Aroundtown Sa U/Adr

Hi, and good morning to everybody. Thank you for joining us for Around Town's financial year 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 investor relations section. I am Katrin Gettersen, 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 Orzin, and Investor 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, and following our presentation, you will have the opportunity to ask questions. But feel free to please send us your questions via email. Also, during the presentation, the email address is info at aroundtown.de. Once again, the email address is info at aroundtown.de. We look forward to receiving your questions. And with that, I would like to pass you over to Oshri now, who will begin and guide you through the presentation of our results.

Thank you, Katrin, and good morning, everyone. Welcome to Roundtown's full year 2022 earnings call. Before we jump into the results of 2022, I want to review some of the key macroeconomic points of the year that impacted our normal course of business up to this day. Shortly after lifting all pandemic-related restrictions at the end of Q1 2022, the whole market, specifically the real estate segment, was at the grip of global macroeconomic challenges. from stagflation to supply chain disruptions, volatile capital markets and the war in Europe. As we watched cost inflation soar, nominal debt yields becoming volatile on an elevated level and thus the access to new capital becoming significantly more expensive in a short period of time, preserving cash gained in importance for us. The decision to accelerate disposals from 2020 onwards had a positive impact on our liability management efforts, and we reached nearly 8 billion euros of disposals over the past three years. With no pressure to raise funds in the short to mid-term, giving us flexibility to adapt before we need to raise new funds. Although our operations remain stable, we see signs of a looming recession and are concerned about the future macroeconomic environment. A deterioration of the macro environment could impact corporate business negatively and thus impact office letting demand as well as the hospitality business. The residential real estate market's operations, on the other hand, especially on the affordable level, are less exposed. Here again, our diversification provides some level of protection. Inflation remains elevated despite the efforts of the ECB and further interest rate increases can be expected, which will put pressure on valuations and can negatively impact access to capital. As a result, to utilize one of our liquidity toolbox options, we decided not to distribute dividends for 2022. Starting on slide four, we summarize our KPI highlights achieved in 2022. On the operational side, our net rental income for the year increased by 13% to 1.2 billion euros and a like-for-like at December 22 of 3.5%. Whilst the IPRA NTA reduced by 2% to 9.3 euro per share, flat year-over-year adjusted for dividend, we grew the FFO1 per share by 10% to 33 cents and achieved the guidance for the full year. Note that we newly defined the IPRA NTA to exclude the real estate transfer tax. On the financial side, we continue to prioritize a strong level of cash and liquid assets to ensure an uninterrupted operational performance. Hence, the liquidity position at the end of 2022 amounted to 2.7 billion euros, which reflects 18% of our debt level. This level is already after the net repayment of about 600 million euros of short-term debt during 2022 and does not include any expected proceeds of signed disposals. The interest cover ratio remains stable at 5.2 times and our LTB was at 40%. We will discuss each KPI in more detail throughout this presentation. On slide 5, we have listed our main action points that support our strategy to manage through the current market environment and the upcoming debt maturities without the need to access capital markets in such unfavorable times. To highlight just a few, we continue with our disposal activities to increase our liquidity and liability management exercises to further de-level the company. Maintaining a very high headroom to all our bonds and covenants reduces pressure to raise funds in the short to mid-term and together with our high unencumbered asset ratio, we are raising secured debt to extend our debt maturity schedule. In a downturn market, perpetuals carry equity characteristics. Not using our voluntary option to call perpetuals at significant unfavorable terms is a testament to the equity characteristics of this instrument. This enables us to maintain high covenant headroom and long repayment runway. Moreover, We are working diligently to maintain our operational strength through new lettings, prolongations, rent increases, as well as increasing our rent collection while reducing our capex spending. In addition, our large cash balance can partially offset the increased cost of debt from positive interest earnings. On the next few slides, we will look in more detail into each point. We start on slide 6 with the continuous success of our disposal activities in an increasingly challenging market for sellers as yields rise. In 22, we sold 1.6 billion euros of assets at around book value, crystallizing a disposal gain of 350 million euros over total cost. Although it has become more challenging in 23, we continue to sell successfully and so far and signed the additionally 150 million euros in disposals year-to-date. These results show the attractiveness of our assets and our competitive advantage to dispose properties also in a challenging market environment. The team is working very hard and does a tremendous job utilizing our deal sourcing network in the disposal process. This has always been our competitive advantage in previous years through acquisitions and now more focused on disposals. We utilize the disposal proceeds accretively while strengthening our balance sheet. On the left hand side of the slide, you can see the well diversified disposal breakdown by asset class and geography. Our value creation efforts to identify development rights potentials and to successfully dispose them is confirmed by a share of 26% of all disposals. You will find examples of our recent development right disposals later in the presentation. Whilst we recognized vital benefits or liquidity position from the cash proceeds, we also see a decreasing volume of potential buyers in the market due to the more challenging financing environment for buyers and since many large market players are still waiting for prices to find their balanced level. As a result, and since we are under no pressure to sell quickly, we expect our sales to slow down this year in comparison to last year. On slide 7, we reiterate our strong liquidity position as a result of the cash and liquid assets at the end of last year, plus expected proceeds from already signed but not yet closed disposals and vendor loans, which have an average weighted maturity in Q3 of next year, amounting to close to €4 billion and covering our debt maturities until the end of 2025. This horizon has extended by an additional quarter thanks to the continuous disposal efforts. On slide 8, we illustrate the impact of the expected disposal proceeds on our leverage. Including these proceeds, our LTV performer is at 37%, which is one of the lowest LTVs in the European real estate sector. And as we are repaying our debt at a discount, we are able to further delever. In our liability management, we bought back 140 million euros nominal amount of the 2025 bonds at 15% discount. We initiated this morning an additional tender offer to buy back some of our 25 and 26 bonds as a result of our successful disposal activity last year. As bond covenants moved into the spotlight, we want to highlight on slide 9 our significant headroom in relation to each covenant. It's important to note that the perpetual notes are treated as full equity according to IFRS for all covenant calculations and remain so even when not being called. Aronson has one of the highest bond covenants headroom among listed European real estate companies. To emphasize a key covenant, total net debt to total net assets, you see at the top of the slide that we stood at 35% in December 2022, which is well below the 60% governing threshold. In a stress test scenario, our December 2022 total asset values need to drop by around 40%, which implies 14.5 billion euros decrease in value before this covenant will be triggered, all else being equal. Turning to slide 10, we continue to see bank financing currently more favorable than bond financing, and we aim to benefit from our banking relationships. In 2022, we raised nearly 500 million euros of secured and unsecured bank debt from some of the many different local and international banks we work with, which you can see on the right-hand side of this slide. Year-to-date, we raised an additional 160 million euros. Going forward, our €22.2 billion of unencumbered assets place us in a strong position to leverage from further banking finance. With an average maturity of six years and a margin of €1.3 plus EURBOR, the terms for these bank financings are materially better compared to unsecured capital market bond terms available these days. Although the demand for bank financing has significantly increased in the market, We believe the mortgage banking market, especially in Germany, is well positioned to provide this source of funding. Turning our view on perpetuals, we provide a rationale on slide 11. We see perpetuals as a preferred equity instrument. Perpetual notes do not have any covenants and no default rights, same as common equity. Further, there is no repayment obligation. The option to repay or refinance is solely the issuer's decision. These are equity characteristics. Prior to each individual perpetual call date, we will assess our options in the market. In general, our plan was to replace the perpetuals with the new perpetual issuance, as we have done previously, as these are not meant to be repaid with debt or cash. As was the case end of last year, the group decided not to call the perpetuals in January 23. The decision was taken after considering all options and the decisive factor was that the rate of a potential new issuance was significantly above the node's reset rates. With our cautious approach, we also recognized the fact that the prevailing high uncertainty in capital markets could result in a deteriorating access to capital going forward. The reset coupons were adjusted at the respective call dates, which results in an analyzed 19.5 million euros higher coupon payment. We maintain the option to call these perpetuals every 12 months on the coupon payment date going forward. I would like to reiterate that we remain committed to retain perpetual notes as part of our long-term strategic capital structure, And we're looking also for other options which will enable the company to keep the equity credit rating of these instruments. The last key point is to continue improving our operations going forward. On slide 12, we summarized some of the key defensive measures by asset class also available to us to partially offset the ongoing operational cost inflation and further increase in interest expenses. The performance of our properties will be discussed later in the presentation. The rental contracts for our commercial properties mostly include rent indexation or step-ups in the rent. We managed to implement the indexation increases as commercial occupiers are able to pass on most of the indexations to their customers. The residential segment continues to benefit from the supply-demand gap in German metropolitan areas and captures the regular rent increases permitted under the rent regulation. London on the other hand has more frequent rent adjustments due to its less regulated nature and more frequent tenant rotation. Our hotel portfolio continues to recover from the effects of the pandemic as we continue to improve our collection rate and hotels under renovation to resume operations again this and next year. Our expectations therefore, is to achieve pre-pandemic collection rate level next year. For the portfolio as a whole, this year and going into 2023, we continue to be disciplined and selective with our capex investments as we want to maintain a strong level of liquidity. You can see the well-distributed commercial lease expiry profile at the bottom of the slide with no material maturities in a year, which makes expiries coming slowly while allowing sufficient time to work on re-letting. Rent expiries will also serve as a downside protection, as we can re-let above in-place rent levels. We will now discuss further about ESG and operation in 2022. Frank, please continue.

Thank you, Osprey. 2022 marks a successful year for Roundown, achieving further milestones in our ESG strategy. On slide 13, we summarize some of these achievements. After the start of our pilot program for the Dutch portfolio in 2021, we accomplished a 55% share of green-green certified, up from 30% in 2021. We aim to further increase our green certifications for our Dutch portfolio, and we have started utilizing the GAIN experience also in other locations. As we have a large portfolio, and e-certification is an individual and lengthy process, we expect a gradual progress over the next years. Turning to the social aspect, Around Town funded around 90 social projects last year and deal with the health and well-being of our communities, and particularly with disadvantaged families and children. As a result of our ESG improvements, we also entered the Dow Jones Sustainability Index and the Bloomberg Gender Equality Index. All our existing awards and ratings have been maintained or improved further. If you'd like to have more details on our ESG strategy, our appendix holds more information for you to review on all our individual ESG elements. On slide 15 and following, we will present our operational results. After finalizing our most recent asset rotation, our portfolio splits represent as follows. 43% in offices, 32% in residential, 80% in hotels, and together making 93% of our portfolio value. The remaining 7% are in logistics and retail, of which more information you can find in the appendix. Equally, with 93% in value, our investment locations maintain its focus on the key European markets, with a strong focus on top-tier cities in Germany, the Netherlands, and London. Berlin, London, Frankfurt, and Munich remain some of our single most important investment markets. We follow our long-term strategic investment plan and screen key European metropolitan regions for accretive acquisition opportunities from distressed owners. However, in the near term, we anticipate continuing to be a net seller. On slide 16, you see the snapshot of our diversified strong tenant structure that is a valuable part of our asset repositioning. Our group portfolio platform at the end of 2022 amounted for $28 billion, with $1.15 billion net rent income run rate, and a rental yield of 4.5% from the previous quarter due to yield expansion and disposals. The long wait for the group increased slightly to 7.5 years, and the APRA vacancy rate came in at a stable 7.6%. Our 10 largest tenants continue to account for less than 20% of the group's rental income, ensuring that there is only limited exposure to any single tenant in case of a financial distress or inability to pay rents. Our healthy commercial tenant diversity counts around 3,500 different commercial tenants from various industries and limited exposure to any single tenant. You can see at the bottom of the slide some of the high-quality tenant names. For the coming periods, we expect a slowing rental demand from existing and potential tenants in light of the difficult economic environment for many industries, which we expect that will be partially offset by and the capture of market trends through re-letting. Barak, please continue.