Aroundtown Sa U/Adr

Good morning, welcome and thank you for joining us for Around Towns 9 Months 2023 result call today. You can view this presentation on Around Towns website either on the home section or under financial reports of the investor relations section. I am Katrin Petersen, Around Towns Group Head of Communications and with me today will be 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 in a listen-only mode. Following the presentation, you will have the opportunity to ask questions. With that, I want to pass you over to Barak and to the rest of the team, who will guide you through the presentation of our results.

Good morning, and thank you, Katrin. Warm welcome to our nine-month 2023 financial presentation. Our business operations are progressing in our different asset types, albeit with headwinds we feel in the office sector. New letting demand in the office market remains below historic levels, but on the other hand, we also see prolongations. Due to the CPI index leases or agreed step-ups, the rent increase currently offsets the lower demand. The residential markets in Germany and London are performing well, as the supply-demand gap is further widening, resulting in higher rents and record low vacancy. The hotel market in Germany continues its recovery path, and we expect next year to reach pre-pandemic levels, and in addition, we have few new hotels opening. Again, our portfolio diversification provides a certain level of protection while offering beneficial opportunities to capture. On a macro level, since our H1 financials, the ECB has increased interest rates two more times. And although recent data show inflation is leveling down, it is not clear if the ECB has stopped hiking rates, considering that energy prices might remain volatile this winter again, and two wars are additional geopolitical risk to the macro environment. We believe it is crucial to prepare the company for further potential headwinds, whether that applies to access to funding, further slowdown in transactions, subdued letting demand, higher operational costs, or further devaluations of the portfolio. We thus remain very focused on maintaining our strong liquidity and headroom to our covenants, while following opportunities to further increase our cash balance and reduce leverage. On the following slide, we explain how we intend to implement that and what progress we achieved so far. Slide four presents our highlights achieved in the first nine months of 2023. The net rental income for the period amounted to 895 million and decreased by 2% year-over-year, which was the direct result of disposals, offset by 3.5% like-for-like growth. The like-for-like growth, as we will present later in the presentation, comes from good results across all of our asset types. FFO1 came in at 255 million euros, decreasing by 7% year-over-year as a result of higher interest expenses and perpetual note coupons. On a per share basis, the FFO1 amounted to 23 cents. We comfortably confirmed our 2023 guidance. We continue to strengthen our liquidity, which increased to 2.8 billion euros as of September, and now covers 20% of our total debt, providing us with a strong and flexible debt structure. LTV is at 41%, with no change compared to June 2023, and only 1% up from 40% in December 2022, despite a 6% devaluation in the first half of 2023. We didn't revalue the portfolio in the third quarter, and we'll carry out a full portfolio valuation as part of our full-year report. We will provide more details on our financial position and the other KPIs on the next slides. Slide 5 is probably familiar to most of you. Here we continue to outline our strategy to navigate the ongoing volatile markets. As you can see, all action items are aimed at increasing cash liquidity and reducing leverage in order to keep the company healthy and in position to sustain the current situation for an extended period of time. We are constantly evaluating each of these action items and adjust our strategy for each, depending on what we're experiencing in the market and our expectation going forward. Although we have high cash and liquidity balance, which covers debt maturities until mid-2026, we look for a period beyond this date. We have very large maturities in the second half of 2026, as well as in 2027 and 2028, and we aim to increase our liquidity to start covering part of these maturities as well. Moreover, the European real estate industry has large refinancing needs in 2026 and the years after, and we expect the market needs needs the capacity to digest it. We will explain each action item on the next few slides. Oshri, please continue.

Thank you, Barak. Please move to slide 6, where we outline the progress of our disposal activity. As we explained previously, it has become more challenging to dispose properties, as there are only few buyers out there. There is still low demand from funds with ePockets, which can stem large portfolio transactions. Peers have announced several larger transactions with large funds, which come with particular conditions. We also explore this front, but the market conditions and especially the uncertainty creates wide gaps between the expectations of buyers and sellers. Current demand remains therefore focused on smaller deals from buyers such as family offices, municipalities, tenants or wealthy private individuals. Year to date, we signed 710 million euros of disposals at an average of 5% discount to their book values, of which 260 million euros were signed since the beginning of the third quarter. In the first nine months, we closed disposals of 960 million euros, which includes 530 million euros, which were signed last year. You can see on the pie charts the breakdown of our diversified disposal segments, including development rights. The majority was sold in non-core locations as well as in London, Hamburg and Dresden. The average multiple we sold for was 18 times and we achieved 71 million euros profit over total cost from disposals. We are not limited to sell only specific asset types and locations. Instead, we focus on getting a good deal. It remains challenging to sell properties as the gap between buyer and seller expectations is wide. and transactions are being executed because of the combination of our strong sourcing network and attractive assets we are able to offer. On slide 7 you see the summary of our bank debt we raised this year so far. We signed 1 billion euros new debt financing since the beginning of the year, of which 790 million euros were drawn in the first 9 months. The loans were signed with an average maturity of over 7 years and an average margin of 1.4%. We are utilizing our high share of unencumbered assets as well as our strong banking relationship, which you can see on the slide. Although we do not have any material near-term maturities and sufficient cash liquidity to cover our debt maturities for close to three years, we continue to focus on obtaining more bank financing as we have been doing for the last one and a half years. The process to obtain bank financing is much longer than in previous years and recently we are experiencing a further slowdown. Banks' appetite, especially for some commercial real estate segments, has reduced and generally banks have become more selective. Potentially, we also see a probability that banks will become even more selective when older loans mature and their borrowers are not liquid and can't provide the additional equity needed or in cases the hedging covenants are getting tight or even in breach. This potential risk would lead to more difficult access to further bank financing and thus we act now to obtain new funding instead of waiting when our debt matures. As explained before, liquidity is crucial to withstand the current market environment which has a potential to last for longer than expected. While this approach comes at the cost of higher finance expenses, we believe that the benefits outweigh the additional costs. On slide 8, we present our successful liability management efforts this year to date. We have bought back 1.3 billion euros of bonds at an average discount of 20%, which enabled us to reduce leverage. We will continue to buy back bonds on an opportunistic basis as long as our bonds will be traded at steep discounts. As part of our cash retention, we will mainly focus on bonds with short maturities, which enables us to maintain our liquidity headroom that we have in order to cover our upcoming debt maturities. Our recent buybacks reduced 16% of the debt maturing between 2024 and 2026. Currently, we have the liquidity to cover our maturities until mid-2026 and aim to extend this period further. On slide 9, we show our approach to our perpetual notes. We realize there is a misunderstanding about the features and treatment of these instruments. Perpetual notes provide a strong cash retention security, which becomes ever more evident in current uncertain economic times. The equity characteristics include the right not to call them when markets are volatile to retain our cash position and headroom to covenants. Toolbox also includes deferring coupon payments, if we deem it necessary, to retain more cash and headroom. Please note that these instruments remain 100% equity according to IFRS and for the bond covenants. So far this year, the group which includes GCP has not called its perpetual notes with call dates this year. This resulted in a reset of the coupon at current mid-swaps and thus at higher than previous coupons. On an annualized level, this amounts to 65 million euros higher coupon payments starting from next year. Again, not calling had no impact on the accounting treatment of these instruments and thus they remain 100% equity also for our debt covenants. We are aware of the pressure that not calling a perpetual note has on our corporate rating as losing the equity content of this specific note even if only for rating purposes, is harmful to the rating metrics. We will continue to monitor the markets and assess all options going forward. But in our opinion, the best economic option was not to call these instruments at the particular times. We will take a decision about future perpetual notes closer to each call date, with the next one in January 24. You can find an overview of our perpetuals in the appendix. Moving on to slide 11, where we present our portfolio and the operational position. There was no material change in the asset class distribution of our portfolio since last publication. As of September 23, 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. 90% of our portfolio is well distributed and diversified within Germany, the Netherlands and London. Within these locations, we are focused on top-tier cities, which are benefiting from strong fundamentals. Berlin, London, Frankfurt and Munich continue to represent some of our single most important investment markets, where we still see upside potential in the mid to long term. For each asset class, we provide more detailed information in the appendix. On slide 12, we present our cash flow drivers, all of which have shown good progress in the recent period. Firstly, our commercial portfolio. The CPI indexed and step-up rents have supported a like-for-like performance of nearly 4% in the 12 months ending in September 2023. This level is slightly up from last period and reflects our ability to transfer the current inflationary environment into growing and higher rents, which more than offset the increase in vacancy. We also present our well distributed commercial lease expiry, which shows only 10% expiries by the end of 2024, providing us with stability and operational robustness. The residential portfolio saw as well a strong like-for-like rent increase of around 3%, coming from the very strong operational dynamics in Germany and London, specifically in our portfolio locations. From an operational perspective, the residential rental market is very strong with a wide demand-supply gap which has been accelerating in recent periods, supported by increasing rent tables which all result in steadily growing cash flows. We see the fundamentals of the residential portfolio being very sustainable, which will keep driving rents upwards in the coming years. The vacancy trend is also a reflection of the strong rental performance due to a positive net migration and simultaneous decreasing volume of newly built housing, reaching another historic low at 3.8% with a clear downward trajectory. Our hotel portfolio continues to recover, with rent collection edging up towards full recovery, which is expected to be achieved next year. Our collection rate is now reaching over 85% for the nine months of 2023. We have more than €30 million less provisions for the hotels in the first nine months of this year compared to the first nine months of last year, which is contributing to offset the higher interest costs. We continue to be selective on capex and focus to execute works with high returns, which enable us to manage our liquidity on one side and increase our FFO on the other. Slide 13, we break down our diversified portfolio and stable tenant structure. Our group portfolio at the end of September amounted to 26 billion euros with an annualized 1.16 billion euro recurring net rental income and a rental yield of 4.8%. The world remains long and stable at over seven years. We have seen a slight uptick in the vacancy rate of 0.2% in the third quarter to 7.9%. However, the good-like-for-like rental growth more than offset the negative impact. We highlight that around 75% of our office tenants are in the public sector or large blue chip companies, providing additional quality to our portfolio. Our 10 largest tenants continue to account for less than 20% of the group's rental income, keeping low dependency on single tenants, ensuring that there is only limited exposure to any single tenant in case of financial distress or inability to pay rent. Frank, please continue with the market overview.