view, as you know, the focus is on the full service centers. So in the future, we could think of disposing the Belgian offices. But first, we have to fix the Belle-Ile weight in the Belgium portfolio. And a solution to that could be to acquire assets, as you can imagine.

Matthijs Storm

Then we go to the next question from [indiscernible]. What about portfolio sales to Belgian offices? Well, we've mentioned that. [Indiscernible] is also saying rents improved occupancy higher. Offices were launched in a separate company. That is true, [indiscernible]. So yes, the operational performance is going into the right direction. But having said that, there is this technicality about the portfolio weight, which blocks us basically today from selling it.

Then we have a number of questions from Amal [indiscernible]. First question is, can you provide us with more information on the recently signed net cost and conditions of the USPP loan that is …

Dennis de Vreede

Yes. I can, Amal, thanks for asking. This is a $50 million loan, like I said before. We have agreed with the investor that we will draw at the end of this month, $25 million of that, has a 5-year maturity. We will draw another $25 million of that in January 2024 with the same 5-year maturity. I must say that we've been looking, of course, a lot in the market how to refinance. We keep an eye on Bloomberg, as you do. If I look at the bonds of our peers in the market, I think with this pricing, which is still, I would say, relatively expensive. I think it is -- or I should say, absolutely, on an absolute basis, expensive money. I think we are competitive. We have a competitive rate, which is well below the 6% rate all-in cost on an unsecured basis.

Matthijs Storm

Secondly, there's also financial, Dennis. Can you update on the refinancing discussions for the debt due to mature in the coming years?

Dennis de Vreede

Yes. Also that I can certainly answer. We have -- basically, in the next few years, we have the USPP, which tranches which are maturing all the way up to 2030, except the ones from the latest investor. I must say that next to that, we have in Belgium, a few maturities in 2024, which we are in constructive discussions with the related bank. Belgium, of course, as you know, is a ring-fenced subsidiary of us with a low LTV. We have a long-term relationship with that bank. It's about €65 million of refinancing, which is due to mature in the second quarter of 2024. So that's -- those discussions are underway. And then we are already -- in 2025, '26 and '25 is mostly USPP and I think a little bit, like €30 million, in Belgium, but that's still 2 years from now.

Matthijs Storm

Okay. And then the last question from Amal is on the bankruptcies. Can you disclose the name and a number of the units impacted? Certainly, in the Netherlands, we had the bankruptcy of Scotch & Soda, multi brand fashion chain, Amal, and the bankruptcy of Score, also multi-brand fashion. We have one store with Scotch & Soda in Tilburg. In the meantime, there's been a restart of this company. So for the moment, it remains Scotch & Soda. To be honest, this is in a very compelling location. So if we were to get this unit back vacant, I'm quite confident we could release it.

The Score shop in Nieuwegein Cityplaza is in a part of the mall where we have full occupancy. So I'm also confident we can relet that. Then we have the bankruptcy of [indiscernible] in France, as you're probably aware. We had one [indiscernible] in Côté Seine in Argenteuil, in Paris. For that, we found a new tenant, we've signed an LOI so that we also have replaced. Those are the bankruptcies so far. Of course, there's always rumors in the market, but these are the facts.

Then we have a question from [indiscernible]. Quick disposals in shopping centers, the two French on hold. In the Netherlands, one is not reaching the 7% hurdle. Thank you. I think on the two French, we've already elaborated, [indiscernible]. In the Netherlands, indeed, we have one center which is not meeting the hurdle. We are not disclosing the name as I already answered to Steven. We will only sell this at the right price and for that at the right price will be the book value or above, no more news for the moment.

And a question from Steven Boumans again. What has changed in the assumptions for '23, '27? Besides the indexation assumption, I think he's referring to the waterfall, Dennis, for the earnings growth outlook.

Dennis de Vreede

Yes. No, good question, Steven. I'll just go quickly back to that page. I think the changes that I do remember is that we got some questions last time with -- it's on Page 17 of the presentation. We got some questions that the last time we only used about, I think, 2% or 2.5% inflation, which was a bit on the low side, of course, given the current inflationary environment. Secondly, we also did not include the increased interest expenses, the cost of debt separately. So that's what we split. And that's actually the only big changes we've been using in the model. So higher indexation, but also higher cost of debt.

Matthijs Storm

Other question for you, Dennis, from Francesca Ferrangina. Where do you expect the LTV to land by year-end?

Dennis de Vreede

Thanks, Francesca. We do expect with the current, let's say, CapEx investments, we expect for the second half of the year and the retained earnings, I think we should be getting closer to the 42.4%, 42.5%, where we started the year. So I would say somewhere between 42% and 43% or 42.5% and 43%, I would say, by the end of this year, which is excluding, of course, disposals. We have a few smaller noncore assets in mind, which could contribute to a little bit of lower LTV. But excluding that, I would say, that's the ballpark number, 42.5%, 42.6%.

Matthijs Storm

Another question from Francesca. What is your view on inflation and rents for 2024? Have you started to discuss with some tenants? What is your feeling about this?

Yes, on indexation, it's difficult to say Francesca. That is something which is very hard to predict, I think, for all of us. If I read the newspapers today, I think some sort of the general expectation is that inflation will not go away in the coming months, given the fact that in the Netherlands, we are indexing with 4 months lagging figure published by the National Bureau of Statistics, it's quite likely that there will also be a very nice indexation figure, at least for the Netherlands in 2024. And of course, there will be the annualized impact of all those leases that we are indexing in '23. So that is, of course, helping the growth in direct results per share.

Of course, we get some pushback from some tenants on the high indexation. But as we've mentioned previously, we pushed through 100% of the indexation in our rental contracts. What is still occurring every now and then is a strategic discussion if we want to move a tenant for a transformation project or increase the size of the unit. Then we can have a discussion, of course, also about the rental level. And in some cases, this is why in the Netherlands, the figure was slightly negative for the leasing spread. There is a small reduction of the rent, but then there is a strategic benefit to realtor.

And a question from Veronique Meertens, how realistic is it that the French assets can be disposed in the next 6 to 12 months? And what kind of yield do you think is achievable? Is there already some appetite for the assets?

I think we talked quite a bit already on the French disposals, Veronique. Again, quotation '24 and media deck could be '23, but it could also be '24. The French market was really quiet, investment market in the first half of this year. There is some chatter in the market about the sale of a big shopping center in [indiscernible] in the north of Paris, that would be, I think, a very good restart of the transaction market. I think you have to bear in mind also, if we talk about yields, our assets are in the heart of Paris, in the heart of Bordeaux. They are lower yielding than, for example, the assets that we sold to Lighthouse 2 years ago. And there are also smaller assets with a much larger component of convenience retail. So this is why we're also more keen on and sharp on the pricing than, for example, in the previous year.

Another question from Francesca. Could you please provide an update about FBI?

Dennis de Vreede

Yes. Well and mean the tax regime?

Dennis de Vreede

There is no, I think, big update, Francesca. I mean, I think we've foreseen that there will be a government change, there will be elections at the end of this year. So far, we have not heard anything, if there's anything going to change about the plans of abolishing the FBI regime for the 1 of January '25. We are part of a group of other peers, which are talking about this also with the government itself. I think we just need to wait for September when the budget discussions and the budget will come out for '24. And that is when the market is expecting there will be some of the countermeasures or, I should say, softening measures from the tax authorities, which should be accompanying the abolishment of the FBI regime for the 1st of January '25. So there's nothing new that we can tell right now. We are preparing ourselves for an exit of the FBI regime for the 1st of January '25.

Matthijs Storm

Another question from Francesca. Can you spend a few words on the investment market? What type of transactions and players have you seen in the market lately?

It's been pretty quiet Francesca. I think in the French market, our friends from Camila did a large deal, as you know, in the shopping center market. Other than that, there is a rumor about a center in [indiscernible]. In Belgium, it's been really quiet. And in the Netherlands, we've seen some smaller shopping center transactions with yields around 5%, 5.5%. Those are arguably a bit smaller, so also lower yields than our assets, but it's a good benchmark.

Of course, we look with a special interest to the French market because there we need to sell still two assets. I think the typical buyer for our assets is more a local family office or a combination of family offices, wealth management players rather than going for the large institutional buyer. And of course, we will not sell to an opportunistic buyer because you can imagine that the prices that they are willing to offer are not reflecting our expectations.

Now we have a question from Veronique Meertens. Could you remind me what the size of the one-off was in Q1?

Dennis de Vreede

Yes. I would say from the top of my head, the one-offs in Q1 which were a bit allocated between Belgium and the Netherlands are amounting, I would say, about close to €1 million is probably what the one-offs are. And that, again -- that is related to the property tax refund in the Netherlands, which is about €300,000 or €400,000. And again, we had those SBR settlements of '22, which was, I think, in the combination about €600,000 or €700,000. So it's in the range of that number.

Matthijs Storm

Thank you, Dennis. And then we have a message from Amal. Thank you for the clear answers. Very happy to do that, Amal. And I think that also brings us to the last question. I don't think anything else popping into the screen. So I want to thank you a lot for attending. Thank you for all those very good questions. For those of you who are already on holiday, keep enjoying it, I would say. And for those of you who are about to start their holiday, enjoy it and hope to see you back after the summer.

Again, a quick reminder, November is Capital Markets Day for Wereldhave. €, our Investor Relations, his contact details are on the website, is very happy to give you more information about that. He already sent a safety date. So we are very happy to welcome you on that Capital Markets Day. Enjoy the summer, and see you next time. Thank You.

Dennis de Vreede

Thank you. Bye-bye.

Dennis de Vreede

Thank you.

Question-and-Answer Session

Q -

[No formal Q&A for this event]

For further details see:

Wereldhave N.V (WRDEF) Q1 2023 Earnings Call Transcript