Deutsche Euroshop Uns/Adr

Ladies and gentlemen, good morning from Hamburg. This is the team of Deutsche Euroshop and I'm here on this call with our CFO, Olaf Borkas, and our investor relations team. Thank you for joining us. We'll present you the results for the first six months of 2021 and we'll give you an update on the situation in our centers. Before we take a look on the financials and come to an outlook, let me first start with a look back on the last 16 months of the pandemic. This is important. to put all numbers and information that are contained in the half-year report and in this call into perspective. The pandemic had, of course, a severe impact on DES business. The severeness of the impact of the lockdown is shown on slide four, where you can see the long closing periods for our countries of business. But there are differences among the countries, which are also reflected in the performances of the various centers. Our home market Germany, which accounts for approximately 8% of our income, was affected very hard with 187 days of complete lockdown, just topped by the Czech Republic with 235 days. Poland saw 159, Austria 111, and Hungary a much less drastic 68 days of closing. These were only the full lockdown days for non-essential shops, but it's important to mention that the periods between and right after the hard lockdowns were and still are subject to limitations and impediments, which continue to have, depending on the segment, substantial influence on the business. Currently, in the immediate aftermath of the closings, we see a deferring dynamic concerning governmental corona regulations among the countries and German federal states, as you can see on slide five. For example, Hungary has lifted the duty to wear masks in shops in calendar week number 27, and Austria followed that route three weeks later in the state of Carinthia. That is the state where our center is located. Poland, the Czech Republic, and Germany stick to this burdensome restriction for the time being. And in Germany, talks are that the government wants to keep the mask mandatory for retail until spring 2022. We hope that the politicians will not follow this way, but will focus on a more regional and flexible approach adjusted for the respective local pandemic situation. And I'll come to the centers. After the reopenings and of Q2, we see a similar pattern in our operational numbers as we have seen last summer after the first lockdown. People are enjoying the newly regained freedom and a certain kind of normality. What we see is that the people return to the malls and shops, even though there are, and will be for some time, distractive restrictions in place. The footfall climbed back to 77% of the pre-corona levels end of July, and it's fair to say that these levels are still visibly below their normal levels, given the extraordinary circumstances. We'll find the development of the footfall on page 6. The long closing periods had a dramatic impact on the tenant turnovers, as it is shown on slide 7. Compared to their 2019 levels, the turnover of our tenants decreased on average by 65% in Q1 and by 45% in Q2. Again, please bear in mind the long closing periods in Germany. Our last center opened up only early June. Looking on the latest developments and the June turnovers for the tenants, we see a further and orderly improvement on average to a level of 85% compared to June 2019. Looking at the data, it should be mentioned that due to the long closings and the limited sample of like-for-like observations, such numbers are still a bit sketchy, but they show the general trend. On slide 8, you can see our collection ratio since the start of the pandemic, which follows to a certain extent the pattern of the customer footfall, and it's strongly depending on the lockdown periods. The collection ratio represents the ratio of the received to invoiced rents, service charges, and marketing contributions after corona-related concessions. For the first half of 2021, this number was 80%. And for the month of July, the collection ratio improved further to 94%. So for the update on the situation in our centers, I now come to the financial results for the first half of 2021. And we'll start with evaluation of our shopping centers on slide 9. The mid-year valuation of our shopping centers by our external appraiser, JLL, did not lead to any noticeable changes, including investment costs. The valuation result was minus 11.3 million as of end of June 21, and this corresponds to an average devaluation of 0.3% and includes also a positive valuation effect of 4 million from the revaluation of an undeveloped and currently unused plot of land. The stabilized net initial yield for our portfolio came up by two basis points and now stands at 5.43%. And the sensitivity of the valuation results to changes to the main value drivers is provided as usual at the lower end of the slide. As before, and since the start of the pandemic, there was very little investment activity in the shopping center market. Looking at our segment, very few regular shopping center transactions could be observed, with activities so far being limited mostly to some landmark shopping centers or centers in regions that had been much less affected by shop closings. In the course of 2020, the pandemic and the increased uncertainty already had an immediate impact on the shopping center yields and thereby on discount and cap rates. Furthermore, market rents were on average adjusted slightly downwards by our appraiser, whereas assumptions for re-leasing times and capex requirements have been raised. We had experienced these effects already in our valuation as of end of 2020, with, according to JLL, no substantial changes in the first half of this year. Let's come to the revenues, which are shown on page 10. Compared to the prior year period, the first half of 2021 was, as said before, more affected by the pandemic. Again, most rents were invoiced according to the respective lease contracts. The major exception in that respect came from our Polish Center, where the specific legal situation led to temporary suspension of rents for the period of lockdowns. This accounted for minus 2.4 million. The remainder of the decrease, that is minus 7 million, came from lower shop and parking rents as well as more marketing income, the loss of turnover rent and higher vacancy resulting from insolvencies. The total turnovers, sorry, revenues decreased by 6.5% year-on-year to 104.9 million. On page 11, we show you the development of our EBIT. The major financial effect resulting from the pandemic is reflected in the allowances for rent receivables. These allowances were made in relation to realized and or expected losses of rent in connection with tenant support measures, e.g. rent concessions, or in relation to actual or likely insolvencies. Such allowances amounted to 18.1 million for the first half of this year. Overall, EBIT decreased by 10.2% to 70.5 million. The allowances for rent receivables have been, thereby, determined on the basis of the agreements with the tenants for the lockdowns starting end of last year and in other cases in which receivables were outstanding there on the expected net rent reduction for the closing periods. I now come to page 12 and to the financial result. This improved slightly by 1.6 million. Interest savings of 1.5 million and the lower minority result of plus 0.4 million had a positive impact on the financial result. And on the contrary, the equity result was 0.3 million lower due to corona-related declines in revenues and higher allowances for rent receivables also in our JV companies. On slide 13, you see that the EBT adjusted for valuation came down by 62.1 million to 55.7 million, which is a minus of 10.2%. Again, the main impact factors were the corona-related declines in revenue and the rent concessions. Looking at the operating profit, the APRO earnings on page 14, that means the following. The APRO earnings declined by 5.5 million to now 54.3 million. And on a per share basis, the APRO earnings decreased from 97 cents to 88 cents. This leads us to the consolidated profit of a group on slide 15. And the consolidated result increased from minus 129.3 million to 36.8 million. The main change or the main impact for the change came from the revaluation result that is a plus of 169.7 million. And this was just marginally compensated by the lower operating result this year. And please follow me now to page 16. and to the development of the FFO which exclude the valuation result. The FFO decreased from 59.9 million to now 54.3 million or on a per share basis also from 97 cents to 88 cents. It should be mentioned again that the FFO is calculated as usually earnings based and therefore does not reflect untypically high receivables outstanding. The cash flow of the company should therefore be analyzed by taking into account our cash collection ratio, and this ratio was, as mentioned before, 80% for the first half year of 2021. I'm now coming to our balance sheet on page 17. Our total assets amount to 4.25 billion. This is just a small increase of 11.2 million. compared with the reporting date end of 2020. Our consolidated liquidity as of end of June 21 stands at 268.1 million and that is a plus of 32.1 million excluding the effects from a repayment of a short-term credit line in an amount of 30 million beginning of this year. The build-up of cash in the heavily corona-impacted first half of the year was also influenced by substantially lower investments in our assets as the works were largely stopped in that period. And they were also influenced by a scheduled drawing of a capex loan. Total equity, including minorities, increased by 40.6 million as at the end of the first half of the year Current and non-current financial liabilities stood at 1.5 billion, which was 33.6 million lower than at the end of 2020 due to scheduled redemptions, the repayment of the credit line, and the drawing of the capex loan that I just mentioned. Non-current deferred tax liabilities increased by 5.9 million to 330.8 million. Our equity ratio remains at a strong 55.4% and the consolidated LTV now stands at 31.9%. On a look-through basis, that is the LTV calculated fully proportionally according to the group's share in all assets, the LTV now stands at 34.9%, also a continued very reasonable and low level. On page 18, you will find the IPRA net tangible assets, which we are reporting for the second time. And one should note that for Deutsche Euroshop, the formerly reported NAV figures or number were identical with the recalculated historic NTA values. So IPRA NTA increased to now 38.03 euro per share, e.g. that's a plus of 1.7%. And this equals to a discount to the current share price of approximately 46% compared to the NTA of end of June. On the pages 19 and 20, we give you some information on our debt. Approximately 430 million of our consolidated bank debt mature in the years 2020 and 2023. and currently our consolidated debt bears an average interest rate of 2.1%. Our weighted maturity for our loan portfolio now stands at 5.2 years. On the right side of page 20, you will see that we have fixed loans of 191 million recently, thereof 70 million for our City Gallery Wolfsburg, refinanced on June 30th this year, but already fixed last year at 1.18% for 10 years. For the Billstedt Center in Hamburg, we refinanced 71.7 million at 1.46%, also in June 2021 and also for 10 years. For the Phoenix Center in Hamburg, we refinanced in total 49 million for 10 years at an average interest rate of 1.52%. That means that all refinancing due in 2021 are successfully closed. After the presentation of these financials, I want to give you a short outlook on our operations and on the upcoming refinancing. Leasing activities were and are of course the central key in the current situation. Our vacancy ratio has increased by 1.6 percentage points to now 6.2% end of June. Besides the insolvencies since the start of the pandemic, such a number was also influenced by the replacement of a large real market in our A10 center. And here a substantial part of the space could be handed over to the new grocery anchor tenant, that is Kaufland, and this happened already in March. Furthermore, the leaving of Galleria Karstadt-Kaufhof in two of our centers contributed to that. Here, we are already in advanced negotiations with new anchor tenants for the Rathaus Center in Dessau. For the other center, our Main-Taunus-Centrum, we are already in the process of starting the demolition of the old Karstadt building, creating space for something new. Our substantiated idea, which is very attractive, is to create a generous area for variegated event gastronomy concepts in an aspiring in and outdoor environment, accompanied by an open platform to be used for entertainment, e.g. music or other performances. In the course of the pandemic, we could extend lease contracts with many tenants, including our top 10 tenants and also prime retailers such as Apple, Kaufland or lately also with H&M. A sample of tenants is shown on page 21. Additionally, we are in negotiations with other major and well-known anchor tenants to newly come to our shopping centers in a given area and in some cases even to relocate them from other retail spaces in the neighborhood of our centers. Here, we could further progress and will report going forward. Overall, and as mentioned before, These releasing activities will take some time in the aftermath of Corona and also because of some time-consuming building permit and construction processes. Looking at the digitalization process in the retail business, we connected our first international center, the City Arkaden in Klagenfurt in Austria, to the digital mall in the first half of this year. Now 18 out of 21 shopping centers have a link to this omnichannel world and while the online availability check is now working for 850 shops and 3.1 million products in the EC portfolio, one important next step is the testing of deliveries out of the centers serving the last mile. The Digital Mall project is now ongoing with 62 centers live in total. And you can see a summary of the participating partners on page 22. Finally, I would like to come to slide 23 and look at the financing activities and our financial forecast for 2021. We are working on the refinancing of four loans with a total amount of $224 million becoming due next year. While the number of banks looking at retail real estate financing, e.g. shopping centers, has decreased, we have so far received good interest for such refinancing in the market and will follow up on that in due course. And, as before, we continue the regular dialogue with our banks about the impact of the pandemic on our financial governance. As of end of June this year, all of our financial governance were either met or they were, under these extraordinary circumstances, temporarily suspended by the banks. I'm coming now to our financial forecast. After the openings, the operating KPIs, particularly footfall and tenant turnovers, have trended upwards and the collection ratios have also continued to improve of late. With the store openings, we are optimistic and confident that the direction of travel in the second half of 2021 will continue to be positive for our tenants and that we will be once again able to achieve rent income that is significantly more stable and more reliable to plan. However, as some of the key operating figures are currently still well below pre-crisis levels and, as mentioned, The first half of 2021 was dominated by shop closes. Further lockdown and insurgency-related rent reductions or rent losses are to be expected. Added to this, it is uncertain to what extent the progress made in vaccinations will be sufficient to maintain business openings during autumn and winter months and also to protect against possible new virus variants. The brick-and-mortar retail trade will, for the time being, thus continue to face special challenges, resulting in a persistently evaluated uncertainty with regard to the economic trends and business performances. But still, having mentioned the reservation and based on the current situation, we expect total funds from operation of €1.70 to €1.90 per share for the year 2021. of the two euro in the year before. This assumes that the pandemic situation can be brought under lasting control without store closures or significant restrictions on center operations, a continued uptick in private consumer spending over the course of the second half of the year, and an associated further recovery of the tenant turnovers and the collection ratio. This forecast is also based on the assumption that the government coronavirus support programs promised in Germany will be granted to a significant portion of our affected tenants and paid out promptly. Ladies and gentlemen, we remain optimistic, even though there's still some way ahead to us on the way to normality. So for my presentation, thank you for listening and I'm happy to take your questions now. Operator, please take over.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift the handset before making your selection. Anyone who has a question may press star, followed by one at this time. One moment for the first question, please. The first question is from the line of Kai Klose with Berenberg. Please go ahead.

Yes, good morning. I've got three questions, if I may. The first one is on page 11 of the presentation, where you show the allowances. Could you give a bit more details on the negotiations with your tenants, what the outcome was regarding... either rent reliefs or rent concessions. Maybe we have some more color how this has been progressing.