Aroundtown Sa Ord

Dear ladies and gentlemen, welcome to the Q1 2020 results presentation of Around MSA. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press start to follow by zero on your telephone for prayer assistance. May I now hand it over to Mr. Sidi Lagis, Head of Communications and ESG, who will start today's conference. Please go ahead.

Good morning, everybody. Thank you for joining us for our first quarter 2020 results call for Around Town SA. You should have received our press release and can view this presentation on Around Town's website, either on the home section or on the financial reports of the investor relations section. I am Sylvie Lagis, Around Town's Head of Communications and ESG's Our CEO, Shmuel Mario, CFO, Iyai Bendarit, Executive Director, Ossi Masati, Head of Investor Relations, Timothy Rice, and Zakir Gabay will guide you through the presentation and answer your questions. For the duration of the call, all participants will be on a listen-only mode. Following our presentation, you will have the opportunity to ask questions. As already mentioned in our announcement, please send us your questions via e-mail. also during the presentation. The email address is info at aroundtown.de. With that, I will now hand the call over to Audrey. Please go ahead.

Thank you very much, Sylvie. Good morning, everyone, and welcome. Needless to say, the COVID-19 pandemic continues to have a lock on the global economy, and our top priority remains the health and well-being of our employees and stakeholders. Since our last earnings call at the end of March 2020, we overcame challenging times with a peak of the strictest lockdown measures in April and have since been observing a trench recovery in all our other classes. Across Europe, we see governments carefully starting to ease some of the self-imposed lockdown measures and sectors that were completely closed start to open the door slowly. We are going to review the Q1 2020 results, of course, and give more emphasis on the operational performance and impact on each asset class. We will cover our line of thought on the share-buy-back program, dividend policy, and why a round-up sees itself well-prepared for the next cycle post the lockdown. Please go to slide 3. It summarizes the relevant KPIs of our Q1 2020 results. We finalized successfully the merger with TLG on February 19, 2020, with a high ratio of standard shares of 78%, and continued with the planning and integration of our operational teams and management. The integration is slightly delayed due to the recent lockdown. However, we intend to finalize most of the implementation during the second half of the year. We have fully consolidated TLG as of February 19, and are happy to present a complete picture of the impact. Following the successful results of the full year 2019, Q1 2020 saw limited impact from the lockdown, which started to take hold from mid-March onwards. Our KPIs reinforced the defensiveness of our balance sheet, especially our healthy capital structure. 17 billion Euro of unencumbered assets and 3 billion euros of liquidity balance. They provide not just a sound financial security, but also the flexibility to take advantage of unique and accretive acquisition targets, which are not uncommon to arise during times of a crisis. I'll now hand you over to Rial, who will guide you through the key financials before we move on to our current operations.

Thank you, Osho. Please go to slide 5. In the first quarter of 2020, The net rental income stood at 233 million euros, up from 176 million euros in the same period of 2019. Taking into account the full consolidation effect of QG, the annualized March 2020 net rental income amounts to 1 billion and 52 million euros, 30% higher than the Q1 2020 analyzed rental income. Our life-for-life rental growth for the period was 3.7%, and is made up of 3.2% from in-place rental growth and 0.5% from occupancy improvements. Net profit for the period amounted to 246 million euros and the earnings per share resulted in 14 cents. The decrease from the comparable period is mainly driven by the negative non-recurring impact from the increase in the fair taxes expenses and other financial results in the first quarter of 2020. Nevertheless, the recurring operational profitability demonstrated a strong growth reflected in a 25% increase in FSO1, which you will see on the next slide. During Q1 2020, we didn't have any valuation performed on our hotel properties due to the current uncertainty in the market. We expect to perform these valuations in the next quarters. Please move to slide 6. Adjusted EBITDA grew in Q1 2020 to €237 million, up from €180 million in the same period of 2019, a growth year-over-year of 32%. On an annualized basis, the Adjusted EBITDA results in €949 million, with a solid cadre of 42% since 2017. Slide 7 provides an overview of our platform operations. During the first three months of 2020, our FFO1 grew to 147 million euros, up from 118 million euros in 2019. This led to an FFO per share of 11.4 cents and 46 cents on an annualized level. FFO1 per share, after perpetual attribution, increased to 9.8 cents in Q1 and 39 cents on an annualized basis, which reflects a yield of 8% to the current share price. The Q1 2020 SFO2 came in at €170 million, resulting from SFO1 plus €22 million profits from disposals in value of €55 million, which reflects a premium of 5% to book value and 58% of the total cost, including capex. After successfully disposing €1.5 billion worth of assets in the last two years, we continue our capital recycling in 2020 to sell further and non-core and stabilized assets, and currently have an active sell pipeline exceeding 100 billion euros. The transformable disposal will be used for neocritic acquisition, with stronger upside potential, and thus higher long-term shareholder value creation. Continuing to slide 8, after merging TLGs with the Roundhouse portfolio, we reached a total asset size of 32.3 billion euros, at the end of March 2020. Investment properties amounted to 23.2 billion euros at the same point in time this year. Thanks to our large network with Stellar globally, we continue to see many digs in our acquisition pipeline. However, at this point in time, we believe it's the best to preserve our excess cash until we see special investment situations opening up due to the current crisis. Crisis situations can bring up very unique opportunities as we expect some players to get into financial distress if the crisis continues. We experienced these opportunities in the global financial crisis of 2008 and 2009, where in the following years, we completed many great transactions which created substantial long-term shareholders' returns. Moving to slide 9. In Q1 2020, we have been able to increase our F1 up to 12.1 billion euros, up from €10.6 billion, mainly due to the merger with CLG, whilst increasing the EPRANAB per share to €8.8, as we did a share-to-share offer on the basis of EPRANAB of both companies. EPRANAB, including perpetual nodes, increased to €11 per share in the same period, mainly due to the perpetual nodes from CLG being fully consolidated. We reiterate that Erantan's special notes are equity instruments as they are fully subordinated to debt without any maturity date, no default rights or covenants, and it should become clearer in the current situation that these instruments provide a safety cushion in the same way as equity does. I will now hand you back to Elshay for the next part of the presentation.

Thanks, Eyal. Please move to Flight Center. This slide summarizes our ongoing healthy capital structure. Our LCV at the end of Q1 2020 stood at 36%, well below our board limit in governance. The interest cover ratio remained constant year over year at a strong level of 4.7 times, same as our average cost of debt of 1.6% and average maturity of 6.5 years. Our unencumbered assets increased to 16.6 billion euros in value and represent 74% of the investment properties at the end of March. As always, we monitor our funding options across different issuances and currencies globally to time the market and always have sufficient liquidity at hand for growth opportunities and economic challenges. highlights the key covenants from our EMCN program and compares them with our recorded March 2020 covenant levels. As you can see from the table, we have substantial headroom to each of these covenants. Total net debt to total net assets needs to be below or equal to 60%, currently at 33%. Secured debt to total assets needs to be at or below 45%, currently at minus 4%. Please do not misinterpret this minus 4%. It is very strong, meaning our cash balance is higher than our secured debt balance. Unencumbered assets over unsecured debt needs to be at or over 125%, currently at 288%. And adjusted EBITDA over net cash interest needs to be equal or over 1.8 times, and is currently at 5.2 times. Please be aware that the just-mentioned governance methodologies are market standards and are clearly laid out in our EMCN documentation. Moving on to Site 13, we provide a breakdown of our assets by segment and city based on their value. Thanks to a high degree of diversification, we see the strong portfolio resilience during the current crisis. Offers, hotels and residential remain our main asset classes. German and Dutch office assets appear to be so far resilient and are only limited impacted by the lockdown. Since April, we did experience a slowdown in new listings. However, the vast majority of expiring lease contracts were renewed. Now that the lockdown is lifted, we start to see the demand for new listings growing. Our retail portfolio only makes up 9% of our portfolio and consists mainly of food-anchored retail boxes. Germany and the Netherlands, which hold the majority of our retail portfolio, have already started to lift the lockdown for retail stores from May. Our hotel assets represent 23% of our total portfolio, and after a decade of continuous growth, they are directly impacted by forced lockdowns and travel bans. There will be more to come on this asset class in the next slide. I'd like to ask Shmuel now to continue with the next session of the presentation.

Thanks, Oshri. Moving on, slide 14 provides a glance of the highly diversified and defensive tenancy structure with our overall combined weighted average lease term of 8.1 years. In total, we have over 4,000 tenants on the full spectrum of commerce, with our top 10 tenants representing only 20% of our net rent. In addition, the measure with CLG has given us a larger footprint in our key cities, such as Berlin and Frankfurt. On Flight 15, we provide a view of our office sector, representing 49% of our portfolio by value. Due to the large number of tenants we have, each of our locations serves differently in the industry, giving us again a high degree of income diversity Berlin, Frankfurt and Munich account for 55% of their office share, three of the most important cities in Germany, along with a strong imbalance between supply and demand in central locations. The biggest industry sector in our office portfolio is governmental agencies, making up 22% of office tenants. Wireless, less than 1% of office tenants are related to air travel, oil or tourism, which are most severely impacted by the lockdowns. Also, less than 1% are related to the co-working sector and no exposure to WeWork. The weighted average lease term on our office portfolio is 4.5 years. I'll now hand you back to Oshari for the next part of our presentation.

Thank you, Shmuel. Continuing with slide 16, the office sector combined with our residential exposure to our stake in Grand City Properties represents a total of 61% of the overall portfolio value. In April 2020, the impact on our collection rates in offices and residential was limited with over 92% collected in offices and over 95% collected in residential. Residential assets being more resilient in these times compared to offices. As most of you will know, the German government gave permission to all tenants of any assets class to defer rental payments of Q2 2020 for up to two years. If they can demonstrate that they have been financially negatively impacted by the current crisis, the interest on the deferred amount is 8%. As the majority of retail properties cater essential goods such as groceries, the April collection rate has been reasonable at approximately 80%. You can see on slide 17 the remaining tenants which were directly impacted by the lockdown used the right for deferral as just explained. Logistics and wholesale tenants accounting for 7% of the portfolio saw an outperformance during April and we were able to collect all rents due. So as you can see, the diversification is key in times like this. There are asset classes such as residential, logistics, offices and essential goods retailers, which are relatively resilient. And other classes, asset classes, such as hotels, which suffer in the short term, but in our opinion are resilient mid to long term. As every industry and country is also affected differently, our operational performance was good in relation to how this crisis has played out so far. We move to slide 18. Over the last several weeks, The majority of rent deferral and waiver requests received were related to our hotel sector. The reason is quite clear. Around the world, governments have forced a shutdown of these businesses for an undefined duration, either directly or indirectly, through the shutdown of the travel and tourism industries. Our hotel properties account for 23% of the overall portfolio value. All 176 hotels are externally operated and represent over 30 different experience and quality operators with an average lease duration of 15.4 years. Our rental agreements with the hotel tenants are fixed, plus CPI linked without a variable component. Our hotel portfolio is very well diversified across the metropolitan region in Europe. The lease agreements are double or triple net. include different types of securities and guarantees. In light of a doomsday scenario, or basically an extensive shutdown period that could extend over several quarters, we also have the possibility to convert many of the hotels into residential micro-units. Now, continuing on slide 19, in T2 of this year, many hotel operators took advantage of the available governmental support or subsidies in order to limit the impact of the COVID-19 crisis as all hotels were directly or indirectly impacted by the lockdown and travel bans. As mentioned earlier, the German government gave permission to affected tenants to defer Q2 2020 rental payments for up to two years, plus an interest of 8% if they can demonstrate that they have been financially negatively impacted by the current crisis. Moreover, we evaluate on a case-by-case basis where rent deferrals make sense. In Q2, the vast majority of the hotel operators deferred their contractual rent according to the legal permission or based on negotiated deferral agreements with us as the landlord. These rent deferrals were an interest rate of 5% to 8% in most cases. Turning to slide 20, you can see an overview of our hotel portfolio per country by rent. We present this breakdown here as each country has lifted the lockdowns on hotels and tourism at different times. So Germany, the Netherlands and Belgium, which make up two-thirds of our portfolio, are either already open or will open in the coming weeks. You can see on the right side also the feedback we got from our hotel tenants when they will open their doors. By end of May, 75 of our hotels will be open again, which makes up half of our hotel portfolio. And by end of June, we will already be at two-thirds of the hotels open. This amount is updated daily, and we hope to see more operators opening their doors during June. So far, our UK hotels have not set specific opening times, as the UK government did not provide exact dates and said to expect to lift the shutdown by beginning of July. However, already throughout the full duration of the lockdown period, several of our hotels in different countries received demand for alternative usages, which generated income. This demand came from governments, retirement communities, universities, football clubs, police forces or on behalf of vulnerable people. It is fair to say that even after the hotels open, it will be long improvement periods before occupancy levels will reach pre-crisis levels. As you can see from the bar chart, the strength of our three core hotel markets, Germany, the Netherlands and the UK, are supported by a high share of domestic travel demand. These three countries account for 84% of the total exposure by rent. These markets have naturally a very high ratio of domestic hotel demand, from leisure and business travellers alike, and we believe this will act as a catalyst for faster recovery during the second half of this year. So even with air travel restrictions to continue, it can be expected that the demand for hotels in these countries would partially recover due to the strong domestic demand. Centre Parcs is well prepared to open all seven around town properties shortly. Five German and Dutch locations will open during the course of this week, while the remaining two parks in Belgium will open within the next two weeks. These assets are expected to enjoy high demand from domestic visitors that can travel by car. The reservation volume for summer 2020 in our parks during the last two weeks was higher compared to the same period of last year. Given they differentiate themselves as large outdoor resorts, they enable social distancing and hygiene precautions in a natural way. Based on current booking indications, these resorts are recovering very fast. On slide 21, we see an overview of the well-diversified hotel tenants and brands. These well-known and long-established operators provide a long-standing experience in different market environments and we don't have any major dependency on a single tenant. The largest tenant in this segment is Centafax, who accounts for nearly 5% of the total rental income. Finally, on slide 22, we demonstrate again how well-prepared a round town enters the current crisis. Our strong financial position does not only act as a shield against the prolonged economic downturn, but also serves as a head start to take advantage of acquisition opportunities that will arise from this pandemic. Our goal has always been sustainable, lucrative shareholder return, and we believe that the postponement of the decision on the dividend payout is currently a prudent approach as we still don't have a clear view on the length and depth of the crisis. Should the economic shutdown and subsequent downturn not have a material impact on our operational performance, we will reconsider paying the 2019 dividend later in the year. Additionally, as our share price is trading at a significant discount to our net asset value, we decided to start a share buyback program which will further benefit our shareholders. More details on this program will be announced in the following weeks. Since the takeover of TLG in February 2020 and the beginning of the pandemic, we have drastically reduced our expenses related to acquisitions, capex and development costs. Over the last few months, The extent of the international lockdown on the world economy has become more tangible, and whilst we still do not know how long it will last or whether there might be a second or third wave of lockdown periods, we have put in place additional provisions to mitigate risks in order to deal with a potentially persistent crisis. Our well-diversified portfolio across other classes and geographies, tenant structures as well as capital structure, has enabled us to enter the current crisis with one of the strongest profiles among public European real estate firms. One of the key elements is to maintain adequate cash liquidity, not only to weather the storm, but also to benefit from special investment situations that will come to the markets. One last point regarding guidance. We still don't have reasonable clarity in order to submit a 2020 guidance. Hopefully in the coming quarter, we will be able to estimate our 2020 guidance. That concludes the presentation. The appendix holds plenty more information for you all to look at. I'll now hand you over to Sylvie, who will lead the Q&A session.

Thank you, Ossi. Before we invite the direct telephone question, we would like to answer questions that we have received by email prior to this call. For simplicity reasons, we have taken liberty to group similar questions in order to answer as many questions as possible. Allow me now to read out these questions. First question. How do you view the current situation? What is the impact on your operation?

It is still hard to assess the impact of the full economic shutdown on the market. In the last weeks, there was an easing to the limitations given by governments But it is hard to assess when they will be completely lifted and when the economy will start to recover. The longer the full or partial lockdown will remain, the larger the impact will be on the global economy. We expect to see recovery vary between sectors once the lockdown and travel bans are over. The current strictest restrictions are on airlines and tourism, under which hotels have the most. We expect to see companies with weak liquidity and high leverage as vulnerable. A round town, being one of the most liquid players in the market, with 3 billion euros of liquidity and very little uses in the next period, can endure a continuous shutdown and have the firepower to pursue acquisitions. Although the pandemic effect had a severe impact on economies across all countries and segments, we see the importance of diversification on the recoverability and bondability. We always focus on a high degree of diversification in terms of appetite, tenant and location, which provides to our portfolio a degree of resilience, and since we are focused on the most robust economies in Europe, we expect to see a relatively fast recovery once markets start to fully function. The office, residential, retail, logistics and other asset types amount to 77% of the portfolio. Nearly all of our tenants were functional during the lockdown. This is reflected in a high collection rate of over 90% in April, with the lowest impact on the logistics tenants, which were fully collected. Residential tenants achieved a collection rate of 95%, and office tenants collected over 92%. Retail collection is at 80% in April, which is much higher than average market collection rates for retail, as the majority of our tenants are essential, such as supermarkets. The remaining rent is deferred, and we expect to collect it in the upcoming periods. We see this collection rate as reasonable as governments legally enable tenants to defer rent. This result validates the strength of our tenant base. Our hotel portfolio, which makes up 23% of our portfolio, experienced the largest impact as most of the hotels had to be shut down. The vast majority of the hotel rents were deferred, based on the current legal right to do so, or after deferral agreement with us. The deferrals carry interest rates of 5-8%. We are working very closely with the hotel operators, sharing knowledge and seeking creative solutions on a case-by-case level. The operators already reopened part of the hotels and are prepared to open most of them until July. Also, here we see the importance of diversification, as we expect each location to recover at a different pace. We also take into account that the possibility of a second wave and additional shutdowns are still imminent. We are hopeful that the crisis will end soon, but Aroundtown is also prepared for the scenario that the restrictions will be stricter again.

Next question. Can you please give us more color on the impact on the hotel market? How do you see the recovery of your operators?

During March 2020, there has been a European-wide shutdown on hotels. Of our portfolio, initially 15 remained open, and over 33 of our hotels have continued their operations throughout this time of lockdown. The hotels which remained open, among others, have been in Berlin, Frankfurt, Dortmund, Hamburg, Bremen and Leipzig. As expected, the operational occupancy has been low for these hotels, at around 10 to 15% on average. The hotel guests have been business travelers as well as COVID-19-related travelers. These hotels, and also for a specific period of time, are rented to governmental institutions, hospitals, essential employees, and other governmental departments operating in the fight against the pandemic. The income was not a game-changer, but assisted operators crossing this lockdown with reduced losses. As mentioned in the past, the hotels are leased to very strong third-party hotel operators with six long-term rental agreements of 10 to 25 years and represent a world of 15 years. The rental agreements are double or triple net, fixed plus CPI linked. From the beginning of the crisis, we have been in close contact with our tenants and discussed options for cost savings amongst other topics. Many of the initial cost saving measures have been on the variable part, but the tenants further reduced expenses and implemented other cost cutting measures for the time the hotel reopened. These cost cutting measures include reducing overhead costs and other variable expenses. In order to avoid gatherings and maintain social distancing, new digital measures, which have been in the pipeline already, have been accelerated. For example, the entire booking and reception process is made online, and the guest receives information on room number and a code to enter their hotel room. Thus, the hotel significantly reduces the cost and workforce for reception and concierge services. The goal is to keep the local structure intact also after the crisis is fully over. But by the end of May, the lockdown on hotels in Germany has been lifted, which is our largest hotel location with 50% in terms of rent. In other locations in Europe where our hotels are located, hotels are open as of June for Paris and the Netherlands. Brussels is already open and the UK seems to open earliest in July. Center Parcs, our biggest hotel tenant with close to 5% from rental income, has opened last week one park in the Netherlands and this week will be opening another park in the Netherlands and Germany. In Belgium, the parks will follow very soon. We see good demand for the Center Parcs hotels with the number of reservations in the last two weeks being higher than the ones in the same period of last year. We believe that resorts such as center parks will benefit as people cannot easily travel by air and will probably travel by land such as car or train to their next destination. Just to give you an idea, the catchment area of a three-hour drive around our center parks properties in the Netherlands and Belgium is 21 million people. Overall, by end of this month, half of our hotel properties will be open and during June this will amount to be two-thirds. We expect more updates on this as the lockdown will be lifted. The hotels in the UK did not set any opening dates yet, due to the missing certainty of the easing measures and the missing timeline provided by the UK government. However, few hotels are open and used for essential employees. In the past weeks, we have learned that it is hard to predict how hotel demand will come back linked to the continuous changing of government regulations and even within countries having different adaptation of these regulations state by state. What we have seen is that in Germany where restrictions have been lifted, hotel demand is returning for both corporate and leisure travel. There is also some demand returning for meetings. And we are still far away from the situation before the lockdown, but the hotels start to open is encouraging to us. We will stand by our hotel tenants and let them focus on their business in this challenging period. We expect to see the demand for hotels coming from domestic tourism due to the restrictions and difficulties with air travel. The German hotel market is characterized by strong domestic demand, which is a coming characteristic among northern European countries where our hotels are located, which are less dependent on summer tourism like in southern Europe. Germany has a strong domestic demand of over 80%, and we expect people to adjust their vacation destinations to destinations that are within driving distance. We expect also the demand for hotels in cities not to pick up fast, as we assume travellers will avoid highly dense metropolitans. Also here the demand will rely on domestic travel, and we expect cities with relatively low population density, such as Berlin, to recover faster than others. Demand for hotels, which are focused on the event and conference sector, can also be expected to remain challenging until the group gathering bans will be lifted again. We feel that despite the tremendous challenges the industry is currently facing, the hotel industry has proven to be very agile in the past and the first positive signs of recovery can already be seen, for example the strong touristic demand in the summer season. At this time we are still not able to foresee how this positive development will be translated into rental pays. But we are happy that the lockdown is being lifted and we keep you updated on our meetings and conferences.

Next question. How has the pandemic impacted your overall hotel strategy going forward? How do you see your largely four-star hotel portfolio placed versus luxury hotel assets and a prolonged recession?

Our strategy towards the hotel property market did not change, as these properties are strong cash flow yielding properties, along walls benefiting from strong demand, and the short-term long-term did not change the long-term characteristics of these properties. As we focus on top tier locations, we believe the market will rebound faster in our focus locations, supporting the long-term fundamentals of our properties. And we will continue to focus on hotels that can potentially be converted into micro-partners. We expect some weaker players in the market to become forced sellers as a result of the current crisis. which will potentially become a buying opportunity for us. On average, we see the four-star hotel market to recover faster than the high-priced luxury hotel market, as the four-star category cases the highest demand and most diverse segments from tourism, conferences, and business. Especially in times of economic decline, affordable middle-class categories will perform better than the high-priced star categories. This was our experience in the last financial crisis in 2008 and 2010 and strengthens our focus on the four-star segment.

Next question. How is your rent collection affected by the shutdown? Do you expect to still collect this money, or will you have to write it down?

Cuban collection has been in line with previous periods around 98%. We collected in April 92% for offices, 100% for also logistics, and 80% for retail. We expect to collect the remaining rents for offices and to reach close to our normal collection rate. We are in discussion with our retail tenants that were directly impacted by the pandemic. Assuming the lockdown will be fully lifted shortly, we will assist our tenants with a comfortable rent difference. If the lockdown will continue, we will consider also other solutions. We expect very limited impact from the retail since our retail exposure is limited with 9% to the total portfolio and majority food anchors as explained before. We have received requests from hotel tenants for temporary deferral of rents, shifting from advanced quarterly payments to monthly payments, and in some cases, rent reductions. In the current situation, most of the hotel tenants use their legal ability to postpone the three-month rents from April to June, up to two years, and pay up to 8% interest on a delayed amount. Note, this doesn't mean canceled or deducted rent. We will collect later with interest. Other tenants came to shorter deferral arrangements with us, which include lower interest than 8%.

Would you consider hotel rent reduction for the duration until the hotel market has recovered?

In the current situation, most of the hotel tenants use their legal ability to postpone their rent payments from April to June, up to two years with the interest as just explained. No, this doesn't mean cancel the deducted rent, as we will call empty rent later on with interest. In general, if the lockdown and travel ban would be extended or would be reenacted for a long time, that our tenants would get into material problems, we would also consider a one-time reintroduction on a case-by-case basis, of course depending on the length and depth of the lockdown and travel bans.

You mentioned the collection rates for the month of April for residential, offices, retail and logistics and stated that the collection rates in May are at a similar rate. What is the collection rate for hotels? What is your best estimate for the collection rate for the different archetypes in June? How much of the overall rent that has not been collected yet would you categorize as deferred and what portion do you think will be lost?

The vast majority of the rent of hotels were deferred. Over 10% was already collected. We expect this deferrence to be collected in the upcoming period based on the legal ability of some of the tenants to defer rents up to two years. or the federal agreements with other tenants. We expect the June collection rate to continue to be low, and increasing only from the second half of 2020. The rents are the third and bearing interest, but not reduced or cancelled.

Next question. How is the status with the former Brussels Sheraton?

The hotel is currently under full republishment, and we expect to open the hotel by mid-next year.

Where do you see the future of office spaces after many working from home now?

We believe there will not be any material change to the demand for office space. Any impact from home office adaptation could just as likely be offset with a lower workforce density, meaning you can have less people in an office to ensure the distance requirements between your employees. Work space flexibility will probably be explained also after the crisis as many companies try out new technology and learn to work with other parties over a long distance.

Next question. Can you quantify insolvency risks for your hotel portfolio?

There is an extremely low probability of the hotel properties themselves to get insolvency. And regarding the hotel operators who are the tenants of the hotel properties, they are experienced and have a strong record also performing through a crisis. Due to the lifting of lockdown measures, the probability of the tenant insolvency is relatively low. In case there will be further lockdowns enacted and for longer times, we expect the overall hotel market will see many insolvencies, which will also impact our tenants. A certain tenant insolvency creates only temporary damage of unpaid rent. The asset stays intact, as we as an owner will find an alternative tenant.

What is the impact on your FSO from the rent deferred?

In Q1, there was no impact on our FFO. Looking into Q2 and onwards, it is hard to assess as we cannot assess the upcoming developments. The full impact can only be assessed once the lockdown and travel bans are lifted. Assuming a swift rebound of the economy, we believe to collect the current deferred rents in the next period and thus no material impact on the FFO. More bleak scenarios will decrease our ability to collect the deferred rents and thus reduce our FFO for this year.

Are you currently still considering to buy property? If so, what is the pipeline that you're looking at and how much firepower do you have?

We are currently looking to process a last pipeline, but we have put acquisitions on hold due to the current market situation. We believe that we will start seeing very attractive market opportunities arising from this crisis. And as long as the shutdowns in economies will continue, we will see more distressed properties coming from players with weaker liquidity. We see this current situation as very unique, where certain players may default and very attractive opportunities will arise in top-tier locations, whilst the long-term fundamentals of these properties remain strong. Our very large liquid position of 3 billion euros and 16.6 billion euros unencumbered assets is among the strongest in the market, both in absolute and proportional terms, in combination of our wide deal sourcing network and ability to act fast as an important competitive advantage. This is more than ever important in these times. We are of the opinion that reserving firepower, which currently stands at 3 billion euros for very aggressive acquisitions, will benefit our shareholders significantly in the mid to long term.

Can we get information on the lettings during the first quarter of 2020? How many square meters were left and what price level?

In the first quarter of 2020 alone, Ransom concluded contracts for about 375,000 square meters and 47 million euros of annual rent, about 85% of which refers to prolongation of existing tenants and 15% to new tenants. The letting concentrated in the first quarter mainly in the wholesale and office segments. The average interest rate for prolongation in the office segment was €12.5, with a vault of 5.5 years. And the new letting in the office segments was concluded at €13 per square meter on average, with a vault of 6.5 years. In the wholesale logistics properties, we saw extension and prolongation of leases, with an average vault of over 10 years, rented at €7 per square meter.

Why is there such a sharp reduction in share and profit from investment in equity-accounted industries?

The division in this item is mainly due to comparatively lower net profits recorded by GCP and other industries. In the first quarter of 2019, there were exceptionally high gains driven by non-referring items. GCP, around the largest equity-accounted industry, recorded less profits in the first quarter of 2020 compared to previous periods, However, the FFO GCP reflecting the operational profits and excluding these non-return effects increased by 5% period over period.

Are you currently able to fill in any vacancies? How is the letting pipeline? How do you assess the reversionary potential of your potential now?

We have had new lettings, but mainly of lettings which have been signed prior to start of the crisis. reflected in the 0.5% life for lack of occupancy performance in the last 12 months. There have not been any renegotiations of already agreed terms and also no cancellations. As we focus on acquiring properties which are under-rented and below market prices, it is easier for us to attract new tenants or lease extensions which don't need to be rented at or above market rents in order to yield positively. Our properties are thus providing a competitive advantage in these times. Negotiations of new leases have slowed down as a result of the current uncertainty in the market. We may experience a slower rent increase in the next month. As a vast majority of our properties are rented below market, or our revisionary upside remains, due to our low value of 8 years, lifting our rent to market levels is anyway a lengthy process and provides long-term upside on market rent recovery recover again after the impact of the shutdown. Due to the high demand-supply imbalance in the markets we are located, new supply is many already pre-let. Thus, we believe that market trends will only start decreasing if the economy shutdown will last for a longer time than only a few months to have a gross impact on the economy recovery potential. During April and May, we continue our letting processes. New lettings were signed mainly with claims that the lettings started prior to the breakout. The main focus was in prolongation. Further information will be provided in the next report in publication.

What are your current funding sources? Are you considering to issue bonds or receive bank loans? Considering your high unencumbered ratio, what are your relationships with banks?

Due to our very strong liquidity position, we are not in need for funding sources. We still maintain our close and strong connection to the capital markets and to financial institutions, which was very successfully built over many years and could tap the markets when needed. We are in parallel in contact with banks for new loans of an amount of approximately 500 million euros. And, yeah, this is what we discussed right now with the banks.

Why did you decide to postpone the dividend and do a share buyback instead? You have large cash amounts and should be able to do both, pay the dividend and do further acquisitions. When will you start the share buyback program?

We see the postpone of dividends and buybacks program as two different transactions. We decided to postpone the decision for a dividend distribution as we believe the current situation is very volatile with high risk on one hand In the other hand, this could open up a special investment situation. Crisis situations can bring up very unique opportunities. Some players will get into financial distress if this crisis intensifies. We experienced these opportunities in the global financial crisis in 2009-2008, where in the following years we had many very good transactions, we created very long shareholders and returns. Please note that it may also take time for opportunities to arise in a crisis. Bankruptcy filing at the beginning of a crisis only arrives when companies have been in a dire situation before the crisis already. Our goal has always been sustainable accretive shareholder return, and we believe this decision will create long-term higher value through future higher FFO and thus future dividends compared to the dividends now, which are in relation to short-term return to shareholders. Please note that we would consider to pay the 2019 dividend at a later stage, in case the theft and lust of the crisis will be clearer to us. In connection with the current high discount of our share price to our asset values, while we continuously manage to recycle our properties higher than their book values, we see the buyback option as a very attractive investment for our shareholders. In the last two years, we disposed properties in an amount of 1.5 billion euros at higher amounts than book values. We currently have half a billion euros asset sale pipeline at around book value. In the OGM took place in early May, we received the authorization from our shareholders to execute the buyback program, and therefore we decided to launch the program shortly. The buyback is one of the opportunities to create long-term attractive value. We will update soon about the final details of the program.

Did you receive any updates from S&P due to the current pandemic?

We are regularly in touch with S&P in general, and of course also in our progress through the crisis. There have not been any updates to date. We believe that with our healthy diversification and excellent financial ratios, as well as strong liquidity, our rating won't be affected. We estimate that in the current economic shutdown, and with it the uncertainties in the market, the strong, diversified and liquid companies will have a substantial advantage.

Can we get more information on the valuations carried in the first quarter? Was there an impact from COVID-19? Where does the difference to Q1 last year result from? What is the value driver? How much of the portfolio was valuated? Can you also elaborate on a potential devaluation due to the current crisis, especially for your hotel properties?

We had higher valuation gains in the first quarter of 2020 compared to 2019 due to a strong letting and transaction markets but also as we have a larger portfolio compared to last year. There was a near five basis policy compression, reflecting the improvement of the portfolio and the strong market tailwinds in our core locations. Additionally, the valuations were also the result of rent growth and extraction building rents. The value development on a life-to-life basis has been at 1.5%, as only about 20% was revaluated during the period. We have the highest revaluations in Berlin, Munich, and Northern Australia. For V1 2020, we didn't see any significant impact on valuations so far from COVID-19. The revaluation gains are mainly from our office portfolio. Regarding hotels, the transactions market for hotels properties has basically stopped, and thus not providing any reference on market values. We believe the potential negative impact on the valuations is limited, as the valuators apply a 10-year DCS method to their valuation process, and the impact of a few months of rent deferral is relatively small. Our hotel leases are very low, and we expect our tenants' performance to support positive valuation. A negative impact can be only from a higher discount rate or a cap rate, but it is too early to assess. We will evaluate the entire portfolio towards the end of the year. Hopefully, by then, there will be more data on market transaction and clarity

Did you experience any interruptions performing your operations due to the shutdown restrictions?

Our daily operations did not suffer as we have always had very flexible systems and workforce who are very experienced in working remote. Home office, virtual meetings and other distancing measures are not unusual for us. When the crisis started, we double-checked our systems and revisited processes and our properties to identify any potential weaknesses. As our business is not very dependent on supply chains or one single geographical location, we also did not experience any indirect problems.

What is the status with the integration of CLG and what are your next steps? Would you consider to increase your hosting through a squeeze-out? What about a domination agreement or delisting?

Both companies have been focusing their resources more on the current crisis and therefore the integration is progressing in a slower pace as we planned. Now that the lockdown is lifted, the operational integration effort is renewed and we are already working on operational synergies. Financial synergies will be implemented in a more stable market in the future. We are very satisfied with the results of the merger and currently hold close to 80% in TRG. We will consider to increase our holding in the future, especially in the current market environment. A domination agreement, squeeze-out or delisting of TRG is currently not our focus.

How much did you dispose? And do you plan to dispose more?

As mentioned before, during the first quarter 2020, we disposed 55 million of non-core and mature properties. with a 68% margin over total cost and 5% margin over the net book value. The properties were disposed at an average multiple of 20. The properties disposed were offices and hotels, properties in cities such as Dresden, The Hague, Halle and Hannover. We seek to continue to dispose properties on an opportunistic basis, as well as to continue and dispose our health hotel portfolio, which is over 250 million euros. Further disposals will free up resources for mature properties where the majority of the upside has been realized. The freed up funds will be pulled into properties with high quality and high upside potential and also for the buyback program.

Can we get more color on the life-for-life result of 3.7%? Was TLG included in this result? How much is attributed to new lettings and how much to prolongation in existing contracts? What like-for-like do you expect to achieve in the next period, including the COVID-19 effects?

The like-for-like for the period was 3.7%, 3.2% from interest rate growth, and 100% from occupancy growth. This amount is not included in TLG's portfolio. Included in TLG, the like-for-like is around 3.5%. We have seen the highest like-for-like performance in Berlin, in Amsterdam, Rotterdam and Utrecht, Leipzig and Hannover. 70% of the like-for-likes is a result of muleting, prolongation contributed 10%, and 20% due to CPI indexes. Looking forward, it is hard to predict the level of our like-for-likes. We expect fluctuation of tenants to be low and see higher prolongation levels. On the other hand, it is more challenging to get new tenants in the current market environment and uncertainty. We see in our core locations a large shortage in supply net with high demand and therefore expect to see leasing stable in the upcoming months. As only 8% of the lease expires in the next 12 months, we believe that it is manageable with either the re-letting or signing leases.

Can we get an update on the building rights? After the merger with TLG and the development pipeline TLG has, will you change your strategy regarding development? How is the COVID-19 impacting the development portfolio? Are you continuing to carry CAPESH for us?

As of March 2020 and including TLG, the development rights and invest portfolio amounted to 1.5 billion euros, accounting for less than 5% of the total assets. Approximately half of the development rights are located in Berlin, 20% in Frankfurt and approximately 12% in Hamburg. The majority of these rights is for residential and office space. but this is not necessarily final yet as we are optimizing the rights, which includes finding the optimal usage. TTRG's portfolio contributed to the development portfolio with building rights in top locations, especially in Berlin. We will continue to analyze our portfolio and identify unused or underutilized land on plots of existing properties and conversion rights where we can get building rights and sell or potentially develop when the risk is low. The COVID-19 situation does not have a material impact on the process of extracting building rights, and we continue our preparations and discussions with the municipalities. We believe that in the locations of the building rights, the demand will remain strong, and we will consider executing development in our top locations only if it will meet certain criteria, such as pre-let contracts, and more than 10% unlevered NOI yield over the costs. We continue to carry out CAPEX in projects which started before the COVID-19, and in most cases could continue work without interruption. We have postponed works that were scheduled to start, but did not execute and carry out new projects, only on a limited basis. We will continue the works once there will be more clarity, and will do so on a high pre-let basis.

Those were the questions that we received prior to this call. We can now start the open session for your questions. We would appreciate if you can ask all your questions at once, and we will answer them one by one.

Ladies and gentlemen, if you have a question for our speakers, please dial 0199 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to cancel your question. If you are using speaker equipment today, please lift your hand up before making your selection. One moment, please, for the first question. The first question is from Alice Eklund from Berlin. Your line is now open.

Yes, good morning, gentlemen. for the very detailed presentation. I just have one follow-up question. I was wondering if you could give us an indication of the bookings from the reopened hotels so far, and does that automatically mean that they're ready to start paying the rent again, and are you getting some positive signals regarding the do-nots?

Hi, Alice. Thank you for the question. For the summer, for the coastal hotels and the leisure hotels, we see from the tenants very nice booking and very strong demand. One, let's say the decision or the real start, we see that the occupancy is reaching to a strong level and on a continuous basis.

Thank you.

The next question is from . Your line is now open.

Yes, very good morning. I have a question on page 35 of the Q1 report regarding the increase in equity-accounted industries. Other equity-accounted industries, you mentioned that was mainly coming from the staking global worth. You could elaborate a bit more on that and also what caused the increase while the stake almost doubled to more than 1 billion. Second question would be on TLG's three development projects, NEO, Anderhöfe and Würzmer-Carré. They could elaborate how much capital has already been spent and how much still needs to be spent and what the current pre-letting level in these three office developments. And the last question would be on the lease expiry schedule. If you have 8% of leases coming due within the next 12 months, could you give a split on for the three or four main segments of our portfolio, where these lease expires will come due. Thank you.

Hi, Kai. Thank you very much. The interest in the equity industry is predominantly due to the investment in global worth. that is now presented as equity invested due to our 22% position in global worth and the recent change in the shareholder structure that took place in global worth in Q1. The total profits we spent in not only for the three specific properties were $70 million in Q1. I will need to check and come back to you with how much spent specifically on this. I don't think it's a material amount, but I will come back to you by email with that answer. The lease expiry is mainly in office and in the retail segment, mainly in the office side.

Thank you. The next question is from Paul May.

Hi, guys.

Paul May. Moving around a little bit, just on the capital allocation decisions, your current cash and liquidity position obviously being very strong and has remained quite high for the last few periods. Just wanted to appreciate, I think you're slightly putting aside COVID, but what are your thinking going forward there in terms of buyback? As you mentioned, the dividend being cancelled, acquisitions, disposals, and just the general cash position going forward will obviously impact on your FFO returns. holding such a large cash position. The second one is on the TLG revaluations. I think it mentioned in the statement that part of the revaluation that also has to do with TLG is one of what the uplift has been post-acquisition. And then finally, it's possible to provide a quick reconciliation just comparing the valuation gain of 1.5%, which gives you a leverage of probably applied around 3%. NAV movement versus the 1% NAV movement. Just wondering what the counterbalancing factors are there as to why the NAV was basically flat over the quarter.

Thanks very much. Thank you, Paul.

About our liquidity. We, at this point of time, in the situation where we are with the pandemic breakout, and the lockdown, we prefer to take a conservative approach and keep our liquidity for one, to see what really will be the effect on our business and valuation, and on the other, to use and have a strong firepower to utilize accretive acquisitions. It's true that there is an effect of such liquidity on the FFO, but we think that the upside that might come from utilizing good acquisitions, and if there is, let's say, a bad scenario to come if the crisis will continue, we prefer this situation than having less liquidity on our balance sheets. On the TLG's evaluation, total evaluation by TLG was around 100 million in Q1, which was partially also included in our consolidations.

Paul, do you just mind repeating your last question?

Just on reconciling, you had a valuation movement around one and a half, one to one and a half percent, which on a clear basis should have moved the net for now around two percent, if we'll take. Obviously, if it was increases lower than that and just wonder what the sort of counter balancing the negative figures were as to why your NAS grew by less than the three valuations implied.

Hi, Paul. Okay, I'm not sure I understood the question, but overall, there is a reflection of the evaluation in our NAD. There is a slight growth in energy of 1%. Bear in mind that this quarter, we also consolidated TRG on a share-to-share basis, which also has an impact on the overall amount of shares that we issued and that we calculated. But I will dive through this point, and if there is any different answer to give you, I will contact you separately.

Thank you.

The next question is from Manny and Martin.

Good morning, gentlemen. Thank you for taking my questions. I have three questions for Manny. First question is, could you remind us on the way you evaluate your portfolio? Do it by yourself and the appraiser checks it? Maybe you can give some color on that. Second question is on your tax rate in the first quarter, which was relatively high. Maybe you can give us some background details on that. And for the last question on your portfolio, 5-8% interest rate that you might charge under the curve. Is that something that is sure or is there some room to negotiate on that with your tenants? Thank you.

Hi Manuel, thank you for your question. All our valuations are conducted by external valuators which we use on an ongoing basis. Question number two, about the tax rate, so in this quarter we had several impacts from prior year, which was relatively minor, but we did have profits in also other jurisdictions that have a higher tax rate than the normal. About the interest deferral that we expect to collect, this is an agreed amount, if eventually the tenants would prefer to pay the rent or the deferral rent prior to the two years, we will consider for sure giving them discounts on the interest and collect the rent earlier.

Thank you. Thank you all for your questions.

These are certainly historic times, and we find all ourselves confronted with new challenges, whether at work or in our private lives. Innovative ideas and the courage to break with old habits will eventually prevail and lead to more efficiencies and a better customer experience. At Around Home, for example, during the past six weeks, our team conducted more phone calls with investors than in all of 2019. It was very well received and maintains an open dialogue with our investors. Yet, we hope to see as many of you as possible in person in the not-too-distant future. Thank you for your time today, and stay safe. Goodbye.

Ladies and gentlemen, thank you for your attention. Mr. Scott has been concluded. He may leave tonight.