Aroundtown Sa Ord

Dear ladies and gentlemen, welcome to the conference call of Around Town FA. As our customers request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. If any participant has difficulties during the conference, please press star key followed by the zero on the telephone for operator assistance. May I now hand you over to Katrin Kittesen, who will lead you through this conference. Please go ahead.

Hi, thank you and good morning, everybody. Thanks for joining us for Around Town's Q1 2022 results call. You should have received our corporate news and can view this presentation on Around Town's website, either on the home section or under financial reports of the industrial relations section. As stated, my name is Katrin Petersen. I am Around Town's group head of communications. With me today are CEO Barak Bahen, CFO Eli Ben-Zarit, Chief Capital Markets Officer Oshu Masati, Executive Director Frank Rosin, Industrial Relations Timothy Wright, as well as representatives from Grand City Properties. 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. We asked you already before to send your questions through info at aroundtown.de. And please feel free to continue to send your questions via email also during this presentation. Again, the email address is info at aroundtown.de. I will now pass you over to Osteen, who will guide you through the presentation of our results. Thank you.

Thank you, Katrin. Good morning everyone and welcome to RoundTown's Q1 2022 earnings call. The first quarter of this year appeared to end with a positive push as the pandemic became less of a concern for market players and for society as a whole, probably due to higher vaccination rates and significantly lower death numbers than previously assumed. It didn't take long though until new challenges arose and the war and following supply chain disruptions and inflation overhangs added significant volatility. We all wish the war and suffering to be over soon and following to reach a stabilized and more predictable market environment. In the meantime, our team focuses on further strengthening the fundamentals of the business as we expect this year a negative macroeconomic environment before we see calmer waters again. As nominal debt yields increased across the board, we see that our continuous liability management and disposal activities in the past pay off, resulting in high current liquidity, which supports the company in these challenging times. The operational performance in the office and residential sectors continued to improve following the pickup from tenant interest we saw in the second half of last year. Hotels, on the other hand, had a difficult start into the first quarter, as the new wave of Covid infections hit most European markets and travelling subdued again. However, as most travel restrictions were lifted in March, we see a positive turnaround in the number of hotel bookings across our portfolio and reaffirm our collection expectations. So, while we are not out of the woods yet and it is likely things may get worse in the short term before they get better, we so far continue to see a stable momentum in rent activities going forward. On slide 4, we provide a summary of our financial performance highlights of Q1 this year as we continue to make every effort to stabilize or improve the fundamentals of our company. Later, we will discuss each of these numbers in more detail. The net rental income increased year-over-year by 32% to €309 million, which is mainly due to consolidation of Grand City Properties' rental income this year. As we continue to navigate carefully through uncertain times, we maintained in Q1 of this year a strong cash and liquid assets position of €2.2 billion, which has decreased over the last quarter as we repaid about €800 million of shorter-term debts. we maintained a low average cost of debt of 1.2% with nearly six-year average maturity. Ever for One resulted in 90 million euros after COVID adjustments, reflecting a 3% year-over-year improvement, but 10% on a per-share basis due to the share buyback impact. The like-for-like rental change came in at 0.9%, not including Grand City's performance yet. Moving to slide 5, you see an updated list of our signed disposals for Q1. The total balance of signed disposals is 1.1 billion euros, of which half a billion were signed last year and 600 million signed year-to-date. Of the signed deals, about 130 million euros has been closed in the first quarter at a 66% margin over total cost, with 3% margin over book value. The average disposal rent multiple came in at 27 times. 60% of closed disposals in Q1 were located in secondary locations of Hamburg, 22% in Stuttgart, 7% in Berlin, and 11% of disposals were located in non-co-locations such as airports and secondary cities in North Rhine-Westphalia. The segment split of disposals was made up of 71% of offices, and 29% retail and others. We continue to demonstrate strong disposal activities and achievements above our book values. By means of our successful asset rotations, we capitalize on significant value creations and recycle the funds into our own portfolio at a higher quality. Having kept our last share buyback program by 500 million euros in January this year, we continue to execute the buyback up to 1 billion euros by end of 2022, of which about 60% has been already executed as of last week. Let's continue to the operational results starting from slide 7. Having increased our position in Grand City over the last few years, we see in these volatile markets that the contribution of its quality residential assets located in strong metropolitan locations has a positive impact on the overall stability and diversification of the group's portfolio. As a result of our careful asset rotation strategy, by the end of Q1, our portfolio diversification remained stable quarter over quarter and we maintained the same split of 44% in offices, 30% in residential, 18% in hotels, and the remaining 8% in logistics and retail. With 92% in value, our portfolio maintains the focus on the European key markets across top tier cities of Germany, Netherlands and London. As illustrated on slide 8, we present our tenant diversity with around 3,500 commercial tenants from various industries across our properties with limited exposure to single tenants and additional 65,000 residential units from Grand City. Our tenant dependency remains low, as the rental income of our largest 10 tenants remains less than 20% of our group's total rental income. Around Home's group portfolio platform at the end of Q1 2022, including the consolidation of Grand City, amounted to 28.9 billion euros and about 1.2 billion euros net rental income run rate. The long walled is stable at 7.6 years for the group. At the end of Q1, the rental yield remained stable at 4.3%, whilst the vacancy rate of the group was 7.9%. We continue to see further rent increase potential across our asset segments, but anticipate that in the current market conditions, it might take longer to realize them. As shown on slide 9, our office assets represent the largest share of our group portfolio value with a steady 44%. We continue to be a significant office landlord amongst listed real estate companies in Berlin, Frankfurt and Munich. These three locations alone make up 56% of our office portfolio value. Additional key locations of Germany and the Netherlands, such as North Rhine-Westphalia, Amsterdam, Rotterdam, Hamburg, Dresden or Stuttgart remain our focus as shown on the pie chart. With a balanced average lease term of 4.5 years and no significant dependency on a single tenant or location, we continue to maintain a well-diversified and robust tenant structure. We also maintain a strong tenant industry base with over 45% of rent deriving from governmental, energy, IT, health and infrastructure segments, about 30% of tenants originating from the public sector. We expect to see an increased level of conversion activities of office space for alternative uses in the market over the next period, mainly for secondary office space versus prime space where demand has been resilient after the pandemic, which in turn will translate to a positive impact on office like-for-like lettings. Please now move to slide 10. Since the beginning of this year, we are all encountering several additional external challenges, such as rising debt yields, inflation, and the ongoing war in the Ukraine. Office rents in our key markets remain stable, with a slight increase in prime locations, and transaction real yields remain stable too. As you can see from the slide, Q1 2022 has been a continuation of last year's second-half positive momentum in many aspects. Nonetheless, we remain cautious for the remainder of the year, as the war in the Ukraine that yields rates and inflation creates more potential headwinds for the recovery of European real estate markets. Our strategic long-term investment in the residential sector through Grand City is reflected on slide 11. Since April, the holding rate in GCP crossed the 50% mark and today stands at an effective holding rate of 54%, excluding shares GCP holds in Treasury. We further increased our diversification to strong residential assets in the top German cities plus London that provide a strong addition to our commercial portfolio. Representing now the group's second-largest segment, with 30% of portfolio value after offices. With 77% value exposure in North Rhine-Westphalia, Berlin, Dresden, Leipzig, London, as organic growth drivers, Grand City is complementary to Aranton's top-tier investment locations and further adds to the asset class diversification and balances the portfolio between asset classes with different fundamental drivers. Additional key cities include Munich, Hamburg and Frankfurt. Green City recorded a like-for-like rental growth of 2.8% this quarter, of which 0.5% derived from occupancy increase and 2.3% from impact rent. Both achievements are not included in the results of the roundtable for this quarter, but will be included in the next periods. The recent increase in debt yields, together with cost inflation and the fact that many residential rental agreements in Germany are not linked to CPI, puts pressure on all German residential equities, which increases their discount to the NPA. On the other hand, the housing shortage and pressure on rent levels remain, and we continue to see strong demand for condominiums, which keeps high capital values for German residential assets. We are using this opportunity to carefully increase our position in GCP at a high discount to its NPA. Frank, please continue.

Thank you, Austin. On slide 12. Our hotel portfolio remains stable with over 15 years of world and 85% in value in the costar category that reflects the sweet spot between the leisure and business traveler segments. Can you hear me?

Yeah, it was not for now.

Okay. Thank you, Osha. I need to start all over again from page 12. Sorry for that. On slide 12, we summarize our hotel portfolio. These hotels are located in top tier cities across European countries, like Germany, the Netherlands, Belgium, the UK, France, and others. Many of these cities enjoy for decades already a high proportion of domestic travel demands. We aim to ensure a strong geographic diversification across multiple operators and hotel types. Our hotel portfolio remains stable with over 15 years of wealth and 85% in value in the four-star category that extracts the sweet spot between the leisure and business traveler segments. Due to the increase in residential assets and above book value hotel disposal, the share of this asset class reduced to only 80% in Q1 2022 from 24% in 2020. Please move to slide 13. As indicated in our latest earnings call, the collection rate in the first quarter of this year came in at 45%, but as most travel restrictions across Europe were lifted at the end of March, our expectation for the full year collection rate for hotels remains 60 to 70% for 2022. Looking at April's collection rate of 65%, we are on track in achieving this full year target. As for the second half of 2022, we expect close to full collection rates. Assuming, of course, that the sector will not be confronted with additional lockdowns and that the impact of the war in Ukraine will remain limited. Looking at the chart, the steep increase in booking during the summer period of the last two years shows that people want to travel and validate the investment case for quality hotels in top destinations, which is led by leisure tourism so far. On slide 14, we summarize our remaining logistics and retail portfolios. Both asset types remain non-core for us, and we aim to hold only the most assertive assets, as well as to identify development rights for further value uplift, whilst recycling the capital of mature and non-core properties of these two asset classes. Our remaining positions at the end of Q1 2022 stood at 2% in logistics and 6% retail. Their wealth was stable at 5.2 years and 4.4 years respectively. It is worth to note that the retail portfolio is over 40% exposed to essential goods operations. The top investment location for both asset classes remained the same with over 30% of the assets value in each segment. But as you can see from the pie chart, we maintain a well-geographic classification across top German cities in both segments. Barak, please continue.

Thank you, Frank. We present on slide 15 the composition of our development and building rights portfolio, which accounted for 5% of the total assets at the end of Q1 this year. Therefore, it remains not material on a group level, but provides an additional value creation driver. Our strategy remains to identify additional value on plots of existing assets we already own by obtaining sellable building permits or converting rights, as well as selective construction initiatives ourselves, where we see attractive upside at the lowest risk from the high free-let ratio. One of our latest examples of such building permit disposal I will highlight on the next slide. It is worth noting that we do not have any big running projects. and were therefore not materially exposed to the increasing material prices and wage inflation. New projects will be checked individually based on the updated pricing levels. Given the shortage in the new supply across many prime locations and increased asset values, the development portfolio still implies upside potential despite the increasing material and labor costs. Last year, a year today, we signed around $500 million of development rights for disposal above book value and continue to identify more buyers for such deals also this year. The composition of development rights is illustrated on the two pie charts. With nearly 40% of all rights values in Berlin, Gantt City also identified most development rights in its Berlin portfolio. We regard the German capital as the most attractive location in Germany for development due to its growing importance and severe shortage of offices and housing. In terms of asset-type breakdown, 43% of this segment are offices, which matches the undersupply of high-quality and green office space in several prime locations. 39% of this portfolio was identified for residential and mixed use, and the remaining 18% for hotels. The locations of our largest development drives include Berlin, Paris, Frankfurt, Munich, and Rotterdam. These five hubs together make up over 70% of this segment. In the appendix of this presentation, you can find detailed explanations of some development projects. You will find two new projects being last-mile logistics properties in an attractive logistics location in Berlin, for which we obtained free permits. On slide 16, we highlight again the disposals of development rights from last and this year so far, which includes the latest disposal of 37,000 square meters office development in Berlin, Mediaspre, that was signed but not closed during Q1 this year. The underutilized land plot in prime location of Berlin achieved 37,000 square meters of office campus development rights and was sold just one year after the building permit was obtained. realizing the value creation from identifying and obtaining the development rights. Keep in mind that this can take several years to obtain building permits as the cooperation with municipalities continues to be slow. Unfortunately, lockdowns in the past two years worsened the situation. However, we continue to see values of development lands in top locations increasing steadily, although at a more moderate pace. I'll now hand you over to Eyal to present the financial results.

Thank you, Barak. Please move to slide 18, where we present the profit and loss results for the first quarters. Our recurring net rental income resulted in 305 million euros. That's a growth of 35% year-over-year, resulting mainly from the consolidation with GCP and partially offset by disposals. As always, this figure as well as the adjusted EBITDA and SFO, we exclude the impact of the assets that are already marked for sale, despite their positive contribution. Our like-for-like net rental income, excluding hotels, amounted to 1.7% for Q1. Including the hotel segment, the like-for-like growth still amounted to 0.9% of all, of which 1.6% comes from interest rents and minus 0.7% from occupancy fees. Please note that the life-for-life calculation does not include GCP yet. We will start to include GCP in the next period. We recorded property revaluations and capital gains in the amount of 81 million euros. The portfolio was just revalued in December 2021, therefore we made only an immaterial number of valuations during Q1 this year. We will update values for the remainder of the portfolio during the course of the year. Due to the negative impact of the Omicron variant during most of Q1 this year, the rent collection for motel operators remained significantly impacted at 45%, and we booked an extraordinary provision in the net amount of 30 million euros for the first quarter of this year. For the remainder of this year, we expect a higher collection rate in the rate of 70 to 80%. Administrative and other expenses remain stable at about 14 million euros Finance expenses was up 12% year-over-year, mainly due to the consolidation of GCP. Excluding GCP, finance expenses reduced due to the proactive debt management of retained shorter-term debts with higher interest, utilizing disposal proceeds as well as issuing debts with longer maturities at lower rates. This resulted in a reduced cost of debt of 1.2% compared to 1.4% a year ago. Other financial results were negatively impacted by the expectation for increased interest rates and inflation over our derivatives. Current taxes were up to 30 million, mainly due to the GCP consolidation. The fair taxes amounted to 12 million euros in Q1, were comprised mainly of the fair taxes expenses related to revaluation gains. As a result, the net profit from Q1 2032 amounted to 125 million euros, generating 6 cents per share On slide 19, we show the adjusted EBITDA before the contribution from joint ventures, which increased year-over-year by 30%, from €119 million to €247 million in Q1, as a result of the consolidation of GCP. The adjusted EBITDA calculation is already after excluding €3 million net contributions of asset sales for sales, and therefore referring only to the recurring long-term portfolios. Positive contributions derived again from our proportional holding in global worth for the first quarter of 2022 and other JV investments, which contributed 12 million euros in total. Looking at our transform operation on slide 20, we recorded in Q1 an FFO1 of 89 million euros, or 8 cents per share. Therefore, meeting our full year guidance expectation. Year over year, this reflects slight increase on an absolute level. All the positive effects can be seen from our share buyback programs as they increase our FFO 1-ter share by nearly 10% year-over-year, whereas on an absolute basis, the FFO increased 3% only. The FFO 1-ter share before COVID adjustment increased to 10.6 cents. This gives again a solid indication of the potential we can achieve when rents will recover. As a comparison, the FFO 1-ter share in Q1 2020 So, prior to the outbreak of the pandemic, was 9.8 cents, and in Q1 2019, it was 9.5 cents. Here you can clearly see that we are continuously creating long-term shareholder value, also during the recent challenging times. Let me remind you that the consolidation of GCP has no effect on the SFO result, as we continue to apply the relative share in GCP as we did before. But now, we deduct the minority, whereas before, adding only our share in GCPs FFO. The total profit over quote from disposals in Q1 amounted to €54 million, as a result from the successful completed disposals of €130 million, which was less than in a comparable quarter, as disclosed a lower amount of disposals, while this year so far, we signed more disposals compared to the same period last time. The FFO2, therefore, decreased to 143 million euros from 233 million euros year over year. On slide 21, we provide an overview of the development of the EFRA NTA and energy metrics. Year over year, the total EFRA NTA decreased slightly by 1% to 11.4 billion due to our share buyback, which in turn led to a growth of 1% on a per share basis to 10.3 euros. Oshri, please continue to conclude the final part of the presentation.

Thank you, Eyal. We continue our strategy of maintaining a defensive capital structure. Slide 22 highlights the importance we have been placing into our debt maturity profile, as we have no major debt expires coming up until the beginning of 2025 and strong liquidity. In Q1-22, the LTD was 40%. We still maintain sufficient headroom to all our covenants and our internal board of directors' LTD limit of 45%. Furthermore, as a result from our active viability management efforts, we maintain our lowest level of average cost of debt at 1.2% with an average maturity of 5.7 years and an enhanced interest cover ratio of 5.3 times. We also increased again the ratio of our unencumbered assets to 85%, representing nearly 24 billion euros of the portfolio value, which provide additional sources of capital as we see bank financing becoming more attractive again compared to bond debt yields in capital markets. Our strong fundamentals and conservative financial ratios continue to be the basis for our group strategy and they have proven to be essential during times of the ongoing market volatility. Finally, on slide 24, we reiterate our full year 2022 guidance. We expect the FFO1 to be in the range of 350 to 375 million euros, and FFO1 per share to be in the range of 31 to 34 cents, up from 30 cents in 2021. which is also supported by the equity share buyback programs executed. Our expected dividends per share for 2022 should be in the range of 23 to 25 cents, based on a 75% dividend payout ratio. With that, I will conclude our Q1 2022 presentation and hand you now over to Katrin, who will lead the Q&A session.

Thank you. So before we invite you to direct telephone questions live, we will now answer questions that we have received by email prior or during this call. For simplicity reasons, we have taken liberty to group similar questions in order to answer as many questions as possible. We will begin now, and I will start with the first question, which goes to Ashley, please. To what extent is your business impacted by inflation and the supply chain disruptions? What indexation impact do you expect in 2022? To what extent are you able to pass on the increased costs to your tenants?

The biggest price drivers of the elevated inflation rate are oil, gas, personal and raw materials. We expect a certain degree of such increased costs to impact our operations. We do see higher personal costs across our operations, but the energy costs are mainly part of the ancillary expenses which are passed on to our tenants. The impact of higher prices for raw materials is relatively low due to our low activity of full-scale new developments. Running projects will be impacted by such increase, but not materially, since we primarily have contracts in place with subcontractors and suppliers, and many of them with fixed costs. However, low availability of supplies and manpower are expected to cause a certain delay in ongoing and future capex. For tenant fit-out or regular capex, we do see an increase of around 10%, which does have a certain impact but not significant to our overall performance. the impact of higher costs are partially offset by higher revenues. On the top line, we have partial CPI protection, mainly in commercial leases, which are partially CPI linked or include a step-up rent clause. German residential rent increases, on the other hand, are regulated at up to 20% within a three-year period and up to 11% in tense markets. Note that for CPI index leases there is a time lag between the actual increase in CPI until it is translated into increase in rental income. The CPI linked indexation takes place once a year or once the threshold of CPI increases are reached within a timeframe and many leases are adjusted in the end of the year. So we expect to see most of the impact on our income statement for 2023. In Q1, we recorded an increase in rent due to inflation in the amount of 8 million euros, which were the key contributor to our positive like-for-like results.

The next question goes to EIP. You have been going up on expectation of increasing interest rates. How does this impact your business and your future liquidity needs? How do you think it will impact your valuations?

We are prepared to withstand higher rates for a few years from our debt side, as we have a conservative and defensive debt profile. We have a long average debt maturity of 5.7 years, with no material debt maturity until 2025, and the maturity of our debt is interest-free, so we don't expect a material impact until then. We have completed our largest single bond issuance in December 2021 of $1.25 billion at a long coupon of 0.4%, maturing in 2027. This enables us to increase our liquidity and to buy the shorter debt and optimize our debt schedule, and thus reducing our dependency on the capital markets in the upcoming period. We continue to have large amounts of liquidity. As of March, our current cash and liquid assets is 2.2 billion euros, which is up to the same 0.8 billion euros of shorter-term debt in the first quarter. We further have annual revolving credit lines of close to 1 billion euros at very attractive prices to bridge any surprise and cash needs. Also please note that we have utilized proceeds from our fund disposal activity in the recent years to pay down debt as well. We further have additional 350 million euros of vendor loans to collect and additional proceeds of about a billion euros signed deals but not closed yet. In addition, We have a high amount of unencumbered assets, with 24 billion euros, which provide an additional source of potential liquidity, and new financing through secure debt is currently providing more terrible rates than the bond market. The fact that we have a very large unencumbered portfolio, and that we have maintained strong relationships with dozens of financing institutions in the last two years, and therefore in the last two decades, provides us with strong financial flexibility. Referring the impact on valuations, as long as demand for real estate is strong and long-term real interest will not continue to increase, we do not expect a material impact on property valuations as these are based on long-term 10-year VCFs based on expected real yields. To have an adverse effect, real interest rates need to be elevated long-term, which is not the current situation. Real interest rates are actually negative due to the expected inflation, which is higher than the interest rates. However, due to the strong volatility and fast changes in the market conditions, it is too early to determine the impact. Regarding the transaction market, we keep selling around at the book value. In terms of supply, current inflation in construction materials combined with higher interest rates will reduce the new supply and thus support values and rents of currently existing stocks. Demand mainly for residential is increasing due to the income of refugees from Ukraine as well. So as said before, it is hard to estimate the final outcome of the mid-effects and we can continually evaluate the market trends.

Can you please provide details on your revaluation gains and what do you expect going forward?

We only had a very minor amount of portfolio revalued, as we just had the entire portfolio revalued for the full year 2021 financials. We thus only recorded revaluation gains in the amount of 81 million euros. As just explained, it is too early to estimate the impact of the recent macroeconomic developments on future valuations. For the next period, we stay cautious and don't assume to see any increase in valuations as our basis.

The next question is for Frank, please. We understand that Q1 hotel performance was still affected by the corona pandemic. However, we see and hear that the hotel sector is recovering and some even report numbers close to 2019. How do you expect your hotels to perform going forward?

We collected around 45% of our hotel rent. in Q1 2022, which has been improving after all restrictions have been lifted in March this year. Going forward, we expect leisure hotels to benefit from elevated demand during the summer period, as we have seen in the past two pandemic years. Leisure is expected to perform very well, but this is not the case yet with the city hotels that also cater business travel and miles. In some markets, leisure demand is back to 2019 level, but the profitability is adversely impacted by the higher cost in utilities and employee costs. Furthermore, the operations remain impacted due to the shortage in staff and the supply chain disruptions. Most of the hotels have not been able to translate the higher cost into higher rates yet. Mice demand has only recently started to pick up again after a long break during the pandemic. While prior to the pandemic crisis, mice bookings were long, were done long in advance, alternative to our experienced short-term bookings for meetings and conferences. Individual business travel, such as day trips on the other hand, is still lagging, as well as international travel from the US and Asia. For example, China is partially still under hard lockdowns. For the remaining three quarters of 2022, we expect to see collection rate mostly in the range of 70-80%, which translates to a collection rate of 60% to 70% for the entire 2022. Currently, assuming no further negative surprises, we expect 2023 to show an additional improvement and nearly fully recovery in 2024. We are monitoring the market closely and we will update you about these forecasts in the next periods. Please note that the overall negative impact compared to previous years is further reduced as we have a smaller hotel portfolio after several disposals and in relation to our total portfolio after the consolidation of GCP's residential portfolio.

The next question is for Barak, please. Can you provide an update on the office market and your letting activities in Q1?

In Q1, we saw the positive momentum continued with all COVID restrictions and the home office requirement fully lifted. We have signed and prolonged in Q1 100,000 square meters at an in-place rent of 14.4 euros per square meter and a vault of 4.9 years. However, there are several external factors looming with a potentially negative impact on the overall economy and the demand for office space and real estate in general. The Ukraine war following the COVID crisis has further disrupted supply chains and economy recovery as well as adding another level of uncertainty to the future. As a result, elevated inflation rates do not seem to be a short term anymore, and together with the expectation for higher interest rates resulted in increased bond yields. So far, this factor has not affected the office market adversely, but with the situation intensifying, we are looking cautiously into a volatile future. On the positive side, these countries have the strongest economies in Europe, Both Germany and the Netherlands have a strong workforce with low unemployment rates and low debt-to-GDP ratios and should thus withstand an economic slowdown relatively better. In the past three years, we have significantly improved the portfolio through non-core disposals and are thus more focused on top cities, which we expect to support our office portfolio in a volatile market. This is also reflected in a positive 1.8% like-for-like result in the office Vector recorded in Q1.

The next question is for Oshri. Are you directly or indirectly impacted by the war in Ukraine or Russia?

We do not have any direct exposure to these countries nor Russian tenants or investments in Russia or Ukraine. Indirectly, we are impacted as the rest of Europe is through supply chain disruptions, increased prices for energy. None of these sectors are impacting our business or activity significantly so far, but it is too early to assess how and when we will feel it. It is still too early to assess the overall long-term impact, but such times also create opportunities for strong deal market players with ample liquidity like us.

You recently further increased your stake in GCP to over 50%. What is your strategy here, and do you plan to increase your stake in GCP further? Since residential leases don't provide a contractual inflation protection, how will the increased inflation impact the residential operation?

Yes, we believe in a strong diversification with a focus on top asset prices and top locations in order to benefit from various lady drivers. We have increased our stake in GCP over the past year as we believe in GCP's portfolio and management and managed to do it at a steep discount to its NAD. A larger stake for us strengthens a more balanced diversification in relation to offices, which make up 44% of our portfolio, and hotels, which make up 18%. Residential properties now make up the second largest part of our portfolio with 30%, and thus exposes our business to strong and stable cash flow generation. Residential rents in Germany are regulated at 11% to 20% within the three-year period. In the short term, elevated inflation might have a higher adverse impact, but in the long run, also residential rents are correlated to inflation rates through the Miet Spiegel. Please note that around 20% of GCP's portfolio is located in London, where rents are not regulated with usually shorter-term leases, which enables us to capture the inflation impact faster. The residential real estate market in Germany's metropolitans and London is characterized by strong fundamentals, which will drive operations further in the long run, and especially GCP's current discount to its NTA provides a strong incentive for us to continue increasing our stakes.

The next question is for Barak. Can you please elaborate on your life-for-life performance as well as your expectations going forward?

Our life-for-life for the last 12 months was 0.9%, of which 1.6% from in-place rent, mainly due to indexation, and minus 0.7% from occupancy. We expect an additional impact from the CPI increase to be in the next quarter and some in 2023 as some contracts are indexed at the year-end. Please note that the like-for-like does not include GCP yet, which generated 2.8%. The like-for-like was mainly impacted by the office portfolio with 1.8%, driven by in-place rent growth and indexation. Indexation had a positive impact across our portfolio. Therefore, we have seen in-place growth across our portfolio. Going forward, we believe to continue seeing solid performances in the residential markets. For office properties, we expect the indexation to drive in-place rent growth. However, we cannot estimate the impact of the indexation, as it depends on the future CPI growth. So far, and until we have a clearer view on the full impact of the volatile market, we conservatively continue to assume a neutral life-for-life performance for the 2022 guidance.

The following question goes to Frank, please. What is your strategy for upgrading your properties to greener standards? Would you consider demolishing buildings with high CO2 consumption instead of refurbishing?

We are evaluating the grants and subsidies provided by the government, and we are building an investment plan which will reduce the emissions in our properties while balancing the economic consideration of these investments. We believe that these investments also entail an opportunity to increase the quality of the portfolio. We are also looking at renewable energy investments that will allow us to offset carbon emissions from our properties and to achieve our 2030 goal of 40% carbon reduction. Apart from the energy investment program, we do not expect to carry out large investments in 2022, but on the other hand, we do expect to see a larger amount of investments in the following year. On top of the above, and as part of our Going CapEx programs, we improve the environmental footprint through insulation, heating system, etc. Additionally, we install and continue to develop green energy producing and storage systems, such as solar panels, CHP and CCHP, electric vehicle charging stations, replacing inefficient push-of-fuel heating systems, as well as switching to energy providers who provide climate and natural energy. We are also engaging with tenants for more cautious energy consumption, water and waste usage and energy saving methods. We expect more efficient properties to provide a competitive advantage as lower energy usage reduces ancillary costs for tenants and those overall rental expenses. This also attracts tenants that either require to or focus on reducing their carbon footprint, which in turn will result in higher rents and those cover the CAPEX investments. Regarding demolitions, we did not consider these options at this stage, as new construction is very energy intense, and those create a lot of CO2 emissions, which mainly cannot be provided green yet, such as steel or cement production. Although it is difficult to get exact figures, we understand that it is environmentally beneficial to repair these existing buildings, as 70% of the carbon emissions during the asset life cycle out of the construction phase.

The following question is for Afrin. Will you continue with your disposal activities and do you see any acquisition opportunities in the market? What are you planning to do with the disposal proceeds?

Yes, we expect to continue our disposal activities. Our health for sale portfolio amounts to 1.3 billion euros as of March 22. of which over 70% has been signed as of the reporting date. We plan to utilize the disposal proceeds for debt repayment, our ongoing share buyback, as well as increase our liquidity as a preparation for acquisition opportunities. In Q1, we repaid 800 million euros of debt and executed around 140 million euros of our share buyback program, which remains ongoing until the end of this year. Currently, we do not see significant acquisition opportunities which fit our acquisition criteria as the transaction market remains competitive. We are well prepared to capture attractive opportunities if and when they arise, but currently have a very limited pipeline.

The next question is for Timothy. Is there any update you can share on your development project? Would you consider reducing your development activity with the recent increased costs of construction?

So you can find a detailed overview of our development projects in the appendix of our presentation that we published this morning. We included two additional projects for which we received pre-permits, which are LASMA Logistics and Berlin Tempelhof, next to the City Highway, which is the top location for LASMA Logistics. We identified unutilized space on the plot of these two existing logistic assets. The demand for LASMA logistics in central locations is high, and we will consider to develop ourselves with a high pre-leg ratio or potentially sell the rights. We only have a few projects for which we currently execute the conversion or development, as our strategy is to identify building or conversion rights for our existing assets, obtain permits, and may need sell or, on a selected basis, would consider to develop ourselves in top locations with a high demand. For example, we just sold the 37,000 square meter office project in Berlin, for which we received the building permit a year ago, in addition to the two projects in Berlin and one in Dresden, which we sold last year. Since our own development projects are limited, we don't expect to delay those which started and continue to evaluate the ones in the pipeline.

Another question for Elias. In case you continue with the disposal activity, would you consider increasing the buyback volume or, alternatively, paying out a special dividend?

We have an active and ongoing share buyback program until end of the year, of which, year to date, 60% have been executed. As long as the program is running, we don't see any reason to increase the volume further, and we'll consider our next steps after the current program ends. We believe share buyback rates lower shareholder value, than a special dividend, as well as fair share KPIs that improve long-term, including the ongoing dividend, which is based on our payout policy of 75% of the FFO per share, whereas a special dividend creates only short-term shareholders. In case we continue disposing properties, we will utilize the funds for the current planning program, as well as debt repayments, which further reduces finance expenses and thus creates higher FFO long-term and consequently higher short return.

You have first call date for two perpetuals coming next January, one for GCP, one for around town. What is your strategy here?

Recently yields have been increased, which is the market reaction to recent macro developments. The first call date we have is in January 2023. for a €369 million perpetual note in a round town, which is the remaining of a €600 million series we have already partially refinanced, and additional €200 million in quantity. Our toolbox to exercise our option to call the notes includes refinancing with a new hybrid issuance, which will make sense only if rates are reasonable, cash repayments using our authorized repayment allowance according to S&P methodology, partial replacement with an equity content instrument, or a combination of both alternatives. Part of our conservative financial policy is to proactively manage our financial structure. We remain committed to maintain hybrids in our capital structure and clearly see the benefits of perpetual nodes, which is an offensive instrument. Perpetual notes are fully subordinated equity instruments without any maturity date, no default price or covenants, and it should become more clear in the current situation that these instruments provide a safety question in the same way as equity and notex.

Which amount of disposals and provisions for uncollected rent are incorporated into your guidance?

The guidance incorporates our expectation of a hotel collection rate of 60% to 70% for the full year, which includes the Q1 collection rate of around 45%. Further, we incorporated disposals in the amount of 1.3 billion euros, which is the health hotel portfolio, of which over 70% are already signed. As already mentioned, due to the prevailing uncertainties, we conservatively assume neutralized for life performance.

Do you need to permanently lower your rents in itself if all you can do is 70% to 80% of rent collection currently? By how much?

The collection rate is linked to the contractual amount and we expect to reach full collection on that base in 2024, or maybe even earlier. It's important to mention that the demand recovery has been asymmetric. Whereas leisure travel recovered strongly, demand for business and international travel remains subdued, which has drained all the collection rates. We have a diversified hotel portfolio with a focus on the four star hotels, which cater both leisure as well as business travelers, which we still need more time for the business travel to fully resume.

Is 10% vacancy in office a stable structural leverage? or do you have a pipeline of deals leading you to think you can reduce this vacancy in the near term?

The structural vacancy in our locations is at a level of 3%, and in some cases even lower. The letting performance in recent periods was impacted by COVID restrictions and all of its requirements. However, in Q1, we saw the positive momentum continue, with all COVID restrictions and all office requirements fully lifted. We have signed and prolonged in Q1 100,000 square meters and a sizable pipeline, but see the external macro factors, potentially negative impacts on the overall economy and the demand for office space and real estate in general, which would postpone our ability to reach the office structural vacancies.

In view of where your bonds are trading, especially the hybrids at a deep discount to par, some in the 70s, wouldn't it make more sense to buy back your bonds rather than your share?

In the recent period, and also in Q1 2022, we have bought back debt, both bonds and bank debt, and accordingly have a clear maturity schedule in the upcoming years. We would consider to buy back longer debt on the back of further disposals, classically managing audit maturity, which could also create equity and increase the household.

Okay, thank you. So those were the questions we received so far, and we can now start the open session for your questions. We appreciate if you can ask all your questions together at once, and we will answer them accordingly.

Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for all speakers, please dial 0 and 1 on the 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's your turn to speak, you can dial 0 and 2 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. We have a first question. It's from Rob Jones of VMPB Exxon. The line is now open for you.

Yes, good morning, everybody. I've got a few questions. There's a pretty monster set of questions ahead of mine, but hopefully we don't have any overlap. So firstly, I've got four or five from my side of apologies. Number one, what's your marginal cost of debt today versus 12 months ago? Have you seen that go up by 100 basis points plus? Second question is, last summer, hotel occupancy got close to pre-pandemic levels or at pre-pandemic levels, but obviously rent collections didn't. If we see occupancy recover today, I guess the expectation is you still don't expect rent collections to recover. If that's the case, how do we get to 100% rent collections? Thirdly, in terms of ongoing discussions with your tenants, can you give us a bit of background in terms of how those discussions are going? Are you getting longer lease duration as a result of writing off debts in relation to time during the pandemic when they didn't pay their rent? What's the kind of general message? Another one was on the kind of course rent sections for hotels. So I think the commentary was... close to full collection for H2. Now, when I do the numbers, if I assume 65% for Q2, that implies only 75% for H2 to get a blended average of 65 for the full year, which is what you've guided to, so it's 75. So, you know, is that 75% for Q3, Q4 your view in terms of close to full collection? And if not, then statistically what you're saying is Q2 is going to be basically worth in Q1 to get to the same 90% for Q2, Q4. So a bit of colour around that would be good. And then final two questions, one on disposals. So profit during the period of 54 million, obviously completed deals 1.30. I don't understand. Is the 54 the profit on the 1.30, i.e. the cost of 1.30 is 76, or is the 54 million the profit on deals that are signed but not yet completed, i.e. either the 1.1 or the 0.6 billion. And then finally, obviously, a discount to NTA is now very wise, 55% plus. Do you need a change of strategy to close this discount, or is it just a matter of time? And the reason why I ask that question is because, you know, you expect to see, and I'm sure you do too, an improvement in rent collection over the next 12, 18 months. But, of course, the market already prices in at rate of rent collection improvement. So you either need to beat that to see share funds re-rating or some other element of your structure needs to dissuade the market that you do have to trade with a tax discounted book value. So maybe a bit of kind of open discussion around that would be helpful. Thank you very much.

I hope I got all your questions, because you really shoot many of them in fact. I will try to answer all of them. First question was about if we see increase in the marginal cost of debt versus last month. So, our costs are predominantly fixed, so we didn't see specific increases in our cost of debt compared to last month. We didn't issue any new debt or raise any debt. So, at the moment, we see it's stable. Nevertheless, clearly, if we now go to the market and issue additional debt, it will impact the overall cost of debt. The second question refers to hotel occupancy and hotel recovery versus the pre-pandemic level. So, as we answered before, leisure hotels already reached to the level of the pandemic level. Not all of them reached to the same profitability, but due to inflation in cost in terms of employment and in terms of materials, but we see a strong recovery in the leisure. In the city itself, in MICE, we see that it's a bit in the left behind. We see the recovery started in April, That's why we saw also the collection rate improved. And we also see bookings. Now Mike started to book even in a shorter notice than before. Before it was a year ahead, now it's a few months ahead. So also this business is picking up. It's partly already included in our estimation of the overall collection of 60% to 70%. But if we see a stronger recovery than we estimated, we will for sure update the collections in the next period. But at the moment, we estimate the 60 to 70%. Referring to the long lease duration of the hotels, so some of them already, we agreed on a smaller reduction in leases in return to increase of additional periods. That's why specifically in the hotels, we saw a small negative light for life in the rent. Your second question was about the hotel connections and about additional recovery. So what we see as a collection rate for average of Q2 to Q4 is 70 to 80%. If you calculate 70 to 80% and put in together the 45% of Q1, you get to a range of 60 to 70% that we guide for the full year. of 2022. We really hope it will get better and the recovery will be stronger. We'll be much more than happy to announce on a stronger collection. It's already a bit stronger than what we thought, but still in the range that we got. So, Q2 until Q4, the average we see 70-80%. Q2 looks better than Q1, so not the opposite of you as you thought. And we'll guide in the next post, how the development is. Your two questions refer to disposals, so the 54 million disposal profit refers only to the 113 million closed deals, not to the 1.1 overall total signed disposal, so from the 1.1 billion, 130 were closed, 1 billion will be closed after Q1, And we will guide about the disposal profit there when the closing will take place. And I have one last question in relation to the discount to the NTA. The business itself is stable. We work a lot on the offices. We see a positive light for light in the offices, as we mentioned. Also, the residential business is good, also the logistics and the retail is good. The hotel, we see a recovery, and we see that we are in our guidance. So, in terms of the discount to NTA, I assume it's many, many parameters that are influenced in our equities. I cannot, let's say, mention all of them. I assume some I know, or some I think that can matter, but I assume it's all macroeconomic environment that is negative and issues equities down. Thank you for your question.

The next question is by Alice Acton of First Berlin. The line is now open for you.

Yes, good morning and thanks for the detailed presentation. Just one quick follow-up. On your 1.7 like for like excluding hotels, if you could kindly break that down in terms of in-place rent and occupancy, please.

That's it. So the in-place rent was positive 2.8%, and the occupancy like for like was minus 0.9%. Thank you.

The next question is by Manuel Martin of AutoBHF. The line is now open for you.

Hello. Thanks for taking my questions, Daniel. I have three questions. One question is regarding the LTV, which has apparently increased to around 40% as far as I could see. Maybe you could elaborate a bit on that. What are your plans on the LTV? Are you going to increase the LTV further? Or, well, maybe you could give some color on that, please. The second question would be on the valuation gains in the first quarter. Maybe you could give us a split in terms of asset classes in euro, where the valuation gains come from. Third question, it's a bit about the hotel portfolio. Maybe you could give us a flavor on how much... rent usually comes from leisure and how much rent usually comes from the business hotel when it's running on full capacities. Thank you.

Thank you, Manuel. Referring to the LTV, which now stands at 40%, we have a board limit that we see of below 45%. And as part of our financial policy, we see it as the headroom that management can work. The LTV was influenced mainly at the beginning from the consolidation with GCP. We really evaluate where we are in our actions based on keeping our LTVs in this range. Referring to valuation gains, it was mainly from offices. We really did selective valuations only in portfolio or properties that had some capex investments during the quarter. It was really a small portion. The majority was in the small part, or actually half was about in the office and half came from the residential portfolio, from the valuations of GCP that also there. the valuation volume was lower in Q1. Referring to the hotels, about 50%, slightly below 50% coming from leisure, and the rest is coming from city hotels that are also attracting leisure, but are also depending in the weekdays on business travelers and corporates that this sector didn't recover an influence in our overall collection rate in the hotels. Thank you.

The next question is by Paul May of Barclays. The line is now open for you.

Hi, everyone. Thanks for taking the call. Thanks for the presentation. I hope you'll be quick. We've had a number of questions, but I think basically the main one that most people are asking is around capital allocation and your thought processes there. I appreciate you've got limited debt and hybrids over the next couple of years, but it's quite a material maturity profile over the next five years when you bring everything together. and about 8.5 billion, I think, just around town, excluding Grand City. There's been more if we include Grand City as well. Costs have increased there quite materially year-to-date. Inflation looks to be cost-driven, so likely to be here for some time, so likely financing costs remain elevated for a period of time. I was wondering what your thought process is. Real estate is not a let's plan for the next 12 months. It's a let's plan for the long term. So over the next five years, what are your thoughts around capital allocation and kind of where do you see the business? I think also linking in earlier comments around cautious outlook for the future of offices. I think that was mentioned on one of the questions you answered as well. So I just wondered where you kind of see around town over the next five years, what do you want it to be and where do you see that capital being allocated? Thank you.

It's a very general question. Let's say the market is changing fast and as you we learn every day about new things or new macroeconomic impacts or events that are influencing our decision making. I think that we are for decades speak to our financing and strategic criterias. We see the debt repayment going forward, we see the increase of the bond yield going up. We don't have any material maturity in the next three years. We have the answers that we mentioned how we are considering to assess them. We continue to dispose properties above book values that shows that the The sector itself is still there. There is demand. Our offices behave now with a positive like-for-like. Inflation is contributing to the like-for-like and going into our revenues. We started only immaterially from post-inflation in our cost structure. Overall, we continue to do what we do in terms of the business. We work on the recovery of the hotels. And as we see, we do see improvement in the collection coming in more in 2023. But that will also improve our ratio. And we continue to analyze our capital structure going forward as we evaluate the events and see the results. Thank you.

The next question is by Yiraj Kumar, also of Barclays. The line is now open for you.

Thanks for taking my question. So as I understand, there is around 1 billion hybrids for the Round Town and 0.5 billion for Grand City coming up for first call in 2023. Is prepaid via cash or disposals? Generally speaking, credit agencies no longer give 50% equity treatment to all the remaining hybrids. So is it fair to assume that part of these hybrids can be extended if the current market situation persists? And how do you think this will impact your S&P rating because they don't give equity treatment to any of the hybrids which is extended? And the second question is, can we expect the reporting of APRA LTV from around town going forward? Thank you.

Thanks, Kumar, for your question. I must admit I understood the majority. I would say about the hybrids, we are looking very closely on the 2023 hybrids of both. As we already answered, the toolbox that we have is one, if market improves partially or fully refinanced, partially can be done in a simple cash repayment. For the 2023, we have sufficient, the way we see it, sufficient allowance for the majority of them. If we also have the ability to replace part of them with another equity content info instrument that also brings the ability to deal with the 2023. So we are still ahead. The first one, we have only about 500 and something million in January. The remaining is in July, which is more than a year ahead. We saw what happened in the last five months in the market. So many things can change for each direction. And we continue to monitor and update you about our decisions along the way. A lot of LTV, so the first time to announce it or to report it is in the end of the year and we will for sure take it into consideration. We can just say that what we see as the most important LTV is actually the IFRS ones plus the LTVs in our bonds which are where we have the material headroom, the LTV in the bonds is about 60% where, according to that definition, we are at the low 40s or in the level of 35, so this is a significant angle on our LTVs of the bond. Thank you very much.

The next question is by Clark MacPearson. The line is now open for you.

Hi, good morning. Thanks for hosting the call. Just to follow up on the previous question, regarding extension risk on the hybrids, is extension beyond the next call a possibility that you would consider? And if you were to choose to repay the bonds Without another hybrid or equity-like instrument, have you actually engaged with S&P already to see how this would potentially impact the equity content of the outstanding hybrids that would remain? A couple of other questions. On the funding strategy for Bronze City, could we expect any changes in that going forward? Would you continue to fund out of that entity? And one last question, in terms of the current market situation and say developments at Adler Group for example, do you see any potential large acquisition opportunities that you could potentially consider over the next 12 months?

We almost didn't tell you. About hybrids. Extension is part of the key. Basically, the duration of the perpetual is unlimited and we have the call or the option to call at the first call date. For sure, a decision if to extend or not is subject to the yield. and the market situation, and our liquidity, and our capital allocation. So, it's not something that I can guide now, overall, the full 1 billion that we have next year, we still didn't decide, we still have time to think about this, and to evaluate. We are in discussions with S&P, and in general, so continuously, not only specifically about that, even if If we decide not to call a hybrid, the remaining hybrids will continue to enjoy the 50% S&T content credit. Didn't really understand your questions about GCP, but if it was about our stake in GCP, so as long as we see GCP in a steep discount, we really believe in the residential market. We want to have additional diversification into the residential. There is a strong demand that we don't see stopping for a residential over-the-court GCP portfolio, so we will continue slowly increasing our positions there. Referring to acquisitions opportunities, we are always there with sufficient funding in order to make acquisitions if the prices fit to our acquisition criteria. In the last few years, we didn't see it happening in a massive way, so that's why we didn't take that chance and actually sold, but if we will see acquisition opportunities coming, we will for sure take them.

All right, so there are no more questions here. Thank you, everyone, for giving us your questions and for participating, for your time participating in this call and the questions you have submitted. And we look forward to meeting many of you in person again over the coming months and remain available for more detailed questions and discussions with each of you in the meantime. Thank you very much and have a good day. Bye-bye.

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