CEO Talk: Matthijs Storm (Wereldhave)

Thank you.

Yes. Well, I think they were very solid results. At least, that's what I also read in analyst comments. But indeed, little surprise, and perhaps over the past few years the expectation had arisen that we would beat expectations every time, and this was more in line. So that's my reading.

Yes. Well, maybe that's a bit, but I think for a real estate fund it's perfectly fine to be in line. And well, last year we of course bought a lot of things. Perhaps people also expected that we would have done some bigger things by now. Well, there are actually a few very nice things in the pipeline. We can talk about those later. We also talked about them this morning in the webcast. But we can't report on them very concretely yet, so yes, people will have to be patient. Yes.

Yes. Well, we are cautious. So what we are mainly working on now is capital rotation. So with a joint venture in the Netherlands to extract the money from an existing asset of Wereldhave, while still continuing to manage it.

And rotating that capital into Belgium. So that's essentially a closed-book transaction. And we are—

That's a foreign institutional investor in the Netherlands. Okay. So that's the Dutch deal. Well, there's a Belgian deal attached to it. That's done for profitability, as it has no impact on the balance sheet. We're not issuing any shares, but it does increase profit. Additionally, we are working on selling a non-core asset in Belgium. We've also indicated that the offices and retail parks are considered non-core. You'll see something on that after the summer. That's for the balance sheet. But what we are not going to do – and that's what I wanted to get to, given the current situation and share price – we are not currently doing an acquisition paid for in shares or with a share issue, because at this level we don't want to issue shares. So we did that in the first quarter for the acquisitions in Utrecht and Charleroi. Those were small acquisitions. We issued shares at €23, roughly around intrinsic value. Now we're quite a bit below that. So at this level, we won't do that.

So let's see. I see 91 cents per share direct result for the half year. So that includes property revaluations. Yes. It was slightly up, I saw. Property is revalued by around one percent for the core portfolio in the Netherlands and Belgium. You see that is mainly driven by rents. Rents have increased. We also have 4.3% gross like-for-like rental growth, which is quite strong when you have 2.5% indexation. If you look at real estate funds over the past 20 years, you don't get that average. So that's actually pretty good. Costs are decreasing by 500k annually in general costs. Well, with this inflation, we also index wages, so I don't think that's bad. So where it hurts a bit is in interest expenses. Those have also increased a bit. Our Revolving Credit Facility is Euribor plus a margin. That Euribor has naturally risen 25 basis points. We did a refinancing in the US. Yes. And taxes – we can come back to that. We now pay taxes in the Netherlands. So yes, it's nice to revalue, but you lose some of it because you have to take a deferred tax provision on your balance sheet. The deferred tax liability. And that's a shame. And that's also the reason we are rotating capital from the Netherlands to Belgium.

Yes. So what we measure here is what we call the leasing spread. That's the MGR spread in this table. It's the new rent versus the old rent. For example, when we renew a lease or do a rotation in a shopping center. In the Netherlands it is indeed slightly negative. This is driven by two contracts. You see in the volume of €4.5 million that we have renewed or touched many contracts, I think 50 to 60. And then there are two that are due to Article 303, which is Dutch legislation. Tenants in the Netherlands, if they think they pay too much rent, can go to court based on Article 303 and say there are all sorts of shops in the area that pay less per square meter. There are even specialized 303 lawyers. It's a game: they come to us and say they will do it. Ultimately, you often settle above the level they think they would get from the court. But that still has a negative impact. We had two of these, and fortunately we have fewer and fewer because we now exclude this in new lease contracts. But these are still a few old contracts. These two were larger ones. They are negative and cause the -1.9%. If you remove them, you're at zero.

And in the second half of the year, that spread will be zero or slightly positive, because then we won't have any 303s. So I'm not too worried, but it is indeed a small negative.

Yes, that's the weird thing. You can use all sorts of things as references. So you can use a catering business, a logistics business, a flower shop. That's the strange part of that legislation. So if I'm a jeweler, I can simply say that café pays much less. Yes, you can. And then we, of course, are also allowed to bring references. So we bring all sorts of references where the rent is higher. Then the court looks at it. It can be lengthy proceedings, so usually you don't go that far. Both parties incur costs. But the main thing is that we now exclude this in contracts. So you'll see fewer and fewer. When I started, I think we had about 30 per year. Rough estimate. Now it's only a few per year. Except this half year, coincidentally two larger ones.

Yes.

Yes, I think what you see if you look at the headline is that our footfall and retail sales, tenant sales as on this slide, are still about 2% higher. So that's actually fine. With 2.5% inflation, that's nothing wrong. If you zoom in, for example in the Netherlands, you see that supermarkets are doing very well, and health and beauty is naturally a bit more cyclical, more discretionary product. I think that's the reason that cautious consumer spending is coming back there. Overall, as you know, we have 23% in daily life. We'll come back to that.

Okay. Yes, that's all going well. So is that the same in all countries? I see here mainly Belgium and the Netherlands. Is it different in France, less?

Yes, that's correct. Yes. Well, I'd rather have the share price go up, Nico. But you understand that the outlook is simply confirmed. 1.85 to 1.95.

Well, there are possibilities, and these are all expectations. But I think two things. On the one hand, the capital rotation I just mentioned. You'll hear more about that after the summer. As I said this morning on the webcast, that joint venture in the Netherlands and that acquisition in Belgium, if you put them together, it has quite a positive effect on earnings per share. So if that all goes through, that's one. And the second is – I can't say too much yet, it's still premature. But the other has to do with taxes. We've already seen our tax burden increased in the first half of the year. The good news is that a new EU law has been passed on so-called earnings stripping, which relates to the maximum deductibility of interest. In the Netherlands it is currently capped at one million of EBITDA per entity. It looks very likely that this will change on Budget Day. If that is indeed the case, it will significantly lower our tax burden. That could also be something. We'll see. If it's implemented, we're talking about a few million per year, so that's quite significant.

In Charleroi and in Utrecht.

Well, it's not quiet now, Nico, because we are also working on an acquisition in Belgium. So there is a lot of supply and activity in M&A. There is definitely something for sale in Belgium. In the Netherlands at the moment less, and in the Netherlands we only want to do it in the form of a joint venture. So another Soetermeer-like construction. In Belgium we simply buy 100% with our own cash. There is activity in Belgium. And these two examples you see here in Utrecht and Charleroi are specific. In Charleroi we bought the supermarket of the shopping center Vilde, which we acquired in November last year, but the supermarket was owned by someone else. We bought it at a lower price per square meter than the rest of the center, so I think a good deal. And in Overvecht we bought the HEMA. We already had some property there from the past, and at the right times and right prices we are willing to add things. We got this HEMA at a very good price. Plus we could pay in shares. So that transaction increased earnings and also led to a slight reduction in debt. So that's why.

We don't have a discussion about that with the seller. It's ultimately up to them. Look, if they approach us and say, 'Great, but we intend to sell them, would you cooperate in a placement?' Sure, we do that, and that's allowed, but it's on their initiative. We did that with the acquisition in Luxembourg, and also with the acquisition of Polderplein in December 2023. Yes. Okay.

Yes. Times 2008.

Well, we even come out a bit higher as you see. A number of things already signed but will only count in the second half of the year.

Yes, those are actually a number of things, many things, but I'll mention the really significant ones. Very significant here are the digital screens, the video screens in the centers. Last year we did a very large deal with Ocean Outdoor for the Dutch centers. We are now working on a deal for the Belgian and Luxembourg centers. We organized a tender for that. That looks quite good. We will report on that later. The revenue growth from that will be seen in next year's results, because that deal starts on January 1, 2027. That's a very important one. Another important one is the income from asset management for third parties. That is currently just one asset, the joint venture with SOFD on Soetermeer. Well, perhaps another one will be added, as you just heard. The third component is ESG. That is mainly the solar panels on the roof that generate energy, for which we sign a contract with a tenant. And the EV chargers in the parking lot. We don't sell energy ourselves, but we sign a contract with a party that installs all those EV chargers at their own cost. And then we get a share of that revenue. That's easy money. We net €6,000 per parking space. If you put 100 on each parking lot in Belgium, you get €600,000 per center extra. So that's a very profitable business. Those are essentially the three main components.

Yes. Heading toward 10 million next year, what am I saying.

Yes.

Yes, that has to do with the dividend paid out now, I understand. But still.

Yes, that's correct. We already knew that and everyone knows we pay a dividend. The other factors influencing the loan-to-value are the revaluations. Well, those were positive. We haven't bought or sold anything further, and we have very little capex invested in the centers. That was a very low amount in H1. So it can't be a surprise. And you also see that the loan-to-value at 44.1% is 80 basis points below the loan-to-value of H1 last year. Yes, you see because we pay the dividend in shares, unlike some other real estate funds, you see a spike with us. Then in the second half of the year we have relatively little capex. We also have two quarters of profit. And then a non-core sale in Belgium. Where would that bring you? That would bring us, I think, below 42% at year-end. Yes, that's still a bit too high, but last year it was at 42.5%. So you see, if you compare like-for-like periods, we are gradually getting there. And I also think in this market of rising property values, particularly in the Netherlands and Belgium. In the Netherlands, we also saw the Pulse portfolio on the market. We had nothing to do with that, but it was a very nice reference in terms of price. Quite a sharp price. That will have a positive effect on our revaluations, we think, also in the second half of the year. So you'll also be helped a bit by those revaluations. There is no urgent need to sell things hastily just to get below 40%. We'll get there gradually.

Well, look, we are done with all refinancings for this year. We are now at an average cost of 3.55% on borrowed capital. That will increase a bit because we did a USPP refinancing with MetLife. That is naturally more expensive than in the past. Then we are set for the next 12 months. We still have 17% exposure to floating-rate debt. That's variable rates, partly hedged with swaps in Belgium, with caps and floors. But if you add it all up, we do have some exposure if Euribor were to rise again. But I think we've seen the worst. That's my assessment. Regarding share prices, what you saw in the first quarter is that the Iran war started and interest rates rose, but stock prices didn't move at all. No. I think it's not so strange that all share prices have corrected somewhat. We have corrected a bit more than the market on very low volumes. That's how it is. That's the stock market. Sometimes you don't know what's behind it. Good, we now have solid results. We have a few nice things after the summer. I must say, when I look at your NAV and the share price, they are quite close together. Yes, it has been different in the past. That's correct. We are now again at a discount. NAV is around 23. We were indeed at a share price of 23. 23. We paid a dividend of €1.30. So if you correct for that, we are already closer. But there is still a discount of 15-20%. We have been at a 50% discount before. So the fact that the discount is back also indicates that we should be cautious now about issuing new shares. But if we return to share prices from the beginning of this year, then that is again an option to increase profitability.

You've also been aggressive with write-downs, I think.

What are we going to do? Well, I've already told you some things that are coming up. That also has to do with creating scale and capital reallocation. So we've already discussed that. Regarding full-service center transformations, we are now working on City Plaza and Knaussmeden in Luxembourg. We've made some great steps there. At City Plaza we added a healthcare cluster, which is signed. At Knaussmeden, Basic Fit and we are working on a large F&B operator, and we created two new shops. So steps are being taken. That remains the strategy. The original transformation plan from 2020 is almost complete. There is still €25 million to spend. But meanwhile we have another €36 million in capex in the pipeline for the transformation of assets we bought. Because that remains the strategy: when we buy things, we turn them into full-service centers. So that pipeline will remain filled. So that remains an important element. France often comes up. We are working with two parties in Bordeaux. It would be great if we could take a step there. In Paris, I think I said last time on your podcast, that shopping center is doing very well. It could also be managed by the Belgian team. I'm considering maybe keeping it in the portfolio. It's close to La Défense, the business district in Argenteuil. Good location. That need is less. I think the center in Bordeaux we just want to sell. And there is interest.

Yes. In Spain, a very large deal is happening in Madrid and Barcelona. A portfolio from the De Balkanie family, from whom we bought in Charleroi. So I hear things. We are not bidding on that, otherwise I wouldn't have mentioned it. A number of other large real estate funds are. It's very competitive and the price only goes up. That's good for us because we are nicely in Belgium and the Netherlands, which are niche markets where they are not active. In Italy, there is also a very lively retail investment market. And eventually you see that in France last year there were also a few transactions in Lyon, for instance. It comes back. It always lags behind the recovery in the rest of Europe. Eventually it comes back.

Yes, I think there are actually two I want to mention: Presikhaaf and City Plaza. Presikhaaf is in Arnhem. I mention it because it was a center that was 35,000 square meters, much too large for a residential area. It had a good neighborhood function but was too big. We fixed that very well with F&B, an extra supermarket, healthcare – a whole cluster, the first healthcare cluster we opened – a Basic Fit, and a fresh food street. So many elements. I think that's a great example. And Presikhaaf performs like a cannon. When I look at revaluations, footfall growth, every time I get the figures, I know Presikhaaf has good numbers. It was very different in the past: 20% vacancy, difficult neighborhood, lower consumer spending. We are very happy with it. City Plaza is also nice because it was a center of 55,000 square meters, really too big for the city center of Nieuwegein. It also serves Nieuwegein, IJsselstein, Houten, Vianen. But you shouldn't try to attract people from the center of Utrecht. That was what you had to do when it was that big. We sold a piece to a housing developer, next to where the municipality is now building a tram station. We signed the healthcare cluster I just mentioned. There is also a fresh food street, a Basic Fit, and a new Eat Meet, our food concept, which keeps the square open longer in the evenings. Several hospitality venues open until 10 or 11 PM, generating extra turnover. So I mention that because it all fits nicely into the story, and everything is there. Those are the best ones.

We would be happy to do that, and it's easily accessible for everyone, centrally located in the country, Nico. So let's see.

Thank you.