Aroundtown Sa U/Adr

Good morning and thank you everyone for joining us for Around Town's first half year 2023 results call. You should have received our press release before and you can access the presentation on the Around Town website either on the main page or in the financial report section of the investor relations page. My name is Katrin Petersen and I'm the group head of communications at Around Town. With me today are CEO Barak Bahen, our CFO, Eyal Ben-David, our Chief Capital Markets Officer, Oshri Massachi, our Executive Director, Frank Rosin, and from Investor Relations, Timothy Wright, as well as representatives from Grand City Properties. Throughout this call, all participants will be in a listen-only setting. Following the presentation, you will have the opportunity to ask questions. However, please continue to send us your questions via email, even if the presentation is ongoing. The email address for this is info at aroundtown, I repeat, info at aroundtown. Now I'd like to hand you over to Oshri, who will guide you through our results presentation.

Thank you, Katrin. Good morning also from my side and welcome to Roundtown's first half 2023 earnings call presentation. Before we dive into the results, a brief comment on some market trends we have been facing this year so far. that have an impact on our performance and the strategic direction we follow to deal with this situation. With many European economies recovering only slowly in the face of high core inflation, further de-levering the company remains a high priority for us. We have been successful this year concerning our liability management approach. Several bond tenders and ongoing debt repayments in the markets allowed us to maintain a long debt maturity and deliver the company by buying back debt at 20% discount on average. The diversification of our portfolio across top cities and asset classes offers a significant level of protection during these prevailing volatile markets. We continue to identify conversion potentials between asset classes and dispose assets to further deliver the company. The resilience of our operational performance, reducing CO2 emissions and increasing our share of green certifications increases in importance, on which we will give you an update shortly. With that, let me move on to our presentation. We start with our financial highlights achieved in the first six months this year on slide four. On the operational side, the net rental income for H1 decreased by 3% year over year, to 596 million euros, which was due to the ongoing sale of assets, offset by a solid like-for-like rental growth of 3.4%. FF01 came in at 175 million euros or 16 cents per share for the period, impacted by higher interest expenses and perpetual note coupons. We update our full year guidance with a slight increase in both full FF01 and on a per share level, due to our operational results. The IPRA NTA per share decreased by 10% to €8.4. Our capital structure remained robust and we continue to prioritize a high level of cash and liquid assets that provide the necessary flexibility between our operational activities and conservative financial discipline. We managed to hold our ample liquidity position, which stood at €2.5 billion at the end of June, and reflects 18% of our debt level. Note, this amount does not include any expected proceeds from signed but not yet disclosed disposals or vendor loans. The interest cover ratio amounted to 4.5 times and our LTV only marginally increased to 41%, despite further portfolio devaluation on a like-for-like basis, therefore ensuring significant headroom to all our bond covenants. We will discuss each KPI in more detail throughout this presentation. On slide 5, we reiterate our focus to strengthen our balance sheet and present our tools that have served us well maintaining our financial strengths during the recent uncertain economic environment. We continue to focus on several key strategic measures to successfully navigate the current volatile market and meet our upcoming debt maturities over the next few years even when access to capital markets may remain unattractive in the near term. These include the continuation of our disposal activity, which strengthens our liquidity and allow to further deliver the company by buying back our own debt at discounts and extend the overall debt maturity. It also includes raising additional funds through secured bank financing at attractive terms, as opposed to more expensive new bond issuances. Therefore, we see this a relevant source of liquidity in the next periods and utilize our good relationships to many different banks. As we highlighted often in the past, our perpetual notes unfold their specific equity characteristics in the current volatile market environment as our option not to call perpetuals in times of unfavorable alternatives. It's a testament to its equity characteristics. And of course, maintaining high headroom to all bond covenants remains a priority for which perpetuals are supportive as they are 100% equity for the bond covenants. The strength of our operations remains an integral part in navigating the current environment. And despite macro headwinds, we continue to execute our strategy and drive operational growth. On the next slide, we will look in more detail into these points. As we all know, the transaction market remains subdued as many buyers await the full extent of the impact from increasing interest rates. Despite this challenging environment, on slide 6 we highlight the achievements from our disposal activities, which amount to 545 million euros of signed deals year-to-date. These disposals were on average signed slightly below book values. Of the total, 90 million euros of disposals were signed after the reporting period during the ongoing quarter. We closed 720 million euros of disposals in H123, including disposals signed but not closed during 22, at an average rent multiple of 19 times, and the total profit over cost came in at 28 million euros. These results, once again, stress the quality of our assets and our competitive advantage to dispose properties also in a challenging market environment with low transaction volumes overall. We continue to see disposals as a good way to strengthen our balance sheet by enhancing the liquidity that can be utilized to deliver the company. On the left-hand side of this slide, you can see the disposal breakdown, which is across all our asset classes and several geographies. Non-core assets make up 35%. The value creation from development rights and invest segment remains an important part as we continue to find buyers for these rights. 15% of all disposals closed in the first half can be traced back to these assets. As usual, you will find examples of our obtained development rights in the appendix of this presentation. On the next slide, we turn to another key strategic measure highlighted earlier. It's bank debt and the relationships we established over many years with banks that you see on the right side of the slide. Year-to-date, we raised 790 million euros of secured and unsecured bank debt from some of the many different local and international banks we work with at an average maturity of seven years and a margin of 1.4% plus euro. Of this amount, 430 million euros was drawn in the first half of this year. Our remaining 20 billion euros of unencumbered assets continue to put us in a strong position that allows us to access further bank financing. Turning our focus on measures with a deleveraging effect, slide 8 summarizes the positive impulses from our active liability management. As we continue to see our bonds trading at high discounts for most of this year so far, We chose to repay parts of our debt at attractive discounts to deliver the company, which is the main purpose of our cash preservation strategy. On the liability management activities combined this year so far, we bought back 1.3 billion euros nominal amount of bonds at an average discount to par of 20%. This alone enabled us to reduce the net leverage by more than 200 million euros. We plan to continue repurchasing further debt as long as we see the need for delivering the company and our bonds continue trading at significant discounts. On slide 9, we want to provide you the considerations of our decisions on perpetual notes in our rational forward. Prior to each individual perpetual call date, we assess our options in the market. In general, we want to replace perpetuals with the new perpetual issuance as we have done until last year and as these are not meant to be repaid with debt. We see perpetuals as a preferred equity instrument as they do not have any covenants and no default rights, same as common equity. Neither is there any repayment obligation. Whilst these are equity characteristics, we see it important to communicate openly to stakeholders the options available to issuers of such notes. Perpetual notes, such as the ones from January and July of this year, continue to be considered as 100% equity for IFRS and bond covenants, even if not called. Therefore, they provide a security cushion in volatile times. For any perpetual note we decided not to call so far, we retain the option but no obligation to call them every year on the coupon payment date. On an annual basis, we pay 52 million euros higher coupon combined for all non-call perpetuals so far. Barak, please continue with the portfolio overview.

On slide 11, we turn our focus on the portfolio and operations of the group. As of June, our balanced portfolio value split was 41% offices, 32% residential, 20% hotels, together making 93% of the portfolio value. The remaining 7% are logistics and retail. As you can see on the right-hand side, with 91% in value, our investment locations continue to be centered in key European markets with a strong focus on top tier cities in Germany, the Netherlands, and London. Berlin, London, Frankfurt, and Munich continue to represent some of our single most important investment markets where we will still see significant upside potential in the mid to long term. For each asset class, we provide more detailed information in the appendix. On the next slide, we zoom into the rental health of each of our three main asset categories. Able rental growth is a vital factor in our view to offset the ongoing operational cost inflation and further increase in interest expenses. The rental contracts of our commercial properties mostly include rent indexation or step-ups, which resulted in a positive like-for-like rental growth of 3.8% in June. This rental growth is also supported by our ESG improvement efforts to reduce the CO2 intensity and obtain more green certificates for our assets. The residential rental segment, all through our investment in Gantt City, continues to benefit from growing supply demand gap in German metropolitan areas, which is under more pressure due to the inflow of refugees and the drop in new supply. As a result, regular rent increases feasible under the rent regulation is ensuring further steady and stable rental growth, or less the pressure on the vacancy level intensifies which is reflected in the 3.9% record low vacancy level, a 30 bps drop in Q2 alone. London, representing 18% of the residential portfolio, has more frequent rent adjustment due to its less regulated nature and higher tenant fluctuation, which allows for faster catch-up to the market rent levels. As expected, our hotel portfolio is on track to recover, and we continue to improve our collection rate. Also, the leases with the hotel operators are linked to inflation or have rent step-ups, which will be recognized once we reach a full recovery. Our well-distributed commercial lease expiry profile has no significant maturities in any single year, which is the result of letting efforts and ongoing negotiation with existing and new tenants. Yet, we do see it takes longer to find new tenants in the current market conditions, as we notice the negative impact on our tenants from the slowing economy as well as the impact from working from home. However, rent expiries can also serve as a value creation opportunity, as in most cases we can still re-let above in-place rent levels due to the repositioning cycle our value-add investments undergo. Moreover, our residential tenants in Germany have an average lease term of around 10 years and we expect this to increase as fluctuation decreases further due to the lower new development volumes and increased market trends. Our capex investment will continue on a selective basis. We want to ensure that in this inflationary environment, we employ smart capex investment where it's most needed and where it has greatest impact on the quality of the asset, whether it may be to reduce carbon emissions or to improve the overall quality of the assets for our tenants. On slide 13, we break down our diversified portfolio and stable tenant structure. Our group portfolio at the end of H1 amounted to 26.3 billion euros with an annualized 1.16 billion recurring rent, net rental income, and rental yield of 4.8%, up from 4.5%, resulting from rent increases and negative value like for like. The long vault remained stable at 7.3 years for the group and the APRA vacancy rate came in flat at 7.7% quarter over quarter. This stable development is attributed to the well-diversified asset mix, which provide us downside protection during current uncertain economic periods. Additionally, 75% of our office tenants are in the public sector or large blue chip companies. 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 financial distress or inability to pay rents. Osri, please continue.