Aroundtown Sa U/Adr

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.