Aroundtown Sa U/Adr

Ladies and gentlemen, welcome to the conference call of Around Town FA. 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 Starkey, Holiday Zero on your telephone for operator assistance. May I now hand you over to Mr. Viladis, Head of Sustainability, who will lead you through this conference. Please go ahead.

Thank you. Good morning, everybody. Thank you for joining us for Around Town's third quarter 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 Lagis, Around Town's head of sustainability. With me today will be CEO Barak Bahen, CFO Ilario Ben-David, Chief Capital Markets Officer Oshri Masachi, executive board member Frank Rosen, and representative 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. 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 Audrey Masacci. who will start presenting our results.

Thank you very much, Sylvie, and good morning, everyone, and welcome to our third quarter 2021 earnings call for Ransom. We all experienced a mixed first nine months this year. The first half of the year was dominated by lengthy lockdown periods and travel restrictions across our markets. Since mid-June, however, most markets lifted their lockdowns and the pent-up demand from prospective tenants Travelers and investors gained momentum during the course of the third quarter. While some asset classes and markets benefited from the ending of lockdowns more than others, we saw in general a positive trend across our asset classes and regions. Once again, the diversification in attractive asset classes in top locations has served us well as a protection during the entire COVID-19 pandemic so far. This leads me to slide 4, where we want to highlight some key strengths Aroundthon has gained over the years. In the last two years, we achieved significant growth through acquisitions, the merger with GRG, strategic disposals to improve our portfolio quality, the consolidation of GCP, and the joint venture control stake in Global World. Aroundthon is the third largest real estate company in Europe with an asset base of 39 billion euros. Our top tier locations, together with a diversified investment in the most attractive asset classes with 45% offices and 28% residential, have allowed us to benefit from market improvements. The increased economies of scale and well-timed capital recycling of non-core assets led to a further strengthening of our fundamentals, even in times of the pandemic. Successful tender of a for global worth has given us a joint controlling stake of 61% together with our JV partner CPI. Together we explore synergy and variation potential, which we expect to start crystallizing towards the end of the year. In the meantime, we are finalizing the delisting of TLG, which further reduces ongoing costs in the long run, whilst we are continuing with the integration of its high-quality portfolio. At the same time, we introduced several projects to improve sustainability in our portfolio. We put a strong focus on increasing our share in green building certification, and we have introduced an energy investment program. This is not a sprint, but a milestone, and we are implementing our strategy to capture future value creation from a higher quality portfolio, which will attract more ESG-sensitive tenants. On slide 5, we provide a glance of our business and financial performance highlights of the first nine months. Grand City Properties has been consolidated in around one financial since July this year, which is reflected in those figures. The net rental income increased slightly to 773 million euros. Our FFO1 before COVID adjustment amounts to 367 million euros. After the impact of the extraordinary provision, we put in place for this year our FFO1 amounted to 267 million euros. The ongoing share buyback offset the decrease which resulted in an FFO1 per share of 23 cents per share, up 5% year over year and in line with our 2021 guidance. We will provide a breakdown of the different FFO metrics later in the presentation. The like-for-like net rental income excluding hotels resulted in a 1.2% growth for the first nine months, and including the like-for-like effect of our hotels amounted to a 0.6% growth. Note, please, that the like-for-like numbers exclude Grand City properties, which will be included in the next periods. The LCB slightly grew last quarter through 39%, mainly due to the accounting impact of the consolidation of Grand City properties, but remains well below our internal Board of Directors long-term limit of 45%. Again, at the end of Q3, we maintained a strong cash and liquid asset position of 3.3 billion euros, whilst repaying 1.6 billion euros of shorter and more expensive debt over the course of the year. Thus, our cost of debt decreased to our historic lowest of 1.3%, while maintaining our long average debt maturity of close to 6 years. Moving to slide 7, we see that the contribution of residential assets located in top locations has a positive impact on the overall portfolio of the group. leading to a reduced vacancy of 7.7% and the annualized rent increased to 1.2 billion euros on a full consolidation or 8.2% vacancy and 993 million euros annualized rent on a relative consolidation. As a result of the consolidation with GCP and our disposal activity, our portfolio diversification has become more balanced as the residential asset type stands now at 28% whilst offices remain nearly half of the portfolio value, and the hotel portfolio reduced to 18% from 24% last June. In the past, we presented the portfolio with our relative position in the residential portfolio, but with the consolidation taking place, the residential portfolio becomes visible with the around-the-world portfolio and reports. The consolidation with GCP has further enhanced our competitive strengths, of a diversified investment strategy into the top European asset classes and locations that we break down on this slide. These elements of diversification protect us to some degree in volatile times linked to microeconomic 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 slide 8, we highlight the growth of our investment platform from December 2019 to September this year. Over the last two years, the scale of investment properties grew over that period by 60%, from €18.1 billion to €29 billion, which includes the merger with TLG and subsequent disposals, which improved the portfolio quality as did the consolidation of GCP. Excluding the consolidation impact of Grand City, the investment properties increased by 11% and the higher portfolio quality becomes evident in the increase in value per square meter over time, which increased by 15% since December 2019, notwithstanding the pandemic period. Yes, we maintained our defensive leverage level and conservatively funded our growth through disposals and low-cost debts. Our portfolio is continuously revaluated by external valuers at least once per year, and our disposals above book value, which I will elaborate in more detail shortly, validate these conservative valuations. Both around town and Grand City are in continuous negotiations for further asset acquisitions, but we remain disciplined and patient to close deals on accretive investments once they arise. As can be seen on slide 9, since December 2019 we report a larger portfolio allocation in our core asset classes as well as in our preferred markets. Our focus increased in top tier cities in Germany, the Netherlands and London from 62% to 66%. The increased share in office, residential and hotel grew to 91% and in parallel we reduced the share in non-core asset types to 9% from 12% in December 2019. This stronger portfolio gives us a larger base of high-quality assets with an increased focus on top locations where we see further growth potential in rent as well as capital values. Moving to slide 10, you see the split of our size disposals year-to-date of 2.5 billion euros, of which 1.1 billion euros have been closed as of September as of September at 51% margin over total costs with 3% margin over book value. 34% of disposals were located in non-core locations. The split of disposals was made up of 39% offices, 30% hotels, 22% retail and logistics and 9% development rights. These disposals of non-core and mature assets above book value once again validate the conservative external valuations of our portfolio throughout the pandemic. As demonstrated last year already, by means of the successful disposal activity, we capitalized on significant value creation and recycled the funds to repay shorter and more expensive debts, as well as execute a critical share buyback at a significant discount to our IPRA NTA, which creates long-term shareholder value. We continue to execute our share buyback program of up to 500 million euros by year end, announced back in March of this year, of which 80% has been already executed as of last week. The overall buyback program started back in 2020, where we bought back 1 billion euros at an average share price of 4.9 euros. These share buyback programs allow us to reinvest capital from successful disposals into our own portfolio at higher quality with a significant discount to the MTA per share. So far, we repaid 1.6 billion euros of debt this year, of which 1.1 billion euros were bond repayments with an average coupon rate of 2.2% and the remaining repayments of bank debts. As illustrated on slide 11, We present our tenant diversity with around 3,500 commercial tenants from various industries across our properties with limited exposure to any single tenant and additional 65,000 units from Grand City. Over time, our tenant dependency remains low as the rental income of our largest 10 tenants accounts for less than 20% of the group's updated total rental income. A round-round group portfolio platform after consolidation of GCP came in at nearly 29 billion euros and demonstrates the significant economies of scale potential that can be achieved, placing us amongst the three largest listed European real estate companies. The analyzed net rent came in at 1.2 billion euros and on a relative consolidation level of GCP, 993 million euros. with a portfolio size of 24.2 billion euros. End of Q3, the rental yields stood at 4.5%, whilst the vacancy rate of the group reduced to 7.7% consolidated, or 8.2% at relative consolidation. We will, of course, continue to work relentlessly on our letting activities in order to reduce vacancies in the coming periods. On slide 12, We highlight our revisionary upside potential in our total portfolio, including consolidating Grand City. The September 2021 rental income run rate, excluding assets held for sale, of course, amounted to 1.194 billion euros on an annualized basis. Assuming no further acquisitions and disposals and no changes to today's market rent in the locations of our assets, The gap to market rent results in a 22% rental growth potential, including filling our vacancies. Our development rights are excluded from this calculation and would be added to the total upside potential. We are able to achieve the repositioning of the assets with our experience management and operational platforms, which is supported by the sustainable, strong fundamentals of our main markets. As we highlighted previously, This upside potential has served us well as a downside protection from the existing debt-to-market rent levels and ensures our in-page rents have a strong buffer in case of weakening rents. Yet prime rents remain stable in our office market locations during 2020 and 2021. The healthy wall stood at 7.8 years at the end of Q3 and was achieved through our ongoing letting efforts. Our asset valuations and our locations are significantly lower than the replacement costs and this further ensures stable valuations in the long term with upside potential. As shown on slide 13, our office assets represent the largest portion of our group portfolio with 45%. And we continue to be the largest office landlord amongst listed real estate companies in Berlin, Frankfurt and Munich. Yet other central locations and top tier cities of Germany and the Netherlands remain our focus as shown on the price chart. With a balance wall of 4.6 years and no significant dependency on a single tenant or location, we continue to maintain a well diversified and robust tenant structure. Over 45% of the office rent comes from tenants in the strongest industries such as insurance, banking, governmental, infrastructure, health or energy. We maintain good relations with the public sector, which represents by far our largest tenant segment with 29% of the rent. Moreover, the private sector values us as a top service provider and we foster long-term relationships with some of the largest tenants in Germany, such as the German and Dutch government, Bundesbank, Allianz, Siemens, Deutsche Bahn and many more. The office market in our locations remains with positive trends. We have seen a rebound from pent-up demand this year. As lockdowns were lifted and travel restrictions eased, potential new tenants were more decisive in 2021 to commit to signing new leases. Due to our disposal and letting activities, we were able to reduce our office vacancy further to 10.5% from 11.6% since December last year. Prime rents remain stable and only in secondary locations we saw stagnation or small decline in rent levels. However, as new leases are signed for a bit shorter periods on average, we believe to have the possibility to catch up to market rents in the near future, assuming no long-term negative impact will crystallize from the pandemic. Although 2021 showed a positive increase in letting demand when comparing to 2020, We remain cautiously optimistic as the number of infections increases across European markets as we speak, and we cannot rule out further lockdowns or other restrictions, all of which might have a negative impact on the office sentiment in the market. Moving to slide 14, we illustrate the continuous resilience in the top eight German plus Amsterdam office markets since Q4 2019, just shortly before 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. Year-over-year Q3 2021 has shown a good uprise in office take-up by 37%. Prime rents as well as use also further strengthened, especially in the last quarter. Pre-lab ratios of new developments have shown a similar trend. Meanwhile, vacancy levels continue to increase only marginally, but remain at record low levels of about 5% on average, compared to 11% just before entering the global financial crisis in 2008. Our long-term holding in the residential sector through Grand City is reflected on slide 15. The diversification to residential assets in the top German cities plus London continues to be a strong element of our long-term investment strategy. The German residential asset class has proven to be the most resilient type of European real estate during the pandemic, whilst like-for-like rental growth reached 2% and like-for-like capital values further grew by 4% in September. At full consolidation, the residential asset class represents the group's second-largest type with 28% of the portfolio value after offices. With Berlin, North Rhine-Westphalia, London and other German key cities as growth drivers, Grand City is very complementary to Rantan's top tier investment locations. In face of a housing shortage, increased rent levels and low interest environment, we continue to see strong demand for condominiums, in turn growing capital values for German residential assets, across almost all main and secondary cities during the pandemic and lockdown. I'll now hand you over to Barak, who will continue with the portfolio.