Aroundtown Sa U/Adr

Good day and welcome to the Around Town FAH1 2022 earnings call. Today's conference has been recorded. At this time, I would like to turn the conference over to Ms. Catherine Peterson, Group Head of Communication. Please go ahead, ma'am.

Yes, thank you and a very good morning to everybody. Thanks for joining us for Around Town's first half 2022 results call. You should have received our corporate news and can view today's presentation on Around Town's website, either on the home section or under financial reports of the investor relations section. As said, I am Katrin Petersen, Around Town's Group Head of Communications, and with me today are CEO Barak Bahen, CFO Eyal Ben David, Chief Capital Markets Officer Oshri Massachi, Executive Director Frank Rosin, Investor Relations Timothy Wright, and 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, and please feel free to send us your questions via email also during the presentation. The email address for this is info at aroundtown.de. Once again, it's info at aroundtown.de to send your questions. Now, I would like to pass you over to Oshri, who will guide you through the presentation of our results. Thank you.

Thanks a lot, Katrin, and also a very good morning from my side, everyone, and welcome to Roundtown's first half 2022 earnings call. During the first half of this year, we looked at how the macroeconomic situation unfolded around the globe. From stagflation to supply chain disruptions and interest hikes was always seen in the rear view a European war that lasts already longer than most were expecting. From the market perspective, the first half of the year was challenging, with nominal debt yields continuing to increase across the board, and we placed much finesse navigating through these times. So far, the market conditions did not significantly impact our operations, and the positive impact of our continuous disposal activities and liability management from recent years are reflected in our results, leading to a strong liquidity position and no pressure to raise debt at unfavorable terms, as I will elaborate soon in more details. Although our operational performance continued to improve, We remain concerned about the coming periods as a strong volatility in the market could mean that we are sliding into recession and an extended war, which could lead to reduced rental demand and further refinancing challenges. On slide four, we provide again a summary of our financial highlights achieved in Q2 this year as we continue to make every effort to stabilize and improve the fundamentals of our companies. The net rental income increased year over year by 34% to 613 million euros. We continue to prioritize a strong level of cash and liquid assets to ensure an uninterrupted operational performance. Hence, the liquidity position end of Q2 amounted again to 2.2 billion euros as in the previous quarter, which reflects about 15% of our debt level. This level is already after the repayment of 770 million euros of short-term debt during the first half of this year. As usual, later we will discuss each of these numbers in more detail. Moving to slide 5, you see an overview of our disposals during the first half of this year. As of June, 625 million euros of disposals have been closed And after June, we closed further 410 million euros of disposals. As of today, signed and not closed disposals amount to 220 million euros, which we expect to be closed during the coming months. From the deals closed in the first half, we achieved 7% margin over book value and 39% margin over cost value. The average disposal rent multiple of all closed transactions came in at 26 times. Berlin was our single largest city for disposals, accounting for 67% of all closed disposals in the first half of the year, followed by Hamburg with 13% and the remaining 20% of disposals were spread across different secondary and non-core cities. The segment split of disposals was very diverse across different asset classes, with offices making up 36%, hotels 27%, development 18%, retail 15%, and the remaining 4%. As a result of the volatile market environment and challenging financing options for buyers, the disposal activity became more challenging in recent months as many potential buyers held back their acquisition activity. Although at a slower pace, we continue to execute the ongoing buyback program until end of this year. Approximately 70% has been already executed as of last week. Let's move to the operational results starting from slide seven. Having further increased our position in Grand City to 58% as of June, the contribution of its quality residential assets located in strong metropolitan locations Germany plus London continues to have not only a stabilizing but growing impact on the overall stability and diversification of the group's portfolio. Following our most recent asset rotation at the end of Q2, our portfolio diversification looks as follows. 44% in offices, 31% in residential, 17% in hotels, and together making 92% of the portfolio. and the remaining 8% in logistics and retail. With 92% in value, our portfolio maintains its focus on the European key markets across top tier cities of Germany, Netherlands, and London. As presented on slide eight, we illustrate our commercial tenant diversity with around 3,500 different commercial tenants from various industries and limited exposure to any single tenant as our 10 largest tenants account for less than 20% of the group's rental income. An additional 66,000 units are incorporated from Grand City. A round-towns group portfolio platform at the end of Q2 2022, including the consolidation of Grand City properties, amounted to 29.6 billion euros and close to 1.2 billion euros net rental income run rate. The long walls remained stable at 7.5 years for the group. Quarter over quarter, we maintained a stable rental yield of 4.3%, whilst the vacancy rate of the group continued to improve by 20 basis points to 7.7%. Going forward, we remain cautious and assume that it will be challenging to realize rent increases. Given the macro and geopolitical environment, we expect to face over the next periods. As the impact of the sharp increase in inflation has become a main topic in all our daily decisions, Slide 9 provides you the operational growth potential we have as a defense against operational cost inflation. We continue to be very disciplined with our new CapEx and development expenses and maintain a strong level of liquidity whilst focusing on essential investments. In fact, we aim to dispose more development rights going forward. On the other hand, we see several top-line growth drivers from inflation. Our commercial rental contracts are partially CPI-linked or have step-ups, and we expect about €20 million rent growth on an annualized level this year. Our cost of debt is not expected to grow significantly in the short term due to not material maturities. Hence, we expect that a part of the indexation proceeds will flow to our FFO. The German residential segment is characterized by steady rent increases without major fluctuations due to its regulated nature and achieved 3% like-for-like rent increases in June this year. Note that around 20% of Grand City Property'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. We expect our rent collection from hotel operators to recover further over the coming quarters and to be in line with our guidance. I will, of course, elaborate further on the hotel collections later in the presentation. At the bottom of the slide, you can see an overview of the well-distributed commercial lease expiry profile, with no single year being exposed significantly more than the average of the next decade. providing us with a steady re-letting job over the next years to come. On slide 10, we break down our office assets, representing the largest share of our group portfolio with a steady 44%. We continue to hold our largest sub-portfolio in offices in key cities such as Berlin, Frankfurt, Munich, and Amsterdam, which alone make up 60% of our office portfolio value. Additional key locations of Germany and the Netherlands, such as North Rhine-Westphalia, Rotterdam, Hamburg, Dresden or Stuttgart, remain strategic investment locations. With a balanced average lease term of 4.3 years and no significant dependency on any single tenant or location, we continue to maintain a well-diversified and robust tenant structure. we continue to anticipate a slowdown in new speculative development projects, as well as 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. Our vacancy remains stable at 10.7%, and we record 2.7% like-for-like rental growth as of June 2022. Our strategic long-term investment in the residential sector through Grand City is reflected on slide 11. At the end of Q2, the effective holding rate in Grand City stood at 58%, excluding shares Grand City holds in Treasury, representing the group's second-largest segment with 31% of the portfolio value after offices. After the script dividend from Grand City, our effective holding rate is currently 60%. Last quarter, we continued to increase our diversification to strong residential assets significantly below book value. The contribution of Grand City's quality residential assets located in strong metropolitan locations of Germany plus London continues to have not only stabilizing but growing impact on the overall stability and diversification of the Group's portfolio. With 78% value exposure in North Rhine-Westphalia, Berlin, Dresden, Leipzig, London, as organic growth drivers, Grand City is complementary to Roundtown's top-tier investment locations and further adds to the asset class diversification and balances the portfolio between asset classes with different fundamental drivers. The London portfolio counts 4,500 units, including pre-marketed units in the pre-let stage. The vacancy in this location has dropped from over 10% a few years ago to around 5% today. Additional key cities include Munich, Hamburg, and Frankfurt. Grand City recorded a like-for-like rental growth in June of 3%, of which 0.8% derived from occupancy increase, and 2.2% from in-place rent growth. We closely monitor the elevated debt yields together with the high-cost inflation. Combined with the fact that many residential rental agreements in Germany are not linked to CPI puts pressure on all German residential equities, which has increased their discount to the NTA. In contrast, the housing shortage and pressure on rent levels remain And we continue to see demand for condominiums, which keeps high capital values for German residential assets. We use this opportunity to continue increasing our position in Grand City at a high discount to its NTA. Frank, please continue.