Deutsche Euroshop Uns/Adr

Ladies and gentlemen, good morning from the team of Deutsche Euroshop in Hamburg. I'm here on this call with our CFO, Olaf Bockers, and our investor relations team. Today, we present you our results for the first nine months of 2020 and will inform you about the situation in our centers. First of all, I would like to report to you the, given the extraordinary circumstances, very respectable rebound of Deutsche Euroshop's operational numbers since the start of the pandemic up to the third quarter and well into the autumn. After that, I will inform you about the latest developments in our portfolio countries after the resurgence of the pandemic. Unfortunately, As you will surely be aware of, our centers are again subject to new soft or hard temporary lockdowns. But let's start with the operating numbers on page four of the presentation, right after the summary of the business developments. You can see that since the reopening of the centers, the customer footfall has stabilized at around 80% of 2019 levels until October 2020. The footfall numbers vary among the centers between 70 and 95%. As outlined before, we believe that besides the tight general economic situation and its impact on consumption, the mandatory wearing of masks was one major influence factor that impeded faster recovery. On page five, you can see that the turnovers of our tenants improved on average to a level of nearly 90% until September. That shows that the conversion rate was higher compared to normal times, as customers were more determined to spend money in the centers once they had entered them. So, as expected, with the stabilization of the corona pandemic in Q3, life and business came back to the centers, even though the impact of the pandemic was substantial, and tenant turnovers in certain segments were still materially lower compared to normal times. Our cash collection ratio, presented on page 6, also showed a positive trend until October, now reaching 92% for Q3 and 96% for October. This number had only been 55% in Q2. The insurgency ratio of our tenants stands at 7.3% of our rents on a proportionate basis. This number did not increase since September, but there is, as mentioned before, Of course, there is that we will see more insolvencies, especially in the light of new soft and hard lockdowns in the various jurisdictions. However, it's worth to be mentioned that the first tenants have successfully finalized their restructuring processes already, like Galeria Karstadt-Kaufhof, SIN or LTP Germany. Such tenants account for around one third of the respective rent mentioned. On page 7, you find the current status of the new regulations concerning the shop closings in the various centers. So far, the rising numbers of infections have led again to a hard lockdown in the Czech Republic as of 26th of October until further notice, and in Poland as of 7th of November until end of November. In both countries, like in the first lockdown, all shops are closed except in principle for supermarkets and shops selling goods for the daily need. Gastronomy is limited to takeaway business. While there has been no information on specific state relief programs in Poland, the Czech government announced a support program for the tenants. Here, as we read it so far, closed tenants can apply for 50% cost contribution for their rents paid in Q3, which should give them liquidity to cover part of their fixed costs in the new lockdown. The exact terms are still unknown. However, it looks that this could be a real relief for our tenants and us in this situation in the Czech Republic. In Germany, Austria and Hungary, we experience so-called soft lockdowns. Here, mainly gastronomy, except for takeaway, cinemas and certain service retailers are closed. Stationary retail shops are allowed to continue to do business under restrictions like the wearing of mask obligations and the limitation of numbers of customers per square meter sales area. In Germany, in principle, tenants that are affected directly from the closures shall receive, roughly speaking, 75% of their 2019 November turnover as cost contribution to cover part of their fixed costs during the current month. While there are several requirements and limitations which are not clear yet, such help seems to be reasonable for the directly impacted shops and the gastronomy. However, there is no general relief program in place for the shops affected indirectly from the measurements. As of end of October, most shopping center destinations or general shopping destinations and also our centers experience already visibly lower footfall. Even though we have seen how quickly the situation can and is expected to improve again when the restrictions go away, such lockdowns are detrimental, especially in the vicinity of the start of the Christmas sales season. So far, the update on the current situation in our centers. Let me now come to the financial results of the first nine months of 2020, which show the impact of the corona pandemic on our business. The revenues, and you find them on page 8, after the first nine months, show only a small part of the economic impact of the pandemic, as most rents were invoiced according to the respective lease contracts. The only exception here comes, as before, from our Polish centers, where the specific legal situations led to a temporary suspension of rents for the period of the spring lockdown. Correspondingly, revenues decreased only slightly by 1.9% year-on-year to now 164.4 million. On page 9, we show the development of our EBIT, and the major financial effect resulting from the pandemic is reflected in the high increase of our operational costs. This increase mainly comes from the allowances for rent receivables, due end of September. These allowances were made in relation to realized and or expected losses of rents in connection with tenant support measures, e.g. rent concessions, or in relation to actual or likely insolvencies. Such allowances amount to €25.8 million. Correspondingly, the EBIT decreased by €28.8 million to now €118.1 million. The allowances for rent receivables have been determined on the basis of the agreements with the tenants or for the cases still being negotiated on the basis of various criteria such as the magnitude of the impact of the crisis on certain types of tenants and the capability to cope with this extraordinary situation. From the EBIT, now come to the financial results and you can track them on page 10. The financial results slightly improved to 24 or minus 24.7 million. Several input factors neutralized each other here. Interest savings of 4.6 million and the lower minority result of 3.9 million improved the financial result. On the contrary, the equity result was 5.2 million lower due to the corona-related declines in revenues and high allowances for rent receivables in our joint venture companies. The remainder of the result of the change comes from the exceptional tax-related one-off items last year. This leads us to the EBT adjusted for valuation on page 11. And the EBT adjusted for valuation came down from 121 to 93.4 million, which is a minus of 23.2%. Again, the main input factors here were the corona-related lower operating result, the interest savings, and the tax one-off. The next page, you find the IPRO earnings, which declined correspondingly by 29.7 million to now 90.8 million euro for the reasons that I just had explained before. On a per share basis, the IPRO earnings decreased from one euro 95 to €1.47. I would like to come to the consolidated result of the group on the next page and such result decreased by €198.8 billion to minus €105.5 million. The main impact here came from the valuation result that contributed minus €171.6 million and the standing asset contributed a further minus €20.5 million. And again, you see the effect from last year's tax-related one-off item here, minus €9 million. Earnings per share decreased from €1.51 to minus €1.71. Our FFO has been outlined on page 14. And for the first nine months of the year, the FFO, which of course excludes the valuation results and the one-off tax-into-items, decreased from 111.7 to now 90.9 million or on a per share basis from 1.81 to 1.47. This is again mainly due to the corona related lower revenues and the rent receivables, sorry, the allowances for rent receivables and you will find the detailed calculation as usual on the right hand side of the slide. It should be mentioned that the FFO is calculated as usually earnings-based and therefore doesn't reflect untypically high receivables outstanding. So in considering the actual cash flow of the company, one should analyze also our consolidated cash flow statement and other cash-based indicators such as our cash collection ratio. Coming now from the P&L to our continued very solid balance sheet on page 15. Here you see that our total assets amount to 4.41 billion. This is a decrease of 148.3 million compared with the reporting date end of 2019. And this is mainly due to the lower market values of our properties resulting from the valuation of our portfolio mid-year 2020. Because of the lower cash collection ratio in the first nine months, our receivables after allowances increased by 12.2 million. Nevertheless, our consolidated liquidity has further improved to now $213 million as of end of September 2020. Due to the impact of the valuation results, total equity, including minorities, decreased by $119.2 million. And as of end of September 2020, non-current and current financial liabilities remained largely unchanged at $1.5 billion. This was 5.6 million lower than at the end of 2019. Here, scheduled repayments were offset by an increase of a loan of 7.4 million to refinance some investments in our A10 center close to Berlin. Non-current deferred tax liabilities decreased visibly by 23.6 million to now 355.1 million, resulting from the reduced fair values of the investment properties. Our equity ratio remains at a strong 56.3% and the consolidated LTV now stands at 31.5%. On a look-through basis, that is the LTV calculated fully proportionally according to the group share in all assets, the LTV now stands at 34.3%, also a very reasonable and low level. Now let's come to our financial debt on the next two pages where we give you some further information covering that topic. And you can see that some 550 million of our consolidated bank debt mature in the next five years. Currently our consolidated debt bears an average interest rate of 2.21% and our weighted maturity of the loan portfolio now stands at 5.4 years. On the right-hand side of page 17 you will see that we just recently had fixed a loan of 70.3 million Euro at a rate of 1.18% interest rate for 10 years for our Galleria, city gallery in Wolfsburg. Now coming to the outlook after this sales report and the financial results. On the leasing side, we see that the market is understandably still in a rather weak condition like before, but we continue to sign lease agreements that come up for re-leasing. As an example, we were in the recent months able to secure two attractive and big supermarkets as anchor tenants, one for our A10 center, which is located close to Berlin, and the finally opened new Berlin airport. And on the other hand, we signed a lease agreement for the city of Karten and Wuppertal, for another good and big attractive supermarket. And these are long-term contracts. For the City Arcaden in Wuppertal, we also recently signed a lease contract, for example, with Smith Toys, another big and attractive new store for that center. Also, we could continue to work on the digital mall, which develops further. Besides the continued onboarding of tenants, the digital mall is now, for a test case, for the first time connected to Google's see what's in store feature. The next important feature to work on is the delivery out of the center. There's still a lot of work ahead, and it's not easy in this corona times to progress. However, we are moving in the right direction. Some words about our financing activities. As we have elaborated before, we renewed our credit line of 150 million for four years beginning of this year, and we have signed, even after the start of the corona pandemic, two loan agreements. One for the refinancing of 70 million for Wuppertal, which becomes due end of this year, and a second one for the refinancing of another 70 million due mid-next year for our center in Wolfsburg. For the other loans becoming due next year, we are in constructive talks and negotiations with the banks and, as of today, we are also confident here to agree with the banks on this refinancing. Coming to the financial outlook. Given the again increased uncertainty about the duration and the magnitude of the impact of the corona pandemic and the current economic situation, As well as the development of the turnovers of our tenants and the outcome of the remaining tenant negotiations, a forecast for financial year 2020 is still not possible. Nevertheless, thanks to our solid balance sheet, low level of debt, and continued stable liquidity positions, we are well placed to cope with these actual challenges. In this special situation, we will continue to act very cautiously going forward. This was my presentation. Thank you for listening, and we are now happy to take your questions. Operator, please go ahead.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your touch-tone telephone. If you wish to move yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. First question comes from the line of Rob Beardy with Green Street. Please go ahead.

Hey, good morning, gentlemen. I have a couple of questions, please. They're broad questions, and I just appreciate your thoughts on them. So the first one is on tenant bankruptcies because of COVID-19 and how any news of the vaccine that we heard on Monday or even further lockdowns that Merkel's been talking about in winter has impacted your internal forecast. So I know that you've got 7% of rent as insolvencies and you're writing down 11% of your last year's rent in rent receivables, which is great disclosure. But where do you think tenant insolvencies will go in the future and which segments of tenants are most likely going to go into insolvency? And who can you replace these with? That's my first question.