Aroundtown Sa Ord

Dear ladies and gentlemen, welcome to the Roundtown H1 2021 results presentation. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. If any participant has difficulty hearing the conference, please press star key followed by zero on your telephone to operate the system. May I now hand you over to Mr. Zulagi. head of communications and ESG, who will lead you through this conference. Please go ahead.

Thank you. Good morning, everybody. Thank you for joining us for Around Town's first half 2021 results call. You should have received our press release and can view this presentation on Around Town's website, either on the home section or under financial reports of the investor relations section. I'm Sylvie Largis, Around Town's Head of Communications and Sustainability. With me today will be CEO Barak Bahen, CFO Eyal Ben-David, Chief Capital Markets Officer Oshri Masachi, and our Executive Board Member Frank Rosen. 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. but please feel free to send us your questions via email also during the presentation. The email address is info at aroundtown.de. With that, I'd like to pass you over to Oshri Masachi, who will start presenting you our results.

Many thanks, Sylvie. Good morning, everyone, and welcome to our first half 2021 earnings call for Aroundtown. Once again, the diversification in attractive asset classes in top locations has served us well as a protection during the COVID-19 pandemic. Offices, logistics and retail properties have nearly reached pre-pandemic collection rates and show good resilience during the latest lockdown periods. The pandemic and the recent lifting of lockdowns have an asymmetric impact on our hotel portfolio, with a good recovery in domestic leisure hotels during the summer holiday season, but demand from domestic business and international travel remains to be low. Hotels, depending on business travelers, require more reassurance of a safe and controllable environment to rebound, and we will further elaborate later in the presentation. We will also emphasize the main results of our business financially and operationally and highlight the strengths of our diversified portfolio. On slide 4, we start with our business and financial performance highlights of the first half of 2021. The net rental income came in lower at 458 million euros as we enhanced our disposal activity and we now start to see the full effects from our significant disposals last year. Our FFO1 before COVID adjustment amounts to 247 million euros. After the impact of the extraordinary provision we put in place for this year, our FFO1 amounted to 172 million euros. The share buyback offset the decrease partially, which resulted in an FFO1 per share of 15 cents and in line with our 21 guidance. As in the past, we will provide a breakdown of the different FFO matrix later in the presentation. The like-for-like net rental income growth excluding hotels resulted in plus 0.8% for the first half and including the like-for-like effect of all hotels amounted to a minus 0.7%. Moving to slide 5, we summarize the achievements of our disposal and share buyback programs during the first half of this year. The transaction markets remain competitive also after lockdowns being lifted at the end of Q2. which is reflected by high demand for real assets and very high liquidity in the market remaining. We therefore continue to identify further mature and non-pro assets for sale in our portfolio. In H121, we sold properties in the amount of over €1.1 billion above book value at an average rent multiple of 23 times and a 51% margin over total costs with 3% margin over book value. Continuing to dispose non-core and mature assets above book value well into 2021 is a strong validation of the valuations of our portfolio. 41% of disposals were classified as non-core retail or logistics assets across several non-core locations in Germany. The majority of disposals, however, were made up of 53% of offices and the remaining 5% were hotel disposals. As demonstrated in 2020 by means of the successful disposal program, we capitalized on significant value creation and recycled the funds to strengthen our balance sheet, repay shorter and more expensive debts, as well as execute accretive share buybacks at significant discounts to our APRA MTA. We continue with our share buyback program for the remainder of the year of up to 500 million euros announced back in March. 37% of which has been already executed as of August 20th this year. That amounts to approximately 190 million euros as an average share price of 6.5 euros and reflects a discount to our IFRA NTA of over 30%. This share buyback program allows us to reinvest capital from successful disposals into our own portfolio at higher quality with a significant discount to the NTA per share. representing a good alternative in the absence of accretive acquisition targets. Let's continue on slide 7 with our operations and the portfolio overview. Our strategy is to focus on our two core markets, Germany and the Netherlands, which make up the lion's share of our asset locations with 85% of our commercial portfolio value. 64% of the portfolio in these two countries is concentrated on the top cities alone, such as Berlin, Munich, Frankfurt and Amsterdam. Since early days, around one focused on these two strong EU economies. Both markets better withstand the economic impact of the pandemic and recover from a stronger base compared to most other EU member states. With a moderate unemployment level due to flexible employment regulations, a strong governmental financial support system and still low debt levels. They both also hold a AAA sovereign credit rating. Having caught up on the vaccinations in recent months, both countries show high vaccine penetration levels across their populations and below average number of infections per capita across Europe. Therefore, we would expect the economic rebound to be faster and with less negative long-term effects from the pandemic. One of our key competitive strengths has always been our diversified investment strategy into top European locations that we break down on slide 8. This diversification is a combination of strong asset types, key locations and a healthy tenant structure without any dependency on a single tenant or industry. These elements of diversification protect us to some degree in volatile times linked to macroeconomic or domestic uncertainties but also during times of political change. Such events will therefore not have a negative impact on our entire portfolio equally. On the right-hand side of slide 8, you can find the breakdown of the geographic distribution as well as the composition by asset class. The office portfolio remains our dominant asset segment with 51% by value and 66% combined with the residential assets through our proportionate holding in grand city properties, which we will start to consolidate from July of this year. The hotel assets, which continue to be negatively affected by domestic business and international travel restrictions, account for 24%. During H1, we were able to successfully dispose additional non-core retail assets above book value alongside other asset classes and could maintain the exposure of this segment at 7% of the portfolio value. Our intention is to reduce this exposure even further in the coming year. At the same time, the exposure to logistics and industrial assets was reduced to only 3% after successful value creation and selling these assets above their book values. Going forward, this allows us to focus more capacities on our three core asset classes offices, residentials, and hotels, where we see the greatest value creation potential in the long term. As illustrated on slide 9, we present our tenant diversity with around 3,500 tenants from various industries across properties with limited exposure to any single tenant. In spite of the large disposal volume we achieved since last year, our tenant dependency remains low as the rental income of our largest 10 tenants accounts for less than 20% of our group's total rental income. Our overall commercial portfolio amounts to 21 billion euros with a worth of 8.9 years. End of H1, the rental yield stood at 4.5% and the vacancy rate at 8.9%, both similar compared to the end of 2020. We continue to work relentlessly on our letting activities in order to reduce vacancies in the coming periods. On slide 10, we reiterate our revisionary asset potential in our existing commercial portfolio. The June 2021 rental income run rate, excluding assets held for sale, amounted to 861 million euros on an annualized basis. Assuming no further acquisition and disposals and no changes to today's market rent in the locations of our assets, the get-to-market rent results in a 21% rental growth potential, including filling our vacancies. This upside potential also serves us as a strong downside protection from the existing get-to-market rent levels and ensures our intake rents have a strong buffer in case of weakening rent. The long walls of 8.9 years and current asset valuations of less than half the replacement costs in our location further ensure stable rental income and valuations in the long term. On slide 11, we illustrate the resilience we continue to see in the top eight German and Amsterdam office markets since Q4 2019, just months away from the outbreak of the pandemic. These main metropolitan cities entered the pandemic in a very strong shape which has mitigated the impact of the pandemic and we have not experienced signs of material long-term impact by the effects of the pandemic. When comparing Q2 2020 to Q2 2021, we noticed a 20% increase in the office take-up since the dip last year. Vacancy levels increased only marginally and remain at record low levels of about 5% on average, compared to 11% just before entering the global financial crisis in 2008. Due to high liquidity levels in the market, stable demand and continuous undersupply for new developments, prime rents as well as yields even slightly strengthened throughout the pandemic without any significant fluctuations. we can observe a similar pattern for pre-lead ratios of new developments. As shown on slide 12, our office assets represent the largest portion of our group portfolio with 51%. We continue to focus on central locations in top tier cities of Germany and the Netherlands such as Berlin, Munich, Frankfurt, Amsterdam or Rotterdam. They alone account for 63% of our office portfolio. Further diversification into additional top-tier cities can be seen on the pie chart. With a world of 4.7 years and no significant dependency on any single tenant or location, we continue to maintain a well-diversified and robust tenant structure. Nearly half of the office rent comes from the tenants in the strongest industries, such as insurance, banking, governmental, infrastructure, health or energy. The public sector continues to represent by far our largest tenant segment with 29% of the rent. And some of our top office tenants are well-known names such as the German and Dutch government, the Bundesbank, Siemens, Deutsche Bahn and many more. We have seen an improvement in the market since the low levels of H1 last year. The opening up of markets and the recovery of certain industries resulted in a lack of workforce, materials as well as components. We also experienced a pickup in demand for new lettings after tenants have been very hesitant last year and preferred to prolong existing leases instead of signing new spaces. But as the first half of this year was mostly marked by the ongoing lockdown that started last November, the letting activities remained below pre-pandemic levels. After the home office regulation has been abolished, we also see employees welcoming the option to go back to the office and employers change their views and preference to bring workforce back to a centralized office. New office tenants expect more flexibility in terms of lease duration and we notice a stronger pickup in demand during summertime as lockdowns have been removed again. Our long-term holding in residential sectors through grand city properties is reflected on slide 13. The diversification to residential assets in the top German cities plus London continues to be a strong element of our long-term investment strategy. This asset segment has proven to be very resilient throughout the pandemic, whilst capital values further gained in the first half. And by the end of Q2, this segment accounted for 15% by value of our group portfolio share. Around Town will start to fully consolidate Grand City properties as of Q3 this year, which will be illustrated first time in the Q3 financial report. The consolidation creates a stronger position for Around Town over a portfolio of the strongest and most resilient real estate class in Europe. The impact on our KPIs and other financial metrics will be immaterial as we continue to include only the proportionate share in our operational results. Grand City and Around Town both have a focus on a conservative capital structure and similar leverage levels. The ownership level in Grand City currently stands at over 44%. Grand City reached a 2% like-for-like rental growth in the first half. whilst achieving 13% premiums to book value on its €300 million strong asset disposals. The value of its portfolio grew by 2% and embeds a high revisionary potential which can create long-term value with continuous new and relaquings. Berlin saw the abolishment of the highly controversial rental caps last April and gave way to new residential rental growth in the capital. However, rent in all locations with high demand continues to increase due to a shortage of new supplies and further regulation tightening, which makes it more difficult to become a homeowner. In face of a housing shortage, increased rent levels and low-interest environments, we continue to see strong demand for condominiums and in turn growing capital values for German residential assets across almost all main and secondary cities during the pandemic and lockdowns. I'll now hand you over to Barak, who will continue with the hotel portfolio. Thanks, Jose. On slide 14, we give a summary of the hotel portfolio. The past 18 months have been challenging for hotel operators, but we're convinced of the accretion of our hotel investment in the medium to long term. The portfolio is located across top European cities such as Berlin, London, Paris, Brussels, Frankfurt, and many other key cities. We focus on strong geographic diversification that spans across operations and hotel sites. The core of our hotel portfolio is 85% of four-star hotels, which capture the both segments, leisure and business travelers. All our double and triple-net leases have fixed-plus-PPI-linked trends without a variable component. with more than 30 different experienced third-party operators and stable vault of 17 years. Our largest tenant in hotel portfolio remains in the park with 6% of the group's rental income. All our parks are open during this summer period and enjoy from the strong demand in the latest record. On site 15, we highlight the drivers for an asymmetric recovery of the hotel business as there are diverse factors that support specific aspects of the hotel demand from travelers. We are glad to see that the majority of hotels in our portfolio have been open for business since the last lockdown came to an end mid-June. This has allowed particularly the laser hotels to capture the high pent-up domestic laser demand from tourists from summer holiday seasons. But demand from domestic business and international travel remains very low. Corporates need more clarity in order to adjust their travel policies and pre-bookings. Potential further lockdowns or travel restrictions, such as quarantining, especially with increasing infection rates from virus variants, retain uncertainty in the markets. We expect the demand from this segment to not recover this year and only partially next year. The first half collection rate of our hotel portfolio came into at 34%, bearing in mind that almost all of the first half of this year was impacted by the lockdown and high numbers of infection across Europe as the vaccination progress started to pick up speed in late Q2. Looking at the first month after the lockdowns have been removed, we see an improvement in July's collection rate to 45% in comparison to 33% in July last year. Our historically high ratio of domestic travel demand in Germany, the Netherlands and the UK from leisure and business travelers acts as a support for the current recovery we see. Nevertheless, we remain cautious for the second half of this year as we still don't see a significant amount of domestic business and international travelers or many large events being planned yet. Corporate travel would take longer to rebound in significant volume. Moreover, the spike in laser traveling will most likely level again to some degree after the summer holiday season comes to an end. We estimate that the business travel segment will perform better once the threat of infection can be controlled and people do not fear to undergo quarantine or lengthy waiting periods at airports. As explained in previous calls, we use the time of lockdown to bring forward refurbishment and repositioning work in several hotels, which were originally planned for the next year. This asset improvement results in decrease of current rents due to work interruption, or in some cases, incomplete closure of the hotel, but once completed, we lead to a higher return and margin as we improve the quality or increase the lettable space available of the hotel. In all the works planned, we ensure the flexibility and modularity of the renovated hotels to be used also for alternative purposes such as residential, long-term stay, micro-apartments, and more. All three please continue. Please move to slide 16, where we summarize our remaining logistics and retail portfolios. We continue to see a strong transaction market for these asset types as a result of the accelerated transition to stronger e-commerce and essential goods fueled by the pandemic. Whilst we continue to view these assets in general as non-core, we identified further non-core and mature assets within these segments and achieved additional successful asset exposures during the first half. Our updated remaining position of these asset types at the end of the first half stood as follows. The retail portfolio accounts for 7% of the group portfolio value and logistics for 3%, less than half of what it was 15 months earlier. Their walls were 4.9 years and 5.1 years respectively. The top investment location for both asset classes remains Berlin, with well over 40% of the assets value in each segment. Over 40% of the remaining retail assets are essential goods stores, such as supermarkets, pharmacies or drugstores. They continue to experience high demand even during times of lockdown. We present on slide 17 the composition of our development and building rights portfolio. The development segment makes up only 6% of our total assets and is therefore not material on a group level, but implies significant upside potential given the shortage in new developments across many prime locations. The composition is illustrated in the two pie charts on the right-hand side, with Berlin as the most attractive stinger location, with nearly 50% of the value embedded. In terms of asset type breakdown, also half of this segment are offices, which matches the undersupply of office space in several prime locations, including Berlin, Dresden and Frankfurt. These three hubs together make up two-thirds of the segment. In most cases, we aim to sell these building permits. However, if we see significant yield potential and strong tenants with long-term previous agreements, We will also undertake projects ourselves for which we employ third-party developers, some of which you can find already in the appendix of this presentation. These are long-term projects, as the approval process with municipalities can be a cumbersome and slow process in many instances, and we only publish projects with high execution certainties. I will now hand you over to Eyal to present you the financial results.

Thank you, Osho. On slide 19, we present the profit and loss results for the first half of the year. Our recurring net rental income in H1 resulted in 442 million euros, a decline of about 11% year-over-year, resulting mainly from the many successful disposals above book value we achieved since then. In this figure, as well as the adjusted EBITDA and FFO, we exclude the impact of the assets that are already marked for sale, despite their positive cash flow. Our like-for-like net rental income, excluding hotels, amounted to plus 0.8% in June. However, after two additional quarters of lockdowns, the hotel segment pushed down the like-for-like growth to minus 0.7% of the whole year-over-year, of which minus 0.2% comes from interest rates and minus 0.5% from occupancy decrease. We re-evaluated only a quarter of the portfolio during the first six months, for which we recorded a property re-evaluation and capital gains of over 109 million euros. As every year, we re-evaluate each asset once per year and plan the remainder of the portfolio to be re-evaluated during the second half of this year. Capital gains came in at 33 million euros for the first half, fueled by strong disposals above book values. Due to the challenging start of the year, the collection in hotel rents remained low and we booked an extraordinary provision in the net amount of 75 million for the first six months. Operating expenses came in somehow lower than the comparable period of last year and in line with the recorded revenues. Administration and other expenses remained stable while finance expenses decreased substantially due to our debt optimization efforts in the last period. The deferred taxes decreased significantly from €178 million to just €13 million year-over-year, mainly because of how our valuations have been delayed to age 2, 2021. Finally, the net profit for the period amounted to €362 million, generating 25 cents earnings per share for the first half. Moving to slide 20, the adjusted EBITDA amounted to 452 million euros in the first half of this year, down 10% compared to the same period last year. Again, this negative change was driven to a large extent from the successful disposal program which allows us to recycle capital into newer positions with higher upside potentials. The adjusted EBITDA calculation is already after excluding €9 million contributions of assets sell-for-sell, and therefore referring only to the recurring long-term portfolio. Positive contributions derived from our proportional holding in GCP and other investments, which contributed €83 million in the first six months. Slide 21 provides a detailed view of our transform operations. Our FFO1 amounts to 172 million euros in H1, or 15 cents per share. Both figures are in line with our full-year 2021 guidance range. The decrease is once again related to our successful disposals, as well as the provision for uncollected rents, which we only partially recorded during the same period of 2020 as the pandemic hit our markets in March 2020 the first time. The SFO1 per share before COVID adjustments increased by 5% to 21 cents year-over-year, which emphasized the positive effects of the share buyback program and indicates the performance that can be achieved once the pandemic is under control and the economy rebounds. As a result of further successful disposals in the second quarter, the total profit from disposals in H1 amounted to 376 million euros, The FFO2 therefore increased to 548 million euros from 340 million euros 12 months before. On slide 22, we provide a detailed breakdown of all three APRA NAD metrics and the changes since end of last year. Since December 2020, all three KPIs remained stable on a total level, whereas on a per share level, we saw a small improvement which are partly an impact of the share buyback program we have executed over the last six months. The APRA NTA amounted to €11.2 billion, or €9.6 per share. The ongoing relative discount of the share price to the APRA NTA per share, in the face of our disposals above both values, presents how accretive the ongoing share buyback is to all shareholders. With that now, back to Rofi to conclude the final part of the presentation.

Thanks, Eyal. Maintaining a healthy capital structure continues to be a priority for us in the long term. Strong fundamentals and conservative financial ratios build the basis for our strategy. Thus, our debt maturity profile on slide 23 shows no major debt expiry coming up until the beginning of 2025. Except for one 600 million euro debt, senior bonds expiring in July next year. As a result, our cash cover ratio for the next three years stands at three times. We continue to maintain a moderate LCV level and reduce it further to 33% throughout the first half of this year, whilst keeping our low average cost of debt at 1.4%, with an average maturity of 5.8 years and a robust interest cover ratio of five times. up from 4.5 times 12 months before. We increased the holding of our assets free of any debt to 81% or 16.1 billion euros, which provide additional sources of capital for us if required. These conservative financial ratios allow us to maintain a large headroom to all our covenants, which we see crucial during these times of greater uncertainty in the markets. Our strong liquidity position stood at 3.2 billion euros at the end of Q2, which will allow us to quickly act on attractive external growth opportunities, debt repayment and further economic challenges if and when they arrive. The EU pipeline is gaining further traction and we continue to participate in many tender and divisions processes, but remain cautious and reinvest our capital into accretive acquisition opportunities only when we see sufficient upside potential to the current market. Once again, we continue to reiterate our long-term rating target upgrade to A from currently BBB+, which was reconfirmed by Standard & Poor's last December. We feel the consolidation with Grand CD Properties as a positive support to our long-term rating in terms of price and upside. You can find more You can find a more comprehensive list of our financial policies in the appendix. In conclusion, we can confirm the guidance provided for the full year 2021. The first half results are in line with our guidance figure presented already at the full year 2020 results, but lays on the lower side due to the significant effects on the hotel sector. We continue to expect the FFO1 for 2021 to be in the range of 340 to 370 million euros. As the first half of this year was again marked by lockdowns which negatively impacted our hotel portfolio, we maintain our moderate guidance view at the hotel industry and our hotel properties performances for the remainder of this year by assuming a collection provision in a net amount of about 120 million euros. We have successfully completed a share buyback program in the amount of 1 billion euros last year and an additional 37% of the ongoing share buyback of up to 500 million euros until the end of this year. The full effect of the buyback program on a per share growth level will start to fully reveal only later in the year. Therefore, we still expect the FFO1 per share to be in the range of 29 to 31 cents up from 27 cents in 2020. As a reminder, this calculation does not include the ongoing buyback program as we cannot estimate the timing and how much of the 500 million euros will be bought back eventually or at what average price. Finally, we see our expected 2021 dividends per share in the range of 22 to 24 cents based on a 75% dividend payout ratio. That concludes our first half 2021 presentation. We regularly update the information in the appendix and, as always, encourage you to take a look. I'll now hand you over to Sylvie, who will lead the Q&A session.

Thank you, Ossi. Before we invite your direct telephone questions, 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 did the office market in Germany and the Netherlands develop year to date? Do you see signs of recovery? What can we expect going forward?

The economies of Germany and the Netherlands are experiencing a partial recovery after the demand short last year. In some industries, the recovery resulted in a lack of workforce, materials and components. Market expectations also guide for a good GDP recovery for the next quarter. We experienced a similar development in terms of new lettings with a truck in Q2 and Q3 of last year, which were significantly impacted by the outbreak of the pandemic and the related lockdown. We started to see a slight pickup of new lettings But these are still below pre-pandemic levels. The demand for letting is picking up, supported by pent-up demand from tenants who decided last year to postpone letting decisions. We see the impact from home office reverting after the lockdowns were lifted, with corporates and much of the workforce welcoming to go back to the office after long lockdowns. Prospective tenants are looking to rent new spaces for shorter periods, of three to five years compared to five years and longer before the pandemic. We managed to stabilize our vacancy rates, with office vacancies slightly decreasing to 11.2% in June 21 compared to 11.3% in March 21. Besides, in the first half this year, new lettings for 90,000 square meter at an average rent of 20 euro per square meter which is one-third more space assigned in comparison to the first half of 2020. Prolongations in the first half of 2021 were similar to the first half of 2020. We prolonged 110,000 square meters at an average rent of 14 euros per square meter. Our new leasing lease lengths are around 7 years, while prolongations are at 5 years. It is difficult to assess the future development, but so far it looks like the momentum is positive and we hope it won't be interrupted by another lockdown or other virus-virus effects. The longer the pandemic and social distance will remain, the higher the challenge will be. We get confidence from the top location and high-quality office portfolio, which is focused on the strongest and most resilient economies of Europe, paired with relatively low rent and high replacement costs in comparison to other European markets, which leads to high demand and low supply.

Next question. Can you please provide an update on the hotel market? How is the recovery progressing and how do you assess it will develop?

The hospitality industry remains to be highly impacted by the continued effects of the pandemic. The impact is very asymmetric with later travel. recovering fast this summer due to the holiday season and leisure locations performed very well, whereas demand for business travel, conferences and international travel did not recover. As we experienced last year's summer, we do experience a recovery of domestic leisure travel once the lockdown restrictions have been lifted. Leisure hotels generally have simple demand drivers, often driven by specific on-site amenities or access to public amenities such as the beach or mountains. As these kinds of demand drivers are quite straightforward, the easing of restrictions has resulted in a fast rebound in demand for those hotels in the summer holidays. Furthermore, as many of these locations depend more on domestic travelers and are usually accessible by car, restrictions related to international air travel do not have the same impact as with other types of hotels. Bookings starting to pick up once dates have been communicated as to when lockdown restrictions were lifted, indication a high tank-up demand. But as the recovery is currently progressing in major travel, there is still a lot of progress to make to get back to satisfactory recovery. It is also important that the underlying drivers of demand are available and unrestricted for the hospitality industry to recover, and it is hard to estimate the impact of another infection waste. It is not sufficient for the main accommodation to be allowed to open. Amenities such as cultural events and fairs, spa, restaurants, and casual venues need to be available in order to generate demand for hotel bookings as well. The pandemic has changed the consumer behavior. Less hotel bookings are made in advance, but postponed to shortly before the actual stay. Therefore, there is still low visibility on demand in the next months. Another even more important factor for our portfolio recovery is the demand from business and international travel, which are still in a very low level. Many companies still have policies in place aimed at protecting their employees and thus reduce travel to a minimum. International leisure and business travel will only start to recover once uncertainties about further lockdown or other restrictions such as quarantining after flight will be lifted for travelers and corporates to start planning. We do see slight increase in inquiries regarding corporate agreements, which indicates that the underlying demand for business travel is there, but the uncertainties limit companies from actually committing to travel in the current stage. Conferences and corporate events are slowly returning, but these are mostly in reduced size or with hybrid elements as the uncertainties regarding future restrictions make it difficult for such events to be organized to the same extent as a pre-pandemic. City hotels, on the other hand, are dependent on a more diverse set of drivers, such as social venues, conferences, events, and the like, which create a vibrant urban environment that attracts national and international tourism, as well as demand from business travel. It takes longer for such environments to recover than in comparison to laser and international travel restrictions, have much more significant impact. As a result, these hotels did not recover yet. Currently, it is hard to predict what is the impact of another infection wave and new virus variants will have in the future and whether restrictions may come back and to what extent. Therefore, we remain cautious on the recovery and expect 2021 to be weaker than 2020 as the strong first months of 2020 prior to the pandemic breakout are missing in 2021.

Next question. When do you expect your collection rates to recover?

As explained, the hotel market is still in recovery. Whereas leisure tourism has come back fast, the market is still lacking demand for business travel, corporate events, conferences, and international travel. City hotels benefit greatly from conferences and events, which take place in the city, and the summer is anyway always a weak season for business travel and conferences. Business travel is not depending on a personal decision, but on corporate travel policies and corporate travel and event planning. The positive impact of the holiday season can be seen in the increase of our collection rate from 34% in August to 45% in July. It is hard for us to estimate the future collection rate, as it is hard to estimate hotel performance after the holiday season, due to the ongoing uncertainties about virus variants and increasing infection rates. We expect business and international travel not to recover this year and only partially next year, which will weigh on the performance of city and business hotels. Fall and winter months are usually dominated by business travel, conferences and events, and we don't expect this demand as long as infection rates increase. We did expect better performance in 2021 after the vaccination levels increased. So far, we prefer to stay conservative, and we expect extraordinary rent provision in 2021 guidance to be on the higher level than initially assumed, beginning of this year, at about €120 million net. Nevertheless, the guidance stays unchanged, as the higher expected provisions are so far offset with positive effects from synergies, CLG, higher efficiencies and more.

Next question. Will you continue the level of disposal activity? What is your disposal pipeline?

We dispose in the first half approximately 1.1 billion of disposal for all asset types, offices, retail, logistics, as well as hotels at a disposal margin of 3% above book value and 51% above total costs, including capex. As a reminder, health hotel properties and completed disposal are excluded from our portfolio overview, recurring net rent, adjusted EBITDA, and FFO as their impact is not recurring. We will continue to dispose non-core and mature properties when we get attractive offers, which factor in large portions of the future potential and we can thus secure now. We have an advanced disposal pipeline of over $1 billion. The disposal profits are utilized to a large extent for debt repayments and for share buybacks, which increases FFO and shareholder value on a fair share level. The disposals are carried out above book value, and our share is traded at a significant discount to book value, and therefore we are able to benefit from this discrepancy. We continue to extract rights and rents from our existing portfolio and believe that such efforts will be seen in the next years and in parallel we monitor the markets for attractive deals.

Next question. Your growth from acquisitions is muted since the outbreak of the pandemic. When do you expect to restart your external growth and would you consider further M&A instead or in addition to property acquisitions?

We focus on acquiring properties below market prices, which needs strong expertise in operational management to lift the upside potential. These opportunities have become rare as the transaction markets are very competitive. The pandemic and its related stimulus packages from governments and central banks resulted in a hike in demand and consequently prices, leaving less room for upside and less downside protection. Nevertheless, we are working on several growth opportunities. Our current portfolio holds a large internal upside potential from rent and occupancy increase and development value. The rent revisionary upside is 21%. Lifting this potential will lead to significant FFO and value increase in the future. Although our property acquisition activity has reduced, we continue to scan the markets and thoroughly check for acquisition opportunities. We are well prepared to capture opportunities when they arise. And 2020 was marked by a very large portfolio acquisition through the TLG merger. The merger with TLG added many strong properties to our portfolio and the non-core properties, which comprise many retails, are being successfully disposed above book value. So we are further increasing our portfolio quality and are better positioned for future and further upsides. In addition, we continue to execute our high-quality development pipeline and have several projects running in parallel which will create future cash flow once construction and refurbishments are finalized and the properties are back on the market. Further, recently our offer for global worth ended and our joint venture with TPI now holds together over 60% in global worth. This strong control position opened various options for us and we will explore opportunities going forward to create more value and synergies. So with TLG and Global Worth, we closed two M&As in the last one and a half years. We look at potential M&As like any other property acquisition, which needs to be accretive, so a strong and high-quality portfolio embedding a significant upside potential at the right pricing and view structure. In addition, we are executing share buyback programs and since we started the first program last year, we have acquired over 1 billion Euro in value of our shares at significant discounts. The share buyback program is a reinvestment into our portfolio at a very accretive price and as an alternative to acquisitions for achieving growth on a per share basis.

Next question. How much of the current share buyback program has been executed? and will you do more buybacks after the current program is over? What is your intention to keep the shares in Treasury?

Our current program is up to 500 million euros, of which around 37% has been bought back. With our strong cash balance and our shareholders voted for an increase of further potential buyback in the last AGM, we could execute further share buybacks. But first, we will still have to complete the current program and will evaluate the situation afterwards. At this stage, we intend to keep our treasury shares as is and not cancel them, which can provide us flexibility in the future.

Are there any updates on your development portfolio?

We present in the appendix of our presentation several projects and their statuses. We have several hotels under full refurbishment as we use the lockdown period to bring forward planned campus works. We want to use the time effectively to bring the hotels back to the market in their upgraded state earlier than the originally planned pre-pandemic. We also have some office developments ongoing. For example, the 25,000 square meter Dresden office next to the historic Palace and Opera House, for which pre-letting is improving and it is now at 40%. with advanced negotiation ongoing for further 50%. The Dresden office market is performing very well with vacant office space now in its historically lowest and rent at the highest. We are thus confident to fill up the remaining space, same as with the near office asset, which was completed end of December and which is now basically fully let. In addition, we obtained the full building permit for 37,000 square meter office property in Berlin, Mediaspre. Generally, our strategy is to obtain the building rights and sell them, or, on selective basis, in top location, at the highest pre-let ratio, we consider to construct and hold the property. We are exploring how the pre-let ratio would develop before making a decision. The Mediaspre location is very strong, with many other office properties in the vicinity rented to top tenants such as the headquarter of Zalendo. In close proximity, we obtained a pre-permit for mixed-use office, resi, retail, property and are currently working on obtaining the full building permit, hopefully next year. Obtaining permits is a lengthy process and it is dependent on the municipalities and it is fully not in our control. Moreover, the ability to optimize and maximize building rights is a competitive advantage and a significant value creation driver.

Inflation rates have been increasing significantly. Do you see any impact on your operations, and how do you assess the impact if interest rates will increase?

Inflation rates have been increasing as expected due to base effects, e.g. since taxes were temporarily lower last year, and the demand shock last year resulted in temporarily lower prices. Also, currently, there is a supply shock after the market reopened and the demand recovered fast. Market expectations are indicating the inflation hike to be shortened and will normalize when these effects vanish. We do see a certain cost inflation impact on our operation, some of which are temporary and relate mainly to the cost of materials and capex, and some are more long-term, such as personal excess. We see salaries increasing in the last year across all functions and departments in our organization, and we expect these levels to remain. The operations cost inflation is offset by increasing efficiencies and from extracting economies of scale, On the income side, we are protected as the majority of our leases are linked to the CPI and, therefore, we expect higher rents in case CPI increases. Regarding interest rates, considering that several economies within the EU are still struggling with the pandemic impact, markets do not expect the ECB to stop their easing program anytime soon. Either way, interest rate hikes will probably be gradual.

Next question. As your portfolio is mainly made up of existing assets and less new builds, how much capex will be needed to upgrade your portfolio in the future to comply with the energy requirements? While our capex investments are targeted at tenant fit-out, space expansion and maintaining and or upgrading the asset quality, which includes improving the environmental footprint through insulation, heating systems, etc., So our ongoing CAPEX spendings are including many of these upgrades. Naturally, the market and with the tenant requirements are changing, and we are adapting accordingly. We see especially in the Netherlands an increasing demand from existing and prospective tenants for greener assets, mainly focused on buildings with a green building certification. We expect this demand will translate into higher rental prices. The CAPEX spending for the green upgrades could be covered by higher rents, higher demand for those assets which result in lower vacancies. We don't see overall demand from tenants in Germany on greener leases or buildings yet, but we expect the demand will come. We just started our pilot project in the Netherlands where we scanned one third of our office properties for potential green building certifications and identified so far around half of the scanned assets which can be certified soon. Our goal is to have most of our office portfolio in the Netherlands certified by 2025. We will utilize the experience we will gather from this pilot project to apply to the rest of our portfolio. In addition to our ongoing CAPEX spending, we have a target to increase our property's energy efficiency and the generation and storage of renewable energy. In practice, this means installing solar panels, increasing energy utilization through CHP and CCHP, electric vehicle charging stations, replacing inefficient fossil fuel heating systems, switching to energy providers who provide climate-neutral energy, and engaging tenants for more conscious energy, water, and waste usage, and energy saving methods. The energy investment program will be developed gradually and will both enable us to significantly improve the energy efficiency and is a future value driver. Please see more details in our presentation in the appendix, as well as in our sustainability reporting available on our website. Next question. Your rent, like for light, excluding hotels, was 0.8%. What is the breakdown of the 0.8% in terms of in-place rent and occupancy? What is the reason for the flat results, and what do you expect in the coming periods?

Including the impact of hotels, the rent-life-for-life-like increase of 0.8% was driven by an increase in interest rates of 1.4%, and supported by new lettings as well as prolongations at above-average rents and occupancy, and occupancy decreased by 0.6% on the life-for-life basis. The largest increase was in the office portfolio, and were in Amsterdam, Dresden, Berlin, Hamburg, Leipzig, and Utrecht. The hotel portfolio like-for-like was negative at minus 3.4%, which brought the average like-for-like for the total portfolio to a minus 0.7%. The negative hotel like-for-like is reflecting the large impact of the pandemic on this asset type and is the result of a temporarily reduced trend in certain situations and on a selective basis. Although the results are below our average in the recent years, they do reflect the stability and strength of our portfolio, and our platform in the current challenging environment. Excluding the hotel portfolio, we continue to see positive life-for-life performance, increase in our rents, and maintain stable occupancy rates. The letting process is longer since the outbreak of the pandemic, which extends the time needed to increase occupancy and capture the remaining potential.

Next question. Can you please elaborate more on your revaluation gains of the period and what do you expect going forward?

In the first half of 2021, we have revalued a relatively small amount of the portfolio, approximately 140. As we have mentioned in our previous call, we plan to carry out evaluation of a larger portion of our portfolio in the second half of 2021, when we expect to have a better visibility on the market and our portfolio after the relief of the lockdowns and restrictions. We recorded in the first six months of 2021 100 million euros of revaluation in capital gains, equal to over 0.5% like for like on the total portfolio, including the portfolio which was not valued yet. In H2 2021, we expect to continue and see stability in our valuations in line with our performance in the last quarter.

So for 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.

Thank you. Then we will now begin the question and answer session via the telephone line. If you have a question for our speakers, please dial 0 and 1 on your telephone keypad now turned to the keys. 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 answer your question. If you are using speaker equipment today, please lift your hand first before making a selection. One moment please for the first question. And the first question we've received is from Manuel Martín, out of VHF. Your line is now open, please, Wilhelm.

Good morning, gentlemen. Three questions from my side. The first question is, again, on hotels. Maybe you could give us some favour on your ongoing rent negotiations. How are they going? That would be question number one. Question number two, also in the hotel segment. I saw in the presentation that you assumed to reach pre-pandemic levels in Germany in 2023 and in UK in 2024. Maybe you can elaborate a bit why UK might come later. Question number three is on the upcoming consolidation of Grand City. Is there any beneficial effects for Longtown because of that?

and what was the reason of the consultation. Thank you. Hi, Manuel. Thank you for your question.

Referring to the hotels, On the market side and the recovery, we follow market researchers and see also how the industry is behaving. And based on these market researchers, it looks like that the recovery is planned to present pandemic level in 2023 in Germany and in the UK in 2024. Referring to rent negotiations with hotels, our leases are fixed long-term with steady increases, so there are not heavy discussions on what should be the rent levels. We are in constant discussion and communication with the tenants about their operation and their ability to pay rent. We follow the performance of these hotels. We make sure that we do the right thing. On the other hand, we are looking to use these times to maybe make conversions or other types of users for the properties that will give the best use. Referring to the consolidation with GCP. There were several events in the last period that eventually our position in Grand City increased to nearly 45%. It's mainly coming from us, push, choosing all the time the script dividend and increase our related position. Grant 18 Parallel did share buyback and twin share buyback, which also we didn't participate, and also our position increased. And it reached to a point that we feel, or our both feel, that we have the majority in almost every shareholder meetings, which lead, according to IFRI standards, to a de facto control, which will then lead to a technical consolidation of Grand City in our books. We see this consolidation as a good thing, as we will present Grand City books and investments in the residential portfolio as part of our investment property and not as part of our JV investments. Thank you for your questions.

The next question is from Ben Richford, Sustitut Général. The management instances you'll have.

Great, thank you. Just a quick follow-up on the consolidation then. I know you said in the initial notes that it was immaterial, but I'm not sure you fully answered the question just previously around any beneficial effects. So, based on the H1 numbers, what would be the difference on the net assets of the company, please. Second question, just a little bit more on global worth, what your intentions are there now that you've got over 50% of the voting rights of that company and there's a major shareholder who has refused to tender their shares to you. And then just a third question, you base your share buybacks on NTA, which I think there's a lot of logic to choosing a measure and being very clear about that to drive your capital allocation, which has been impressive. But I just wondered to what extent you debate whether NTA is the right measure, whether you should use an adjusted number, maybe there's a full amount of transfer tax optimization in there, or whether you consider NBV, which is another widely used measure, as more appropriate, which would give you a lower benchmark for making buybacks.

Thank you, Ben, for your questions. In terms of the consolidation with Grand City, we also announced it as part of the announcement of the consolidation. If we look at the NAZ post-consolidation, we don't expect any material change. On the FFO side, we already include our group share in the FFO of Grand Cities. So also on the FFO side, we don't expect any material change. And that's why we called for the consolidation, more technical consolidation. We do see a positive side to our portfolio in our books and present it in more detail. But on the FFO level, the FFO already currently in the guidance presents our group share in GCP's FFO. On GlobalWolf, we just completed last month, as you mentioned, the offer of GlobalWolf together with our partner CPI. We are now starting discussions with GlobalWolf management and together with CPI to explore potential synergies and cooperations between the groups. We will have more data on such achievements later in the year because this discussion has just started. We see the full portfolio of global water complimentary to ours. We like the properties and their main locations and their tenants, so it gives us an additional diversification. The relationship with the third shareholder that didn't tender the shares is good. we are in contact, we see many things eye-to-eye, and he is part of the consortium that is the shareholders of the company, of Global Wars, and I can say that so far the relationship is good, and it seems that we see what we plan in a good manner. Referring to the NTA, look, I think it's a At least from our perspective, the NTA is more or less market standard for replacing the APRA energy, which was the main APRA metric that the market used. I agree that there could be arguments right or left on, let's say, how and when you should use it. I think that we've built up our NTA system. Very clearly, we exclude from all the deferred taxes that were added, all the L4CEL portfolio. We exclude the developments. We exclude the non-core portfolio, mainly ZTEL. So we think that our NTA really reflects the former NAV on one side, and in terms of the addition on the purchaser cost, we only added back 40%, which we feel that from a structured perspective we can use, and 60% we didn't use at all. So we feel very comfortable with the way we present it, and we actually see this as the right APRA method to compare. Thank you for your question.

The next question is from Kai Klose, Berenberg. Please go ahead, your monitor opinion.

Yes, good morning, Madam Mayor. May I ask three questions? The first one could indicate how much of last year's rent relief we have granted to tenants has been collected since then, or until now. The second question would be on the NEO office project. You mentioned the one in Dresden has now been completed. It could indicate what was the yield on cost which has been achieved there. And last question would be on page 59 of the presentation on the Hafenstrasse property in Frankfurt. You gave some details regarding the capex you're going to spend there for your positioning. Could you indicate how much has been spent and how much might be spent this year and how talks with potential tenants have been progressing so far? And maybe a bit of a timeline until when we can get this project being completed. Thanks.

Hi, guys. Good morning. Thank you for your questions. In terms of the rent relief that we gave last year, we did collect some, but very minor part. As you remember, this year also was most of H1 was under lockdown in most of the areas where our property is located. So we didn't feel that it's the right time now to put forth collecting rent that we gave early from last year. And I think that... We will need to see how the market evolves in the next quarters, and if there will be an opportunity, for sure we will collect more than what we did so far. Thank you. About the new portfolio, so the yield on cost so far is 7%, and I will let Barak answer about Afenstrasse.

Regarding Hafenstrasse, so the situation is that we are getting the permits for additional square meters into the building. In general, we're getting more net, nettable area of approximately 3,000 square meters, so that is coming in the next, hopefully in the next week. In addition to that, we're in a pre-let situation, so at the end of the day, we will start, if we start the project, we'll start it also with a let's say, only with a pre-let ratio that will satisfy our strategy. And hopefully we can start it very, very soon. We saw, I'm sure that you see comparables in the market. You know, previous week we saw sales there for approximately 16,000 square meters, so we are very positive about the project.

Thank you for your question, Scott.

The next question is from Jonathan Konica, Goldman Sachs. Your line is open. Please go ahead.

Good morning. Thank you for taking my questions. I have four, if I may. The first one, from vacancy and vacancy reduction, can you just first of all confirm if your development projects are including the vacancy or not? And where are the main points of vacancy today in your portfolio and how you're planning to reduce those? That's the first question. The second question, can you comment on the impact from global worth acquisition on your financials and is that including your guidance? And the third question is actually third and fourth on disposals and capital recycling. Apologies if I missed it. Can you give us a few thoughts on further disposals in your portfolio in terms of volumes and also On capital recycling, you have now sold over $1 billion this year already, and share buybacks are only less than $200 million at this stage. So the question is, are you planning to distribute that capital in another form than share buybacks and be more efficient in terms of distributing proceeds back from acquisitions, or do you intend to keep most proceeds for deleveraging? Thank you.

Hi, thank you, Jonathan, for your question. So the development projects are not part of the portfolio and are not part of the vacancy. The development projects, some of them are only building right, so it's not really that you can measure the vacancy on that item. Every time a portfolio or the project is being built, then it enters into the portfolio and being calculated as part of the vacancy and all the KPIs. Our vacancies in the investment portfolio, which is presented, is allocated across all the portfolios with no specific concentration. We are working together, our teams are working day and night to work on relating, I think we presented relating and prolongation this age one much better than what we did in age one 2020. We see nice and we have nice negotiations on our books as well. We need to see how and when exactly these negotiations are going to be completed. As we said, it takes a bit more time now than before. Tenants are taking a bit more time to decide. There are also fast increases in spaces. Prolongations are now for a bit shorter than what they were before. And we will keep you updated on a quarterly basis about the development of reducing the vacancies and the relating. In terms of the impact of GlobalWolf, so what we included so far, referring to GlobalWolf in our guidance, is just a dividend that they are distributing. They are distributing 90% from their earnings, so this is what is included in the guidance. Referring to disposal volumes going forward, we have negotiations for about a billion euros of properties. Currently in the April sale, we have about 600 million that we expect to dispose in the next 12 months. There are always discussions. Let's see what actually is going to be finalized, and for sure we'll update in the next report. Referring to the disposal of the 1 billion, yeah, we so far did 200 million of buybacks out of a 500 million euro program, so there's still 300 million euros to complete. In addition to that, we are working on repayment of debts, especially bank debts, and for all the supplies that will come on top, we need to decide when the time comes, maybe we enlarge the program of the buyback, Maybe some acquisition will kick in. But we feel very comfortable that in these times we are sitting on cash and that we have very strong liquidity and waiting for additional opportunities to come. Thank you for your questions.

Thank you. There are no further questions, so I would like to come back to you.

Thank you all for your time to participate in this call and the many questions you've submitted via email and during this call. As always, we are available for further discussions and look forward to speaking to all of you in person as soon as feasible. So then, stay safe and take care.

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.